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Form 10-Q BUCKEYE PARTNERS, L.P. For: Jun 30

August 3, 2018 4:28 PM
 
 
 
 
 
 
 
 
 
 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
(Mark One)
ý    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2018
OR 
¨    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from             to             
 Commission file number 1-9356 
 
Buckeye Partners, L.P.
(Exact name of registrant as specified in its charter)
 
Delaware
 
23-2432497
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification number)
 
 
 
One Greenway Plaza
 
 
Suite 600
 
 
Houston, TX
 
77046
(Address of principal executive offices)
 
(Zip Code)
 Registrant’s telephone number, including area code: (832) 615-8600
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨ 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý  No ¨ 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
ý
 
Accelerated filer ¨ 
Non-accelerated filer
¨ 
 
Smaller reporting company ¨ 
(Do not check if a smaller reporting company)
 
Emerging growth company
¨
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ý 
Limited partner units and Class C Units outstanding as of July 27, 2018: 146,944,898 and 6,439,316, respectively.
 
 
 
 
 


Table of Contents

TABLE OF CONTENTS
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
5.
 
 
 
6.
 
 
 
7.

 
 
8.
 
 
 
9.
 
 
 
10.
 
 
 
11.
 
 
 
12.
 
 
 
13.
 
 
 
14.
 
 
 
15.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

PART I.  FINANCIAL INFORMATION 
Item 1.  Financial Statements 
BUCKEYE PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)
(Unaudited) 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Revenue:
 

 
 

 
 

 
 

Product sales
$
556,850

 
$
399,805

 
$
1,349,037

 
$
965,225

Transportation, storage and other services
383,989

 
410,396

 
774,907

 
814,249

Total revenue
940,839

 
810,201

 
2,123,944

 
1,779,474

 
 
 
 
 
 
 
 
Costs and expenses:
 

 
 

 
 

 
 

Cost of product sales
552,399

 
392,578

 
1,337,726

 
940,628

Operating expenses
156,505

 
162,107

 
311,373

 
323,529

Depreciation and amortization
66,569

 
64,838

 
130,707

 
130,326

General and administrative
21,792

 
24,346

 
45,081

 
46,083

Other, net
(2,123
)
 
(4,422
)
 
(16,153
)
 
(4,422
)
Total costs and expenses
795,142

 
639,447

 
1,808,734

 
1,436,144

Operating income
145,697

 
170,754

 
315,210

 
343,330

 
 
 
 
 
 
 
 
Other income (expense):
 

 
 

 
 

 
 

Earnings from equity investments
8,265

 
3,120

 
15,754

 
13,478

Interest and debt expense
(59,566
)
 
(56,424
)
 
(118,671
)
 
(112,309
)
Other expense
(297
)
 
(32
)
 
(612
)
 
(550
)
Total other expense, net
(51,598
)
 
(53,336
)
 
(103,529
)
 
(99,381
)
 
 
 
 
 
 
 
 
Income before taxes
94,099

 
117,418

 
211,681

 
243,949

Income tax expense
(782
)
 
(1,039
)
 
(1,272
)
 
(1,261
)
Net income
93,317

 
116,379

 
210,409

 
242,688

Less: Net income attributable to noncontrolling interests
(1,413
)
 
(3,657
)
 
(6,132
)
 
(6,390
)
Net income attributable to Buckeye Partners, L.P.
$
91,904

 
$
112,722

 
$
204,277

 
$
236,298

 
 
 
 
 
 
 
 
Earnings per unit attributable to Buckeye Partners, L.P.:
 
 

 
 

 
 

Basic
$
0.59

 
$
0.80

 
$
1.34

 
$
1.68

Diluted
$
0.59

 
$
0.80

 
$
1.33

 
$
1.67

 
 
 
 
 
 
 
 
Weighted average units outstanding:
 

 
 

 
 

 
 

Basic
153,258

 
140,826

 
151,093

 
140,603

Diluted
153,989

 
141,505

 
151,770

 
141,253

 
See Notes to Unaudited Condensed Consolidated Financial Statements.

1

Table of Contents

BUCKEYE PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
93,317

 
$
116,379

 
$
210,409

 
$
242,688

Other comprehensive income:
 
 
 
 
 

 
 

Unrealized gains (losses) on derivative instruments, net
8,936

 
(9,216
)
 
23,074

 
(6,231
)
Reclassification of derivative losses to net income, net
2,295

 
3,037

 
4,632

 
6,075

Changes in benefit plan assets and benefit obligations
(18
)
 
(161
)
 

 
16

Other comprehensive (loss) income from equity method investments
(21,720
)
 
24,855

 
(7,757
)
 
27,746

Total other comprehensive (loss) income
(10,507
)
 
18,515

 
19,949

 
27,606

Comprehensive income
82,810

 
134,894

 
230,358

 
270,294

Less: Comprehensive income attributable to noncontrolling interests
(1,413
)
 
(3,657
)
 
(6,132
)
 
(6,390
)
Comprehensive income attributable to Buckeye Partners, L.P.
$
81,397

 
$
131,237

 
$
224,226

 
$
263,904

 
See Notes to Unaudited Condensed Consolidated Financial Statements.

2

Table of Contents

BUCKEYE PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except unit amounts)
(Unaudited)
 
June 30,
2018
 
December 31,
2017
Assets:
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
1,657

 
$
2,180

Accounts receivable, net
218,723

 
270,648

Construction and pipeline relocation receivables
11,529

 
11,047

Inventories
155,923

 
301,425

Derivative assets
53,547

 
34,959

Prepaid and other current assets
65,604

 
36,339

Total current assets
506,983

 
656,598

 
 
 
 
Property, plant and equipment
8,177,763

 
7,928,240

Less: Accumulated depreciation
(1,288,328
)
 
(1,192,448
)
Property, plant and equipment, net
6,889,435

 
6,735,792

 
 
 
 
Equity investments
1,482,081

 
1,494,412

Goodwill
1,007,355

 
1,007,313

 
 
 
 
Intangible assets
615,086

 
615,086

Less: Accumulated amortization
(288,629
)
 
(256,025
)
Intangible assets, net
326,457

 
359,061

 
 
 
 
Other non-current assets
38,635

 
51,483

Total assets
$
10,250,946

 
$
10,304,659

 
 
 
 
Liabilities and partners’ capital:
 

 
 

Current liabilities:
 

 
 

Line of credit
$
171,006

 
$
252,204

Accounts payable
86,326

 
160,777

Derivative liabilities
2,854

 
7,172

Accrued and other current liabilities
242,755

 
265,207

Total current liabilities
502,941

 
685,360

 
 
 
 
Long-term debt
4,877,890

 
4,658,321

Other non-current liabilities
90,526

 
92,656

Total liabilities
5,471,357

 
5,436,337

 
 
 
 
Commitments and contingent liabilities (Note 4)

 

 
 

 
 

Buckeye Partners, L.P. capital:
 

 
 

Limited Partners (146,944,570 and 146,677,459 units outstanding as of June 30, 2018 and December 31, 2017, respectively)
4,441,505

 
4,562,306

Class C Units (6,439,316 and zero units outstanding as of June 30, 2018 and December 31, 2017, respectively)
278,255

 

Accumulated other comprehensive income
48,580

 
28,631

Total Buckeye Partners, L.P. capital
4,768,340

 
4,590,937

Noncontrolling interests
11,249

 
277,385

Total partners’ capital
4,779,589

 
4,868,322

Total liabilities and partners’ capital
$
10,250,946

 
$
10,304,659

 
See Notes to Unaudited Condensed Consolidated Financial Statements.

3

Table of Contents

BUCKEYE PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
Six Months Ended
June 30,
 
2018
 
2017
Cash flows from operating activities:
 

 
 

Net income
$
210,409

 
$
242,688

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 

 
 
Depreciation and amortization
130,707

 
130,326

Amortization of debt issuance costs, discounts and terminated interest rate swaps
7,828

 
8,722

Non-cash unit-based compensation expense
16,772

 
17,665

Gain on asset impairments, disposals and recoveries, net
(15,655
)
 
(4,621
)
Changes in fair value of derivatives, net
190

 
(29,484
)
Earnings from equity investments
(15,754
)
 
(13,478
)
Distributions of earnings from equity investments
15,613

 
17,700

Other non-cash items
1,785

 
1,105

Change in assets and liabilities, net of amounts related to acquisitions:
 

 
 
Accounts receivable, net
49,409

 
38,281

Construction and pipeline relocation receivables
(482
)
 
(2,762
)
Inventories
145,516

 
70,329

Prepaid and other current assets
(29,275
)
 
16,557

Accounts payable
(79,125
)
 
(45,361
)
Accrued and other current liabilities
(24,036
)
 
(8,164
)
Other non-current assets and liabilities
17,239

 
(3,282
)
Net cash provided by operating activities
431,141

 
436,221

Cash flows from investing activities:
 

 
 

Capital expenditures
(250,035
)
 
(202,961
)
Acquisition of and contribution to equity investments
(28,361
)
 
(1,150,000
)
Distributions from equity investments in excess of earnings
32,928

 
7,402

Acquisition working capital settlement
883

 

Proceeds from property disposals and recoveries
9,388

 
5,049

Net cash used in investing activities
(235,197
)
 
(1,340,510
)
Cash flows from financing activities:
 

 
 

Net proceeds from issuance of Units and exercise of Unit options
262,042

 
48,921

Payment of tax withholding on vesting of LTIP awards
(6,728
)
 
(8,305
)
Net proceeds from issuance of long-term debt
394,936

 

Repayment of long-term debt
(300,000
)
 

Borrowings under the BPL Credit Facility
1,294,180

 
865,890

Repayments under the BPL Credit Facility
(1,172,340
)
 
(505,890
)
Net (repayments) borrowings under the BMSC Credit Facility
(81,198
)
 
227,260

Acquisition of noncontrolling interest
(210,000
)
 

Contributions from noncontrolling interests
7,400

 
5,600

Distributions to noncontrolling interests
(12,602
)
 
(16,892
)
Distributions to LP unitholders
(372,157
)
 
(350,260
)
Net cash (used in) provided by financing activities
(196,467
)
 
266,324

Net decrease in cash and cash equivalents
(523
)
 
(637,965
)
Cash and cash equivalents — Beginning of period
2,180

 
640,340

Cash and cash equivalents — End of period
$
1,657

 
$
2,375

 
See Notes to Unaudited Condensed Consolidated Financial Statements.

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Table of Contents

BUCKEYE PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(In thousands)
(Unaudited)
 
 
Limited
 Partners
 
Class C
 Units
 
Accumulated
 Other Comprehensive
 Income (Loss)
 
Noncontrolling
 Interests
 
Total
Partners’ capital - January 1, 2018
$
4,562,306

 
$

 
$
28,631

 
$
277,385

 
$
4,868,322

Net income
198,923

 
5,354

 

 
6,132

 
210,409

Acquisition of noncontrolling interest
54,660

 
2,346

 

 
(267,006
)
 
(210,000
)
Distributions paid to unitholders
(373,529
)
 

 

 
1,372

 
(372,157
)
In-kind distribution to unitholders
(8,469
)
 
8,469

 

 

 

Net proceeds from issuance of Units

 
262,086

 

 

 
262,086

Amortization of unit-based compensation awards
16,772

 

 

 

 
16,772

Payment of tax withholding on vesting of LTIP awards
(6,728
)
 

 

 

 
(6,728
)
Distributions paid to noncontrolling interests

 

 

 
(14,034
)
 
(14,034
)
Contributions from noncontrolling interests

 

 

 
7,400

 
7,400

Other comprehensive income

 

 
19,949

 

 
19,949

Accrual of distribution equivalent rights
(2,386
)
 

 

 

 
(2,386
)
Other
(44
)
 
 
 

 

 
(44
)
Partners’ capital - June 30, 2018
$
4,441,505

 
$
278,255

 
$
48,580

 
$
11,249

 
$
4,779,589

 
 
 
 
 
 
 
 
 
 
Partners’ capital - January 1, 2017
$
4,437,316

 
$

 
$
(25,593
)
 
$
286,700

 
$
4,698,423

Net income
236,298

 

 

 
6,390

 
242,688

Distributions paid to unitholders
(351,718
)
 

 

 
1,458

 
(350,260
)
Net proceeds from issuance of LP Units
48,440

 

 

 

 
48,440

Amortization of unit-based compensation awards
17,665

 

 

 

 
17,665

Net proceeds from exercise of Unit options
481

 

 

 

 
481

Payment of tax withholding on vesting of LTIP awards
(8,305
)
 

 

 

 
(8,305
)
Distributions paid to noncontrolling interests

 

 

 
(16,892
)
 
(16,892
)
Contributions from noncontrolling interests

 

 

 
5,600

 
5,600

Other comprehensive income

 

 
27,606

 

 
27,606

Accrual of distribution equivalent rights
(1,972
)
 

 

 

 
(1,972
)
Other
(37
)
 

 

 
37

 

Partners’ capital - June 30, 2017
$
4,378,168

 
$

 
$
2,013

 
$
283,293

 
$
4,663,474

 
See Notes to Unaudited Condensed Consolidated Financial Statements.


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Table of Contents

BUCKEYE PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. ORGANIZATION AND BASIS OF PRESENTATION
 
Organization
 
Buckeye Partners, L.P. is a publicly traded Delaware master limited partnership (“MLP”), and its limited partner units representing limited partnership interests (“LP Units”) are listed on the New York Stock Exchange under the ticker symbol “BPL.”  Buckeye GP LLC (“Buckeye GP”) is our general partner.  As used in these Notes to Unaudited Condensed Consolidated Financial Statements, “we,” “us,” “our,” the “Partnership” and “Buckeye” mean Buckeye Partners, L.P. and, where the context requires, include our subsidiaries.
 
We own and operate, or own a significant interest in, a diversified global network of integrated assets providing midstream logistic solutions, primarily consisting of the transportation, storage, processing and marketing of liquid petroleum products.  We are one of the largest independent liquid petroleum products pipeline operators in the United States in terms of volumes delivered, with approximately 6,000 miles of pipeline. We also use our service expertise to operate and/or maintain third-party pipelines and perform certain engineering and construction services for our customers. Our global terminal network, including through our interest in VTTI B.V. (“VTTI”), comprises more than 135 liquid petroleum products terminals with aggregate tank capacity of over 176 million barrels across our portfolio of pipelines, inland terminals and marine terminals located primarily in the East Coast, Midwest and Gulf Coast regions of the United States as well as in the Caribbean, Northwest Europe, the Middle East and Southeast Asia.  Our global network of marine terminals enables us to facilitate global flows of crude oil and refined petroleum products, offering our customers connectivity between supply areas and market centers through some of the world’s most important bulk liquid storage and blending hubs.  Our flagship marine terminal in The Bahamas, Buckeye Bahamas Hub Limited (“BBH”), is one of the largest marine crude oil and refined petroleum products storage facilities in the world and provides an array of logistics and blending services for the global flow of petroleum products. Our Gulf Coast regional hub, Buckeye Texas Partners LLC (“Buckeye Texas”), offers world-class marine terminalling, storage and processing capabilities. Through our 50% equity interest in VTTI, our global terminal network offers premier storage and marine terminalling services for petroleum product logistics in key international energy hubs. We are also a wholesale distributor of refined petroleum products in certain areas served by our pipelines and terminals.
 
Basis of Presentation and Principles of Consolidation
 
The unaudited condensed consolidated financial statements and the accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the U.S. Securities and Exchange Commission (“SEC”).  Accordingly, our financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of our results of operations for the interim periods.  The unaudited condensed consolidated financial statements include the accounts of our subsidiaries controlled by us and variable interest entities of which we are the primary beneficiary. Intercompany transactions are eliminated in consolidation.

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 our operating environment changes. Actual results could differ from our estimates.

We believe that the disclosures in these unaudited condensed consolidated financial statements are adequate to make the information presented not misleading.  These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2017.

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Recently Adopted Accounting Guidance

Revenue from Contracts with Customers. Effective January 1, 2018, we adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), applying the modified retrospective transition method, which required us to apply the new standard to (i) all new revenue contracts entered into after January 1, 2018, and (ii) revenue contracts which were not completed as of January 1, 2018. ASC 606 replaces existing revenue recognition requirements in GAAP and requires entities to recognize revenue at an amount that reflects the consideration to which we expect to be entitled in exchange for transferring goods or services to a customer. ASC 606 also requires certain disclosures regarding qualitative and quantitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The adoption of ASC 606 did not result in a transition adjustment nor did it have a material impact on the timing or amount of our revenue recognition. Please see Note 2 for additional information.

Recognition and Measurement of Financial Assets and Liabilities. Effective January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2016-01, and it will be applied prospectively. This ASU issued a new standard related to certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most prominent among the changes in this standard is the requirement for changes in the fair value of marketable equity investments, with certain exceptions, to be recognized through net income rather than other comprehensive income (“OCI”). Under the standard, marketable equity investments that do not have a readily determinable fair value are eligible for the measurement alternative. Using the measurement alternative, investments without readily determinable fair values will be valued at cost, with adjustments to fair value for changes in price or impairments reflected through net income. The adoption of this guidance did not have an impact on our unaudited condensed consolidated financial statements.

Classification of Certain Cash Receipts and Cash Payments. Effective January 1, 2018, we adopted ASU 2016-15, applying the retrospective transition method. This ASU requires changes in the presentation of certain items, including but not limited to debt prepayment or debt extinguishment costs; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies and distributions received from equity method investees. The adoption of this guidance did not have a material impact on our unaudited condensed consolidated financial statements.

Business Combinations. Effective January 1, 2018, we adopted ASU 2017-01, and it will be applied prospectively to future business combinations. This ASU clarifies the definition of a business in order to assist entities with evaluating whether transactions should be accounted for as acquisitions/disposals of assets or businesses. The guidance provides a screen to help entities determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of assets is not a business. If the threshold of the screen is not met, the guidance further clarifies that the set of assets is not a business unless it includes an input and a substantive process that together significantly contribute to the ability to create output.

Retirement Benefits. Effective January 1, 2018, we adopted ASU 2017-07, which improves the presentation of net periodic pension and postretirement benefit costs. The interest cost, expected return on plan assets, actuarial loss due to settlements, and the amortization of unrecognized loss have been reclassified from operating expenses to other expense, applying the retrospective transition method. We elected to apply the practical expedient which allows us to reclassify amounts disclosed previously in the retirement benefits note as the basis for applying retrospective presentation for comparative periods as it is impracticable to determine the disaggregation of the cost components for amounts capitalized and amortized in those periods. On a prospective basis, the components of net periodic benefit costs discussed above will not be included in amounts capitalized in property, plant, and equipment. The adoption of this guidance did not have a material impact on our unaudited condensed consolidated financial statements. In connection with the adoption of ASU 2017-07, using the retrospective transition method, we reclassified $0.2 million and $0.7 million of expenses related to our Retirement Income Guarantee Plan and unfunded post-retirement benefit plan, originally included in operating expenses for the three and six months ended June 30, 2017, respectively, to other expense. Such reclassifications had no impact on net income.

Modifications to Share-Based Payment Awards. Effective January 1, 2018, we adopted ASU 2017-09, and it will be applied prospectively to future modifications of our unit-based awards, if any. This guidance clarifies when changes in the terms or conditions of share-based payment awards must be accounted for as modifications under existing guidance. The guidance requires that entities apply modification accounting unless the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change.


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Tax Cuts and Jobs Act. In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was passed into law. The Tax Act makes changes to the U.S. tax code including, but not limited to (i) reducing the U.S. federal corporate income tax rate from a top rate of 35% to 21% effective January 1, 2018, (ii) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that may electively be paid over eight years, and (iii) accelerated first-year expensing of certain capital expenditures.
    
