News Column

BUCKEYE PARTNERS, L.P. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

February 26, 2014

The following discussion should be read in conjunction with our consolidated financial statements and our accompanying notes thereto included in Item 8 of this Report. Business Overview We own and operate one of the largest independent liquid petroleum products pipeline systems in the United States in terms of volumes delivered, miles of pipeline, and active product terminals. In addition, we operate and/or maintain third-party pipelines under agreements with major oil and gas, petrochemical and chemical companies, and perform certain engineering and construction management services for third parties. Furthermore, we are a wholesale distributor of refined petroleum products in the United States in areas also served by our pipelines and terminals. Beginning in late 2012, we began to provide fuel oil supply and distribution services to third parties in the Caribbean. Our flagship marine terminal in The Bahamas, BORCO, is one of the largest marine crude oil and petroleum products storage facilities in the world, serving the international markets as a global logistics hub. We also own and operate a natural gas storage facility in Northern California. In December 2013, our Board of Directors approved a plan to divest our Natural Gas Storage segment and its related assets as we no longer believe this business is aligned with our long-term business strategy. In this report, we refer to this group of assets as our Natural Gas Storage disposal group. Accordingly, we have classified the disposal group as "Assets held for sale" and "Liabilities held for sale" in our consolidated balance sheet as of December 31, 2013 and reported the results of operations as discontinued operations for all periods presented in this report. Furthermore, we have excluded the disposal group's financial results from our business segment disclosures for the periods presented in this report. For additional information, see Note 4 in the Notes to Consolidated Financial Statements. Additionally, in December 2013, we changed our organizational structure to align our strategic business units into four reportable segments: Pipelines & Terminals, Global Marine Terminals, Merchant Services and Development & Logistics. See Note 26 in the Notes to Consolidated Financial Statements for a more detailed discussion of our business segments. We have adjusted our prior period segment information to conform to the current alignment of our continuing business and discontinued operations. Our primary business objective is to provide stable and sustainable cash distributions to our LP Unitholders, while maintaining a relatively low investment risk profile. The key elements of our strategy are to: (i) operate in a safe and environmentally responsible manner; (ii) maximize utilization of our assets at the lowest cost per unit; (iii) maintain stable long-term customer relationships; (iv) optimize, expand and diversify our portfolio of energy assets; and (v) maintain a solid, conservative financial position and our investment-grade credit rating.



Overview of Operating Results

Net income attributable to our unitholders was $160.3 million for the year ended December 31, 2013, which was a decrease of $66.1 million, or 29% from $226.4 million for the corresponding period in 2012. Operating income was $478.0 million for the year ended December 31, 2013, which is an increase of $133.5 million, or 38.7%%, from $344.5 million the corresponding period in 2012. Our results for the year ended December 31, 2013 includes year-over-year improvement in each of our operating segments. Continued excess supply of natural gas, minimal volatility in natural gas prices and compressed seasonal spreads resulted in a decision by our Board of Directors to approve a plan to divest our Natural Gas Storage business. In the fourth quarter of 2013, we recorded a non-cash asset impairment charge of $169 million. Revenues for our Pipelines & Terminals segment grew significantly in 2013, primarily from the impact of capital investments in internal growth and diversification initiatives, including expanded butane blending capabilities, crude-handling services, as well as storage and throughput of other hydrocarbons. Pipeline transportation and terminalling throughput volumes increased year-over-year driven by changes in regional production and supply, commodity pricing arbitrage favoring East and Gulf Coast over Midwest supply and an increase in distillate volumes, primarily due to a colder than usual winter in 2013 resulting in higher heating oil movements. The change over prior year was additionally impacted by a non-cash asset impairment charge in the fourth quarter of 2012 of $60 million related to the idling of a portion of Buckeye'sNORCO pipeline system. 40

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Our Global Marine Terminals segment benefited from year-over-year contribution driven by the 4.7 million barrels of expansion capacity at BORCO put in operation since mid-2012. In addition to the storage revenue contribution from the expansion capacity, increased customer utilization of our facilities and the changing product mix at our BORCO facility generated higher ancillary revenues for the period. In 2013, the Global Marine Terminals segment was adversely impacted by certain tankage taken out of service to facilitate projects intended to improve our ability to handle heavy crude volumes sourced from South America and potentially from Canada. We continued to explore the diversification opportunities with our assets and to take advantage of the flexibility of our terminals to offer additional services such as butanization and other crude initiatives. Integration of the terminals acquired from Hess in December 2013 is expected to allow further product diversification for Buckeye, as we will be able to leverage our existing assets to provide a broader array of services to the customers at these new terminals. Additionally, our Merchant Services segment continued to see benefits from our risk mitigation strategy initiated in 2012, which includes focusing on fewer, more strategic locations in which to transact business, better managing our inventories and reducing the cost structure of the business. Sales volumes increased as we executed this strategy. Furthermore, we benefited from improved rack margins, largely the result of renewable identification number ("RIN") sales. Our Merchant Services segment generates RINs through its ethanol blending and bio-blended diesel activities. The market for RINs, which are legislatively required to be purchased by refiners, experienced a substantial increase in value during the first half of the year. In the latter half of 2013, the value of RINs declined as the U.S. Environmental Protection Agency lowered the required blend volumes for renewable fuels. Although RIN values have declined considerably since their elevated levels in the first half of the year, RIN sales still made a positive contribution to our Merchant Services segment. Our marketing operations remain a catalyst for incremental utilization of our Pipelines & Terminals assets as the contribution from Merchant Services has been greater than its standalone reported results. Segment revenue also increased as a result of the launch of our fuel oil marketing business in the Caribbean. We supply fuel oil and hedge it in a highly correlated market. Key contributors to growth for our Development & Logistics segment include our third-party engineering and operations business, which benefited from improved margins and new contract operations opportunities. In addition, contributions from the liquefied petroleum gas ("LPG") storage caverns continue to increase due to the return of recent capital investments and rail capabilities at these facilities.



In 2013, the discontinued operations of our natural gas storage facility declined over 2012 results due to a non-cash asset impairment charge, unfavorable market conditions, including low natural gas prices, compressed seasonal spreads and low volatility.

See the "Results of Operations" section below for further discussion and analysis of our operating segments.

