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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2002

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 001-10311

KANEB PIPE LINE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)

DELAWARE 75-2287571
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

2435 North Central Expressway
Richardson, Texas 75080
(Address of principal executive offices, including zip code)

(972) 699-4062
(Registrant's telephone number, including area code)

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 X No
----- ------

Number of Units of the Registrant outstanding at July 31, 2002: 23,100,090


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KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES


FORM 10-Q
QUARTER ENDED JUNE 30, 2002
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Page No.
Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Consolidated Statements of Income - Three and Six Months Ended
June 30, 2002 and 2001 1

Condensed Consolidated Balance Sheets - June 30, 2002
and December 31, 2001 2

Condensed Consolidated Statements of Cash Flows - Six
Months Ended June 30, 2002 and 2001 3

Notes to Consolidated Financial Statements 4

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12

Item 3. Quantitative and Qualitative Disclosure About Market Risk 18

Part II. Other Information

Item 1. Legal Proceedings 18

Item 6. Exhibits and Reports on Form 8-K 18




KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(In Thousands -- Except Per Unit Amounts)
(Unaudited)
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Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2002 2001 2002 2001
-------------- ------------- ------------- --------------


Revenues:
Services $ 73,674 $ 52,952 $ 132,762 $ 101,021
Products 27,028 - 35,582 -
-------------- ------------- ------------- --------------
Total revenues 100,702 52,952 168,344 101,021
-------------- ------------- ------------- --------------

Costs and expenses:
Cost of products sold 25,103 - 32,932 -
Operating costs 32,624 22,282 57,763 43,937
Depreciation and amortization 9,993 5,951 17,106 11,702
General and administrative 5,226 2,848 9,562 5,176
-------------- ------------- ------------- --------------
Total costs and expenses 72,946 31,081 117,363 60,815
-------------- ------------- ------------- --------------
Operating income 27,756 21,871 50,981 40,206

Interest and other income 110 3,388 181 4,096
Interest expense (7,653) (4,043) (12,930) (8,764)
-------------- ------------- ------------- --------------
Income before minority interest, income
taxes and extraordinary item 20,213 21,216 38,232 35,538
Minority interest (191) (211) (367) (352)
Income tax provision (1,123) (72) (1,571) (307)
-------------- ------------- ------------- --------------
Income before extraordinary item 18,899 20,933 36,294 34,879
Extraordinary item - loss on debt
extinguishment, net of minority
interest and income taxes (1,937) - (2,090) (5,757)
-------------- ------------- ------------- --------------
Net income 16,962 20,933 34,204 29,122

General partner's interest in net income (1,389) (536) (2,698) (944)
-------------- ------------- ------------- --------------
Limited partners' interest in net income $ 15,573 $ 20,397 $ 31,506 $ 28,178
============== ============= ============= ==============

Allocation of net income per unit:
Before extraordinary item $ .78 $ 1.01 $ 1.54 $ 1.68
Extraordinary item (.08) - (.09) (.29)
-------------- ------------- ------------- -------------
$ .70 $ 1.01 $ 1.45 $ 1.39
============== ============= ============= =============
Weighted average number of limited
partnership units outstanding 22,292 20,285 21,798 20,285
============== ============= ============= =============




See notes to consolidated financial statements.
1


KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
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June 30, December 31,
2002 2001
------------- ---------------
(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents $ 73,261 $ 7,903
Accounts receivable 31,411 24,005
Prepaid expenses and other 9,053 2,721
------------- --------------
Total current assets 113,725 34,629
------------- --------------

Property and equipment 965,505 639,084
Less accumulated depreciation 174,809 157,810
------------- --------------
Net property and equipment 790,696 481,274
------------- --------------

Investments in affiliates 21,717 22,252

Excess of cost over fair value of net assets of
acquired businesses and other assets 13,132 10,216
------------- -------------
$ 939,270 $ 548,371
============= ==============

LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 11,715 $ 6,541
Accrued expenses 37,159 19,101
Accrued distributions payable 19,840 16,263
Payable to general partner 4,466 4,701
------------- --------------
Total current liabilities 73,180 46,606
------------- --------------
Long-term debt 517,894 262,624