Shortly after the Tax Act was enacted, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) which provides guidance on accounting for the Tax Act’s impact. SAB 118 provides a measurement period, which in no case should extend beyond one year from the Tax Act enactment date, during which an entity acting in good faith may complete the accounting for the impacts of the Tax Act under ASC Topic 740. In accordance with SAB 118, the entity must reflect the income tax effects of the Tax Act in the reporting period in which the accounting under ASC Topic 740 is complete. With the exception of federal and state income taxes from Buckeye Development & Logistics I LLC (“BDL”), the Partnership’s federal and certain state income taxes are the responsibility of the partners and are not reflected in these consolidated financial statements. Accordingly, the Tax Act did not have a material impact on our unaudited condensed consolidated financial statements or on our disclosures. We continue to evaluate certain aspects of the Tax Act and have recorded certain adjustments to our deferred taxes.

Recent Accounting Guidance Not Yet Adopted

Improvements to Nonemployee Share-Based Payment Accounting.  In May 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07 which conformed the current nonemployee share-based accounting with employee share-based accounting. The new standard is effective as of January 1, 2019, and early adoption is permitted. We expect to adopt this standard on January 1, 2019. We do not believe our adoption of this guidance will have a material impact on our consolidated financial statements or on our disclosures.

Derivatives and Hedging. In August 2017, the FASB issued ASU 2017-12 which amends and simplifies existing guidance in order to improve the financial reporting of hedging relationships to better align risk management activities in financial statements and make targeted improvements to simplify the application of current guidance related to the assessment of hedge effectiveness. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early application permitted. The new guidance requires prospective application, with a cumulative effect adjustment to the beginning balance of partners’ capital for existing hedging relationships. We expect to adopt this standard on January 1, 2019. We are currently evaluating the impact the adoption of this guidance will have on our consolidated financial statements.

Goodwill Impairment.  In January 2017, the FASB issued ASU 2017-04 simplifying the test for goodwill impairment. The guidance eliminates Step 2 from the goodwill impairment test, which required entities to calculate the implied fair value of a reporting unit’s goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Under the new guidance, entities will recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value. The guidance must be applied using a prospective approach and is effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. We expect to adopt this standard on January 1, 2020. We do not believe our adoption of this guidance will have a material impact on our consolidated financial statements or on our disclosures.

Measurement of Credit Losses on Financial Instruments.  In June 2016, the FASB issued ASU 2016-13 which replaces the current incurred loss impairment method with a method that reflects expected credit losses on financial instruments. The new standard is effective as of January 1, 2020, and early adoption is permitted as of January 1, 2019. We expect to adopt this standard on January 1, 2020. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.

Leases. In February 2016, the FASB issued ASU 2016-02 requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for leases with lease terms greater than twelve months. This update also requires enhanced disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. The guidance must be applied using a modified retrospective approach. Our project team continues to (i) evaluate the provisions of the standard; (ii) assess and implement changes to business processes and controls; and (iii) evaluate the impact the adoption of this guidance will have on our consolidated financial statements, including our disclosures. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoption permitted. We expect to adopt this guidance on January 1, 2019.


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2. REVENUE FROM CONTRACTS WITH CUSTOMERS

The majority of our service-based revenue is derived from fee-based transportation, terminalling, and storage services that we provide to our customers. We also generate revenue from the marketing and sale of petroleum products. We recognize revenues from customer fees for services rendered or by selling petroleum products. Under ASC 606, we recognize revenue over time or at a point in time, depending on the nature of the performance obligations contained in the respective contract with our customer. A performance obligation is a promise in a contract to transfer goods or services to the customer. The contract transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. In certain situations, we recognize revenue pursuant to guidance in the Accounting Standards Codification other than ASC 606. These situations primarily relate to leases and derivatives. The adoption of ASC 606 did not have a material impact on the timing or amount of our revenue recognition. The following is an overview of our significant revenue streams, including a description of the respective performance obligation and related method of revenue recognition.

Pipeline Transportation

Revenue from pipeline operations is comprised of tariffs and fees associated with the transportation of liquid petroleum products generally at published tariffs, and in certain instances, revenue from committed capacity contracts at negotiated rates. Tariff revenue is recognized either at the point of delivery or at the point of receipt, pursuant to specifications outlined in the respective tariffs. Revenue associated with capacity reservation is recognized ratably over the respective term, regardless of whether the capacity is actually utilized. Our tariffs generally include product loss allowance factors intended to, among other things, compensate for losses due to evaporation, measurement tolerances, and other product losses in transit. We value the difference of allowance volumes to actual losses at the estimated net realizable value in the period the variance occurred, and the result is recorded as an adjustment to pipeline transportation revenue. The majority of our contracts have a single performance obligation to provide pipeline transportation service, and the performance obligation is primarily satisfied over time as transportation services are provided, whereby progress is generally measured based on the volume of product transported. Our services are typically billed on a weekly basis and we generally do not offer extended payment terms. In addition, we have certain agreements that require counterparties to throughput a minimum volume over an agreed-upon period. Revenue pursuant to such agreements is recognized at the earlier of when the volume is throughput or proportionally if we determine the customer is not expected to meet its commitment.

Terminalling and Storage Services

Revenue from storage and terminalling operations is recognized as services are performed. Storage and terminalling revenue includes storage fees, which are generated as we provide storage capacity, and terminalling or throughput fees, which are generated when we receive and redeliver liquid petroleum products from and to pipelines, sea-going vessels, trucks, or rail-cars. We generate revenue through a combination of month-to-month and multi-year storage capacity and terminalling service arrangements. The majority of our contracts have a single performance obligation to provide storage and terminalling services that is primarily satisfied over time as these services are provided. Storage fees for contract capacity are typically recognized in revenue ratably over the term of the contract, regardless of the amount of the contracted storage capacity utilized by the customer. Terminalling fees, as applicable, are recognized as the liquid petroleum product is delivered to a connecting carrier or to a customer’s designated mode of transport, which could include a pipeline, truck, marine vessel, or rail-car or, in certain situations, as product is received, based on the volume of product handled. As discussed above with respect to transportation services, progress in performing terminalling services is generally measured based upon the volume of product handled. Certain of our terminalling and storage services arrangements include product loss allowance provisions intended to, among other things, compensate for losses due to evaporation, measurement tolerances, and other product recoveries and losses. We value the difference of allowance volumes to actual losses at the estimated net realizable value in the period the variance occurred, and the result is recorded as an adjustment to terminalling and storage services revenue. We have certain contracts containing tiered pricing or volume based discounts, which are recognized in revenue as a purchase option to acquire additional services in the period the services are performed. In addition, we have certain agreements that require counterparties to throughput a minimum volume over an agreed-upon period. Revenue pursuant to such agreements is recognized at the earlier of when the volume is throughput or proportionally if we determine the customer is not expected to meet its commitment. Revenue from other ancillary services is recognized as services are rendered. Our services are typically billed on a monthly basis and we generally do not offer extended payment terms.


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Merchant Services

Revenue from the sale of petroleum products, which are sold on a wholesale basis, is recognized at the time title to the product sold transfers to the purchaser, which generally occurs upon delivery of the product to the purchaser or its designee. Our contracts contain a single performance obligation to sell a particular petroleum product, which is generally satisfied as quantities are delivered to our customer. Our commodity sales are typically billed at the time product is delivered and we generally do not offer extended payment terms.

Operation and Construction Services

Revenue from contract operation and construction services for facilities and pipelines not directly owned by us is recognized as the services are performed. Contract and construction services revenue typically includes costs to be reimbursed by the customer plus an operator fee. Our contracts have a single performance obligation to provide operation and construction services, which is satisfied over time as services are provided. Revenue is generally recognized utilizing costs incurred to measure our progress in fulfilling our performance obligation. Our services are typically billed on a monthly basis and we generally do not offer extended payment terms.

Contract Balances

Contract assets primarily relate to our rights to consideration for completed performance obligations that are not billable at the reporting date. We recognize contract assets in situations where revenue recognition occurs prior to billing the customer based on our rights under the contract. Contract assets are transferred to accounts receivable when the rights become unconditional, which is generally upon billing.

Contract liabilities primarily relate to consideration received from customers in advance of completing the performance obligation. We recognize contract liabilities under these arrangements as revenue once all contingencies or potential performance obligations have either been satisfied by the (i) transportation of volumes, (ii) performance of terminalling and storage services, or (iii) expiration of the customer’s rights under the contract. We also recognize contract liabilities in revenue to the extent it is determined that an amount of volume associated with a minimum volume commitment payment will not be shipped by the customer in a future period.

The following table provides information about receivables from contracts with customers, contract assets and contract liabilities from contracts with customers (in thousands):
 
June 30,
2018
 
December 31, 2017
Receivables from contracts with customers
$
199,330

 
$
245,280

Contract assets
25,881

 
13,999

Contract liabilities
(27,376
)
 
(15,778
)

During the three and six months ended June 30, 2018, we reclassified approximately $0.1 million and $13.8 million, respectively, of contract assets at the beginning of the period to receivables as a result of the rights to the consideration becoming unconditional and billable. Revenue recognized during the three and six months ended June 30, 2018 from amounts included in contract liabilities at the beginning of the period was approximately $1.0 million and $6.6 million, respectively.

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The following table includes estimated revenue associated with contractual commitments in place, which are expected to be recognized in revenue in the specified period related to future performance obligations as of the end of the reporting period (in thousands):
 
Estimated Revenue (1)
Remainder of 2018
$
213,494

2019
272,107

2020
185,453

2021
113,456

Thereafter
230,468

Total
$
1,014,978

                                                      
(1)
Excludes revenue arrangements accounted for as leases in the amount of $112.7 million for the remainder of 2018, $201.8 million for 2019, $194.2 million for 2020, $175.9 million for 2021, and $173.6 million thereafter.

Our contractually committed revenue disclosure, for purposes of the tabular presentation above, excludes estimates of variable rate escalation clauses in our contracts with customers and is generally limited to contracts which have fixed pricing and minimum volume terms and conditions. Our contractually committed revenue disclosure generally excludes remaining performance obligations on contracts with index-based pricing or variable volume attributes.

3. ACQUISITIONS AND INVESTMENTS
 
South Texas Transactions

In April 2018, as part of our strategy to serve the volume growth in crude oil and related products from the Permian Basin, we expanded our marine terminal presence in Corpus Christi, Texas, through the following transactions, (i) acquired our business partner’s 20% interest in our Buckeye Texas consolidated subsidiary, and (ii) formed a joint venture (the “South Texas Gateway Terminal”) to develop a new deep-water, open access marine terminal in Ingleside, Texas at the mouth of Corpus Christi Bay with Phillips 66 Partners LP (“Phillips 66 Partners”) and Gray Oak Gateway Holdings (“Andeavor”).

We acquired our partner’s interest in Buckeye Texas for $210 million, and as a result we now own 100% of Buckeye Texas. The change in our ownership interest was accounted for as an equity transaction representing the acquisition of a noncontrolling interest.

The South Texas Gateway Terminal, to be constructed and operated by us, will initially offer 3.4 million barrels of crude oil storage capacity, connectivity to the Gray Oak pipeline and two deep-water vessel docks capable of berthing very large crude carrier petroleum tankers as part of the initial scope of construction. The Gray Oak pipeline will provide crude oil transportation from West Texas to destinations in the Corpus Christi and Sweeny/Freeport markets. Both the terminal and the pipeline are expected to be placed in service by the end of 2019. South Texas Gateway Terminal is supported by long-term minimum volume throughput commitments from credit-worthy customers, including our partners. We own a 50% interest in South Texas Gateway Terminal and Phillips 66 Partners and Andeavor each own a 25% interest. During the three months ended June 30, 2018, we contributed an initial $28.4 million and committed to fund our proportionate share of the construction costs. We account for our interest in South Texas Gateway Terminal, which is included in our Global Marine Terminals segment, using the equity method of accounting.


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Business Combination

Duck Island terminal acquisition

In December 2017, we acquired Duck Island Terminal LLC, a liquid petroleum products terminalling business in Trenton, New Jersey, for approximately $26.1 million, net of cash acquired of $2.4 million. The final working capital settlement of $0.9 million was received in the first quarter of 2018. The assets of this entity are reported in our Domestic Pipelines & Terminals segment. The purchase price has been allocated on a preliminary basis to assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with amounts exceeding the fair value recorded as goodwill, which represent expected synergies from combining the acquired assets with our existing operations. Fair values have been developed using recognized business valuation techniques, with inputs classified as Level 3 within the fair value hierarchy.  The purchase price has been allocated to tangible and intangible assets acquired as follows (in thousands):
Current assets, including cash acquired of $2,444
$
8,989

Property, plant and equipment
18,306

Intangible assets
2,200

Goodwill
2,811

Current liabilities
(3,516
)
Environmental liabilities
(299
)
Allocated purchase price
$
28,491


Adjustments to the preliminary purchase price allocation during the six months ended June 30, 2018 resulted in nominal decreases to current assets and current liabilities, with a corresponding increase to goodwill.

Unaudited Pro forma Financial Results for Duck Island terminal acquisition

Our unaudited condensed consolidated statements of operations do not include earnings from the terminalling business prior to December 20, 2017, the closing date of the acquisition. Unaudited pro forma financial information for this acquisition was not prepared because the impact was immaterial to our financial results for the three and six months ended June 30, 2018.

VTTI Acquisition

In January 2017, we acquired an indirect 50% equity interest in VTTI for cash consideration of $1.15 billion (the “VTTI Acquisition”). We own VTTI jointly with Vitol S.A. (“Vitol”). VTTI is one of the largest independent global marine terminal businesses which, through its subsidiaries and partnership interests, owns and operates approximately 58 million barrels of petroleum products storage across 14 terminals located on five continents. These marine terminals are predominately located in key global energy hubs, including Northwest Europe, the Middle East and Southeast Asia, and offer world-class storage and marine terminalling services for liquid petroleum products. We and VIP Terminals Finance B.V., a subsidiary of Vitol, have equal board representation and voting rights in the VTTI joint venture. We account for this investment using the equity method of accounting. The earnings from our equity investment in VTTI are reported in our Global Marine Terminals segment. In addition, we include our proportionate share of our equity method investments’ unrealized gains and losses in OCI in our unaudited condensed consolidated financial statements.
 
The fair values used to calculate the excess net investment in VTTI were primarily developed using an income approach, with inputs classified as Level 3 within the fair value hierarchy. The excess net investment was $584.4 million at the acquisition date and was comprised of the following components: (i) $240.7 million related to the excess of the fair values of identifiable property, plant and equipment and intangible assets over their carrying values, which is being amortized on a straight-line basis over the estimated useful lives of these underlying assets of approximately 28 years; and (ii) $343.7 million of implied goodwill, which is not subject to amortization. The amortization of the excess net investment is included in earnings from equity investments on our unaudited condensed consolidated statements of operations.

In September 2017, VTTI acquired all of the outstanding publicly held units of VTTI Energy Partners LP, formerly a publicly traded master limited partnership (“VTTI MLP”), for an aggregate cash consideration of $473.6 million (the “VTTI Merger”). In connection with the VTTI Merger, VTTI MLP merged with and into a direct wholly owned subsidiary of VTTI. We funded our 50% share of the aggregate cash consideration, in the amount of $236.8 million, excluding transaction costs, through a capital contribution to VTTI, using borrowings under our $1.5 billion revolving credit facility with SunTrust Bank (the “Credit Facility”).


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4. COMMITMENTS AND CONTINGENCIES
 
Claims and Legal Proceedings
 
In the ordinary course of business, we are involved in various claims and legal proceedings, some of which are covered by insurance.  We are generally unable to predict the timing or outcome of these claims and proceedings.  Based upon our evaluation of existing claims and proceedings and the probability of losses relating to such contingencies, we have accrued certain amounts relating to such claims and proceedings, none of which are considered material.

Environmental Contingencies
 
At June 30, 2018 and December 31, 2017, we had $39.1 million and $41.0 million, respectively, of environmental remediation liabilities unrelated to claims and legal proceedings.  Costs ultimately incurred may be in excess of our estimates, which may have a material impact on our financial condition, results of operations or cash flows.  At June 30, 2018 and December 31, 2017, we had $4.8 million and $5.3 million, respectively, of receivables related to these environmental remediation liabilities covered by insurance or third-party claims.

5. INVENTORIES
 
Our inventory amounts were as follows at the dates indicated (in thousands):
 
June 30,
2018
 
December 31,
2017
Liquid petroleum products (1)
$
134,011

 
$
280,934

Materials and supplies
21,912

 
20,491

Total inventories
$
155,923

 
$
301,425

                                                      
(1)
Ending inventory was 63.7 million and 142.1 million gallons of liquid petroleum products as of June 30, 2018 and December 31, 2017, respectively.
 
At June 30, 2018 and December 31, 2017, approximately 90% and 85% of our liquid petroleum products inventory volumes were designated in a fair value hedge relationship, respectively.  Because we generally designate inventory as a hedged item upon purchase, hedged inventory is valued at current market prices with the change in value of the inventory reflected in our unaudited condensed consolidated statements of operations. 

6. PREPAID AND OTHER CURRENT ASSETS
 
Prepaid and other current assets consist of the following at the dates indicated (in thousands):
 
June 30,
2018
 
December 31,
2017
Prepaid insurance
$
17,095

 
$
7,146

Margin deposits
2,592

 
7,989

Contract assets
25,881

 
13,999

Prepaid taxes
5,781

 
2,865

Other
14,255

 
4,340

Total prepaid and other current assets
$
65,604

 
$
36,339



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7. EQUITY INVESTMENTS
 
The following table presents earnings (loss) from equity investments for the periods indicated (in thousands): 
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
Segment
 
2018
 
2017
 
2018
 
2017
VTTI B.V.
Global Marine Terminals
 
$
4,882

 
$
326

 
$
9,272

 
$
8,715

West Shore Pipe Line Company
Domestic Pipelines & Terminals
 
2,466

 
1,799

 
4,792

 
3,141

Muskegon Pipeline LLC
Domestic Pipelines & Terminals
 
431

 
468

 
756

 
802

Transport4, LLC
Domestic Pipelines & Terminals
 
221

 
271

 
450

 
444

South Portland Terminal LLC
Domestic Pipelines & Terminals
 
441

 
256

 
660

 
376

South Texas Gateway Terminal LLC (1)
Global Marine Terminals
 
(176
)
 

 
(176
)
 

Total earnings from equity investments
 
 
$
8,265

 
$
3,120

 
$
15,754

 
$
13,478

                                                      
(1)
In April 2018, we formed the South Texas Gateway Terminal joint venture. For additional information, see Note 3.

Summarized combined income statement data for our equity method investments are as follows for the periods indicated (amounts represent 100% of investee income statement data in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Revenue
$
145,622

 
$
133,355

 
$
290,690

 
$
260,039

Operating income
40,027

 
39,784

 
89,809

 
85,429

Net income
26,382

 
23,821

 
51,132

 
53,933

Net income attributable to investee
25,170

 
15,795

 
48,129

 
39,782


8. LONG-TERM DEBT

Extinguishment of Debt

In January 2018, we repaid in full the $300.0 million principal amount and $9.1 million of accrued interest outstanding under our 6.050% notes, using funds available under our Credit Facility.

Notes Offerings

In January 2018, we issued $400.0 million of junior subordinated notes (“Junior Notes”) maturing on January 22, 2078, which are redeemable at Buckeye’s option, in whole or in part, on or after January 22, 2023. The Junior Notes bear interest at a fixed rate of 6.375% per year up to, but not including, January 22, 2023. From January 22, 2023, the Junior Notes will bear interest at a floating rate based on the Three-Month London Interbank Offered Rate (“LIBOR”) plus 4.02%, reset quarterly. Total proceeds from this offering, after underwriting fees, expenses, and debt issuance costs, were $394.9 million. We used the net proceeds from this offering to reduce indebtedness outstanding under our Credit Facility and for general partnership purposes.