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Table of Contents Results of Operations Consolidated Summary



Our summary operating results were as follows for the periods indicated (in thousands, except per unit amounts):

Year Ended December 31, 2013 2012 2011 Revenue $ 5,054,101$ 4,285,903$ 4,693,620 Costs and expenses 4,576,060 3,941,367 4,327,775 Operating income 478,041 344,536 365,845 Earnings from equity investments 5,243 6,100



10,434

Gain on sale of equity investment - - 34,727 Interest and debt expense (130,920 ) (114,980 ) (119,561 ) Other income (expense) 295 (452 ) 190 Income from continuing operations, before taxes 352,659 235,204



291,635

Income tax (expense) benefit (1,060 ) 675



192

Income from continuing operations 351,599 235,879



291,827

Loss from discontinued operations (1) (187,174 ) (5,328 ) (177,163 ) Net income 164,425 230,551



114,664

Less: Net income attributable to noncontrolling interests (4,152 ) (4,134 ) (6,163 ) Net income attributable to Buckeye Partners, L.P. $ 160,273$ 226,417$ 108,501 Earnings (loss) per unit - diluted Continuing operations $ 3.23$ 2.37$ 3.15 Discontinued operations $ (1.74 )$ (0.05 )$ (1.95 )

-------------------------------------------------------------------------------- (1) Represents loss from the operations of our Natural Gas Storage disposal group. See Note 4 in the Notes to Consolidated Financial Statements for more information. Non-GAAP Financial Measures Adjusted EBITDA is the primary measure used by our senior management, including our Chief Executive Officer, to: (i) evaluate our consolidated operating performance and the operating performance of our business segments; (ii) allocate resources and capital to business segments; (iii) evaluate the viability of proposed projects; and (iv) determine overall rates of return on alternative investment opportunities. Distributable cash flow is another measure used by our senior management to provide a clearer picture of cash available for distribution to its unitholders. Adjusted EBITDA and distributable cash flow eliminate (i) non-cash expenses, including but not limited to, depreciation and amortization expense resulting from the significant capital investments we make in our businesses and from intangible assets recognized in business combinations; (ii) charges for obligations expected to be settled with the issuance of equity instruments; and (iii) items that are not indicative of our core operating performance results and business outlook. We believe that investors benefit from having access to the same financial measures that we use and that these measures are useful to investors because they aid in comparing our operating performance with that of other companies with similar operations. The Adjusted EBITDA and distributable cash flow data presented by us may not be comparable to similarly titled measures at other companies because these items may be defined differently by other companies. 42

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The following table presents Adjusted EBITDA from continuing operations by segment and on a consolidated basis, distributable cash flow and a reconciliation of income from continuing operations, which is the most comparable financial measure under generally accepted accounting principles ("GAAP"), to Adjusted EBITDA and distributable cash flow for the periods indicated (in thousands):

Year Ended December 31, 2013 2012 2011 Adjusted EBITDA from continuing operations: Pipelines & Terminals $ 471,091$ 409,541$ 361,018 Global Marine Terminals 149,740 128,581 112,996 Merchant Services 12,616 1,144 1,797 Development & Logistics 15,367 13,174 7,932



Adjusted EBITDA from continuing operations $ 648,814$ 552,440$ 483,743

Reconciliation of Income from continuing operations to Adjusted EBITDA and Distributable Cash Flow: Income from continuing operations $ 351,599$ 235,879$ 291,827 Less: Net income attributable to non-controlling interests (4,152 ) (4,134 ) (6,163 ) Income from continuing operations attributable to Buckeye Partners, L.P. 347,447 231,745



285,664

Add: Interest and debt expense 130,920 114,980



119,561

Income tax expense (benefit) 1,060 (675 ) (192 ) Depreciation and amortization 147,591 138,857



112,398

Non-cash unit-based compensation expense 21,013 18,577



8,601

Asset impairment expense - 59,950



-

Hess acquisition and transition expense 11,806 -



-

Less: Amortization of unfavorable storage contracts (1) (11,023 ) (10,994 ) (7,562 ) Gain on sale of equity investment - - (34,727 ) Adjusted EBITDA from continuing operations 648,814 552,440



483,743

Less: Interest and debt expense, excluding amortization of deferred financing costs, debt discounts and other (122,471 ) (111,511 ) (111,941 ) Income tax expense, excluding non-cash taxes (717 ) (1,095 ) (6 ) Maintenance capital expenditures (71,476 ) (54,070 ) (57,251 ) Distributable cash flow from continuing operations $ 454,150$ 385,764$ 314,545



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(1) Represents the amortization of the negative fair values allocated to certain unfavorable storage contracts acquired in connection with the BORCO acquisition.

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The following table presents product volumes transported and average daily throughput for the Pipelines & Terminals segment and total volumes sold for the Merchant Services segment for the periods indicated:

Year Ended December 31, 2013 2012 2011 Pipelines & Terminals (average bpd in thousands): Pipelines: Gasoline 717.8 701.9 668.1 Jet fuel 334.4 339.2 340.6 Middle distillates (1) 345.7 318.6 327.0 Other products (2) 28.5 25.9 22.4 Total pipelines throughput 1,426.4 1,385.6 1,358.1 Terminals: Products throughput (3) 975.1 916.7 756.0 Merchant Services (in millions of gallons): Sales volumes (4) 1,371.5 1,125.9 1,337.8



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(1) Includes diesel fuel and heating oil.

(2) Includes liquefied petroleum gas, intermediate petroleum products and crude oil.

(3) Amounts for 2013, 2012 and 2011 include throughput volumes at terminals acquired from Hess, BP and ExxonMobil on December 11, 2013, June 1, 2011 and July 19, 2011, respectively.



(4) Amounts for 2013 and 2012 include volumes related to fuel oil supply and distribution services which began in late 2012.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012 Consolidated Adjusted EBITDA was $648.8 million for the year ended December 31, 2013, which is an increase of $96.4 million, or 17.4%, from $552.4 million for the corresponding period in 2012. The increase in Adjusted EBITDA was primarily related to positive contributions from increased pipeline and terminalling volumes directly attributable to growth capital spending and higher blending capabilities, particularly butane blending, in the Pipelines & Terminals segment and increased storage capacity at and customer utilization of our BORCO facility in the Global Marine Terminals segment. In addition, higher margins in the Merchant Services segment were primarily due to lower product costs resulting from risk management activities and the generation of RINs. Revenue was $5,054.1 million for the year ended December 31, 2013, which is an increase of $768.2 million, or 17.9%, from $4,285.9 million for the corresponding period in 2012. The increase in revenue was primarily related to new fuel oil supply and distribution services in the Caribbean and increased product sales volumes in our Merchant Services segment. In addition, revenue in our Pipelines & Terminals segment increased as a result of increased pipeline and terminalling volumes directly attributable to our growth capital spending and higher butane blending capabilities. Our Global Marine Terminals segment benefitted from incremental storage capacity brought online at our BORCO facility. Operating income was $478.0 million for the year ended December 31, 2013, which is an increase of $133.5 million, or 38.7%%, from $344.5 million the corresponding period in 2012. The increase in operating income was primarily related to increased pipeline and terminalling volumes directly attributable to our growth capital spending and diversification initiatives, as well as a non-cash asset impairment charge in 2012 in the Pipelines & Terminals segment. In addition, higher margins and lower operating costs in our Merchant Services segment contributed to our overall increase in operating income. These increases in operating income were offset by increased operating and depreciation expense largely attributable to the capacity expansion completed and brought online in the Global Marine Terminals segment. 44 --------------------------------------------------------------------------------