Other liabilities and deferred taxes 22,034 18,614

Minority interest 1,001 1,010

Commitments and contingencies

Partners' capital 325,161 219,517
------------- --------------
$ 939,270 $ 548,371
============= ==============


See notes to consolidated financial statements.
2


KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
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Six Months Ended
June 30,
----------------------------------------
2002 2001
------------- --------------

Operating activities:
Net income $ 34,204 $ 29,122
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 17,106 11,702
Minority interest 367 352
Equity in earnings of affiliates, net of distributions 375 1,639
Deferred income taxes 1,196 307
Extraordinary item 2,090 5,757
Changes in working capital components (10,076) 4,385
------------- --------------
Net cash provided by operating activities 45,262 53,264
------------- --------------

Investing activities:
Acquisitions, net of cash acquired (181,682) (106,810)
Capital expenditures (14,218) (6,196)
Proceeds from sale of assets - 2,807
Other, net (363) (71)
------------- --------------
Net cash used in investing activities (196,263) (110,270)
------------- --------------

Financing activities:
Issuance of debt 496,087 257,500
Payments of debt (353,759) (154,314)
Distributions, including minority interest (34,759) (29,630)
Net proceeds from issuance of limited
partnership units 108,790 -
------------- --------------
Net cash provided by financing activities 216,359 73,556
------------- --------------

Increase in cash and cash equivalents 65,358 16,550
Cash and cash equivalents at beginning of period 7,903 4,758
------------- --------------
Cash and cash equivalents at end of period $ 73,261 $ 21,308
============= ==============

Supplemental cash flow information:
Cash paid for interest $ 8,446 $ 7,781
============= ==============
Non-cash investing and financing activities -
Issuance of units for acquisition of terminals $ - $ 56,488
============= ==============



See notes to consolidated financial statements.
3




KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES


Notes to Consolidated Financial Statements
(Unaudited)
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1. SIGNIFICANT ACCOUNTING POLICIES

The unaudited condensed consolidated financial statements of Kaneb Pipe
Line Partners, L.P. and its subsidiaries (the "Partnership") for the three
and six month periods ended June 30, 2002 and 2001, have been prepared in
accordance with accounting principles generally accepted in the United
States of America. Significant accounting policies followed by the
Partnership are disclosed in the notes to the consolidated financial
statements included in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 2001. In the opinion of the Partnership's
management, the accompanying condensed consolidated financial statements
contain the adjustments, consisting of normal recurring accruals, necessary
to present fairly the consolidated financial position of the Partnership
and its consolidated subsidiaries at June 30, 2002 and the consolidated
results of their operations and cash flows for the periods ended June 30,
2002 and 2001. Operating results for the three and six months ended June
30, 2002 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2002.


2. ACQUISITIONS AND FINANCINGS

In January 2001, the Partnership used proceeds from its $275 million
revolving credit agreement to repay in full its $128 million of mortgage
notes. Under the provisions of the mortgage notes, the Partnership incurred
a $6.5 million prepayment penalty which, net of minority interest and
income taxes, was recognized as an extraordinary expense in the first
quarter of 2001.

On January 3, 2001, the Partnership, through a wholly-owned subsidiary,
acquired Shore Terminals LLC ("Shore") for $107 million in cash and
1,975,090 Partnership units (valued at $56.5 million on the date of
agreement and its announcement). Financing for the cash portion of the
purchase price was supplied under the Partnership's revolving credit
agreement. The acquisition was accounted for using the purchase method of
accounting.

In January of 2002, the Partnership issued 1,250,000 limited Partnership
units in a public offering at $41.65 per unit, generating approximately
$49.7 million in net proceeds. The proceeds were used to reduce the amount
of indebtedness outstanding under the Partnership's revolving credit
agreement.

In February 2002, Kaneb Pipe Line Operating Partnership, L.P. ("KPOP"), an
operating subsidiary of the Partnership, issued $250 million of 7.75%
senior unsecured notes due February 15, 2012. The net proceeds from the
public offering, $248.2 million, were used to repay the Partnership's
revolving credit agreement and to partially fund the acquisition of all of
the liquids terminaling subsidiaries of Statia Terminals Group NV
("Statia").