Current Maturities Expected to be Refinanced

We have classified $400.0 million of 2.650% notes due on November 15, 2018 as long-term debt in the unaudited condensed consolidated balance sheet at June 30, 2018 because we have the intent and the ability to refinance these obligations on a long-term basis under our Credit Facility. At June 30, 2018, we had $1,038.1 million of additional borrowing capacity under our Credit Facility.

Credit Facility

At June 30, 2018, we had a $459.5 million outstanding balance under the Credit Facility. The weighted average interest rate for borrowing under the Credit Facility was 3.3% during the six months ended June 30, 2018.

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9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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 such risks.
 
Interest Rate Derivatives

From time to time, we utilize forward-starting interest rate swaps to hedge the variability of the forecasted interest payments on anticipated debt issuances that may result from changes in the benchmark interest rate until the expected debt is issued. When entering into interest rate swap transactions, we become exposed to both credit risk and market risk. We are subject to credit risk when the change in fair value of the swap instrument is positive and the counterparty may fail to perform under the terms of the contract. We are subject to market risk with respect to changes in the underlying benchmark interest rate that impacts the fair value of the swaps. 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. We designate the swap agreements as cash flow hedges at inception and expect the changes in values to be highly correlated with the changes in value of the underlying borrowings.

During 2016, we entered into eleven forward-starting interest rate swaps with a total aggregate notional amount of $500.0 million, in anticipation of the issuance of debt on or before November 15, 2018. We expect to issue new fixed-rate debt on or before November 15, 2018 to repay the $400.0 million of 2.650% notes that are due on November 15, 2018, as well as to fund capital expenditures and other general partnership purposes, although no assurances can be given that the issuance of fixed-rate debt will be possible on acceptable terms.

During the three and six months ended June 30, 2018, unrealized gains of $5.7 million and $20.4 million, respectively, were recorded in accumulated other comprehensive income (“AOCI”) to reflect the change in the fair values of the forward-starting interest rate swaps.

Commodity Derivatives

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, which we designated as fair value hedges, with changes in fair value of both the futures contracts and physical inventory reflected in earnings. Our Merchant Services segment also uses exchange-traded refined petroleum contracts to hedge expected future transactions related to certain gasoline inventory that we manage on behalf of a third party, which are designated as cash flow hedges, with the effective portion of the hedge reported in OCI and reclassified into earnings when the expected future transaction affects earnings. Any gains or losses incurred on the derivative instruments that are not effective in offsetting changes in fair value or cash flows of the hedged item are recognized immediately in earnings.
Additionally, our Merchant Services segment enters into exchange-traded refined petroleum product futures contracts on behalf of our Domestic Pipelines & Terminals segment to manage the risk of market price volatility on the gasoline-to-butane pricing spreads associated with our butane blending activities managed by a third party. These futures contracts are not designated in a hedge relationship for accounting purposes. Physical forward contracts and futures contracts that have not been designated in a hedge relationship are marked-to-market through earnings.

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The following table summarizes the notional volumes of the net long (short) positions of our commodity derivative instruments outstanding at June 30, 2018 (amounts in thousands of gallons):
 
 
Volume
 
 
Derivative Purpose 
 
Current
 
Long-Term
 
 
Derivatives NOT designated as hedging instruments:
 
 

 
 

 
 
Physical fixed-price derivative contracts
 
(7,212
)
 
(429
)
 
 
Physical index derivative contracts
 
34,189

 

 
 
Futures contracts for refined petroleum products
 
1,127

 
714

 
 
 
 
 
 
 
 
Hedge Type
Derivatives designated as hedging instruments:
 
 

 
 

 
 
Cash flow hedge futures contracts
 

 

 
Cash Flow Hedge
Futures contracts for refined petroleum products
 
(57,162
)
 

 
Fair Value Hedge

Our futures contracts designated as fair value hedges relate to our inventory portfolio and extend to the fourth quarter of 2018. Our futures contracts relate to forecasted purchases and sales of refined petroleum products and extend to the fourth quarter of 2019.

In accordance with the Chicago Mercantile Exchange (“CME”) rulebook, variation margin transfers are considered settlement payments, thereby reducing the corresponding derivative asset and liability balances for our exchange-settled derivative contracts. These settlement payments result in realized gains and losses on derivatives.


































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The following table sets forth the fair value of each classification of derivative instruments and the derivative instruments’ location on our unaudited condensed consolidated balance sheets at the dates indicated (in thousands):
    
June 30, 2018
 
Derivatives NOT Designated as Hedging Instruments
 
Derivatives Designated as Hedging Instruments
 
Derivative Carrying Value
 
Netting Balance Sheet Adjustment (1)
 
Net Total
Physical fixed-price derivative contracts
$
1,077

 
$

 
$
1,077

 
$
(155
)
 
$
922

Physical index derivative contracts
215

 

 
215

 
(1
)
 
214

Interest rate derivative contracts

 
52,411

 
52,411

 

 
52,411

Total current derivative assets
1,292

 
52,411

 
53,703

 
(156
)
 
53,547

Physical fixed-price derivative contracts
14

 

 
14

 

 
14

Total non-current derivative assets
14

 

 
14

 

 
14

Physical fixed-price derivative contracts
(2,989
)
 

 
(2,989
)
 
155

 
(2,834
)
Physical index derivative contracts
(21
)
 

 
(21
)
 
1

 
(20
)
Total current derivative liabilities
(3,010
)
 

 
(3,010
)
 
156

 
(2,854
)
Physical fixed-price derivative contracts
(36
)
 

 
(36
)
 

 
(36
)
Total non-current derivative liabilities
(36
)
 

 
(36
)
 

 
(36
)
Net derivative (liabilities) assets
$
(1,740
)
 
$
52,411

 
$
50,671

 
$

 
$
50,671

 
                                                      
(1)
Amounts represent the netting of physical fixed and index contracts’ assets and liabilities when a legal right of offset exists.  Futures contracts are subject to settlement through margin requirements and are additionally presented on a net basis.
 
December 31, 2017
 
Derivatives NOT Designated as Hedging Instruments
 
Derivatives Designated as Hedging Instruments
 
Derivative Carrying Value
 
Netting Balance Sheet Adjustment (1)
 
Net Total
Physical fixed-price derivative contracts
$
2,582

 
$

 
$
2,582

 
$
(63
)
 
$
2,519

Physical index derivative contracts
455

 

 
455

 
(9
)
 
446

Interest rate derivative contracts

 
31,994

 
31,994

 

 
31,994

Total current derivative assets
3,037

 
31,994

 
35,031

 
(72
)
 
34,959

Total non-current derivative assets

 

 

 

 

Physical fixed-price derivative contracts
(7,226
)
 

 
(7,226
)
 
63

 
(7,163
)
Physical index derivative contracts
(18
)
 

 
(18
)
 
9

 
(9
)
Total current derivative liabilities
(7,244
)
 

 
(7,244
)
 
72

 
(7,172
)
Total non-current derivative liabilities

 

 

 

 

Net derivative (liabilities) assets
$
(4,207
)
 
$
31,994

 
$
27,787

 
$

 
$
27,787

                                                      
(1)
Amounts represent the netting of physical fixed and index contracts’ assets and liabilities when a legal right of offset exists.  Futures contracts are subject to settlement through margin requirements and are additionally presented on a net basis.
 
At June 30, 2018, open refined petroleum product derivative contracts (represented by the physical fixed-price contracts, and physical index contracts noted above) varied in duration in the overall portfolio, but did not extend beyond November 2019.  In addition, at June 30, 2018, we had refined petroleum product inventories that we intend to use to satisfy a portion of the physical derivative contracts.
 

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The gains and losses on our derivative instruments recognized in income were as follows for the periods indicated (in thousands):
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
Location
 
2018
 
2017
 
2018
 
2017
Derivatives NOT designated as hedging instruments:
 
 
 

 
 

 
 

 
 

Physical fixed-price derivative contracts
Product sales
 
$
(1,659
)
 
$
4,465

 
$
(305
)
 
$
6,952

Physical index derivative contracts
Product sales
 
(17
)
 
17

 
160

 
1

Physical fixed-price derivative contracts
Cost of product sales
 
552

 
(549
)
 
(53
)
 
(82
)
Physical index derivative contracts
Cost of product sales
 
424

 
175

 
426

 
338

Futures contracts for refined products
Cost of product sales
 
(2,265
)
 
(710
)
 
(4,563
)
 
(800
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
Location
 
2018
 
2017
 
2018
 
2017
Derivatives designated as fair value hedging instruments:
 
 
 
 
 

 
 

 
 

Futures contracts for refined products
Cost of product sales
 
$
(10,013
)
 
$
19,274

 
$
(4,306
)
 
$
52,851

Physical inventory - hedged items
Cost of product sales
 
9,530

 
(20,349
)
 
3,540

 
(40,700
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
Location
 
2018
 
2017
 
2018
 
2017
Ineffectiveness excluding the time value component on fair value hedging instruments:
 
 
 
 
 

 
 

 
 

Fair value hedge ineffectiveness (excluding time value)
Cost of product sales
 
$
(114
)
 
$
(1,671
)
 
$
(196
)
 
$
(2,630
)
Time value excluded from hedge assessment
Cost of product sales
 
(369
)
 
596

 
(570
)
 
14,781


The change in value recognized in OCI and the losses reclassified from AOCI to income attributable to our derivative instruments designated as cash flow hedges were as follows for the periods indicated (in thousands):
 
Gain (Loss) Recognized in OCI on Derivatives for the
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Derivatives designated as cash flow hedging instruments:
 

 
 

 
 

 
 

Interest rate derivative contracts
$
5,656

 
$
(12,173
)
 
$
20,417

 
$
(10,463
)
Commodity derivatives
3,280

 
2,957

 
2,657

 
4,232

Total
$
8,936

 
$
(9,216
)
 
$
23,074

 
$
(6,231
)

 
 
 
Loss Reclassified from AOCI to Income (Effective Portion) for the
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
Location
 
2018
 
2017
 
2018
 
2017
Derivatives designated as cash flow hedging instruments:
 
 
 

 
 

 
 

 
 

Interest rate derivative contracts
Interest and debt expense
 
$
(2,295
)
 
$
(3,037
)
 
$
(4,632
)
 
$
(6,075
)
Total
 
 
$
(2,295
)
 
$
(3,037
)
 
$
(4,632
)
 
$
(6,075
)



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Over the next twelve months, we expect to reclassify $5.0 million of net losses attributable to interest rate derivatives from AOCI to earnings as an increase to interest and debt expense. These net losses consist of $11.2 million of amortization of hedge losses on settled forward-starting interest rate swaps, partially offset by $6.2 million of amortization of hedge gains on settled forward-starting interest rate swaps settled in November 2017 and forecasted hedge gains on forward-starting interest rate swaps that we expect to settle in late 2018. Additionally, the unrealized gains and losses for refined petroleum products designated as cash flow hedges at June 30, 2018, of $0.2 million, are estimated to be realized and reclassified from AOCI to product sales over the next twelve months. The ineffective portion of the change in fair value of cash flow hedges was not material for the three and six months ended June 30, 2018 and 2017.

10. FAIR VALUE MEASUREMENTS
 
We categorize our financial assets and liabilities using the three-tier fair value hierarchy as follows:
 
Recurring
 
The following table sets forth financial assets and liabilities measured at fair value on a recurring basis, as of the measurement dates indicated, and the basis for that measurement, by level within the fair value hierarchy (in thousands):
 
June 30, 2018
 
December 31, 2017
 
Level 1
 
Level 2
 
Level 1
 
Level 2
Financial assets:
 

 
 

 
 

 
 

Physical fixed-price derivative contracts
$

 
$
1,091

 
$

 
$
2,582

Physical index derivative contracts

 
215

 

 
455

Interest rate derivatives

 
52,411

 

 
31,994

 
 
 
 
 
 
 
 
Financial liabilities:
 

 
 

 
 

 
 

Physical fixed-price derivative contracts

 
(3,025
)
 

 
(7,226
)
Physical index derivative contracts

 
(21
)
 

 
(18
)
Futures contracts for refined products

 

 

 

Fair value
$

 
$
50,671

 
$

 
$
27,787

 
The values of the Level 1 derivative assets and liabilities were based on quoted market prices obtained from the New York Mercantile Exchange. The values for exchange-settled commodity derivatives at June 30, 2018 are presented in accordance with the CME rulebook, which deems that these instruments are settled daily via variation margin payments. As a result of this rulebook guidance, CME-settled derivatives, primarily comprised of our futures contracts for refined petroleum products, are considered to have no fair value at the balance sheet date for financial reporting purposes; however, the derivatives remain outstanding and subject to future commodity price fluctuations until they are settled in accordance with their contractual terms.

The values of the Level 2 interest rate derivatives were determined using fair value estimates obtained from our counterparties, which are verified using other available market data, including cash flow models which incorporate market inputs including the implied forward LIBOR yield curve for the same period as the future interest rate swap settlements. Credit value adjustments (“CVAs”), which are used to reflect the potential nonperformance risk of our counterparties, are considered in the fair value assessment of interest rate derivatives. We determined that the impact of CVAs is not significant to the overall valuation of interest rate derivatives as of June 30, 2018 and December 31, 2017.

The values of the Level 2 commodity derivative contracts were calculated using market approaches based on observable market data inputs, including published commodity pricing data, which is verified against other available market data, and market interest rate and volatility data.  Level 2 physical fixed-price derivative assets are net of CVAs determined using an expected cash flow model, which incorporates assumptions about the credit risk of the derivative contracts based on the historical and expected payment history of each customer, the amount of product contracted for under the agreement and the customer’s historical and expected purchase performance under each contract.  The Merchant Services segment determined CVAs are appropriate because few of the Merchant Services segment’s customers entering into these derivative contracts are large organizations with nationally recognized credit ratings.  The CVAs were nominal as of June 30, 2018 and December 31, 2017. As of June 30, 2018 and December 31, 2017, the Merchant Services segment did not hold any net liability derivative position containing credit contingent features.
 

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Financial instruments included in current assets and current liabilities are reported in the unaudited condensed consolidated balance sheets at amounts which approximate fair value due to the relatively short period to maturity of these financial instruments.  The fair values of our fixed-rate debt were estimated by observing market trading prices and by comparing the historic market prices of our publicly issued debt with the market prices of the publicly issued debt of other MLPs with similar credit ratings and terms.  The fair values of our variable-rate debt approximates the carrying amount since the associated interest rates are market-based. The carrying value and fair value of our debt, using Level 2 input values, were as follows at the dates indicated (in thousands):
 
June 30, 2018
 
December 31, 2017
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Fixed-rate debt
$
3,944,235

 
$
3,849,403

 
$
4,241,963

 
$
4,384,336

Variable-rate debt
1,104,661

 
1,109,546

 
668,562

 
668,904

Total debt
$
5,048,896

 
$
4,958,949

 
$
4,910,525

 
$
5,053,240

 
In addition, our pension plan assets are measured at fair value on a recurring basis, based on Level 1 and Level 3 inputs.

We recognize transfers between levels within the fair value hierarchy as of the beginning of the reporting period.  We did not have any transfers between Level 1 and Level 2 during the six months ended June 30, 2018 and 2017, respectively.
 
Non-Recurring
 
Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.  For the three and six months ended June 30, 2018 and 2017, there were no significant fair value adjustments related to such assets or liabilities reflected in our unaudited condensed consolidated financial statements.

11. UNIT-BASED COMPENSATION PLANS
 
We award unit-based compensation to employees and directors primarily under the 2013 Long Term Incentive Plan of Buckeye Partners, L.P. (the “LTIP”), which was approved by the Partnership’s unitholders in June 2013 and subsequently amended and restated in June 2017. The LTIP replaced the 2009 Long-Term Incentive Plan (the “2009 Plan”), which was merged with and into the LTIP, and no further grants have since been made under the 2009 Plan. We formerly awarded options to acquire LP Units to employees pursuant to the Buckeye Partners, L.P. Unit Option and Distribution Equivalent Plan (the “Option Plan”). 
 
We recognized compensation expense related to awards under the LTIP and the Option Plan of $8.0 million and $9.0 million for the three months ended June 30, 2018 and 2017, respectively. For the six months ended June 30, 2018 and 2017, we recognized compensation expense of $16.8 million and $17.7 million, respectively.

LTIP
 
As of June 30, 2018, there were 2,142,251 LP Units available for issuance under the LTIP.
 
Deferral Plan under the LTIP
 
We also maintain the Buckeye Partners, L.P. Unit Deferral and Incentive Plan, as amended and restated effective December 13, 2016 (the “Deferral Plan”), pursuant to which we issue phantom and matching units under the LTIP to certain employees in lieu of cash compensation at the election of the employee. During the six months ended June 30, 2018, 149,726 phantom units (including matching units) were granted under this plan. These grants are included as granted in the LTIP activity table below.
 
Awards under the LTIP
 
During the six months ended June 30, 2018, the Compensation Committee of the board of directors of Buckeye GP (the “Board”) granted 349,271 phantom units to employees (including the 149,726 phantom units granted pursuant to the Deferral Plan, as discussed above), 18,000 phantom units to independent directors of Buckeye GP and 273,944 performance units to employees.


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The following table sets forth the LTIP activity for the periods indicated (in thousands, except per unit amounts):
 
Number of
LP Units
 
Weighted
Average
Grant Date
Fair Value
per LP Unit (1)
Unvested at January 1, 2018
1,450

 
$
64.04

Granted (2)
641

 
51.50

Performance adjustment (3)
39

 
73.17

Vested
(395
)
 
72.65

Forfeited
(22
)
 
58.69

Unvested at June 30, 2018
1,713

 
$
57.57

                                                      
(1)
Determined by dividing the aggregate grant date fair value of awards by the number of awards issued. The weighted-average grant date fair value per LP Unit for forfeited and vested awards is determined before an allowance for forfeitures.
(2)
Includes both phantom and performance awards. Performance awards are granted at a target amount but, depending on our performance during the vesting period with respect to certain pre-established goals, the number of LP Units issued upon vesting of such performance awards can be greater or less than the target amount.
(3)
Represents the LP Units issued in excess of target amounts for performance awards that vested during the six months ended June 30, 2018 as a result of our above target performance with respect to applicable performance goals.

At June 30, 2018, $50.0 million of compensation expense related to the unvested LTIP is expected to be recognized over a weighted average remaining period of 2.0 years.
 
We ceased making additional grants under the Option Plan following the adoption of the 2009 Plan. At December 31, 2017, there was no unrecognized compensation cost related to unvested options, as all options were vested and exercised as of November 24, 2017. The total intrinsic value of options exercised during each of the six months ended June 30, 2018 and 2017 were zero and $0.2 million, respectively.

12. PARTNERS’ CAPITAL AND DISTRIBUTIONS

Our LP Units and Class C Units represent limited partnership interests, which give the holders thereof the right to participate in distributions and to exercise the other rights and privileges available to them under our partnership agreement. The partnership agreement provides that, without prior approval of our limited partners holding an aggregate of at least two-thirds of the outstanding LP Units and Class C Units (voting together as a single class), we cannot issue any limited partnership interests of a class or series having preferences or other special or senior rights over the LP Units and Class C Units.

Equity Offering

In March 2018, we issued approximately 6.2 million Class C Units in a private placement for aggregate gross proceeds of $265.0 million. The net proceeds were $262.1 million, after deducting issuance costs of approximately $2.9 million. We used the net proceeds from this offering to reduce the indebtedness outstanding under our Credit Facility, to partially fund growth capital expenditures and for general partnership purposes.

Class C Units represent a separate class of our limited partnership interests. The Class C Units are substantially similar in all respects to our existing LP Units, except that Buckeye has the option to pay distributions on the Class C Units in cash or by issuing additional Class C Units, with the number of Class C Units issued based upon the volume-weighted average price per LP Unit, less a discount of 12.5%, for the 10 trading days immediately preceding the date the distributions are declared.