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Distributable cash flow was $454.2 million for the year ended December 31, 2013, which is an increase of $68.4 million, or 17.7%, from $385.8 million for the corresponding period in 2012. The increase in distributable cash flow was primarily related to an increase of $96.4 million in Adjusted EBITDA as described above, partially offset by an increase in maintenance capital expenditures of $17.4 million and increase in interest expense of $11.0 million related to long-term debt issuances in 2013, including the debt issued in the fourth quarter of 2013 to partially fund the Hess Terminals acquisition. Adjusted EBITDA by Segment Pipelines & Terminals. Adjusted EBITDA from the Pipelines & Terminals segment was $471.1 million for the year ended December 31, 2013, which was an increase of $61.6 million, or 15.0%, from $409.5 million for the corresponding period in 2012. The positive factors impacting Adjusted EBITDA were related to $49.6 million of incremental revenue from capital investments in internal growth and diversification initiatives, including expanded butane blending capabilities, crude-handling services, as well as storage and throughput of other hydrocarbons, a $17.8 million increase in revenue due to higher pipeline and terminalling volumes on our legacy assets, $6.9 million increase in revenue resulting from an increase in pipeline capacity rentals, terminalling storage contracts and throughput and storage revenue at the terminals acquired from Hess in December 2013, $5.6 million more of favorable settlement experience despite the successful resolution of a $10.6 million product settlement allocation matter in 2012 and a $0.7 million increase in earnings due to the purchase of an additional ownership interest in WesPac Memphis in the second quarter of 2013. The negative factors impacting Adjusted EBITDA were a $16.9 million increase in operating expenses, primarily related to higher operating costs due to internal growth and pipeline integrity costs, a $1.2 million decrease in revenue due to lower average pipeline tariff rates resulting from shorter-haul shipments and a $0.9 million decrease in earnings from equity investments due to higher maintenance costs. Pipeline volumes increased by 2.9% due to stronger demand for gasoline and middle distillates resulting from changes in regional production and supply, partially offset by the idling of a portion of our NORCO pipeline system in early 2013. Terminalling volumes increased by 6.4% due to higher demand for gasoline, distillates and other hydrocarbons, resulting from new customer contracts and service offerings at select locations, effective commercialization of acquired assets, continued positive contribution from our recently completed internal growth projects and favorable market conditions. Global Marine Terminals. Adjusted EBITDA from the Global Marine Terminals segment was $149.7 million for the year ended December 31, 2013, which was an increase of $21.1 million, or 16.4%, from $128.6 million for the corresponding period in 2012. The positive factors impacting Adjusted EBITDA were a $28.9 million increase in storage revenue primarily as a result of incremental storage capacity brought online at our BORCO facility and assets acquired from Hess in December 2013 and a $5.3 million increase in revenues from ancillary services due to increased customer utilization of our facilities. Ancillary services include the berthing of ships at our jetties and heating services. The increase in revenue was offset by a $13.1 million increase in operating expenses primarily due to increased costs necessary to operate the expanded capabilities of the BORCO facility, one-time costs related to certain organizational changes in the second quarter of 2013 and costs associated with taking certain tankage out of service for maintenance activities and project work to improve the capabilities for handling anticipated heavy crude volumes. Merchant Services. Adjusted EBITDA from the Merchant Services segment was $12.6 million for the year ended December 31, 2013, which was an increase of $11.5 million from $1.1 million for the corresponding period in 2012. In 2012, we developed and executed a strategy to mitigate basis risk that included the reduction of refined petroleum product inventories in the Midwest. In 2013, we continued to benefit from the execution of our strategy, which included focusing on fewer, more strategic locations in which to transact business, better managing our inventories and reducing the cost structure of the business. Sales volumes increased as we executed this strategy. In addition, beginning in late 2012, the segment began to provide fuel oil supply and distribution services to third parties in the Caribbean. This activity has also contributed to our increase in sales volumes for the period. Furthermore, we benefited from improved rack margins, largely the result of risk management activities to lower product costs, and the generation of RINs, which are tradable "credits" generated by blending biofuels into finished gasoline or diesel products. 45 --------------------------------------------------------------------------------



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The increase in Adjusted EBITDA was primarily related to a $651.4 million increase in revenue, which included a $728.4 million increase due to 21.8% of higher sales volumes, offset by a $77.0 million decrease as a result of a $0.06 per gallon decrease in refined petroleum product sales price (average sales prices per gallon were $2.91 and $2.97 for the 2013 and 2012 periods, respectively) and a $0.8 million decrease in operating expenses primarily related to overhead costs. The increase in revenue was partially offset by a $640.7 million increase in cost of product sales, which included a $725.3 million increase due to 21.8% of higher sales volumes, offset by a $84.6 million decrease as a result of a $0.06 per gallon decrease in refined petroleum product cost price (average cost prices per gallon were $2.89 and $2.95 for the 2013 and 2012 periods, respectively). Development & Logistics. Adjusted EBITDA from the Development & Logistics segment was $15.4 million for the year ended December 31, 2013, which was an increase of $2.2 million, or 16.6%, from $13.2 million for the corresponding period in 2012. The increase in Adjusted EBITDA was primarily due to an $8.1 million increase in third-party engineering and operations revenue as a result of new contracts and higher fees and a $0.9 million increase in revenue related to the LPG storage caverns, partially offset by a $6.0 million increase in third-party engineering and operations expense and a $0.8 million increase in operating expenses, which primarily related to overhead costs.



Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Consolidated Adjusted EBITDA was $552.4 million for the year ended December 31, 2012, which is an increase of $68.7 million, or 14.2%, from $483.7 million for the corresponding period in 2011. The increase in Adjusted EBITDA was primarily related to positive contribution as a result of a full period of operating activities for 2011 acquisitions, the benefit of contributions from growth capital spending and higher blending capabilities, particularly butane blending, in the Pipelines & Terminals segment, as well as increased storage capacity and customer utilization of our BORCO facility in the Global Marine Terminals segment. Revenue was $4,285.9 million for the year ended December 31, 2012, which is a decrease of $407.7 million, or 8.7%, from $4,693.6 million for the corresponding period in 2011. The decrease in revenue was primarily related to a net decrease in revenue in the Merchant Services segment, which was partially offset by the revenue generated due to a full period of operations for the 2011 acquisitions in the Pipelines & Terminals segment, as well as increased storage revenue as a result of 1.9 million barrels of incremental storage capacity brought online, the Perth Amboy Facility acquisition in 2012 and new service offerings providing fuel oil supply and distribution services in the Global Marine Terminals segment. Operating income was $344.5 million for the year ended December 31, 2012, which is a decrease of $21.3 million, or 5.8%, from $365.8 million the corresponding period in 2011. The decrease in operating income was primarily related to a non-cash asset impairment charge in 2012 and an increase in depreciation and amortization due to the assets acquired in 2011 in the Pipelines & Terminals segment and the upgrades and expansions of the jetty structure in the Global Marine Terminals segment. These decreases were partially offset by positive contribution as a result of a full period of operating activities for 2011 acquisitions in the Pipelines & Terminals segment. Distributable cash flow was $385.8 million for the year ended December 31, 2012, which is an increase of $71.2 million, or 22.6%, from $314.5 million for the corresponding period in 2011. The increase in distributable cash flow was primarily related to an increase of $68.7 million in Adjusted EBITDA as described above. 46