On February 28, 2002, the Partnership acquired Statia for approximately
$178 million in cash (net of acquired cash). The acquired Statia
subsidiaries had approximately $107 million in outstanding debt, including
$101 million of 11.75% notes due in November 2003. The cash portion of the
purchase price was funded by the Partnership's revolving credit agreement
and proceeds from KPOP's February 2002 public debt offering. Assuming the
acquisition occurred on January 1, 2001, unaudited pro forma revenues, net
income and net income per unit would have been $193.0 million, $33.3
million and $1.39, respectively, for the six months ended June 30, 2002.
Unaudited pro forma revenues, net income and net income per unit would have
been $106.8 million, $22.1 million and $1.00, respectively for the three
months ended June 30, 2001 and $205.1 million, $31.2 million and $1.40,
respectively, for the six months ended June 30, 2001.

In connection with the acquisition of Statia, the Partnership is in the
process of finalizing and implementing a plan to integrate Statia's
businesses with the Partnership's existing operations. The plan, when
finalized, is expected to provide for the termination and relocation of
certain administrative and operating employees and activities. Costs
associated with implementation, which will be recorded in the final
allocation of the Statia purchase price, will include employee termination
benefits, relocation costs and lease costs. The plan is expected to be
finalized and implemented by December 31, 2002.

On April 5, 2002, the Partnership redeemed all of Statia's 11.75% notes at
102.938% of the principal amount, plus accrued interest. The redemption was
funded by the Partnership's revolving credit facility. Under the provisions
of the 11.75% notes, the Partnership incurred a $3.0 million prepayment
penalty, of which $2.0 million, net of minority interest, was recognized as
an extraordinary expense in the second quarter of 2002.

In May of 2002, the Partnership issued 1,565,000 limited Partnership units
in a public offering at a price of $39.60 per unit, generating
approximately $59.1 million in net proceeds. The offering proceeds are
expected to be used to reduce the amount of indebtedness outstanding under
the Partnership's revolving credit agreement upon maturity of the interest
rate periods currently selected.


3. COMPREHENSIVE INCOME

Comprehensive income for the three and six months ended June 30, 2002 and
2001 is as follows:



Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
(in thousands)

Net income $ 16,962 $ 20,933 $ 34,204 $ 29,122
Foreign currency translation
adjustment 1,035 (163) 627 (858)
----------- ----------- ----------- -----------
Comprehensive income $ 17,997 $ 20,770 $ 34,831 $ 28,264
=========== =========== =========== ===========



4. CASH DISTRIBUTIONS

The Partnership makes quarterly distributions of 100% of its available
cash, as defined in its Partnership agreement, to holders of limited
Partnership units and the general partner. Available cash consists
generally of all the cash receipts of the Partnership, plus the beginning
cash balance less all of its cash disbursements and reserves. The
Partnership expects to make distributions of all available cash within 45
days after the end of each quarter to unitholders of record on the
applicable record date. A cash distribution of $0.79 per unit for the first
quarter of 2002 was paid on May 15, 2002. A cash distribution of $0.79 per
unit for the second quarter of 2002 was declared to holders of record on
July 31, 2002 and will be paid on August 14, 2002.


5. CONTINGENCIES

The operations of the Partnership are subject to Federal, state and local
laws and regulations in the United States and various foreign locations
relating to protection of the environment. Although the Partnership
believes its operations are in general compliance with applicable
environmental regulations, risks of additional costs and liabilities are
inherent in pipeline and terminal operations, and there can be no assurance
that significant costs and liabilities will not be incurred by the
Partnership. Moreover, it is possible that other developments, such as
increasingly stringent environmental laws, regulations and enforcement
policies thereunder, and claims for damages to property or persons
resulting from the operations of the Partnership, could result in
substantial costs and liabilities to the Partnership.