The Class C Units will convert into LP Units on a one-for-one basis at the earliest of (i) March 2, 2020, (ii) the date on which the Partnership delivers notice to the holders of the Class C Units that the Class C Units have converted, (iii) the date on which a change of control of the Partnership occurs, (iv) the business day following any notice or press release from the Partnership of a cash distribution for any quarterly period in an amount less than $1.2625 per LP Unit and (v) the date on which the Partnership issues any class or series of LP Units having preferences or senior rights over the LP Units and Class C Units.
 

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At-the-Market Offering Program

Our equity distribution agreement (the “Equity Distribution Agreement”) with J.P. Morgan Securities LLC, BB&T Capital Markets, a division of BB&T Securities, LLC, BNP Paribas Securities Corp., Deutsche Bank Securities Inc., Jefferies LLC, Morgan Stanley & Co. LLC, RBC Capital Markets, LLC, and SMBC Nikko Securities America, Inc. (collectively, the “ATM Underwriters”) expired on January 15, 2018. During the six months ended June 30, 2018, no LP Units were sold under the Equity Distribution Agreement.
 
Summary of Changes in Outstanding Units
 
The following is a summary of changes in Buckeyes outstanding LP Units and Class C Units for the periods indicated (in thousands):
 
LP Units
 
Class C Units
 
Total
Units outstanding at January 1, 2018
146,677

 

 
146,677

LP units issued pursuant to the LTIP (1)
268

 

 
268

Issuance of Class C Units

 
6,221

 
6,221

Issuance of Class C Units in lieu of quarterly cash distributions

 
218

 
218

Units outstanding at June 30, 2018
146,945

 
6,439

 
153,384

                                                      
(1) The number of LP Units issued represents issuance net of tax withholding.
 
Distributions
 
Cash distributions are paid for LP Units and for distribution equivalent rights (“DERs”) with respect to certain unit-based compensation awards outstanding as of each respective period. Actual cash distributions on our LP Units totaled $373.5 million ($2.5250 per LP Unit) and $351.7 million ($2.4875 per LP Unit) during the six months ended June 30, 2018 and 2017, respectively. We also made distributions in-kind to our Class C unitholders by issuing approximately 218,000 Class C Units during the six months ended June 30, 2018.
 
On August 3, 2018, we announced a quarterly distribution of $1.2625 per LP Unit that will be paid on August 20, 2018 to unitholders of record on August 13, 2018.  Based on the LP Units and DERs with respect to certain unit-based compensation awards outstanding as of June 30, 2018, cash expected to be distributed to LP unitholders on August 20, 2018 is estimated to be approximately $186.8 million. We also expect to issue approximately 275,000 Class C Units to our Class C unitholders in lieu of cash distributions on August 20, 2018.
 

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13. EARNINGS PER UNIT
 
The following tables set forth the calculation of basic and diluted earnings per unit, attributable to Buckeye’s unitholders (including LP Units and Class C Units), taking into consideration net income allocable to participating securities, as well as the reconciliation of basic weighted average units outstanding to diluted weighted average units outstanding (in thousands, except per unit amounts):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Net income attributable to unitholders
$
90,665

 
$
112,722

 
$
201,789

 
$
236,298

 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Weighted average units outstanding - basic
153,258

 
140,826

 
151,093

 
140,603

Earnings per unit - basic
$
0.59

 
$
0.80

 
$
1.34

 
$
1.68

 
 
 
 
 
 
 
 
Diluted:
 

 
 

 
 

 
 

Weighted average units outstanding - basic
153,258

 
140,826

 
151,093
 
140,603

Effect of dilutive securities
731

 
679

 
677
 
650

Weighted average units outstanding - diluted
153,989

 
141,505

 
151,770

 
141,253

Earnings per unit - diluted
$
0.59

 
$
0.80

 
$
1.33

 
$
1.67


14. BUSINESS SEGMENTS
 
We operate and report in three business segments: (i) Domestic Pipelines & Terminals; (ii) Global Marine Terminals; and (iii) Merchant Services.  All inter-segment revenues, expenses, operating income, assets and liabilities have been eliminated. 

 Domestic Pipelines & Terminals
 
The Domestic Pipelines & Terminals segment receives liquid petroleum products from refineries, connecting pipelines, vessels, trains, and bulk and marine terminals, transports those products to other locations for a fee, and provides bulk liquid storage and terminal throughput services.  The segment also has butane blending capabilities and provides crude oil services, including train loading/unloading, storage and throughput. This segment owns and operates pipeline systems and liquid petroleum products terminals in the continental United States, including three terminals owned by the Merchant Services segment but operated by the Domestic Pipelines & Terminals segment, and two underground propane storage caverns.  Additionally, this segment provides turn-key operations and maintenance of third-party pipelines and performs pipeline construction management services typically for cost plus a fixed or variable fee.
 
Global Marine Terminals
 
The Global Marine Terminals segment, including through its interest in VTTI, provides marine accessible bulk storage and blending services, rail and truck rack loading/unloading along with petroleum processing services in the New York Harbor on the East Coast and Corpus Christi, Texas in the Gulf Coast region of the United States, as well as The Bahamas, Puerto Rico and St. Lucia in the Caribbean, Northwest Europe, the Middle East and Southeast Asia.  The segment owns and operates, or owns a significant interest in, 21 liquid petroleum product terminals, located in these key domestic and international energy hubs, that enable us to facilitate global flows of crude and refined petroleum products, offer connectivity between supply areas and market centers, and provide premier storage, marine terminalling, blending, and processing services to a diverse customer base.


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Table of Contents

Merchant Services
 
The Merchant Services segment is a wholesale distributor of refined petroleum products, through bulk and rack sales, in the United States and the Caribbean. The segment’s products include gasoline, natural gas liquids, ethanol, biodiesel and petroleum distillates such as heating oil, diesel fuel, kerosene and fuel oil.  The segment owns three terminals, which are operated by the Domestic Pipelines & Terminals segment.  The segment’s customers consist principally of product wholesalers as well as major commercial users of these refined petroleum products.

Financial Information by Segment

For the three and six months ended June 30, 2018 and 2017, no customer contributed 10% or more of consolidated revenue.

The following tables provide information about our revenue types by reportable segment for the periods indicated (in thousands). Prior periods have been disaggregated for comparison purposes.
 
Three Months Ended June 30,
 
2018
 
Domestic Pipelines & Terminals
 
Global Marine Terminals
 
Merchant Services
 
Intersegment Eliminations
 
Total
Revenue from contracts with customers
 
 
 
 
 
 
 
 
 
Pipeline transportation
$
127,959

 
$

 
$

 
$
(2,163
)
 
$
125,796

Terminalling and storage services
100,981

 
99,927

 

 
(9,730
)
 
191,178

Product sales

 
7

 
455,185

 
(1,889
)
 
453,303

Other services
10,694

 
320

 
1,920

 
(15
)
 
12,919

Total revenue from contracts with customers
239,634

 
100,254

 
457,105

 
(13,797
)
 
783,196

Revenue from leases
11,065

 
42,889

 

 

 
53,954

Commodity derivative contracts, net
(819
)
 

 
104,508

 

 
103,689

Total revenue
$
249,880

 
$
143,143

 
$
561,613

 
$
(13,797
)
 
$
940,839


 
Three Months Ended June 30,
 
2017
 
Domestic Pipelines & Terminals
 
Global Marine Terminals
 
Merchant Services
 
Intersegment Eliminations
 
Total
Revenue from contracts with customers
 
 
 
 
 
 
 
 
 
Pipeline transportation
$
123,819

 
$

 
$

 
$
(4,208
)
 
$
119,611

Terminalling and storage services
106,053

 
123,930

 

 
(6,154
)
 
223,829

Product sales

 
3,880

 
307,027

 
(1,282
)
 
309,625

Other services
14,562

 
328

 
2,538

 
(32
)
 
17,396

Total revenue from contracts with customers
244,434

 
128,138

 
309,565

 
(11,676
)
 
670,461

Revenue from leases
9,119

 
39,718

 

 

 
48,837

Commodity derivative contracts, net
96

 

 
90,903

 
(96
)
 
90,903

Total revenue
$
253,649

 
$
167,856

 
$
400,468

 
$
(11,772
)
 
$
810,201


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Table of Contents

 
Six Months Ended June 30,
 
2018
 
Domestic Pipelines & Terminals
 
Global Marine Terminals
 
Merchant Services
 
Intersegment Eliminations
 
Total
Revenue from contracts with customers
 
 
 
 
 
 
 
 
 
Pipeline transportation
$
249,430

 
$

 
$

 
$
(5,803
)
 
$
243,627

Terminalling and storage services
216,956

 
201,145

 

 
(18,323
)
 
399,778

Product sales

 
20

 
1,098,693

 
(5,242
)
 
1,093,471

Other services
22,783

 
341

 
4,820

 
(1,362
)
 
26,582

Total revenue from contracts with customers
489,169

 
201,506

 
1,103,513

 
(30,730
)
 
1,763,458

Revenue from leases
19,055

 
85,722

 

 

 
104,777

Commodity derivative contracts, net
(2,909
)
 

 
256,528

 
2,090

 
255,709

Total revenue
$
505,315

 
$
287,228

 
$
1,360,041

 
$
(28,640
)
 
$
2,123,944


 
Six Months Ended June 30,
 
2017
 
Domestic Pipelines & Terminals
 
Global Marine Terminals
 
Merchant Services
 
Intersegment Eliminations
 
Total
Revenue from contracts with customers
 
 
 
 
 
 
 
 
 
Pipeline transportation
$
239,756

 
$

 
$

 
$
(7,191
)
 
$
232,565

Terminalling and storage services
215,639

 
249,662

 

 
(13,733
)
 
451,568

Product sales

 
3,891

 
751,161

 
(5,007
)
 
750,045

Other services
27,553

 
430

 
4,530

 
(1,715
)
 
30,798

Total revenue from contracts with customers
482,948

 
253,983

 
755,691

 
(27,646
)
 
1,464,976

Revenue from leases
20,246

 
78,349

 

 

 
98,595

Commodity derivative contracts, net
3,967

 

 
215,903

 
(3,967
)
 
215,903

Total revenue
$
507,161

 
$
332,332

 
$
971,594

 
$
(31,613
)
 
$
1,779,474



The following table summarizes revenue by major geographic area for the periods indicated (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Revenue:
 

 
 

 
 

 
 

United States
$
878,607

 
$
730,905

 
$
2,000,827

 
$
1,618,767

International
62,232

 
79,296

 
123,117

 
160,707

Total revenue
$
940,839

 
$
810,201

 
$
2,123,944

 
$
1,779,474

 

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Table of Contents

Adjusted EBITDA
 
Adjusted EBITDA is a measure not defined by GAAP. We define Adjusted EBITDA as earnings before interest expense, income taxes, depreciation and amortization, further adjusted to exclude certain non-cash items, such as non-cash compensation expense; transaction, transition, and integration costs associated with acquisitions; certain gains and losses on foreign currency transactions and foreign currency derivative financial instruments, as applicable; and certain other operating expense or income items, reflected in net income, that we do not believe are indicative of our core operating performance results and business outlook, such as hurricane-related costs, gains and losses on property damage recoveries, and gains and losses on asset sales. The definition of Adjusted EBITDA is also applied to our proportionate share in the Adjusted EBITDA of significant equity method investments, such as that in VTTI, and is not applied to our less significant equity method investments. The calculation of our proportionate share of the reconciling items used to derive Adjusted EBITDA is based upon our 50% equity interest in VTTI, prior to adjustments related to noncontrolling interests in several of its subsidiaries and partnerships, which are immaterial. Adjusted EBITDA is a non-GAAP financial measure that is used by our senior management, including our Chief Executive Officer, to assess the operating performance of our business and optimize resource allocation. We use Adjusted EBITDA as a primary measure 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. 
 
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 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.
 

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The following table presents net income on a consolidated basis and a reconciliation of net income, which is the most comparable financial measure under GAAP, to Adjusted EBITDA, as well as Adjusted EBITDA by segment for the periods indicated (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Reconciliation of Net Income to Adjusted EBITDA:
 
 
 
 
 
 
 
Net income
$
93,317

 
$
116,379

 
$
210,409

 
$
242,688

Less: Net income attributable to noncontrolling interests
(1,413
)
 
(3,657
)
 
(6,132
)
 
(6,390
)
Net income attributable to Buckeye Partners, L.P.
91,904

 
112,722

 
204,277

 
236,298

Add: Interest and debt expense
59,566

 
56,424

 
118,671

 
112,309

Income tax expense
782

 
1,039

 
1,272

 
1,261

 Depreciation and amortization (1)
66,569

 
64,838

 
130,707

 
130,326

 Non-cash unit-based compensation expense
7,976

 
8,902

 
16,666

 
17,580

 Acquisition and transition expense (2)
141

 
799

 
423

 
1,828

 Hurricane-related costs, net of recoveries (3)
(1,393
)
 
613

 
(812
)
 
3,016

 Proportionate share of Adjusted EBITDA for the equity
 method investment in VTTI (4)
34,640

 
28,801

 
69,180

 
57,418

Less: Gains on property damage recoveries (5)
(450
)
 
(4,621
)
 
(14,535
)
 
(4,621
)
 Earnings from the equity method investment in VTTI (4)
(4,882
)
 
(326
)
 
(9,272
)
 
(8,715
)
Adjusted EBITDA
$
254,853

 
$
269,191

 
$
516,577

 
$
546,700

 
 
 
 
 
 
 
 
Adjusted EBITDA:
 

 
 

 
 
 
 
Domestic Pipelines & Terminals
$
135,321

 
$
135,387

 
$
275,972

 
$
274,830

Global Marine Terminals
120,728

 
131,757

 
238,146

 
262,388

Merchant Services
(1,196
)
 
2,047

 
2,459

 
9,482

Total Adjusted EBITDA
$
254,853

 
$
269,191

 
$
516,577

 
$
546,700

                                                      
(1)
Includes 100% of the depreciation and amortization expense of $18.2 million and $18.5 million for Buckeye Texas for the three months ended June 30, 2018 and 2017, respectively, and $36.0 million for both six months ended June 30, 2018 and 2017. In April 2018, we acquired our business partner’s 20% ownership interest in Buckeye Texas, and as a result, we now own 100% of Buckeye Texas.
(2)
Represents transaction, internal and third-party costs related to asset acquisition and integration.
(3)
Represents costs incurred at our BBH facility in the Bahamas, Yabucoa Terminal in Puerto Rico, Corpus Christi facilities in Texas, and certain terminals in Florida, as a result of hurricanes which occurred in 2017 and 2016, consisting of operating expenses and write-offs of damaged long-lived assets, net of insurance recoveries.
(4)
Due to the significance of our equity method investment in VTTI, effective January 1, 2017, we applied the definition of Adjusted EBITDA, covered in our description of Adjusted EBITDA, with respect to our proportionate share of VTTI’s Adjusted EBITDA. The calculation of our proportionate share of the reconciling items used to derive Adjusted EBITDA is based upon our 50% equity interest in VTTI, prior to adjustments related to noncontrolling interests in several of its subsidiaries and partnerships, which are immaterial.
(5)
Represents gains on recoveries, which during 2018, settled property damages caused by third parties, primarily related to a 2012 vessel allision with a jetty at our BBH facility in the Bahamas, as well as a 2014 allision with a ship dock at our terminal located in Pennsauken, New Jersey in the prior year.


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15. SUPPLEMENTAL CASH FLOW INFORMATION
 
Supplemental cash flows and non-cash transactions were as follows for the periods indicated (in thousands):
 
Six Months Ended
June 30,
 
2018
 
2017
Cash paid for interest (net of capitalized interest)
$
108,405

 
$
104,541

Cash paid for income taxes
951

 
977

Capitalized interest
3,805

 
2,211

 
 
 
 
Non-cash financing activities:
 
 
 
Issuance of Class C Units in lieu of quarterly cash distribution
$
8,469

 
$

Distributions payable to noncontrolling interest
1,432

 

  
Liabilities related to capital projects outstanding at June 30, 2018 and 2017 of $65.1 million and $48.4 million, respectively, are not included under capital expenditures within the unaudited condensed consolidated statements of cash flows.


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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Cautionary Note Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10-Q (this “Report”) contains various forward-looking statements and information that are based on our beliefs, as well as assumptions made by us and information currently available to us.  When used in this Report, words such as “proposed,” “anticipate,” “project,” “potential,” “could,” “should,” “continue,” “estimate,” “expect,” “may,” “believe,” “will,” “plan,” “seek,” “outlook” and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements.  Although we believe that such expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that such expectations will prove to be correct.  Such statements are subject to a variety of risks, uncertainties and assumptions as described in more detail in Part I “Item 1A, Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2017.  If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected.  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.
 
The following information should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included in this Report.
 
Overview of Business
 
Buckeye Partners, L.P. is a publicly traded Delaware master limited partnership and its limited partner units representing limited partnership interests (“LP Units”) are listed on the New York Stock Exchange under the ticker symbol “BPL.”  Buckeye GP LLC (“Buckeye GP”) is our general partner.  As used in this Report, unless otherwise indicated, “we,” “us,” “our,” the “Partnership” and “Buckeye” mean Buckeye Partners, L.P. and, where the context requires, include our subsidiaries.
 
We own and operate, or own a significant interest in, a diversified global network of integrated assets providing midstream logistic solutions, primarily consisting of the transportation, storage, processing and marketing of liquid petroleum products.  We are one of the largest independent liquid petroleum products pipeline operators in the United States in terms of volumes delivered, with approximately 6,000 miles of pipeline. We also use our service expertise to operate and/or maintain third-party pipelines and perform certain engineering and construction services for our customers. Our global terminal network, including through our interest in VTTI B.V. (“VTTI”), comprises more than 135 liquid petroleum products terminals with aggregate tank capacity of over 176 million barrels across our portfolio of pipelines, inland terminals and marine terminals located primarily in the East Coast, Midwest and Gulf Coast regions of the United States as well as in the Caribbean, Northwest Europe, the Middle East and Southeast Asia.  Our global network of marine terminals enables us to facilitate global flows of crude oil and refined petroleum products, offering our customers connectivity between supply areas and market centers through some of the world’s most important bulk storage and blending hubs. Our flagship marine terminal in The Bahamas, Buckeye Bahamas Hub Limited (“BBH”), is one of the largest marine crude oil and refined petroleum products storage facilities in the world and provides an array of logistics and blending services for the global flow of petroleum products.  Our Gulf Coast regional hub, Buckeye Texas Partners LLC (“Buckeye Texas”), offers world-class marine terminalling, storage and processing capabilities. Through our 50% equity interest in VTTI, our global terminal network offers premier storage and marine terminalling services for petroleum product logistics in key international energy hubs. We are also a wholesale distributor of refined petroleum products in certain areas served by our pipelines and terminals.

Our primary business objective is to create value by generating stable cash flows that may be distributed to our unitholders, while maintaining a relatively low investment risk profile.  The key elements of our strategy are to: (i) operate in a safe, regulatory compliant 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 through accretive acquisitions and organic growth projects; and (v) maintain a solid, conservative financial position and our investment-grade credit rating.
 

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Recent Developments

South Texas Transactions

In April 2018, as part of our strategy to serve the volume growth in crude oil and related products from the Permian Basin, we expanded our marine terminal presence in Corpus Christi, Texas, through the following transactions, (i) acquired our business partner’s 20% interest in our Buckeye Texas consolidated subsidiary, and (ii) formed a joint venture (the “South Texas Gateway Terminal”) to develop a new deep-water, open access marine terminal in Ingleside, Texas at the mouth of Corpus Christi Bay with Phillips 66 Partners LP (“Phillips 66 Partners”) and Gray Oak Gateway Holdings (“Andeavor”).

We acquired our partner’s interest in Buckeye Texas for $210 million, and as a result we now own 100% of Buckeye Texas. The change in our ownership interest was accounted for as an equity transaction representing the acquisition of a noncontrolling interest.