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Table of Contents Adjusted EBITDA by Segment Pipelines & Terminals. Adjusted EBITDA from the Pipelines & Terminals segment was $409.5 million for the year ended December 31, 2012, which was an increase of $48.5 million, or 13.4%, from $361.0 million for the corresponding period in 2011. The positive factors impacting Adjusted EBITDA were related to a $34.4 million increase in revenue due to a full period of operations for the assets acquired in 2011, a $31.7 million increase in revenue due to higher average pipeline tariff rates, resulting from tariff increases and long-haul shipments, and terminalling contract rate escalations on our legacy assets, $11.1 million of favorable settlement experience, a $7.9 million increase in revenue due to higher blending capabilities in the Northeast, particularly butane blending, and a $1.6 million increase in revenue due to higher terminalling volumes. The favorable settlement experience primarily related to the successful resolution of a $10.6 million product settlement allocation matter related to certain pipeline transportation-related services provided by Buckeye over a period of several years, of which $7.8 million related to services rendered in prior years but, for accounting purposes, was not recognized in revenue until the current period. The negative factors impacting Adjusted EBITDA were a $12.1 million increase in operating expenses related to a full period of operations of the assets acquired in 2011, which included acquisition and transition expenses, a $8.5 million decrease in other revenue, resulting from a decrease in terminalling storage contracts primarily due to market backwardation of refined petroleum products, a $4.3 million decrease in earnings from equity investments primarily due to higher environmental remediation costs at West Shore and the sale of our interest in West Texas LPG Pipeline Limited Partnership in 2011, a $4.3 million increase in operating expenses, which included integrity program expenditures, payroll costs, operating power and utilities, insurance and environmental remediation expenses, $3.8 million in fees related to the FERC proceedings, $3.7 million increase in expenses related to the relocation of certain operations and administrative support functions to our Houston, Texas headquarters, and $1.5 million of fees related to the temporary suspension of ethanol offloading capabilities at our Albany facility. Overall pipeline and terminalling volumes increased by 2.0% and 21.3%, respectively, primarily as a result of the assets acquired in 2011. Legacy pipeline volumes declined marginally as a result of seasonal fluctuations in heating oil, a temporary shut-down of one of our pipelines for emergency maintenance, and business interruptions caused by Hurricane Sandy, offset by higher demand for gasoline. Legacy terminalling volumes increased by 1.6% due to higher demand for gasoline and distillates, new customer contracts and service offerings at select locations, including crude oil services and the benefit of contributions from growth capital spending. Global Marine Terminals. Adjusted EBITDA from the Global Marine Terminals segment was $128.6 million for the year ended December 31, 2012, which was an increase of $15.6 million, or 13.8%, from $113.0 million for the corresponding period in 2011. The positive factors impacting Adjusted EBITDA were primarily related to a $9.8 million increase in revenue due to the Perth Amboy Facility acquired in 2012, a $7.9 million decrease in acquisition and transition expenses, a $6.0 million increase in storage revenue as a result of 1.9 million barrels of incremental storage capacity brought online, a $5.0 million increase in ancillary revenues, including berthing, which represents ships that utilize the jetties, and heating services due to increased customer utilization of our facilities and $1.7 million decrease in income allocated to non-controlling interests related to the remaining 20% ownership interest in BORCO not acquired by us until February 16, 2011. The increase in revenue was partially offset by a $14.8 million increase in operating expenses primarily as a result of increased customer utilization of our facilities, increased costs necessary to operate the expanded facilities and the Perth Amboy Facility acquired in 2012. Merchant Services. Adjusted EBITDA from the Merchant Services segment was $1.1 million for the year ended December 31, 2012, which was a decrease of $0.7 million, or 36.3%, from $1.8 million for the corresponding period in 2011. In early 2012, we developed and executed a strategy to mitigate basis risk, which included the reduction of refined petroleum product inventories in the Midwest. As a result, losses generated from the execution of our strategy contributed to the decrease in Adjusted EBITDA. During the period, we continued to aggressively manage our inventory levels and reduce our exposure to market backwardation, despite sustained adverse market conditions. In addition, we had a $2.2 million decrease in biodiesel tax credits, which are recorded as a reduction of cost of sales. In early 2013, legislative changes resulted in retroactive recognition of biodiesel tax credits for year 2012. 47 --------------------------------------------------------------------------------



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The decrease in Adjusted EBITDA was primarily related to a $549.7 million decrease in revenue, which included a $616 million decrease due to 15.8% of lower sales volumes, offset by a $66.3 million increase as a result of a $0.06 per gallon increase in refined petroleum product sales price (average sales prices per gallon were $2.97 and $2.91 for the 2012 and 2011 periods, respectively).

The decrease in revenue was partially offset by a $546.6 million decrease in cost of product sales, which included a $613.2 million decrease due to 15.8% of lower sales volumes, offset by $66.6 million increase as a result of a $0.06 per gallon increase in refined petroleum product cost price (average cost prices per gallon were $2.95 and $2.89 for the 2012 and 2011 periods, respectively) and a $2.4 million decrease in operating expenses primarily related to overhead costs. Development & Logistics. Adjusted EBITDA from the Development & Logistics segment was $13.2 million for the year ended December 31, 2012, which was an increase of $5.2 million, or 66.1%, from $7.9 million for the corresponding period in 2011. The increase in Adjusted EBITDA was primarily due to a $4.5 million increase in revenue related to the LPG storage caverns acquired in November 2011, a $2.6 million increase in third-party engineering and operations revenue as a result of new contracts and higher fees, partially offset by a $0.8 million increase in third-party engineering and operations expense, a $0.6 million increase in operating expenses for the LPG storage caverns and a $0.5 million increase in operating expenses, which primarily related to overhead costs. General Outlook for 2014 Overall, we continue to expect growth capital investments in our businesses to drive meaningful improvement in year-over-year performance. There are numerous projects currently underway that we expect to be completed in 2014 and contribute incremental cash flow. Our Perth Amboy transformation efforts continue. We expect the pipeline connection from our Perth Amboy and Port Reading marine terminals to our Linden facility, which throughputs over 0.5 million barrels per day to Buckeye's eastern system and serves Western Pennsylvania and Upstate New York, to be operational early in the second quarter. In addition, the crude rail loading and unloading facility is expected to be completed in mid-2014. This facility will provide customers with the optionality to unload crude rail cars and deliver product via truck, barge, ship or pipeline. In addition, various storage tank and manifold improvements are expected to be completed at the facility to service Chevron and other customers and to drive incremental revenues. At our Chicago Complex, which is our Midwestern hub, we are constructing 1.1 million barrels of crude storage for a large customer to provide flexibility in supply for a refinery. We expect this storage to be operational in the second half of 2014. We are also expanding the pipeline connectivity at the Chicago Complex to allow greater transshipment capability, which will allow us to meet peak demand and provide more product diversification capabilities for our customers. In addition, this increased connectivity will allow us to offer additional refined products storage capacity at the Complex. Expansion of our butane blending capabilities across our system is also planned for 2014. We intend to increase the number of locations with the ability to blend butane domestically, including certain of the newly acquired Hess terminals, and internationally at our BORCO facility. We expect butane to continue to be a strong earnings contributor for Buckeye as we do not foresee any significant disruptions in the margin opportunities for butane. Integration of the 20 terminals acquired from Hess remains a top priority for Buckeye into 2014. We are pleased with the early results from these assets and remain confident we will be able to meet our integration plan. We expect our Merchant Services segment to play an important role in driving higher utilization across our system. This segment will be an important catalyst as we look to optimize waterborne supply for the new marine terminals acquired from Hess. In addition, we are exploring additional opportunities for this business to serve our other Pipelines & Terminals and Global Marine Terminals assets. We do not expect any significant change in macro-economic demand for petroleum products in the markets we serve absent a significant change in the economy. Volumes on our pipeline systems and terminals are expected to experience moderate growth, primarily the result of capital projects. Tariffs growth is expected on both our market-based and index-based system. Tariffs on our pipelines serving the New York City airports remain subject to the ongoing FERC matter. 48