Certain subsidiaries of the Partnership were sued in a Texas state court in
1997 by Grace Energy Corporation ("Grace"), the entity from which the
Partnership acquired ST Services in 1993. The lawsuit involves
environmental response and remediation costs allegedly resulting from jet
fuel leaks in the early 1970's from a pipeline. The pipeline, which
connected a former Grace terminal with Otis Air Force Base in Massachusetts
(the "Otis pipeline" or the "pipeline"), ceased operations in 1973 and was
abandoned not later than 1976, when the connecting terminal was sold to an
unrelated entity. Grace alleged that subsidiaries of the Partnership
acquired the abandoned pipeline, as part of the acquisition of ST Services
in 1993 and assumed responsibility for environmental damages allegedly
caused by the jet fuel leaks. Grace sought a ruling from the Texas court
that these subsidiaries are responsible for all liabilities, including all
present and future remediation expenses, associated with these leaks and
that Grace has no obligation to indemnify these subsidiaries for these
expenses. In the lawsuit, Grace also sought indemnification for expenses of
approximately $3.5 million that it incurred since 1996 for response and
remediation required by the State of Massachusetts and for additional
expenses that it expects to incur in the future. The consistent position of
the Partnership's subsidiaries has been that they did not acquire the
abandoned pipeline as part of the 1993 ST Services transaction, and
therefore did not assume any responsibility for the environmental damage
nor any liability to Grace for the pipeline.

At the end of the trial, the jury returned a verdict including findings
that (1) Grace had breached a provision of the 1993 acquisition agreement
by failing to disclose matters related to the pipeline, and (2) the
pipeline was abandoned before 1978 -- 15 years before the Partnership's
subsidiaries acquired ST Services. On August 30, 2000, the Judge entered
final judgment in the case that Grace take nothing from the subsidiaries on
its claims seeking recovery of remediation costs. Although the
Partnership's subsidiaries have not incurred any expenses in connection
with the remediation, the court also ruled, in effect, that the
subsidiaries would not be entitled to indemnification from Grace if any
such expenses were incurred in the future. Moreover, the Judge let stand a
prior summary judgment ruling that the pipeline was an asset acquired by
the Partnership's subsidiaries as part of the 1993 ST Services transaction
and that any liabilities associated with the pipeline would have become
liabilities of the subsidiaries. Based on that ruling, the Massachusetts
Department of Environmental Protection and Samson Hydrocarbons Company
(successor to Grace Petroleum Company) wrote letters to ST Services
alleging its responsibility for the remediation, and ST Services responded
denying any liability in connection with this matter. The Judge also
awarded attorney fees to Grace of more than $1.5 million. Both the
Partnership's subsidiaries and Grace have appealed the trial court's final
judgment to the Texas Court of Appeals in Dallas. In particular, the
subsidiaries have filed an appeal of the judgment finding that the Otis
pipeline and any liabilities associated with the pipeline were transferred
to them as well as the award of attorney fees to Grace.

On April 2, 2001, Grace filed a petition in bankruptcy, which created an
automatic stay against actions against Grace. This automatic stay covers
the appeal of the Dallas litigation, and the Texas Court of Appeals has
issued an order staying all proceedings of the appeal because of the
bankruptcy. Once that stay is lifted, the Partnership's subsidiaries that
are party to the lawsuit intend to resume vigorous prosecution of the
appeal.

The Otis Air Force Base is a part of the Massachusetts Military Reservation
("MMR Site"), which has been declared a Superfund Site pursuant to CERCLA.
The MMR Site contains nine groundwater contamination plumes, two of which
are allegedly associated with the Otis pipeline, and various other waste
management areas of concern, such as landfills. The United States
Department of Defense and the United States Coast Guard, pursuant to a
Federal Facilities Agreement, have been responding to the Government
remediation demand for most of the contamination problems at the MMR Site.
Grace and others have also received and responded to formal inquiries from
the United States Government in connection with the environmental damages
allegedly resulting from the jet fuel leaks. The Partnership's subsidiaries
voluntarily responded to an invitation from the Government to provide
information indicating that they do not own the pipeline. In connection
with a court-ordered mediation between Grace and the Partnership's
subsidiaries, the Government advised the parties in April 1999 that it has
identified two spill areas that it believes to be related to the pipeline
that is the subject of the Grace suit. The Government at that time advised
the parties that it believed it had incurred costs of approximately $34
million, and expected in the future to incur costs of approximately $55
million, for remediation of one of the spill areas. This amount was not
intended to be a final accounting of costs or to include all categories of
costs. The Government also advised the parties that it could not at that
time allocate its costs attributable to the second spill area.