The South Texas Gateway Terminal, to be constructed and operated by us, will initially offer 3.4 million barrels of crude oil storage capacity, connectivity to the Gray Oak pipeline and two deep-water vessel docks capable of berthing very large crude carrier petroleum tankers as part of the initial scope of construction. The Gray Oak pipeline will provide crude oil transportation from West Texas to destinations in the Corpus Christi and Sweeny/Freeport markets. Both the terminal and the pipeline are expected to be placed in service by the end of 2019. South Texas Gateway Terminal is supported by long-term minimum volume throughput commitments from credit-worthy customers, including our partners. We own a 50% interest in South Texas Gateway Terminal and Phillips 66 Partners and Andeavor each owns a 25% interest. During the three months ended June 30, 2018, we contributed an initial $28.4 million and committed to fund our proportionate share of the construction costs. We account for our interest in South Texas Gateway Terminal, which is included in our Global Marine Terminals segment, using the equity method of accounting.

Class C Units Issuance

In March 2018, we issued approximately 6.2 million Class C Units in a private placement for aggregate gross proceeds of $265.0 million. The Class C Units are substantially similar in all respects to our existing LP Units, except that Buckeye may elect to pay distributions on the Class C Units through the issuance of additional Class C Units rather than cash. The Class C Units will convert into LP Units on a one-for-one basis no later than March 2, 2020. We used the net proceeds from this offering to reduce the indebtedness outstanding under our $1.5 billion revolving credit facility with SunTrust Bank (the “Credit Facility”), to partially fund growth capital expenditures and for general partnership purposes.

Notes Issuance and Repayments

In January 2018, we issued $400.0 million of junior subordinated notes (“Junior Notes”) maturing on January 22, 2078, which are redeemable at Buckeye’s option, in whole or in part, on or after January 22, 2023. The Junior Notes bear interest at a fixed rate of 6.375% per year up to, but not including, January 22, 2023. From January 22, 2023, the Junior Notes will bear interest at a floating rate based on the Three-Month London Interbank Offered Rate (“LIBOR”) plus 4.02%, reset quarterly. Total proceeds from this offering, after underwriting fees, expenses and debt issuance costs, were $394.9 million. We used the net proceeds from this offering to reduce the indebtedness outstanding under our Credit Facility and for general partnership purposes.

In January 2018, we repaid in full the $300.0 million of 6.050% notes due on January 15, 2018 and $9.1 million of related accrued interest, using funds available under our Credit Facility.






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Results of Operations
 
Consolidated Summary
 
Our summary operating results were as follows for the periods indicated (in thousands, except per unit amounts): 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Revenue
$
940,839

 
$
810,201

 
$
2,123,944

 
$
1,779,474

Costs and expenses
795,142

 
639,447

 
1,808,734

 
1,436,144

Operating income
145,697

 
170,754

 
315,210

 
343,330

Other expense, net
(51,598
)
 
(53,336
)
 
(103,529
)
 
(99,381
)
Income before taxes
94,099

 
117,418

 
211,681

 
243,949

Income tax expense
(782
)
 
(1,039
)
 
(1,272
)
 
(1,261
)
Net income
93,317

 
116,379

 
210,409

 
242,688

Less: Net income attributable to noncontrolling interests
(1,413
)
 
(3,657
)
 
(6,132
)
 
(6,390
)
Net income attributable to Buckeye Partners, L.P.
$
91,904

 
$
112,722

 
$
204,277

 
$
236,298

 
Non-GAAP Financial Measures
 
Adjusted EBITDA and distributable cash flow are not measures defined by accounting principles generally accepted in the United States of America (“GAAP”). We define Adjusted EBITDA as earnings before interest expense, income taxes, depreciation and amortization, further adjusted to exclude certain non-cash items, such as non-cash compensation expense; transaction, transition, and integration costs associated with acquisitions; certain unrealized gains and losses on foreign currency transactions and foreign currency derivative financial instruments, as applicable; and certain other operating expense or income items, reflected in net income, that we do not believe are indicative of our core operating performance results and business outlook, such as hurricane-related costs, gains and losses on property damage recoveries, and gains and losses on asset sales. We define distributable cash flow as Adjusted EBITDA less cash interest expense, cash income tax expense, and maintenance capital expenditures incurred to maintain the operating, safety, and/or earnings capacity of our existing assets, plus or minus realized gains or losses on certain foreign currency derivative financial instruments, as applicable. These definitions of Adjusted EBITDA and distributable cash flow are also applied to our proportionate share in the Adjusted EBITDA and distributable cash flow of significant equity method investments, such as that in VTTI, and are not applied to our less significant equity method investments. The calculation of our proportionate share of the reconciling items used to derive these VTTI performance metrics is based upon our 50% equity interest in VTTI, prior to adjustments related to noncontrolling interests in several of its subsidiaries and partnerships, which are immaterial. These adjustments include gains and losses on foreign currency derivative financial instruments used to hedge VTTI’s United States dollar denominated distributions which are excluded from Adjusted EBITDA and included in distributable cash flow when realized. Adjusted EBITDA and distributable cash flow are non-GAAP financial measures that are used by our senior management, including our Chief Executive Officer, to assess the operating performance of our business and optimize resource allocation. We use Adjusted EBITDA as a primary measure 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.  We use distributable cash flow as a performance metric to compare the cash-generating performance of Buckeye from period to period and to compare the cash-generating performance for specific periods to the cash distributions (if any) that are expected to be paid to our unitholders. Distributable cash flow is not intended to be a liquidity measure.
  
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.


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The following table presents Adjusted EBITDA by segment and on a consolidated basis, distributable cash flow and a reconciliation of net income, which is the most comparable financial measure under generally accepted accounting principles, to Adjusted EBITDA and distributable cash flow for the periods indicated (in thousands): 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Adjusted EBITDA:
 

 
 

 
 

 
 

Domestic Pipelines & Terminals
$
135,321

 
$
135,387

 
$
275,972

 
$
274,830

Global Marine Terminals
120,728

 
131,757

 
238,146

 
262,388

Merchant Services
(1,196
)
 
2,047

 
2,459

 
9,482

Total Adjusted EBITDA
$
254,853

 
$
269,191

 
$
516,577

 
$
546,700

Reconciliation of Net Income to Adjusted EBITDA and Distributable cash flow:
 

 
 

 
 

 
 

Net income
$
93,317

 
$
116,379

 
$
210,409

 
$
242,688

Less: Net income attributable to noncontrolling interests
(1,413
)
 
(3,657
)
 
(6,132
)
 
(6,390
)
Net income attributable to Buckeye Partners, L.P.
91,904

 
112,722

 
204,277

 
236,298

Add: Interest and debt expense
59,566

 
56,424

 
118,671

 
112,309

Income tax expense
782

 
1,039

 
1,272

 
1,261

 Depreciation and amortization (1)
66,569

 
64,838

 
130,707

 
130,326

 Non-cash unit-based compensation expense
7,976

 
8,902

 
16,666

 
17,580

 Acquisition and transition expense (2)
141

 
799

 
423

 
1,828

 Hurricane-related costs, net of recoveries (3)
(1,393
)
 
613

 
(812
)
 
3,016

 Proportionate share of Adjusted EBITDA for the equity
method investment in VTTI
(4)
34,640

 
28,801

 
69,180

 
57,418

Less: Gains on property damage recoveries (5)
(450
)
 
(4,621
)
 
(14,535
)
 
(4,621
)
           Earnings from the equity method investment in VTTI (4)
(4,882
)
 
(326
)
 
(9,272
)
 
(8,715
)
Adjusted EBITDA
$
254,853

 
$
269,191

 
$
516,577

 
$
546,700

Less: Interest and debt expense, excluding amortization of deferred financing costs, debt discounts and other
(55,638
)
 
(52,063
)
 
(110,843
)
 
(103,587
)
Income tax expense, excluding non-cash taxes
(687
)
 
(473
)
 
(1,088
)
 
(695
)
Maintenance capital expenditures
(28,566
)
 
(40,494
)
 
(56,766
)
 
(73,080
)
Proportionate share of VTTI’s interest expense, current income tax expense, realized foreign currency derivative gains and losses, and maintenance capital expenditures (4)
(9,139
)
 
(10,690
)
 
(19,975
)
 
(18,708
)
Add: Hurricane-related maintenance capital expenditures
1,164

 
4,879

 
3,262

 
10,429

Distributable cash flow
$
161,987

 
$
170,350

 
$
331,167

 
$
361,059

_________________________
(1)
Includes 100% of the depreciation and amortization expense of $18.2 million and $18.5 million for Buckeye Texas for the three months ended June 30, 2018 and 2017, respectively, and $36.0 million for both six months ended June 30, 2018 and 2017. In April 2018, we acquired our business partner’s 20% ownership interest in Buckeye Texas, and as a result, we now own 100% of Buckeye Texas.
(2)
Represents transaction, internal and third-party costs related to asset acquisition and integration.
(3)
Represents costs incurred at our BBH facility in the Bahamas, Yabucoa Terminal in Puerto Rico, Corpus Christi facilities in Texas, and certain terminals in Florida, as a result of hurricanes which occurred in 2017 and 2016, consisting of operating expenses and write-offs of damaged long-lived assets, net of insurance recoveries.
(4)
Due to the significance of our equity method investment in VTTI, effective January 1, 2017, we applied the definitions of Adjusted EBITDA and distributable cash flow, covered in our description of non-GAAP financial measures, with respect to our proportionate share of VTTI’s Adjusted EBITDA and distributable cash flow. The calculation of our proportionate share of the reconciling items used to derive these VTTI performance metrics is based upon our 50% equity interest in VTTI, prior to adjustments related to noncontrolling interests in several of its subsidiaries and partnerships, which are immaterial.
(5)
Represents gains on recoveries, which during 2018, settled property damages caused by third parties, primarily related to a 2012 vessel allision with a jetty at our BBH facility in the Bahamas, as well as a 2014 allision with a ship dock at our terminal located in Pennsauken, New Jersey in the prior year.

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The following table presents product volumes in barrels per day (“bpd”) and average tariff rates in cents per barrel for our Domestic Pipelines & Terminals segment, capacity utilization percentages for our Global Marine Terminals segment and total sales volumes for the Merchant Services segment for the periods indicated:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2018
 
2017
 
2018
 
2017
Domestic Pipelines & Terminals
(average bpd in thousands):
 
 

 
 

 
 

 
 

Pipelines:
 
 

 
 

 
 

 
 

Gasoline
 
804.2

 
778.4

 
768.3

 
741.0

Jet fuel
 
379.2

 
376.1

 
366.3

 
365.6

Middle distillates (1)
 
299.9

 
276.0

 
328.6

 
302.6

Other products (2)
 
14.7

 
25.4

 
13.6

 
23.2

Total throughput
 
1,498.0

 
1,455.9

 
1,476.8

 
1,432.4

Terminals:
 
 

 
 

 
 

 
 

Throughput (3)
 
1,344.8

 
1,269.4

 
1,327.8

 
1,228.7

 
 
 
 
 
 
 
 
 
Pipeline average tariff (cents/bbl)
 
88.8

 
89.9

 
90.0

 
89.9

 
 
 
 
 
 
 
 
 
Global Marine Terminals (percent of capacity):
 
 
 
 
 
 
 
 
Average capacity utilization rate (4)
 
85
%
 
91
%
 
87
%
 
95
%
 
 
 
 
 
 
 
 
 
Merchant Services (in millions of gallons):
 
 

 
 

 
 

 
 

Sales volumes
 
263.1

 
253.2

 
659.1

 
602.3

___________________________
(1)
Includes diesel fuel and heating oil.
(2)
Includes liquefied petroleum gas, intermediate petroleum products and crude oil.
(3)
Includes throughput of two underground propane storage caverns.
(4)
Represents the ratio of contracted capacity to capacity available to be contracted.  Based on total capacity (i.e., including out of service capacity), average capacity utilization rates are approximately 81% and 87% for the three months ended June 30, 2018 and 2017, respectively, and approximately 82% and 91% for the six months ended June 30, 2018 and 2017, respectively.

Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017
 
Consolidated Overview
 
Net income was $93.3 million for the three months ended June 30, 2018, a decrease of $23.1 million, or 19.8%, from $116.4 million for the corresponding period in 2017.  The decrease was driven by (i) lower operating results primarily in the Global Marine Terminals segment’s Caribbean facilities, partially offset by stronger results at Buckeye Texas and an increased contribution from VTTI; (ii) lower operating results in the Merchant Services segment, as further explained in the discussion of Adjusted EBITDA by segment below; (iii) a $3.2 million increase in interest and debt expense, due to increased levels of outstanding indebtedness and higher interest rates; and (iv) a $1.8 million increase in depreciation and amortization expense. The results of the Domestic Pipelines & Terminals segment were largely unchanged from prior year, as further explained in the discussion of Adjusted EBITDA by segment below.

Total Adjusted EBITDA was $254.9 million for the three months ended June 30, 2018, a decrease of $14.3 million, or 5.3%, from $269.2 million for the corresponding period in 2017.  The decrease in Adjusted EBITDA was driven by decreases in Adjusted EBITDA of $11.1 million and $3.2 million from the Global Marine Terminals and Merchant Services segments, respectively.
 

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Distributable cash flow was $162.0 million for the three months ended June 30, 2018, a decrease of $8.4 million, or 4.9%, from $170.4 million for the corresponding period in 2017, driven by (i) a $14.3 million decrease in Adjusted EBITDA from our segments, as further described below, net of a $5.8 million increase in the Adjusted EBITDA contribution from VTTI; (ii) a $1.6 million decrease in our proportionate share of VTTI’s interest expense, current income tax expense and maintenance capital resulting in a $7.4 million increase in VTTI’s contribution to distributable cash flow; and (iii) a $3.5 million increase in our interest and debt expense, excluding amortization of deferred financing costs, debt discounts, and other. This net decrease in distributable cash flow was partially offset by a $8.2 million decrease in maintenance capital expenditures, excluding hurricane-related maintenance capital expenditures, reflecting the completion of certain large projects during the three months ended June 30, 2017, as well as the timing of projects in the current year.
 
Adjusted EBITDA by Segment
 
Domestic Pipelines & Terminals. Adjusted EBITDA from the Domestic Pipelines & Terminals segment was $135.4 million for the three months ended June 30, 2018, consistent with the corresponding period in 2017, as pipeline volume increases, favorable product recoveries, strong earnings from equity method investments, and a decrease in operating expenses were offset by the impact of a terminalling throughput contract expiration and lower storage revenues.  

Pipeline volumes increased by 2.9% due to strong demand for gasoline and distillate shipments. Terminalling volumes increased by 5.9%, primarily due to higher distillate and gasoline volumes, reflecting strong customer throughput demand, particularly in our Southeast and Midwest regions.

The volume increases contributed to an increase of $1.9 million in pipeline transportation revenues, excluding product recoveries and other pipeline revenues, resulting from favorable demand for transportation services in the Midwest, as well as increases in certain tariff rates. In addition, product recoveries increased by $3.2 million while butane blending, project management, and other revenues increased by $0.8 million. These increases were offset by a $3.9 million decrease in terminalling throughput revenues, primarily reflecting the impact of the expiration of a crude-by-rail contract at our Chicago Complex, and a $3.1 million decrease in storage revenue, primarily due to lower capacity utilization. The $0.3 million net decrease in operating expenses primarily relates to lower asset maintenance, environmental and general and administrative expenses, partially offset by higher additives and labor costs. Earnings from equity method investments increased by $0.8 million driven by higher results from West Shore Pipe Line Company.

Global Marine Terminals.  Adjusted EBITDA from the Global Marine Terminals segment was $120.7 million for the three months ended June 30, 2018, a decrease of $11.1 million, or 8.4%, from $131.8 million for the corresponding period in 2017.  The decrease in Adjusted EBITDA was primarily due to a $22.3 million decrease in revenue, partially offset by a $2.5 million increase in Adjusted EBITDA from the acquisition of our partner’s interest in Buckeye Texas in April 2018, a $5.8 million increase in the Adjusted EBITDA contribution from our equity investment in VTTI, as well as a $2.9 million decrease in operating expenses.

The decrease in revenue was due to a $23.3 million decrease in revenue from storage and terminalling services, reflecting lower capacity utilization and average rates, primarily due to lower demand for storage services as a result of overall weaker market conditions, partially offset by a $1.0 million increase in processing services revenues at Buckeye Texas. The weaker market conditions currently impacting Global Marine Terminals revenue from storage services are expected to continue for the remainder of 2018 with improvement expected during the second half of 2019. The average capacity utilization (i.e., ratio of contracted capacity to capacity available to be contracted) of our marine storage assets was 85% for the three months ended June 30, 2018, which was a decrease from 91% in the corresponding period in 2017. The decrease in operating expenses reflected cost improvements across segment operations, as well as lower general and administrative expenses.
 
Merchant Services.  Adjusted EBITDA from the Merchant Services segment was a loss of $1.2 million for the three months ended June 30, 2018, a decrease of $3.2 million, or 160.0%, from a gain of $2.0 million for the corresponding period in 2017.  Adjusted EBITDA was negatively impacted by weaker market conditions, primarily in the distillate market, as well as an increase in operating expenses, reflecting bad debt expense related to a customer bankruptcy, partially offset by slightly higher rack margins.
 
Revenue from bulk and rack product sales increased by $161.1 million primarily due to (i) a $15.7 million increase as a result of 3.9% higher sales volumes and (ii) $145.4 million due to higher commodity prices (average sales prices per gallon were $2.13 and $1.58 for the 2018 and 2017 periods, respectively).


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Table of Contents

Cost of product sales, including both bulk and rack sales, increased by $163.0 million primarily due to (i) a $15.5 million increase due to higher sales volumes and (ii) $147.5 million due to higher commodity prices (average prices per gallon were $2.12 and $1.56 for the 2018 and 2017 periods, respectively).

Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

Consolidated Overview
 
Net income was $210.4 million for the six months ended June 30, 2018, a decrease of $32.3 million, or 13.3%, from $242.7 million for the corresponding period in 2017.  The decrease was driven by (i) lower operating results primarily in the Global Marine Terminals segment’s Caribbean facilities, partially offset by stronger results at Buckeye Texas and an increased contribution from VTTI; (ii) lower operating results in the Merchant Services segment, as further explained in the discussion of Adjusted EBITDA by segment below; and (iii) a $6.4 million increase in interest and debt expense, due to increased levels of outstanding indebtedness and higher interest rates. The decrease was partially offset by stronger results from the Domestic Pipelines & Terminals segment, as further explained in the discussion of Adjusted EBITDA by segment below, as well as a $14.0 million gain on insurance recoveries related to a property damage claim that was settled during the period.

Total Adjusted EBITDA was $516.6 million for the six months ended June 30, 2018, a decrease of $30.1 million, or 5.5%, from $546.7 million for the corresponding period in 2017.  The decrease in Adjusted EBITDA was driven by decreases in segment Adjusted EBITDA of $24.3 million and $7.0 million from the Global Marine Terminals and Merchant Services segments, respectively, partially offset by a $1.2 million increase in Adjusted EBITDA from the Domestic Pipelines & Terminals segment, as further explained in the discussion of Adjusted EBITDA by segment below.
 
Distributable cash flow was $331.2 million for the six months ended June 30, 2018, a decrease of $29.9 million, or 8.3%, from $361.1 million for the corresponding period in 2017, driven by (i) a $30.1 million decrease in Adjusted EBITDA from our segments, as further described below, net of a $11.8 million increase in the Adjusted EBITDA contribution from VTTI; (ii) a $1.3 million increase in our proportionate share of VTTI’s interest expense, current income tax expense, and maintenance capital, resulting in a $10.5 million increase in VTTI’s contribution to distributable cash flow; and (iii) a $7.2 million increase in our interest and debt expense, excluding amortization of deferred financing costs, debt discounts and other. This net decrease in distributable cash flow was partially offset by a $9.2 million decrease in maintenance capital expenditures, excluding hurricane-related maintenance capital expenditures, reflecting the completion of certain large projects during the prior year, as well as the timing of projects in the current year.
 