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We continue to look for ways to provide new solutions for our customers by leveraging our existing asset footprint. Ultimately, our ability to increase transportation and storage revenues is largely dependent on the strength of the overall economy in the markets we serve. We believe that, under current market conditions, we could raise additional capital in both the debt and equity markets on acceptable terms. This could include utilizing the at-the-market equity issuance program, which is the most cost-efficient means to raise equity if necessary.



We will continue to evaluate opportunities throughout 2014 to acquire or construct assets that are complementary to our businesses and support our long-term growth strategy and will determine the appropriate financing structure for any opportunity we pursue.

We expect to divest our non-core Natural Gas Storage business during 2014 and will reflect the financial results of this business as discontinued operations.

The forward-looking statements contained in this "General Outlook for 2014" speak only as of the date hereof. Although the expectations in the forward-looking statements are based on our current beliefs and expectations, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date hereof. Except as required by federal and state securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason. All such forward-looking statements are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report, including under the captions "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" and elsewhere in this Report and in our future periodic reports filed with the SEC. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this "General Outlook for 2014" may not occur.



Liquidity and Capital Resources

General Our primary cash requirements, in addition to normal operating expenses and debt service, are for working capital, capital expenditures, business acquisitions and distributions to partners. Our principal sources of liquidity are cash from continuing operations, borrowings under our Credit Facility and proceeds from the issuance of our units. We will, from time to time, issue debt securities to permanently finance amounts borrowed under our Credit Facility. Buckeye Energy Services LLC ("BES") funds its working capital needs principally from its operations and its portion of the Credit Facility. Our fuel oil supply and distribution services in the Caribbean are additionally funded principally from their own operations and the Credit Facility. Our financial policy has been to fund maintenance capital expenditures with cash from continuing operations. Expansion and cost reduction capital expenditures, along with acquisitions, have typically been funded from external sources including our Credit Facility as well as debt and equity offerings. Our goal has been to fund at least half of these expenditures with proceeds from equity offerings in order to maintain our investment-grade credit rating. Based on current market conditions, we believe our borrowing capacity under our Credit Facility, cash flows from continuing operations and access to debt and equity markets, if necessary, will be sufficient to fund our primary cash requirements, including our expansion plans over the next 12 months. Current Liquidity As of December 31, 2013, we had $216.0 million of working capital (including net assets held for sale of $143.9 million) and $995 million of availability under our Credit Facility but, except for borrowings that are used to refinance other debt, we are limited to $961.9 million of additional borrowing capacity by the financial covenants under our Credit Facility.



Capital Structuring Transactions

As part of our ongoing efforts to maintain a capital structure that is closely aligned with the cash-generating potential of our asset-based business, we may explore additional sources of external liquidity, including public or private debt or equity issuances. Matters to be considered will include cash interest expense and maturity profile, all to be balanced with maintaining adequate liquidity. We have a universal shelf registration statement that does not place any dollar limits on the amount of debt and equity securities that we may issue thereunder and a traditional shelf registration statement on file with the SEC under which we may issue equity securities with a value, as of December 31, 2013, not to exceed $716.5 million. The timing of any transaction may be impacted by events, such as strategic growth opportunities, legal judgments or regulatory or environmental requirements. The receptiveness of the capital markets to an offering of debt or equity securities cannot be assured and may be negatively impacted by, among other things, our long-term business prospects and other factors beyond our control, including market conditions. 49 --------------------------------------------------------------------------------



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In addition, we periodically evaluate engaging in strategic transactions as a source of capital or may consider divesting non-core assets where such evaluation suggests such a transaction is in the best interest of Buckeye.

Capital Allocation We continually review our investment options with respect to our capital resources that are not distributed to our unitholders or used to pay down our debt and seek to invest these capital resources in various projects and activities based on their return to Buckeye. Potential investments could include, among others: add-on or other enhancement projects associated with our current assets; greenfield or brownfield development projects; and merger and acquisition activities. Debt



At December 31, 2013, we had the following debt obligations (in thousands):

5.300% Notes due October 15, 2014 275,000 5.125% Notes due July 1, 2017 125,000 6.050% Notes due January 15, 2018 300,000 2.650% Notes due November 15, 2018 400,000 5.500% Notes due August 15, 2019 275,000 4.875% Notes due February 1, 2021 650,000 4.150% Notes due July 1, 2023 500,000 6.750% Notes due August 15, 2033 150,000 5.850% Notes due November 15, 2043 400,000



BPL Credit Facility due September 26, 2017 255,000 Total debt

$ 3,330,000 It is our intent to refinance the 5.300% Notes in 2014. If necessary, the $275 million of 5.300% Notes maturing on October 15, 2014 could be refinanced using our Credit Facility. At December 31, 2013, we had $995 million of availability under our Credit Facility but, except for borrowings that are used to refinance other debt, we are limited to $961.9 million of additional borrowing capacity by the financial covenants under our Credit Facility. Additionally, we expect to pay to settle interest rate swaps with a fair value as of December 31, 2013 of $30 million relating to the refinancing of the 5.300% Notes on or before October 15, 2014. In November 2013, we issued an aggregate of $800 million of senior unsecured notes, including $400 million of 2.650% Notes due November 15, 2018 and $400 million of 5.850% Notes due November 15, 2043, at 99.823% and 98.581% of their principal amounts, respectively. Total proceeds from this offering, after underwriting fees, expenses and debt issuance costs of $5.9 million, were $787.7 million. We used the net proceeds from this offering to fund the Hess Terminals Acquisition and for general partnership purposes.



In August 2013, we extended the maturity date of our Credit Facility by one year to September 26, 2017, which we may further extend for up to one additional year.