By letter dated July 26, 2001, the United States Department of Justice
("DOJ") advised ST Services that the Government intends to seek
reimbursement from ST Services under the Massachusetts Oil and Hazardous
Material Release Prevention and Response Act and the Declaratory Judgment
Act for the Government's response costs at the two spill areas discussed
above. The DOJ relied in part on the judgment by the Texas state court
that, in the view of the DOJ, held that ST Services was the current owner
of the pipeline and the successor-in-interest of the prior owner and
operator. The Government advised ST Services that it believes it has
incurred costs exceeding $40 million, and expects to incur future costs
exceeding an additional $22 million, for remediation of the two spill
areas. The Partnership believes that its subsidiaries have substantial
defenses. ST Services responded to the DOJ on September 6, 2001, contesting
the Government's positions and declining to reimburse any response costs.
The DOJ has not filed a lawsuit against ST Services seeking cost recovery
for its environmental investigation and response costs. Representatives of
ST Services have met with representatives of the Government on two
occasions since September 6, 2001 to discuss the Government's claims and to
exchange information related to such claims. ST Services and the Government
have also exchanged further correspondence related to the Government's
claims. Additional exchanges of information are expected to occur in the
future and additional meetings may be held to discuss possible resolution
of the Government's claims without litigation.

On April 7, 2000, a fuel oil pipeline in Maryland owned by Potomac Electric
Power Company ("PEPCO") ruptured. Work performed with regard to the
pipeline was conducted by a partnership of which ST Services is general
partner. PEPCO has reported that it has incurred total cleanup costs of $70
million to $75 million. PEPCO probably will continue to incur some cleanup
related costs for the foreseeable future, primarily in connection with EPA
requirements for monitoring the condition of some of the impacted areas.
Since May 2000, ST Services has provisionally contributed a minority share
of the cleanup expense, which has been funded by ST Services' insurance
carriers. ST Services and PEPCO have not, however, reached a final
agreement regarding ST Services' proportionate responsibility for this
cleanup effort, if any, and cannot predict the amount, if any, that
ultimately may be determined to be ST Services' share of the remediation
expense, but it believes that such amount will be covered by insurance and
therefore will not materially adversely affect the Partnership's financial
condition.

As a result of the rupture, purported class actions were filed against
PEPCO and ST Services in federal and state court in Maryland by property
and/or business owners alleging damages in unspecified amounts under
various theories, including under the Oil Pollution Act ("OPA") and
Maryland common law. The federal court consolidated all of the federal
cases in a case styled as In re Swanson Creek Oil Spill Litigation. A
settlement of the consolidated class action, and a companion state-court
class action, was reached and approved by the federal judge. The settlement
involved creation and funding by PEPCO and ST Services of a $2,250,000
class settlement fund, from which all participating claimants would be paid
according to a court-approved formula, as well as a court-approved payment
to plaintiffs' attorneys. The settlement has been consummated and the fund,
to which PEPCO and ST Services contributed equal amounts, has been
distributed. Participating claimants' claims have been settled and
dismissed with prejudice. A number of class members elected not to
participate in the settlement, i.e., to "opt out," thereby preserving their
claims against PEPCO and ST Services. Those electing not to participate in
the settlement include 23 plaintiffs in a lawsuit in Maryland state court
who allege damage to their property from the oil spill, as well as a small
number of other individuals who have not filed lawsuits and whose
intentions are currently unknown to ST Services. ST Services' insurance
carrier has assumed the defense of the sole continuing action and ST
Services believes that the carrier would assume the defense of any new
litigation by a non-participant in the settlement, should any such
litigation be commenced. While the Partnership cannot predict the amount,
if any, of any liability it may have in the continuing action or in other
potential suits relating to this matter, it believes that the current and
potential plaintiffs' claims will be covered by insurance and therefore
these actions will not have a material adverse effect on its financial
condition.