Adjusted EBITDA by Segment
 
Domestic Pipelines & Terminals. Adjusted EBITDA from the Domestic Pipelines & Terminals segment was $276.0 million for the six months ended June 30, 2018, an increase of $1.2 million, or 0.4%, from $274.8 million for the corresponding period in 2017.  The increase in Adjusted EBITDA was primarily due to a $0.9 million increase in pipeline transportation and terminalling and storage services revenue, as well as a $0.3 million net increase in earnings from equity method investments, partially offset by higher operating expenses.

Pipeline volumes increased by 3.1% due to strong demand for gasoline and distillate shipments. Terminalling volumes increased by 8.1%, primarily due to higher gasoline and distillate volumes, reflecting strong customer throughput demand, particularly in our Northeast, Midwest and Southeast regions.

The volume increases contributed to an increase of $7.3 million in pipeline transportation revenues, excluding product recoveries and other pipeline revenues, reflecting contributions from internal growth capital investments in service for a full first half of 2018, favorable demand for transportation services in the Midwest, as well as increases in certain tariff rates and higher-rate long-haul movements. In addition, product recoveries increased by $6.7 million. These increases were partially offset by a $6.9 million decrease in storage revenue, primarily due to lower capacity utilization, a $2.7 million decrease in project management and other revenues, primarily due to a decrease in project activity, as well as a $3.5 million decrease in terminalling throughput revenues, primarily reflecting the impact of the expiration of a crude-by-rail contract at our Chicago Complex. The increase in operating expenses primarily relates to increased labor, power and utilities, and general and additives expenses, partially offset by decreased activity within our project management business.


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Global Marine Terminals.  Adjusted EBITDA from the Global Marine Terminals segment was $238.1 million for the six months ended June 30, 2018, a decrease of $24.3 million, or 9.3%, from $262.4 million for the corresponding period in 2017.  The decrease in Adjusted EBITDA was primarily due to a $44.1 million decrease in revenue, partially offset by a $11.8 million increase in the Adjusted EBITDA contribution from our equity investment in VTTI, a $5.5 million decrease in operating expenses, as well as a $2.5 million increase in Adjusted EBITDA from the acquisition of our partner’s interest in Buckeye Texas in April 2018.

The decrease in revenue was due to a $48.7 million decrease in revenue from storage and terminalling services, reflecting lower capacity utilization and average rates primarily due to lower demand for storage services as a result of overall weaker market conditions, partially offset by a $4.6 million increase in processing services revenues at Buckeye Texas. The weaker market conditions currently impacting Global Marine Terminals revenue from storage services are expected to continue for the remainder of 2018 with improvement expected during the second half of 2019. The average capacity utilization (i.e., ratio of contracted capacity to capacity available to be contracted) of our marine storage assets was 87% for the six months ended June 30, 2018, which was a decrease from 95% in the corresponding period in 2017. The decrease in operating expenses reflected cost improvements across segment operations, as well as lower general and administrative expenses.
 
Merchant Services.  Adjusted EBITDA from the Merchant Services segment was $2.5 million for the six months ended June 30, 2018, a decrease of $7.0 million, or 73.7%, from $9.5 million for the corresponding period in 2017.  Adjusted EBITDA was negatively impacted by weaker market conditions, primarily in the distillate market, and an increase in operating expenses, reflecting bad debt expense related to a customer bankruptcy, partially offset by slightly higher rack margins.
 
Revenue from bulk and rack product sales increased by $388.4 million primarily due to (i) a $91.6 million increase as a result of 9.4% higher sales volumes and (ii) $296.8 million due to higher commodity prices (average sales prices per gallon were $2.06 and $1.61 for the 2018 and 2017 periods, respectively).

Cost of product sales, including both bulk and rack sales, increased by $394.3 million primarily due to (i) a $90.1 million increase due to higher sales volumes and (ii) $304.2 million due to higher commodity prices (average prices per gallon were $2.05 and $1.59 for the 2018 and 2017 periods, respectively).

Liquidity and Capital Resources
 
General
 
Our primary cash requirements, in addition to normal operating expenses and debt service, are for working capital, capital expenditures and investments, business acquisitions and distributions to unitholders.  Our principal sources of liquidity are cash from operations, borrowings under our Credit Facility and proceeds from the issuance of our LP Units, or in certain instances, other types of units.  We will, from time to time, issue debt securities to refinance amounts borrowed under our Credit Facility.  Buckeye Energy Services LLC, Buckeye West Indies Holdings LP, and Buckeye Caribbean Terminals LLC (collectively the Buckeye Merchant Service Companies or “BMSC”) fund their working capital needs principally from their own operations and their portion of our Credit Facility.  Our financial policy is to fund maintenance capital expenditures with cash from operations.  Expansion and cost reduction capital expenditures, along with acquisitions and investments, have typically been funded from external sources including our Credit Facility, as well as debt and equity offerings.  Depending on market condition, our goal has been to fund at least half of these expenditures with proceeds from equity offerings in order to maintain an appropriate leverage ratio and our investment-grade credit rating.  Based on current market conditions, we believe our borrowing capacity under our Credit Facility, cash flows from operations and access to debt and equity markets, if necessary, will be sufficient to fund our primary cash requirements. We continually evaluate engaging in strategic transactions as additional sources of capital which may include (i) divesting non-strategic assets where our evaluation suggests such a transaction is in the best interest of our business, including the potential monetization of full or partial equity interests in certain joint ventures or other assets and (ii) issuances of public or private debt or investments of private equity.  We believe availability under our Credit Facility in combination with these additional sources of capital will be sufficient to fund our current expansion plans over the next twelve months while maintaining adequate liquidity. 
 
Current Liquidity
 
As of June 30, 2018, we had working capital of $4.0 million and $1,038.1 million of availability under our Credit Facility.
  
 

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Capital Structure Transactions
 
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 U.S. Securities and Exchange Commission (“SEC”) that allows us to issue up to an aggregate of $1 billion in equity securities. From time to time, we enter into equity distribution agreements in connection with our at-the-market (“ATM”) offering program pursuant to which we may issue and sell LP Units registered under our traditional shelf registration statement. In the fourth quarter of 2017, we filed a new traditional shelf registration statement with the SEC, under which we had $1 billion of unsold securities available as of June 30, 2018. The universal and traditional shelf registration statements will expire in November and December 2020, respectively. Our equity distribution agreement (the “Equity Distribution Agreement”) with J.P. Morgan Securities LLC, BB&T Capital Markets, a division of BB&T Securities, LLC, BNP Paribas Securities Corp., Deutsche Bank Securities Inc., Jefferies LLC, Morgan Stanley & Co. LLC, RBC Capital Markets, LLC, and SMBC Nikko Securities America, Inc. (collectively, the “ATM Underwriters”) expired on January 15, 2018. We do not intend to enter into a new equity distribution agreement in connection with our ATM offering program in 2018.

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.

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 on investment.  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.

Current Maturities Expected to be Refinanced

We have classified $400.0 million of 2.650% notes due on November 15, 2018 as long-term debt in the unaudited condensed consolidated balance sheet at June 30, 2018 because we have the intent and the ability to refinance these obligations on a long-term basis under our Credit Facility. At June 30, 2018, we had $1,038.1 million of additional borrowing capacity under our Credit Facility.

Debt

At June 30, 2018, we had total fixed-rate and variable-rate debt obligations of $3,944.2 million and $1,104.7 million, respectively, with an aggregate fair value of $4,958.9 million. At June 30, 2018, we were in compliance with the covenants under our Credit Facility and our $250.0 million variable-rate term loan due September 30, 2019 (the “Term Loan”).

In January 2018, we issued $400.0 million of Junior Notes maturing on January 22, 2078, which are redeemable at Buckeye’s option, in whole or in part, on or after January 22, 2023. The Junior Notes bear interest at a fixed rate of 6.375% per year up to, but not including, January 22, 2023. From January 22, 2023, the Junior Notes will bear interest at a floating rate based on the Three-Month LIBOR Rate plus 4.02%, reset quarterly. Total proceeds from this offering, after underwriting fees, expenses, and debt issuance costs, were $394.9 million. We used the net proceeds from this offering to reduce the indebtedness outstanding under our Credit Facility and for general partnership purposes.

In January 2018, we repaid in full the $300.0 million principal amount and $9.1 million of accrued interest outstanding under our 6.050% notes, using funds available under our Credit Facility.

Equity
 
In March 2018, we issued approximately 6.2 million Class C Units in a private placement for aggregate gross proceeds of $265.0 million. The net proceeds were $262.1 million, after deducting issuance costs of approximately $2.9 million. We used the net proceeds from this offering to reduce the indebtedness outstanding under our Credit Facility, to partially fund growth capital expenditures and for general partnership purposes.


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Class C Units represent a separate class of our limited partnership interests. The Class C Units are substantially similar in all respects to our existing LP Units, except that Buckeye has the option to pay distributions on the Class C Units in cash or by issuing additional Class C Units, with the number of Class C Units issued based upon the volume-weighted average price of the LP Units, less a discount of 12.5%, for the 10 trading days immediately preceding the date the distributions are declared.

The Class C Units will convert into LP Units on a one-for-one basis at the earliest of (i) March 2, 2020, (ii) the date on which the Partnership delivers notice to the holders of the Class C Units that the Class C Units have converted, (iii) the date on which a change of control of the Partnership occurs, (iv) the business day following any notice or press release from the Partnership of a cash distribution for any quarterly period in an amount less than $1.2625 per LP Unit and (v) the date on which the Partnership issues any class or series of LP Units having preferences or senior rights over the LP Units and Class C Units.

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): 
 
 
Six Months Ended
June 30,
 
 
2018
 
2017
Cash provided by (used in):
 
 

 
 

Operating activities
 
$
431,141

 
$
436,221

Investing activities
 
(235,197
)
 
(1,340,510
)
Financing activities
 
(196,467
)
 
266,324

Net decrease in cash and cash equivalents
 
$
(523
)
 
$
(637,965
)
 
Operating Activities
 
Net cash provided by operating activities of $431.1 million for the six months ended June 30, 2018 primarily resulted from $210.4 million of net income, adjusted for $130.7 million of depreciation and amortization expense, and a $62.0 million decrease in net working capital items, primarily reflecting a decrease in liquid petroleum products inventory in the Merchant Services segment, partially offset by a decrease in related accounts payable.
 
Net cash provided by operating activities of $436.2 million for the six months ended June 30, 2017 primarily resulted from $242.7 million of net income, adjusted for $130.3 million of depreciation and amortization expense and a $68.9 million decrease in net working capital items, primarily reflecting a decrease in liquid petroleum products inventory in the Merchant Services segment.

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
 
Net cash used in investing activities of $235.2 million for the six months ended June 30, 2018 primarily resulted from $250.0 million of capital expenditures.

Net cash used in investing activities of $1.34 billion for the six months ended June 30, 2017 primarily resulted from $203.0 million of capital expenditures and $1.15 billion of equity investment acquisition costs related to the VTTI Acquisition. See below for a discussion of capital spending.


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Financing Activities
 
Net cash used in financing activities of $196.5 million for the six months ended June 30, 2018 primarily resulted from $372.2 million of cash distributions paid to our unitholders ($2.5250 per LP Unit), a $300.0 million principal repayment of our 6.050% notes, and a $210.0 million acquisition of our business partner’s 20% interest in our Buckeye Texas consolidated subsidiary, partially offset by $394.9 million of net proceeds from our 6.375% notes issuance, $262.1 million of net proceeds from the issuance of 6.2 million Class C Units in a private placement, and $40.6 million of net borrowings under the Credit Facility.
 
Net cash provided by financing activities of $266.3 million for the six months ended June 30, 2017 primarily resulted from $587.3 million of net borrowings under the Credit Facility and $48.4 million of net proceeds from the issuance of 0.7 million LP Units under the Equity Distribution Agreement, which were partially offset by $350.3 million of cash distributions paid to our unitholders ($2.4875 per LP Unit).

Capital Expenditures
 
We have capital expenditures, which we define as “maintenance capital expenditures,” in order to maintain and enhance the safety and asset integrity of our pipelines, terminals, storage and processing 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):
 
 
Six Months Ended
June 30,
 
 
2018
 
2017
Maintenance capital expenditures (1)
 
$
56,766

 
$
73,080

Expansion and cost reduction
 
193,269

 
129,881

Total capital expenditures (2)
 
$
250,035

 
$
202,961

____________________________
(1)
Includes maintenance capital expenditures of $3.3 million related to the BBH facility and Yabucoa Terminal in Puerto Rico as a result of Hurricanes Matthew and Maria for the six months ended June 30, 2018 and $10.4 million for the six months ended June 30, 2017 as a result of Hurricane Matthew.
(2)
Amounts exclude the impact of accruals. On an accrual basis, capital expenditure additions to property, plant and equipment were $252.5 million and $192.3 million for the six months ended June 30, 2018 and 2017, respectively.

Capital expenditures increased for the six months ended June 30, 2018, as compared to the corresponding period in 2017, primarily due to increases in expansion and cost reduction capital projects. Our expansion and cost reduction capital expenditures were $193.3 million for the six months ended June 30, 2018, an increase of $63.4 million, or 48.8%, from $129.9 million for the corresponding period in 2017. The period-over-period increase in our expansion and cost reduction capital expenditures primarily reflected the ongoing expansion of certain large organic-growth capital projects, including the Michigan/Ohio Pipeline Expansion Project, New York Harbor Connectivity, Jacksonville Terminals, and Chicago Complex. Our maintenance capital expenditures were $56.8 million for the six months ended June 30, 2018, a decrease of $16.3 million, or 22.3%, from $73.1 million for the corresponding period in 2017, primarily driven by a temporary increase in maintenance capital during the first half of 2017 related to upgrades in station and terminal equipment, asset integrity work necessary to maintain operating capacity, and repairs to our BBH facility as a result of Hurricane Matthew.


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We have estimated our capital expenditures as follows for the year ending December 31, 2018 (in thousands):
 
 
2018
 
 
Low
 
High
Domestic Pipelines & Terminals:
 
 
 
 
Maintenance capital expenditures
 
$
67,000

 
$
77,000

Expansion and cost reduction
 
262,000

 
292,000

Total capital expenditures
 
$
329,000

 
$
369,000

 
 
 
 
 
Global Marine Terminals:
 
 
 
 
Maintenance capital expenditures
 
$
38,000

 
$
48,000

Expansion and cost reduction (1)
 
83,000

 
103,000

Total capital expenditures (2)
 
$
121,000

 
$
151,000

 
 
 
 
 
Overall:
 
 
 
 
Maintenance capital expenditures
 
$
105,000

 
$
125,000

Expansion and cost reduction
 
345,000

 
395,000

Total capital expenditures
 
$
450,000

 
$
520,000

_________________________
(1)   Excludes our actual or estimated capital contributions to unconsolidated joint ventures for expansion expenditures. In 2018, our capital contributions to the South Texas Gateway Terminal joint venture are expected to fall within the range from $55.0 million to $75.0 million, depending on the timing of the construction of the South Texas Gateway Terminal.
(2)   Includes 100% of Buckeye Texas’ capital expenditures.
 
Estimated maintenance capital expenditures include tank refurbishments and upgrades to station and terminalling equipment, asset integrity, field instrumentation and cathodic protection systems and exclude capital expenditures expected to be incurred in response to hurricane related damages. Estimated major expansion and cost reduction expenditures include the continuing capacity expansion of our pipeline system and terminalling capacity in the Midwest, expansion of the facilities in the New York Harbor which is nearing completion, continued investment in South Texas facilities, an expansion of the Jacksonville terminal, and various tank construction and conversion projects in our Global Marine Terminals and Domestic Pipelines & Terminals segments.

Off-Balance Sheet Arrangements
 
At June 30, 2018 and December 31, 2017, we had no off-balance sheet debt or arrangements.


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Item 3.  Quantitative and Qualitative Disclosures About Market Risk
 
The following should be read in conjunction with Quantitative and Qualitative Disclosures About Market Risk included under Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2017.  There have been no material changes in that information other than as discussed below.  Also, see Note 9 in the Notes to Unaudited Condensed Consolidated Financial Statements for additional discussion related to derivative instruments and hedging activities.

Market Risk — Non-Trading Instruments
 
We are exposed to financial market risks, including changes in commodity prices and interest rates. The primary factors affecting our market risk and the fair value of our derivative portfolio at any point in time are the volume of open derivative positions, changing refined petroleum commodity prices, and prevailing interest rates for our interest rate swaps.  We are also susceptible to basis risk created when we enter into financial hedges that are priced at a certain location, but the sales or exchanges of the underlying commodity are at another location where prices and price changes might differ from the prices and price changes at the location upon which the hedging instrument is based.  Since prices for refined petroleum products and interest rates are volatile, there may be material changes in the fair value of our derivatives over time, driven both by price volatility and the changes in volume of open derivative transactions.
 
The following is a summary of changes in fair value of our derivative instruments for the periods indicated (in thousands): 
 
 
Commodity Instruments
 
Interest
Rate Swaps
 
Total
Fair value of contracts outstanding at January 1, 2018
 
$
(4,207
)
 
$
31,994

 
$
27,787

Cash settlements during the period
 
8,451

 

 
8,451

Change in fair value attributable to new deals during the period
 
(9,791
)
 

 
(9,791
)
Change in fair value attributable to existing deals at January 1st
 
3,807

 
20,417

 
24,224

Fair value of contracts outstanding at June 30, 2018
 
$
(1,740
)
 
$
52,411

 
$
50,671

 
Commodity Price Risk
 
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 contracts accounted for at fair value. In addition, the segment uses exchange-traded refined petroleum product futures and over-the-counter traded physical fixed-price derivative contracts to hedge expected future transactions related to certain forecasted purchases and sales of refined petroleum products. Finally, our Merchant Services segment enters into exchange-traded refined petroleum product futures contracts on behalf of our Domestic Pipelines & Terminals segment to manage the risk of market price volatility on pricing spreads between gasoline and butane and butane inventory in connection with our butane blending activities managed by a third party. Based on a hypothetical 10% movement in the underlying quoted market prices of the futures contracts, as well as observable market data from third-party pricing publications for refined petroleum product inventories and physical contracts accounted for at fair value designated in hedging relationships at June 30, 2018, the estimated fair value, excluding variation margins, would be as follows (in thousands): 
Scenario
 
Resulting
Classification
 
Fair Value
Fair value assuming no change in underlying commodity prices (as is)
 
Asset
 
$
129,127

Fair value assuming 10% increase in underlying commodity prices
 
Asset
 
$
133,681

Fair value assuming 10% decrease in underlying commodity prices
 
Asset
 
$
124,573



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Interest Rate Risk
 
From time to time, we utilize forward-starting interest rate swaps to hedge the variability of the forecasted interest payments on anticipated debt issuances that may result from changes in the benchmark interest rate until the expected debt is issued. 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 are subject to credit risk when the change in fair value of the swap instruments is positive and the counterparty may fail to perform under the terms of the contract. We are subject to market risk with respect to changes in the underlying benchmark interest rate that impact the fair value of swaps. 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.

Our practice with respect to derivative transactions related to interest rate risk has been to have each transaction in connection with non-routine borrowings authorized by the board of directors of Buckeye GP (the “Board”). In February 2009, the Board adopted an interest rate hedging policy which permits us to enter into certain short-term interest rate swap agreements to manage our interest rate and cash flow risks associated with a credit facility. In addition, in August 2016, the Board authorized us to enter into forward-starting interest rate swaps to manage our interest rate and cash flow risks related to certain expected debt issuances associated with the maturity of existing debt obligations. Based on a hypothetical 10% movement in the underlying interest rates at June 30, 2018, the estimated fair value of the interest rate derivative contracts would be as follows (in thousands): 
Scenario
 
Resulting
Classification
 
Fair Value
Fair value assuming no change in underlying interest rates (as is)
 
Asset
 
$
52,411

Fair value assuming 10% increase in underlying interest rates
 
Asset
 
$
57,652

Fair value assuming 10% decrease in underlying interest rates
 
Asset
 
$
47,170


See Note 9 in the Notes to Unaudited Condensed Consolidated Financial Statements for additional discussion related to derivative instruments and hedging activities.