In June 2013, we issued $500 million of senior unsecured 4.150% Notes due July 1, 2023 in an underwritten public offering at 99.81% of their principal amount. Total proceeds from this offering, after underwriting fees, expenses and debt issuance costs of $3.3 million, were $495.8 million. We used the net proceeds from this offering for general partnership purposes and to repay amounts due under our Credit Facility, a portion of which was subsequently reborrowed in July 2013 in order to repay in full the 4.625% Notes and related accrued interest. We also settled all interest rate swaps relating to the 4.150% Notes for $62 million during June 2013. 50 --------------------------------------------------------------------------------

Table of Contents Equity In October 2013, we completed a public offering of 7.5 million LP Units pursuant to an effective shelf registration statement, which priced at $62.61 per unit. The underwriters also exercised an option to purchase 1.1 million additional LP Units, resulting in total gross proceeds of $540 million before deducting underwriting fees and estimated offering expenses of $19.3 million. We used the net proceeds from this offering to reduce the indebtedness outstanding under our Credit Facility and to indirectly fund a portion of the purchase price for the Hess Terminals Acquisition. In May 2013, we entered into four separate equity distribution agreements under which we may offer and sell up to $300 million in aggregate gross sales proceeds of LP Units from time to time through such firms, acting as agents of the Partnership or as principals, subject in each case to the terms and conditions set forth in the applicable Equity Distribution Agreement. See related discussion in "Recent Developments" for additional information. During the year ended December 31, 2013, we sold 0.5 million LP Units in aggregate under the Equity Distribution Agreements, received $33.1 million in net proceeds after deducting commissions and other related expenses, and paid $0.4 million of compensation in aggregate to the agents under the Equity Distribution Agreements. In January 2013, we completed a public offering of 6 million LP Units pursuant to an effective shelf registration statement, which priced at $52.54 per unit. The underwriters also exercised an option to purchase 0.9 million additional LP Units, resulting in total gross proceeds of $362.5 million before deducting underwriting fees and offering expenses of $13.3 million. We used the net proceeds from this offering to reduce the indebtedness outstanding under our Credit Facility.



Cash Flows from Operating, Investing and Financing Activities

The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated (in thousands):

Year Ended December 31, 2013 2012 2011 Cash provided by (used in): Operating activities $ 385,494$ 441,636$ 403,892 Investing activities (1,204,678 ) (590,322 ) (1,310,279 ) Financing activities 817,358 142,476 905,747 51

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Table of Contents Operating Activities 2013. Net cash provided by operating activities was $385.5 million for the year ended December 31, 2013, primarily related to $164.4 million of net income and $155.2 million of depreciation and amortization, partially offset by a $62 million settlement to terminate the interest rate swap agreements related to the 4.150% Notes, a $60.8 million increase in trade receivables and an increase in interest and debt expense. 2012. Net cash provided by operating activities was $441.6 million for the year ended December 31, 2012, primarily related to $230.6 million of net income, $146.4 million of depreciation and amortization and $39.1 million associated with a reduction in inventory, partially offset by an increase of $53.5 million in trade receivables. In 2012, we developed and executed a strategy to mitigate our basis risk that included the reduction of refined petroleum product inventories in the Midwest. 2011. Net cash provided by operating activities was $403.9 million for the year ended December 31, 2011, primarily related to $114.7 million of net income, $119.5 million of depreciation and amortization and $102.5 million associated with a reduction in inventory, partially offset by an increase of $29.7 million in trade receivables. Future Operating Cash Flows. Our future operating cash flows will vary based on a number of factors, many of which are beyond our control, including demand for our services, the cost of commodities, the effectiveness of our strategy, legal environmental and regulatory requirements and our ability to capture value associated with commodity price volatility. Investing Activities



2013. Net cash used in investing activities of $1,204.7 million for the year ended December 31, 2013 primarily related to $361.4 million of capital expenditures and $856.4 million related to the Hess Terminals Acquisition.

2012. Net cash used in investing activities of $590.3 million for the year ended December 31, 2012 primarily related to $331.3 million of capital expenditures and a $260.3 million acquisition of the Perth Amboy Facility.

2011. Net cash used in investing activities of $1,310.3 million for the year ended December 31, 2011 primarily related to a $1.4 billion acquisition of BORCO, of which $893.7 million was paid in cash, net of cash acquired and the remaining consideration in issuance of LP Units and Class B Units, a $166 million acquisition of pipeline and terminal assets and $305.3 million of capital expenditures, which were partially offset by $85 million of cash proceeds from the sale of our 20% interest in West Texas LPG Pipeline Limited Partnership.



See below for a discussion of capital spending. For further discussion on our acquisitions, see Note 3 in the Notes to Consolidated Financial Statements.

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We have capital expenditures, which we define as "maintenance capital expenditures," in order to maintain and enhance the safety and integrity of our pipelines, terminals, storage facilities and related assets, and "expansion and cost reduction capital expenditures" to expand the reach or capacity of those assets, to improve the efficiency of our operations and to pursue new business opportunities. Capital expenditures, excluding non-cash changes in accruals for capital expenditures, were as follows for the periods indicated (in thousands): Year Ended December 31, 2013 2012 2011



Maintenance capital expenditures (1) $ 71,595$ 54,425$ 57,467 Expansion and cost reduction (2) 289,850 276,913 247,857 Total capital expenditures, net $ 361,445$ 331,338$ 305,324

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(1) Includes maintenance capital expenditures related to the Natural Gas Storage disposal group of $0.1 million, $0.4 million and $0.2 million, respectively, for the years ended December 31, 2013, 2012 and 2011.

(2) Includes expansion and cost reduction capital expenditures related to the Natural Gas Storage disposal group of $0.1 million, $2 million and $9.9 million, respectively, for the years ended December 31, 2013, 2012 and 2011.

In 2013, maintenance capital expenditures included pump replacements and truck rack infrastructure upgrades, as well as pipeline and tank integrity work. Expansion and cost reduction capital expenditures included significant investments in storage tank expansion at BORCO and Perth Amboy, butane blending, rail offloading facilities, crude storage/transportation and various other cost reduction and revenue generating projects. In 2012, maintenance capital expenditures included terminal pump replacements and truck rack infrastructure upgrades, as well as pipeline and tank integrity work, and expansion and cost reduction projects included initiation of a significant storage tank expansion project as well as upgrades and expansion of a jetty structure and inland dock at BORCO, terminal ethanol and butane blending, new pipeline connections, transformation of our Albany marine terminal to handle crude services via rail and ship, new natural gas storage wells, continued progress on a new pipeline and terminal billing system as well as various other operating infrastructure projects. In 2011, maintenance capital expenditures included pipeline and tank integrity work, and expansion and cost reduction projects included terminal ethanol and butane blending, new pipeline connections, natural gas storage well recompletions, continued progress on a new pipeline and terminal billing system as well as various other operating infrastructure projects, Kirby Hills Phase II expansion project, the construction of three additional tanks with capacity of 0.4 million barrels in Linden, New Jersey and various other pipeline and terminal operating infrastructure projects. 53 --------------------------------------------------------------------------------



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We estimate our capital expenditures for the period indicated as follows (in thousands): 2014 Low High



Pipelines & Terminals: Maintenance capital expenditures $ 60,000$ 70,000 Expansion and cost reduction 250,000 270,000 Total capital expenditures $ 310,000$ 340,000