Foreign Currency Risk
 
Puerto Rico is a commonwealth territory under the U.S., and thus uses the U.S. dollar as its official currency. BBH’s functional currency is the U.S. dollar, and it is equivalent in value to the Bahamian dollar. St. Lucia is a sovereign island country in the Caribbean, and its official currency is the Eastern Caribbean dollar, which is pegged to the U.S. dollar and has remained fixed for many years. The functional currency for our operations in St. Lucia is the U.S. dollar. Foreign exchange gains and losses arising from transactions denominated in a currency other than the U.S. dollar relate to a nominal amount of supply purchases and are included in “Other income (expense)” within the unaudited condensed consolidated statements of operations. The effects of foreign currency transactions were not considered to be material for the three and six months ended June 30, 2018 and 2017.

Our equity method investment in VTTI indirectly exposes us to foreign currency risk, primarily with respect to the Euro, Malaysian Ringgit and United Arab Emirates Dirham. VTTI manages its exposure to foreign currency risk with foreign exchange hedging strategies. Our proportionate share of VTTI’s foreign currency transaction, hedging and translation gains and losses is included in our earnings from equity investments and accumulated other comprehensive income, as applicable. We recognized, in other comprehensive income (loss), a loss of $21.7 million and a gain of $24.9 million, representing our proportionate share of VTTI’s other comprehensive income (loss), for the three months ended June 30, 2018 and 2017, respectively. We recognized, in other comprehensive income (loss), a loss of $7.8 million and a gain of $27.7 million, representing our proportionate share of VTTI’s other comprehensive income, for the six months ended June 30, 2018 and 2017, respectively. VTTI’s other comprehensive income (loss) is primarily comprised of foreign currency translation adjustments.

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Item 4.  Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
Our management, with the participation of our Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), evaluated the design and effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report.  Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures as of the end of the period covered by this Report are designed and operating effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding disclosure.  A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
 
Changes in Internal Control Over Financial Reporting
 
During the quarter ended June 30, 2018, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) or in other factors that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
  
PART II.  OTHER INFORMATION
 
Item 1.  Legal Proceedings
 
In the ordinary course of business, we are involved in various claims and legal proceedings, some of which are covered by insurance. We are generally unable to predict the timing or outcome of these claims and proceedings. For information on unresolved legal proceedings, see Part I, Item 1, Financial Statements, Note 4, “Commitments and Contingencies” in the Notes to Unaudited Condensed Consolidated Financial Statements included in this quarterly report, which is incorporated into this item by reference.



Item 1A.  Risk Factors
 
Security holders and potential investors in our securities should carefully consider the risk factors in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2017. We have identified these risk factors as important factors that could cause our actual results to differ materially from those contained in any written or oral forward-looking statements made by us or on our behalf.


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Item 6.  Exhibits
 
(a)         Exhibits

 
Amended and Restated Certificate of Limited Partnership of Buckeye Partners, L.P., dated as of February 4, 1998 (Incorporated by reference to Exhibit 3.2 of Buckeye Partners, L.P.’s Annual Report on Form 10-K for the year ended December 31, 1997).
 
 
Certificate of Amendment to Amended and Restated Certificate of Limited Partnership of Buckeye Partners, L.P., dated as of April 26, 2002 (Incorporated by reference to Exhibit 3.2 of Buckeye Partners, L.P.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002).
 
 
Certificate of Amendment to Amended and Restated Certificate of Limited Partnership of Buckeye Partners, L.P., dated as of June 1, 2004, effective as of June 3, 2004 (Incorporated by reference to Exhibit 3.3 of the Buckeye Partners, L.P.’s Registration Statement on Form S-3 filed June 16, 2004).
 
 
Certificate of Amendment to Amended and Restated Certificate of Limited Partnership of Buckeye Partners, L.P., dated as of December 15, 2004 (Incorporated by reference to Exhibit 3.5 of Buckeye Partners, L.P.’s Annual Report on Form 10-K for the year ended December 31, 2004).
 
 
Amended and Restated Agreement of Limited Partnership of Buckeye Partners, L.P., dated as of November 19, 2010 (Incorporated by reference to Exhibit 3.1 of Buckeye Partners, L.P.’s Current Report on Form 8-K filed November 22, 2010).
 
 
Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of Buckeye Partners, L.P., dated as of January 18, 2011 (Incorporated by reference to Exhibit 3.1 of Buckeye Partners, L.P.’s Current Report on Form 8-K filed on January 20, 2011).
 
 
Amendment No. 2 to Amended and Restated Agreement of Limited Partnership of Buckeye Partners, L.P., dated as of February 21, 2013 (Incorporated by reference to Exhibit 3.1 of Buckeye Partners, L.P.’s Current Report on Form 8-K filed on February 25, 2013).
 
 
Amendment No. 3 to Amended and Restated Agreement of Limited Partnership of Buckeye Partners, L.P., dated as of October 1, 2013, (Incorporated by reference to Exhibit 3.1 of Buckeye Partners, L.P.’s Current Report on Form 8-K filed on October 7, 2013).
 
 
Amendment No. 4 to Amended and Restated Agreement of Limited Partnership of Buckeye Partners, L.P., dated as of September 29, 2014, (Incorporated by reference to Exhibit 3.1 of Buckeye Partners, L.P.’s Current Report on Form 8-K filed on September 29, 2014).
 
 
Amendment No. 5 to Amended and Restated Agreement of Limited Partnership of Buckeye Partners, L.P., dated as of December 13, 2017, (Incorporated by reference to Exhibit 3.1 of Buckeye Partners, L.P.’s Current Report on Form 8-K filed on December 18, 2017).
 
 
Amendment No. 6 to Amended and Restated Agreement of Limited Partnership of Buckeye Partners, L.P., dated as of March 2, 2018 (Incorporated by reference to Exhibit 3.1 of Buckeye Partners, L.P.’s Current Report on Form 8-K filed on March 5, 2018).
 
 
Subordinated Indenture, dated January 22, 2018, between Buckeye Partners, L.P. and Branch Banking and Trust Company, as trustee (Incorporated by reference to Exhibit 4.1 of Buckeye Partners, L.P.’s Current Report on Form 8-K filed on January 24, 2018).
 
 
First Supplemental Indenture, dated January 22, 2018, between Buckeye Partners, L.P. and Branch Banking and Trust Company, as trustee (Incorporated by reference to Exhibit 4.1 of Buckeye Partners, L.P.’s Current Report on Form 8-K filed on January 24, 2018).
 
 

44

Table of Contents

Registration Rights Agreement by and among Buckeye Partners, L.P. and the Investors named on Schedule A, dated as of March 2, 2018 (Incorporated by reference to Exhibit 4.1 of Buckeye Partners, L.P.’s Current Report on Form 8-K filed on March 5, 2018).
 
 
Buckeye Partners, L.P. Unit Deferral and Incentive Plan, as amended and restated effective April 1, 2018.
 
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
 
 
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
 
 
*101.INS
XBRL Instance Document.
 
 
*101.SCH
XBRL Taxonomy Extension Schema Document.
 
 
*101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
*101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
 
 
*101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
*101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
*                 Filed herewith.
**          Furnished herewith.


45

Table of Contents

SIGNATURES
 
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
By:
BUCKEYE PARTNERS, L.P.
 
 
 
(Registrant)
 
 
 
 
 
By:
Buckeye GP LLC,
 
 
 
as General Partner
 
 
 
 
 
 
Date:
August 3, 2018
By:
/s/ Keith E. St.Clair
 
 
 
Keith E. St.Clair
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
(Principal Financial Officer)


46

Exhibit 10.1











BUCKEYE PARTNERS, L.P.
UNIT DEFERRAL AND INCENTIVE PLAN

(As Amended and Restated, effective as of April 1, 2018)

























        




BUCKEYE PARTNERS, L.P.
UNIT DEFERRAL AND INCENTIVE PLAN

(As Amended and Restated, effective as of April 1, 2018)

ARTICLE I
ESTABLISHMENT AND PURPOSE
The Buckeye Partners, L.P. Unit Deferral and Incentive Plan is intended to provide a select group of management and highly compensated employees of the Company and its Affiliates with the opportunity to exchange annual bonus compensation for Deferral and Matching Units that are all subject to a substantial, additional vesting requirement. The purposes of the Plan are to attract and retain selected officers and key employees of the Company and its Affiliates and to enable such individuals to acquire or increase ownership interests in the Partnership. The Plan is intended to provide benefits that are excluded from the definition of “deferred compensation” under Code section 409A pursuant to the exclusion for certain short-term deferral amounts applicable thereunder or solely with respect to Section 5.7(f), are structured to comply with Code section 409A. Capitalized terms, unless otherwise defined herein, shall have the meanings provided in Article II.
ARTICLE II    
DEFINITIONS
Whenever used in this Plan, the following terms will have the respective meanings set forth below, unless the context clearly indicates otherwise:
Administrator” shall mean the Committee.
“Affiliate” will have the meaning ascribed to such term in Rule 12b-2 of the General Rules under the Exchange Act. Notwithstanding the foregoing, Buckeye Pipe Line Services Company shall be considered an Affiliate of the Company and any reference to an Affiliate in this Plan shall include an Affiliate of the Company or the Partnership, as applicable.
“Annual Bonus” shall mean any amounts payable to the Participant under the Buckeye Partners, L.P. Annual Incentive Compensation Plan or any similar incentive plan.
“Beneficiary” or “Beneficiaries” means the beneficiary or beneficiaries last designated in writing by a Participant in accordance with procedures established by the Administrator to receive distributions under the Plan following the Participant’s death.
“Board” means the Company’s Board of Directors as constituted from time to time.
“Cause” shall mean, except to the extent specified otherwise by the Administrator, a finding by the Administrator that the Participant (i) has materially breached his or her employment, severance or service contract with the Company, Partnership or Affiliate, (ii) has engaged in disloyalty to the Company, Partnership or Affiliate, including, without limitation, fraud,

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embezzlement, theft, commission of a felony or proven dishonesty, (iii) has disclosed trade secrets or confidential information of the Company, Partnership or Affiliate to persons not entitled to receive such information, or (iv) has breached any written non-competition, non-solicitation, invention assignment or confidentiality agreement between the Participant and the Company, Partnership or Affiliate.
Change of Control” shall mean the occurrence of one or more of the following transactions:
(a)    the sale or disposal by the Partnership of all or substantially all of its assets; or
(b)    the merger or consolidation of the Partnership with or into another partnership, corporation, or other entity, other than a merger or consolidation in which the Unit holders immediately prior to such transaction retain at least a fifty percent (50%) equity interest in the surviving entity; or
(c)    the Company ceases to be the sole general partner of the Partnership;
(d)    the Partnership ceases to own, directly or indirectly, 100% of the outstanding equity interests of the Company; or
(e)    any person or “group” (within the meaning of the Exchange Act) collectively shall beneficially own and control, directly or indirectly, a number of Units that would entitle such person or group to vote Units representing, in the aggregate, more than fifty percent (50%) of the total number of outstanding Units that are entitled to vote and be counted for purposes of calculating the required votes and that are deemed to be outstanding for purposes of determining a quorum at any annual meeting of the limited partners of the Partnership or otherwise in the election of the Company’s Board.
"Change of Control Period" shall mean the period commencing on the date of a Change of Control and ending eighteen (18) calendar months following a Change of Control.
Code” means the Internal Revenue Code of 1986, as it may be amended from time to time.
Committee” means the Compensation Committee of the Board, or such other committee as determined by the Board.
Company” means Buckeye GP LLC, a Delaware limited liability company, and any successor thereto.
Deferral Amount” or “Deferral” shall mean that portion of a Participant’s Annual Bonus that is deferred in the form of Deferral Units that a Participant irrevocably elects to have, and is deferred, for any one Plan Year.
“Deferral Election” shall mean an Eligible Employee’s election to defer a portion of his or her Annual Bonus in the form of Deferral Units under the Plan on the form and in the manner prescribed by the Administrator and required by the terms of the Plan.

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“Deferral Unit” means a unit of measurement, which is deemed solely for bookkeeping purposes under this Plan to be equivalent to one Unit.
Disability” or “Disabled” means a long-term disability as determined under the long-term disability plan of the Company, the Partnership or an Affiliate, which is applicable to the Participant. Notwithstanding the foregoing, no payment shall be made to a Participant on account of Disability unless a Participant becomes disabled within the meaning of such term under Code section 409A(a)(2)(C).
Distribution Equivalent Rights” means an amount determined by multiplying the number of Deferral Units and Matching Units credited to a Participant's Unit Account, subject to adjustment under Section 8.2, by the per-Unit cash distribution, or the per-Unit fair market value (as determined by the Administrator) of any distribution in consideration other than cash, paid by the Partnership on its Units.
“Eligible Employee” shall mean any Employee who (1) was an Eligible Employee for Plan Years prior to January 1, 2013, selected by the Administrator to participate in the Plan for any Plan Year prior to January 1, 2013, is employed by the Company on December 31, 2012 and had a base salary equal to or in excess of $150,000 for any Plan Year, or (2) for Plan Years on or after January 1, 2013 and prior to January 1, 2017, had a base salary equal to or in excess of $175,000 and is in Salary Grade 22 – Director Level or higher (or such other amount or Salary Grade level set from time to time by the Administrator) or (3) for Plan Years on or after January 1, 2017, has a base salary equal to or in excess of $250,000 and is at Salary Grade 24 – Vice President Level or higher (or such other amount or Salary Grade level set from time to time by the Administrator), and, in the case of either (1), (2) or (3), such Employee is selected by the Administrator to participate in the Plan in the Administrator’s sole and absolute discretion for the relevant Plan Year. The Administrator may also designate any Employee who does not meet the foregoing eligibility requirements as an Eligible Employee in its sole and absolute discretion. Notwithstanding the foregoing, in the case of (1) or (2), any Eligible Employee who terminates employment on or after January 1, 2017 and is later rehired by the Company must meet the eligibility requirements in (3). Notwithstanding the foregoing eligibility requirements in (3) above, for Plan Years on or after January 1, 2017, any Employee that (x) was a Participant and made a Deferral Election of his or her Annual Bonus during the 2016 Plan Year, (y) was an Eligible Employee but elected not to make a Deferral Election for the 2016 Plan Year, or (z) was an Employee who otherwise would be an Eligible Employee for the 2016 Plan Year but was not eligible to make a Deferral Election for the 2016 Plan Year because such Employee was hired on or after January 1, 2016, will remain an Eligible Employee, so long as the Employee makes a Deferral Election for the 2017 Plan Year and continues to make a Deferral Election in later Plan Years, in each case, equal to minimum deferral percentage set by the Administrator for the relevant Plan Year.
Employee” means a regular full-time salaried employee of the Company or an Affiliate who performs services directly or indirectly for the benefit of the Partnership.
Employer(s)” shall mean the Company and any Affiliate (now in existence or hereafter formed or acquired) that have been selected by the Administrator to participate in the Plan.

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Exchange Act” means the Securities Exchange Act of 1934, as amended.
Fair Market Value” of a Unit means the average, rounded to one cent ($0.01), of the highest and lowest sales prices thereof on the New York Stock Exchange on the day on which Fair Market Value is being determined, as reported on the Composite Tape for transactions on the New York Stock Exchange. In the event that there are no Unit transactions on the New York Stock Exchange on such day, the Fair Market Value will be determined as of the immediately preceding day on which there were Unit transactions on that exchange. If a Unit is not publicly traded or, if publicly traded, is not subject to reported transactions as set forth above, the Fair Market Value per share shall be as determined by the Administrator through any reasonable valuation method.
Good Reason” shall mean the occurrence, without the Participant’s express written consent, of any of the following events during the Change of Control Period:
(a)    a substantial adverse change in the Participant's duties or responsibilities from those in effect on the date immediately preceding the first day of the Change of Control Period;
(b)    a material reduction in Participant’s annual rate of Base Salary or annual bonus opportunity as in effect immediately prior to commencement of a Change of Control Period; or
(c)    requiring Participant to be based at a location more than 100 miles from the Participant’s primary work location as it existed on the date immediately preceding the first day of the Change of Control Period, except for required travel substantially consistent with the Participant's present business obligations.
Notwithstanding the foregoing, Participant shall not have Good Reason for termination unless (i) Participant gives written notice of termination for Good Reason within 30 days after the event giving rise to Good Reason occurs, (ii) the Company does not cure the action or failure to act that constitutes the grounds for Good Reason, as set forth in Participant’s notice of termination, within 30 days after the date on which Participant gives written notice of termination and (iii) Participant actually resigns within 60 days following the expiration of the Company’s 30-day cure period.
LTIP” shall mean the Buckeye Partners, L.P. 2013 Long-Term Incentive Plan, including any amendments, modifications, or successors thereto.
Matching Unit” means a notional Unit credited to a Participant’s Unit Account that is subject to service-based vesting restrictions.
“Participant” shall mean an Eligible Employee who has commenced participation in the Plan and whose Unit Account has not been fully distributed.
Partnership” means Buckeye Partners, L.P., a Delaware limited partnership or any successor thereto.
“Plan” shall mean the Buckeye Partners, L.P. Unit Deferral and Incentive Plan set forth herein, as amended from time to time.