Global Marine Terminals: Maintenance capital expenditures $ 20,000$ 30,000 Expansion and cost reduction 30,000 40,000 Total capital expenditures $ 50,000$ 70,000

Overall:

Maintenance capital expenditures $ 80,000$ 100,000 Expansion and cost reduction 280,000 310,000 Total capital expenditures $ 360,000$ 410,000

Estimated maintenance capital expenditures include tank floor and roof upgrades, cathodic protection upgrades, pipeline replacements, prover and meter upgrades, electrical infrastructure upgrades, terminal and station upgrades, dock upgrades and instrumentation and controls upgrades. Estimated major expansion and cost reduction expenditures include: completion of additional storage tanks and truck loading rack upgrades; rail offloading facilities and the refurbishment of storage tanks across our system; continued installation of vapor recovery units throughout our system of terminals; and various upgrades and expansions of our butane blending business. In connection with our Perth Amboy Facility, our estimated expansion and cost reduction expenditures include completion of a new crude rail offloading system; completion of a bi-directional pipeline; conversion of tanks for distillate and gasoline storage; completion of a multi-product blend and transfer piping manifold; and completion of a new 16-inch pipeline allowing direct access to our existing pipeline infrastructure. Also, estimated expansion and cost reduction expenditures include costs for the terminals acquired in the Hess Terminals Acquisition. Financing Activities 2013. Net cash flows provided by financing activities of $817.4 million for the year ended December 31, 2013 primarily related to $1.3 billion of proceeds from the issuance of the 4.150%, 2.650% and 5.850% Notes due July 1, 2023, November 15, 2018 and November 15, 2043, respectively, $903 million of net proceeds from the issuance of an aggregate 16 million LP Units, partially offset by $655.8 million of net repayments under the Credit Facility, $428.8 million of cash distributions paid to our unitholders ($4.225 per LP Unit) and $300 million related to the repayment of the 4.625% Notes. 2012. Net cash flows provided by financing activities of $142.5 million for the year ended December 31, 2012 primarily related to $296 million of net borrowings under the Credit Facility and $246.8 million of net proceeds from the issuance of 4.3 million LP Units, partially offset by $371.2 million ($4.15 per LP Unit) of cash distributions paid to our unitholders. 2011. Net cash flows provided by financing activities of $905.7 million for the year ended December 31, 2011 primarily related to $736.9 million of net proceeds from the issuance of 11.3 million LP Units and 1.3 million Class B Units, $647.5 million from the issuance of the 4.875% Notes, and $192.9 million of net borrowings under the Credit Facility, partially offset by $335.7 million ($4.025 per LP Unit) of cash distributions paid to our unitholders and $318.2 million repayment of debt assumed and settlement of interest rate derivative instruments relating to the BORCO acquisition. 54 --------------------------------------------------------------------------------



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For further discussion on our equity offerings, see Note 23 in the Notes to Consolidated Financial Statements.

Contractual Obligations The following table summarizes our contractual obligations as of December 31, 2013 (in thousands): Payments Due by Period Less than 1 More than 5 Total year 1-3 years 3-5 years years Long-term debt (1) $ 3,104,000$ 275,000 $ - $ 854,000$ 1,975,000



Interest payments (2) (3) 1,579,589 151,988 281,056

247,179 899,366 Operating leases: Office space and other 26,392 3,551 7,395 6,819 8,627 Equipment (4) 3,314 3,314 - - - Land leases (5) (7) 127,634 2,863 5,700 5,700 113,371 Purchase obligations (6) (7) 132,851 132,851 - - -



Total contractual obligations $ 4,973,780$ 569,567$ 294,151

$ 1,113,698$ 2,996,364



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(1) Includes long-term debt portion borrowed by Buckeye under our Credit Facility. See Note 14 in the Notes to Consolidated Financial Statements for additional information regarding our debt obligations.

(2) Includes amounts due on our notes and amounts and commitment fees due on our Credit Facility. The interest amount calculated on the Credit Facility is based on the assumption that the amount outstanding and the interest rate charged both remain at their current levels. (3) Excludes estimates of the effect of our interest rate swap related to forecasted interest payments, which as of December 31, 2013, had a fair value of $30 million. We expect to settle this swap on or about October 15, 2014.



(4) Includes leases for tugboats and a barge in our Global Marine Terminals segment.

(5) Includes leases for properties in connection with both the jetty and inland dock operations in our Global Marine Terminals segment.

(6) Includes short-term purchase obligations for products and services with third-party suppliers and payment obligations relating to capital projects we have committed to. The prices that we are obligated to pay under these contracts approximate current market prices.



(7) Excludes land leases and short-term purchase and payment obligations related to our Natural Gas Storage disposal group.

For the year ended 2014, our rights-of-way payments are expected to be $6.3 million, which includes an estimated amount for annual escalation.

In addition, our obligations related to our pension and postretirement benefit plans are discussed in Note 19 in the Notes to Consolidated Financial Statements.

Employee Stock Ownership Plan

Services Company provides the Employee Stock Ownership Plan ("ESOP") to the majority of its employees hired before September 16, 2004. Employees hired by Services Company after September 15, 2004 and certain employees covered by a union multiemployer pension plan do not participate in the ESOP. The ESOP owns all of the outstanding common stock of Services Company. The ESOP was frozen with respect to benefits effective March 27, 2011 (the "Freeze Date"). No Services Company contributions have been or will be made on behalf of current participants in the ESOP on and after the Freeze Date. Even though contributions under the ESOP are no longer being made, each eligible participant's ESOP Account will continue to be credited with its share of any stock dividends or other stock distributions associated with Services Company stock. 55

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All Services Company stock has been allocated to ESOP participants. See Note 21 in the Notes to Consolidated Financial Statements for further information.

Off-Balance Sheet Arrangements

At December 31, 2013 and 2012, we had no off-balance sheet debt or arrangements.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses during the reporting period and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates and assumptions about future events and their effects cannot be made with certainty. Estimates may change as new events occur, when additional information becomes available and if the Partnership's operating environment changes. Actual results could differ from our estimates. See Note 2 in the Notes to Consolidated Financial Statements for our significant accounting policies. The following describes significant estimates and assumptions affecting the application of these policies: Business Combinations We allocate the total purchase price of a business combination to the assets acquired and the liabilities assumed based on their estimated fair values at the acquisition date, with the excess purchase price recorded as goodwill. An income, market or cost valuation method may be utilized to estimate the fair value of the assets acquired or liabilities assumed in a business combination. The income valuation method represents the present value of future cash flows over the life of the asset using (i) discrete financial forecasts, which rely on management's estimates of revenue and operating expenses, (ii) long-term growth rates and (iii) appropriate discount rates. The market valuation method uses prices paid for a reasonably similar asset by other purchasers in the market, with adjustments relating to any differences between the assets. The cost valuation method is based on the replacement cost of a comparable asset at prices at the time of the acquisition reduced for depreciation of the asset. Valuation of Goodwill Goodwill represents the excess of purchase price over fair value of net assets acquired. Our goodwill amounts are assessed for impairment (i) on an annual basis on January 1 of each year or (ii) on an interim basis if circumstances indicate it is more likely than not the fair value of a reporting unit is less than its fair value. For our annual goodwill impairment test as of January 1, 2014, we performed a qualitative assessment to determine whether the fair value of the Pipelines & Terminals reporting unit was more likely than not less than the carrying value. Based on our assessment, the Pipelines & Terminals reporting unit had (i) a substantial excess of fair value over carrying value in its latest quantitative assessment, (ii) continued positive performance in Adjusted EBITDA over prior year, (iii) projected increases in Adjusted EBITDA primarily as a result of contributions from internal capital projects and accretive acquisitions, and (iv) positive industry and market factors. We determined that the fair value of the reporting unit exceeded the carrying amount; therefore, the two-step impairment test was not required. Additionally, we performed quantitative assessments to determine the fair value of each of the remaining reporting units. The estimate of the fair value of the reporting unit is determined using a combination of an expected present value of future cash flows and a market multiple valuation method. The present value of future cash flows is estimated using (i) discrete financial forecasts, which rely on management's estimates of revenue and operating expenses, (ii) long-term growth rates and (iii) an appropriate discount rate. The market multiple valuation method uses appropriate market multiples from comparable companies on the reporting unit's earnings before interest, tax, depreciation and amortization. We evaluate industry and market conditions for purposes of weighting the income and market valuation approach. Based on such calculations, each reporting unit's fair value was in excess of its carrying value. We did not record any goodwill impairment charges during the years ended December 31, 2013 and 2012. During the year ended December 31, 2011, we recorded a non-cash goodwill impairment charge of $169.6 million in our former Natural Gas Storage segment. 56

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Valuation of Long-Lived Assets and Equity Method Investments

We assess the recoverability of our long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Estimates of undiscounted future cash flows include (i) discrete financial forecasts, which rely on management's estimates of revenue and operating expenses, (ii) long-term growth rates, and (iii) estimates of useful lives of the assets. Such estimates of future undiscounted cash flows are highly subjective and are based on numerous assumptions about future operations and market conditions. During the fourth quarter of 2013, our Board of Directors approved a plan to divest our Natural Gas Storage segment and its related assets as we no longer believe this business is aligned with our long-term business strategy. In connection with this strategic divestiture, we recorded a $169 million non-cash asset impairment charge included in our loss on discontinued operations on our consolidated statement of operations for the year ended December 31, 2013. Our current marketing initiative and fair value estimate are based on the Natural Gas Storage disposal group operating as a combined natural gas and compressed air energy storage facility, as geological evidence indicates that the formation and deliverability of the facility are capable of providing both services. We believe the combined services are more valuable to market participants (i.e. load-serving entities) that are subject to the California Public Utility Commissions' requirement to own specific amounts of energy storage by 2024, in accordance with state law Assembly Bill 2514. We applied the income approach due to the lack of recent comparable transactions in the marketplace and estimated the fair value using a present value of expected future cash flows valuation method. The present value of the expected future cash flows was determined using multiple pricing inputs, including, where applicable, commodity prices (power ancillary service charges, energy prices, capacity fees, and natural gas storage), discount rates, historical contract terms and operational capabilities of the natural gas storage facility. Valuation adjustments were considered to factor in liquidity risk and model uncertainty. Unobservable pricing inputs were developed based on an evaluation of relevant empirical market data and historical pricing and operating cash flows. In addition, we engaged a third-party natural gas storage valuation specialist to assist with our internally developed fair value estimate. Sensitivity to changes in commodity prices and discount rates could have a material impact on our fair value estimate. During the fourth quarter of 2012, we recorded a $60 million non-cash asset impairment charge in the Pipelines & Terminals segment relating to a portion of Buckeye'sNORCO pipeline system. During 2011, we considered the goodwill impairment in our former Natural Gas Storage segment an indicator of impairment related to the long-lived assets associated with the Natural Gas Storage reporting unit. Accordingly, we evaluated the former Natural Gas Storage assets for impairment and concluded that no impairment of the long-lived assets existed at that time. See Note 5 and 11 in the Notes to Consolidated Financial Statements for further discussion. We evaluate equity method investments for impairment whenever events or changes in circumstances indicate that there is an "other than temporary" loss in value of the investment. Estimates of future cash flows include (i) discrete financial forecasts, which rely on management's estimates of revenue and operating expenses, (ii) long-term growth rates, and (iii) probabilities assigned to different cash flow scenarios. There were no impairments of our equity investments during the years ended December 31, 2013, 2012 or 2011.



Reserves for Environmental Matters

We record environmental liabilities at a specific site when environmental assessments occur or remediation efforts are probable, and the costs can be reasonably estimated based upon past experience, discussion with operating personnel, advice of outside engineering and consulting firms, discussion with legal counsel, or current facts and circumstances. The estimates related to environmental matters are uncertain because (i) estimated future expenditures are subject to cost fluctuations and change in estimated remediation period, (ii) unanticipated liabilities may arise, and (iii) changes in federal, state and local environmental laws and regulations may significantly change the extent of remediation. 57

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Table of Contents Valuation of Derivatives We are exposed to financial market risks, including changes in interest rates and commodity prices, in the course of our normal business operations. We use derivative instruments to manage these risks. Our Merchant Services segment primarily uses exchange-traded refined petroleum product futures contracts to manage the risk of market price volatility on its refined petroleum product inventories and its physical derivative contracts. The futures contracts used to hedge refined petroleum product inventories are designated as fair value hedges with changes in fair value of both the futures contracts and physical inventory reflected in earnings. Physical contracts and futures contracts that have not been designated in a hedge relationship are marked-to-market. The fixed-price and index purchase contracts are typically executed with credit worthy counterparties and are short-term in nature, thus evaluated for credit risk in the same manner as the fixed-price sales contracts. However, because the fixed-price sales contracts are privately negotiated with customers of the Merchant Services segment who are generally smaller, private companies that may not have established credit ratings, the determination of an adjustment to fair value to reflect counterparty credit risk (a "credit valuation adjustment") requires significant management judgment. Each customer is evaluated for performance under the terms and conditions of their contracts; therefore, we evaluate (i) the historical payment patterns of the customer, (ii) the current outstanding receivables balances for each customer and contract and (iii) the level of performance of each customer with respect to volumes called for in the contract. We then evaluated the specific risks and expected outcomes of nonpayment or nonperformance by each customer and contract. We continue to monitor and evaluate performance and collections with respect to these fixed-price contracts. Additionally, we utilize forward-starting interest rate swaps to manage interest rate risk related to forecasted interest payments on anticipated debt issuances. When entering into interest rate swap transactions, we are exposed to both credit risk and market risk. We manage our credit risk by entering into swap transactions only with major financial institutions with investment-grade credit ratings. We manage our market risk by aligning the swap instrument with the existing underlying debt obligation or a specified expected debt issuance generally associated with the maturity of an existing debt obligation. The fair value of the swap instruments are calculated by discounting the future cash flows of both the fixed rate and variable rate interest payments using appropriate discount rates with consideration given to our non-performance risk.


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