4



“Plan Year” shall mean a calendar year.
Unit means a unit representing a limited partnership interest in the Partnership.
Unit Account” shall mean the unfunded bookkeeping account established and maintained by the Administrator for each Participant that is credited with Deferral Units and Matching Units.
“Vesting Date” shall mean the date a Participant’s Deferral Units and Vesting Units become vested in accordance with Section 5.7 of the Plan.
ARTICLE III    
ADMINISTRATION
The Administrator shall have sole discretionary responsibility for the operation, interpretation, and administration of the Plan. Any action taken on any matter within the discretion of the Administrator shall be final, conclusive, and binding on all parties. In order to discharge its duties hereunder, the Administrator shall have the power and authority to remedy any errors, inconsistencies or omissions, to resolve any ambiguities, to adopt, interpret, alter, amend or revoke rules necessary to administer the Plan, to delegate its duties and to employ such outside professionals as may be required for prudent administration of the Plan. The records of the Administrator with respect to the Plan shall be conclusive on all Participants, all Beneficiaries, and all other persons whomsoever. The Administrator shall also have the right within the scope of his authority (if a designee of the Company) to enter into agreements on behalf of the Company necessary to administer the Plan. Any Participant who is acting as Administrator shall not be entitled to vote or act on any matter relating solely to himself or herself.
ARTICLE IV    
ELIGIBILITY AND PARTICIPATION
4.1.    Eligibility. Only Eligible Employees may become Participants. Prior to each Plan Year, each Eligible Employee shall be notified as to eligibility to defer a portion of his or her Annual Bonus for that Plan Year in the form of Deferral Units. For the avoidance of doubt, eligibility to defer Annual Bonus for one Plan Year shall not imply eligibility to defer Annual Bonus for a subsequent Plan Year.
4.2.    Participation. An Eligible Employee shall become a Participant by completing an election form and delivering it to the Company as specified in the Plan. If the Administrator determines in good faith that a Participant is no longer an Eligible Employee, the Participant shall cease active participation in the Plan immediately and the terms of the Plan shall continue to govern the Participant’s Unit Account until his or her Unit Account has been paid in full.
ARTICLE V    
DEFERRAL UNITS AND MATCHING UNITS
5.1.    Deferral Elections. Each Plan Year an Eligible Employee may, in accordance with procedures established by the Administrator in its sole discretion, elect to defer up to 50% of his or

5



her Annual Bonus for that Plan Year to the Participant’s Unit Account in the form of Deferral Units. Deferral Elections are effective on a Plan Year basis, and become irrevocable no later than the date specified by the Administrator but in any event before the beginning of the Plan Year that the Employer would otherwise have paid the Annual Bonus to the Participant but for the Participant’s Deferral Election. For the avoidance of doubt, Deferral Elections generally must be completed on or before December 31 of the Plan Year prior to the scheduled payment date for the Annual Bonus. For example, a Deferral Election with respect to an Annual Bonus amount payable for the 2014 Plan Year (otherwise payable in 2015) generally would need to be completed no later than December 31, 2014. A Participant’s Deferral Election will become effective only if the forms required by the Administrator have been properly completed and signed by the Participant, timely delivered to the Administrator, and accepted by the Administrator. A Participant who fails to file a Deferral Election before the required date will be treated as having elected not to defer any amounts for the Plan Year. Deferrals are subject to the vesting and forfeiture conditions of Sections 5.7 and 5.8.
5.2.    Deferral Limits. The Administrator may change the maximum deferral percentage and establish minimum deferral percentages from time to time in its sole discretion. Any such limits shall be communicated by the Administrator prior to the commencement of any election period.
5.3.    Deferral Units. The Administrator shall credit a Participant’s Unit Account with Deferral Units equal to the portion of his or her Annual Bonus that the Participant elected to defer. The number of Deferral Units shall be determined by dividing the amount of Annual Bonus deferred by the Participant to his Unit Account by the Fair Market Value of a Unit on the date that the Employer would otherwise have paid the Annual Bonus to the Participant but for the Participant’s Deferral Election or such other date as determined by the Administrator in accordance with procedures governing grants under the LTIP.
5.4.    Matching Units. An Eligible Employee who elects to defer a portion of his or her Annual Bonus under the Plan shall be entitled to receive a Matching Unit for each Deferral Unit that is credited to a Participant’s Unit Account during a Plan Year.
5.5.    Distribution Equivalent Rights. Participants shall be entitled to Distribution Equivalent Rights with respect to the Deferral Units and Matching Units allocated to a Participant’s Unit Account as if each such Deferral Unit and Matching Unit had been a Unit. Except as otherwise determined by the Administrator, Distribution Equivalent Rights shall be paid as soon as practicable following the payment of a distribution by the Partnership on its Units. A Participant will receive the aggregate amount of the Participant's Distribution Equivalent Rights in cash or Units as determined by the Administrator in its discretion.
5.6.    Unit Accounts.
(a)    Establishment of Unit Account. The Administrator will establish a Unit Account for each Participant who has elected to defer a portion of his or her Annual Bonus in Deferral Units. Unit Accounts shall be credited as appropriate for Deferral Units and Matching Units, and debited for distributions from the Unit Account.

6



(b)    Timing of Credits. The Administrator shall credit Deferrals to the Participant’s Unit Account not later than the end of the calendar year that the Employer would otherwise have paid the Annual Bonus to the Participant but for the Participant’s Deferral Election. The Administrator shall credit Matching Units to a Participant’s Unit Account at such times and in such amounts as the Administrator determines.
5.7.    Vesting. Except as otherwise specified by the Administrator in its discretion, a Participant shall become vested as follows:
(a)    General. A Participant shall become 100% vested in Deferral Units and Matching Units credited to his or her Unit Account during a Plan Year on December 15th of the second Plan Year that is after the Plan Year that the Deferral Units and Matching Units are credited to his or her Unit Account; provided that the Participant is continuously employed by, or continuously provides services to, the Company, Partnership or Affiliate through that date. For example, Deferral Units and Matching Units that are credited to a Participant’s Unit Account in 2014 will vest on December 15, 2016, provided that the Participant is continuously employed by, or continuously provides services to, the Company, Partnership or Affiliate from the date that such Deferral Units and Matching Units are credited to his or her Unit Account until December 15, 2016.
(b)    Termination without Cause. If a Participant’s employment is terminated by the Company, Partnership or Affiliate without Cause, such Participant’s unvested Deferral Units will immediately vest in full and unvested Matching Units will vest on a prorated basis, based on the portion of the vesting period during which the Participant was employed by the Company, Partnership or Affiliate. For purposes of determining the number of Matching Units that become vested pursuant to this section, the vesting period commences on the January 1 of the Plan Year that the Company would otherwise have paid the Annual Bonus to the Participant but for the Participant’s Deferral Election and ends three years later.
(c)    Disability. If a Participant is determined to be Disabled, such Participant’s unvested Deferral Units and Matching Units will immediately vest in full.
(d)    Death. In the event of the death of a Participant while employed by the Company, Partnership or Affiliate, such Participant’s unvested Deferral units and Matching Units will immediately vest in full.
(e)    Change of Control. In the event a Change of Control occurs while the Participant is employed by, or providing services to the Company, Partnership or Affiliate, and (i) the Participant is terminated without Cause during the Change of Control Period or (ii) the Participant resigns for Good Reason during the Change of Control Period, such Participant’s unvested Deferral Units and Matching Units will immediately vest in full.
(f)    Retirement. In the event a Participant terminates employment or service on account of retirement (as determined by the Administrator), the Administrator may, in its sole discretion, provide that such Participant’s unvested Deferral Units and Matching Units will immediately vest in full. The vesting of Deferral Units and Matching Units will be subject to such terms and conditions as the Administrator determines, including the Participant’s agreement to be

7



bound by restrictive covenant obligations, such as non-competition or non-solicitation covenants and/or such other restrictions as the Administrator determines, on a case-by-case basis at the time of the Participant’s retirement.
5.8.    Forfeiture.
(a)    If a Participant’s employment is terminated for Cause or voluntarily on the part of the Participant, any and all unvested Deferral Units and Matching Units shall be forfeited as of the date the Participant ceases to be employed by, or provide service to the Company, Partnership or Affiliate.
(b)    If a Participant’s employment is terminated without Cause, all unvested Matching Units that do not vest in accordance with Section 5.7(b) shall be forfeited as of the date the Participant ceases to be employed by, or provide service to the Company, Partnership or Affiliate.
5.9.    Distribution. Vested Deferral Units and Matching Units shall be distributed to the Participant (or in the case of a deceased Participant, the Participant’s Beneficiary) in a single lump sum payment as soon as reasonably practicable following the Vesting Date and in no event later than the later of the last day of the calendar year in which the Vesting Date occurs or two and one-half months following the Vesting Date. Vested Deferral Units and Matching Units will be settled in Units reserved under the LTIP; provided, however, that the Administrator may in its sole discretion specify prior to an affected Deferral Election that with respect to particular Participants or Deferral Units settlement will or may be made by a cash payment in lieu of Units. The amount of such cash payment shall equal the most recent Fair Market Value of a Unit as of the Vesting Date, multiplied by the number of Deferral Units and Matching Units to be paid in such manner. Any distribution that complies with this section shall be deemed for all purposes to comply with the Plan requirements regarding the time and form of distributions.
ARTICLE VI    
CLAIMS PROCEDURES
6.1.    Exclusive Procedures. This article sets forth the exclusive procedures by which claims under the Plan are to be made. No legal action may be brought by any person claiming entitlement to payment under the Plan until after the claims procedures set forth herein have been exhausted.
6.2.    Claim. Any person who believes that he or she is being denied a benefit to which he or she is entitled under the Plan (hereafter referred to as a “Claimant”) may file a written request for such benefit with the Administrator setting forth the basis for the claim.
6.3.    Determination; Notification. Except as provided herein, within sixty (60) days of receiving the claim, the Administrator shall determine whether to grant or deny the claim and notify the Claimant in writing of the decision. If the claim is granted, the Administrator shall commence payment in accordance with the provisions of Section 5.9. If the claim is denied, in whole or in part, the Administrator’s notice to the Claimant shall:

8



(a)    explain the specific reasons for the denial;
(b)    refer to the specific Plan provisions on which the denial is based;
(c)    describe any additional material or information necessary for the Claimant to perfect the claim (if perfection of the claim is possible) and an explanation of why such material or information is necessary; and
(d)    explain the steps and time limit for requesting review of the claim.
If the Administrator determines that an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to termination of the original 60-day period. In no event shall such extension exceed sixty (60) days from the end of such initial period.
6.4.    Claim Review. A Claimant (or his authorized representative) shall have sixty (60) days from the date the Administrator’s notice is mailed in which to file an appeal of the denial of his claim. Any such appeal must: (a) be in writing; (b) request review of the Claimant’s claim; (c) set forth each ground on which the request for review is based and the facts in support thereof; and (d) provide any other comments the Claimant believes pertinent and helpful to his application. The Claimant (or the Claimant’s duly authorized representative) may (i) request access to, and copies of, all documents, records, and other information relevant to the claim, which shall be provided to Claimant free of charge and (ii) submit written comments or other documents. Any Claimant who fails to timely file such a written appeal shall be estopped and barred from any further challenge to the Administrator’s determination to deny his claim.
6.5.    Review of Determination. The Administrator shall complete its review and decide the appeal within sixty (60) days after the written request for review was received by the Administrator (or within one-hundred twenty (120) days if special circumstances require additional time, and if written notice of such extension and circumstances is given to the Claimant within the initial 60-day period). In conducting its review, the Administrator may, in its sole discretion, require the Claimant to submit such additional documents or other evidence as the Administrator deems necessary or appropriate. The Administrator’s decision shall be final and binding on all persons with respect to the Claimant’s appeal. The Administrator shall notify the Claimant in writing that the claim has been allowed in full or that the claim has been denied, in whole or in part, and any denial notice must set forth:
(a)    Specific reasons for the decision;
(b)    Specific reference(s) to the pertinent Plan provisions upon which the decision was based;
(c)    A statement that Claimant is entitled to reasonable access to, and copies of, all documents, records or other information relevant to the claim upon request and free of charge; and

9



(d)    Such other matters as the Administrator deems relevant.
6.6.    Reimbursement of Costs. If the Company, an Affiliate, the Plan, a Claimant, or a successor in interest to any of the foregoing brings legal action to enforce any of the provisions of this Plan, the prevailing party in such legal action shall be reimbursed by the other party for the prevailing party’s costs, including, without limitation, reasonable fees of attorneys, accountants and similar advisors and expert witnesses.
ARTICLE VII    
AMENDMENT AND TERMINATION
The Plan may be amended, suspended, or terminated at any time (in whole or in part) by action of the Board or the Committee, with or without prior notice; provided, however, that no such amendment, suspension or termination shall reduce any Participant’s Unit Account balances without the written consent of the affected Participant. In the event of any suspension or termination of the Plan (or any portion thereof), Participants' Unit Accounts shall continue to vest and be distributed in accordance with the Plan.
ARTICLE VIII    
MISCELLANEOUS
8.1.    FICA and Other Taxes. To the extent required by the law in effect at the time benefits are distributed, the Participant’s Employer shall withhold from any benefits to a Participant any employment or other taxes required to be withheld by the federal government or any state or local government in amounts and in a manner to be determined in the sole discretion of the Employer.
8.2.    Adjustment of Number and Price of Units, Etc. If there is any change in the number or kind of Units outstanding (i) by reason of a Unit distribution, spinoff, recapitalization, Unit split, or combination or exchange of Units, (ii) by reason of a merger, reorganization, consolidation or reclassification, or (iii) by reason of any other extraordinary or unusual event affecting the outstanding Units as a class without the Company’s receipt of consideration, or if the value of outstanding Units is substantially reduced as result of a spinoff or the Company’s payment of any extraordinary distribution, the kind and number of Units covered by Deferral Units and Matching Units to be issued or issuable under the LTIP, and the applicable market value of outstanding Deferral Units and Matching Units shall be required to be equitably adjusted by the Administrator to reflect any increase or decrease in the number of, or change in the kind or value of, issued Units to preclude, to the extent practicable, the enlargement or dilution of rights and benefits under the LTIP and such outstanding Deferral Units and Matching Units; provided, however, than any fractional Units resulting from such adjustment shall be eliminated. Any adjustments determined by the Administrator shall be final, binding and conclusive.
8.3.    Unsecured General Creditor. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. An Employer’s obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.

10



8.4.    Unfunded Status of Plan. The Plan is intended to constitute an “unfunded” plan. Benefits payable hereunder shall be payable out of the general assets of the Company, and no segregation of any assets whatsoever for such benefits shall be made. With respect to any payments not yet made to a Participant, nothing contained herein shall give any such Participant any rights to assets that are greater than those of a general creditor of the Company.
8.5.    Designation of Beneficiary. Each Participant may designate a Beneficiary or Beneficiaries (which Beneficiary may be an entity other than a natural person) to receive any payments which may be made following the Participant’s death. Such designation may be changed or canceled at any time without the consent of any such Beneficiary. Any such designation, change or cancellation must be made in a form approved by the Administrator and shall not be effective unless and until it is filed with the Administrator during the Participant’s lifetime. If no Beneficiary has been named, or the designated Beneficiary or Beneficiaries shall have predeceased the Participant, the Beneficiary shall be the Participant’s estate. If a Participant designates more than one Beneficiary, the interests of such Beneficiaries shall be paid in equal percentages, unless the Participant has specifically designated otherwise.
8.6.    Nontransferability. The right of a Participant, Beneficiary, or other person to any payment under this Plan shall not be assigned, alienated, transferred, pledged or encumbered.
8.7.    No Rights to Employment. This Plan does not confer nor shall it be construed as creating an express or implied contract of employment between any Participant and the Company, Partnership, or Affiliate or other party. Nothing in the Plan shall interfere with or limit in any way the right of the Company, Partnership, or Affiliate to terminate any Participant’s employment at any time, nor confer upon any Employee any right to continue in the employment of the Company, Partnership, or Affiliate.
8.8.    Employer’s Liability. An Employer’s liability for the distribution of a Participant’s Unit Account shall be defined only by the Plan. An Employer shall have no obligation to a Participant except as expressly provided in the Plan.
8.9.    Payments to Minors and Incompetents. If any person entitled to any payment under this Plan is, in the judgment of the Administrator, incapable of receiving such payment because of minority, illness, infirmity or other incapacity, the Administrator may pay the amount due such person to a duly appointed legal representative, if there is one, or, if none, to the spouse, children, dependents, or such other persons with whom the person entitled to payment resides. Any such payment shall be a complete discharge of the liability of the Company, Partnership, Affiliate and the Plan with respect to such payment.
8.10.    Furnishing Information. A Participant or his Beneficiary will cooperate with the Administrator by furnishing any and all information requested by the Administrator and take such other actions as may be requested in order to facilitate the administration of the Plan and the distributions hereunder, including but not limited to taking such physical examinations as the Administrator may deem necessary.

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8.11.    Notice. Any notice or filing required or permitted under the Plan shall be sufficient if in writing and if (a) hand-delivered or sent by telecopy; (b) sent by registered or certified mail; or (c) sent by nationally-recognized overnight courier. Such notice shall be deemed given as of (i) the date of delivery if hand-delivered or sent by telecopy; (ii) as of the date shown on the postmark on the receipt for registration or certification, if delivery is by mail; or (iii) on the first business day after dispatch, if sent by nationally-recognized overnight courier. In the case of the Company, mailed or couriered notices will be addressed to its corporate headquarters, and all notices will be directed to the attention of its General Counsel. In the case of a Participant, mailed or couriered notice to a Participant or Beneficiary shall be directed to the individual’s last known address in the Employer’s records.
8.12.    Code Section 409A. Except with respect to any benefits that may become payable under Section 5.7(f), all Plan benefits are intended to constitute short-term deferrals within the meaning of Code section 409A and shall be excepted from the applicable requirements of Code section 409A in accordance with the regulations issued thereunder, and the Plan shall be maintained, interpreted and administered accordingly. With respect to any benefits that may become payable pursuant to the Administrator’s discretion under Section 5.7(f), to the extent that action by the Administrator results in such Deferral Units and Matching Units being deemed to constitute deferred compensation subject to the requirements of Code section 409A, payment shall only be made under the Plan upon an event and in a manner permitted by Code section 409A. Notwithstanding anything contained herein to the contrary, all provisions of this Plan shall be construed and interpreted to comply with Code section 409A and applicable regulations thereunder and if necessary, any provision shall be held null and void to the extent such provision (or part thereof) fails to comply with Code section 409A or regulations thereunder. In addition, to the extent that deferred compensation subject to the requirements of Code section 409A becomes payable under this Plan to a “specified employee” (within the meaning of Code section 409A) on account of “separation from service” (within the meaning of Code section 409A), any such payments shall be delayed by six months to the extent necessary to comply with the requirements of Code section 409A, but not beyond the death of the Participant. Nothing herein shall be construed as a guarantee of any particular tax treatment to a Participant.
8.13.    Successors. This Plan shall be binding upon and inure to the benefit of the Partnership, the Company, and their successors and assigns and the Participant and his or her heirs, executors, administrators and legal representatives.
8.14.    Gender and Number. Except when otherwise indicated by context, words in the masculine gender shall include the feminine and neuter genders, the singular shall include the plural, and the plural shall include the singular.
8.15.    Headings. The headings contained in this Plan are for convenience only and will not control or affect the meaning or construction of any of the terms or provisions of this Plan.
8.16.    Invalid or Unenforceable Provisions. If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof and the Administrator may elect in its sole discretion to construe such invalid or

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unenforceable provisions in a manner that conforms to applicable law or as if such provisions, to the extent invalid or unenforceable, had not been included.
8.17.    Effective Date of Plan. This Plan was originally effective as of December 16, 2009, was amended and restated, effective as of August 4, 2011, January 1, 2013, July 31, 2013 February 4, 2015, and January 1, 2017 and is hereby amended and restated, effective as of April 1, 2018. The Plan shall remain in effect until the termination of the Plan by action of the Board or the Committee pursuant to Article VII.
8.18.    Applicable Law. The Plan shall be construed and administered in accordance with and governed by the laws of the State of Delaware, other than its laws respecting choice of law.
8.19.    Entire Agreement. This Plan constitutes the entire understanding and agreement with respect to the subject matter contained herein, and there are no agreements, understandings, restrictions, representations or warranties among any Participant and the Partnership, Company or Affiliates other than those set forth or provided for herein.

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Exhibit 31.1 
CERTIFICATION 
I, Clark C. Smith, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Buckeye Partners, L.P.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
 Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
BUCKEYE GP LLC, as general partner of the registrant
 
 
Date: August 3, 2018
/s/ CLARK C. SMITH
 
Clark C. Smith
 
Chief Executive Officer, President and Chairman of the Board
 






Exhibit 31.2 
CERTIFICATION 
I, Keith E. St.Clair, certify that: 
1.
I have reviewed this Quarterly Report on Form 10-Q of Buckeye Partners, L.P.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 
 
BUCKEYE GP LLC, as general partner of the registrant
 
 
Date: August 3, 2018
/s/ KEITH E. ST.CLAIR
 
Keith E. St.Clair
 
Executive Vice President and Chief Financial Officer





Exhibit 32.1 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350 
In connection with the Quarterly Report of Buckeye Partners, L.P. (“Buckeye”) on Form 10-Q for the period ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Clark C. Smith, Chief Executive Officer, President and Chairman of the Board of Buckeye GP LLC, the general partner of Buckeye, hereby certify, to my knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Buckeye.
 
BUCKEYE GP LLC, as general partner of Buckeye
 
 
Date: August 3, 2018
/s/ CLARK C. SMITH
 
Clark C. Smith
 
Chief Executive Officer, President and Chairman of the Board




Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Buckeye Partners, L.P. (“Buckeye”) on Form 10-Q for the period ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Keith E. St.Clair, Executive Vice President and Chief Financial Officer of Buckeye GP LLC, the general partner of Buckeye, hereby certify, to my knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Buckeye.
 
BUCKEYE GP LLC, as general partner of Buckeye
 
 
Date: August 3, 2018
/s/ KEITH E. ST.CLAIR
 
Keith E. St.Clair
 
Executive Vice President and Chief Financial Officer



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