PEPCO and ST Services have agreed with the federal government and the State
of Maryland to pay costs of assessing natural resource damages arising from
the Swanson Creek oil spill under OPA. ST Services' insurer has paid ST
Services' agreed 50 percent share of these assessment costs. The assessment
process is substantially complete and ST Services anticipates that the
federal government and the state of Maryland will conclude that a total of
approximately $2.7 million of compensable natural resource damages occurred
as a result of the oil spill. ST Services has no agreement at this time
with the federal government or the State of Maryland, nor with PEPCO,
concerning payment for natural resource damages or restoration of damaged
resources. The Partnership believes that both the assessment costs and such
damages are covered by insurance and therefore will not materially
adversely affect the Partnership's financial condition.

The U.S. Department of Transportation ("DOT") has issued a Notice of
Proposed Violation to PEPCO and ST Services alleging violations over
several years of pipeline safety regulations and proposing a civil penalty
of $647,000 jointly against the two companies. ST Services and PEPCO have
contested the DOT allegations and the proposed penalty. A hearing was held
before the Office of Pipeline Safety at the DOT in late 2001, and ST
Services anticipates that the DOT will rule during the third quarter of
2002.

By letter dated January 4, 2002, the Attorney General's Office for the
State of Maryland advised ST Services that it intended to seek penalties
from ST Services in connection with the April 7, 2000 spill. The State of
Maryland subsequently asserted that it would seek penalties against ST
Services and PEPCO totaling up to $12 million. A settlement of this claim
has been reached in principle under which ST Services' insurer will pay a
total of slightly more than $1 million in installments over a five year
period. PEPCO has also reached a settlement of these claims with MDE.
Accordingly, the Partnership believes that this matter will not have a
material adverse effect on its financial condition.

The Partnership has other contingent liabilities resulting from litigation,
claims and commitments incident to the ordinary course of business.
Management believes, based on the advice of counsel, that the ultimate
resolution of such contingencies will not have a materially adverse effect
on the financial position or results of operations of the Partnership.


6. BUSINESS SEGMENT DATA

The Partnership conducts business through three principal segments; the
"Pipeline Operations," which consists primarily of the transportation of
refined petroleum products in the Midwestern states as a common carrier,
the "Terminaling Operations," which provides storage for petroleum
products, specialty chemicals and other liquids, and the "Product Sales
Operations", which delivers bunker fuels to ships in the Caribbean and Nova
Scotia, Canada and sells bulk petroleum products to various commercial
interests.

The Partnership measures segment profit as operating income. Total assets
are those controlled by each reportable segment. Business segment data is
as follows:


Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
(in thousands)

Business segment revenues:
Pipeline operations $ 19,322 $ 18,791 $ 36,948 $ 34,960
Terminaling operations 54,352 34,161 95,814 66,061
Product sales operations 27,028 - 35,582 -
----------- ----------- ----------- -----------
$ 100,702 $ 52,952 $ 168,344 $ 101,021
=========== =========== =========== ===========
Business segment profit:
Pipeline operations $ 9,483 $ 9,545 $ 17,934 $ 16,813
Terminaling operations 17,848 12,326 32,484 23,393
Product sales operations 425 - 563 -
----------- ----------- ----------- -----------
Operating income 27,756 21,871 50,981 40,206
Interest and other income 110 3,388 181 4,096
Interest expense (7,653) (4,043) (12,930) (8,764)
----------- ----------- ----------- -----------
Income before minority interest,
income taxes and extraordinary
item $ 20,213 $ 21,216 $ 38,232 $ 35,538
=========== =========== =========== ===========





June 30, December 31,
2002 2001
----------- -----------
(in thousands)


Total assets:
Pipeline operations $ 163,463 $ 105,156
Terminaling operations 764,394 443,215
Product sales operations 11,413 -
------------ ------------
$ 939,270 $ 548,371
============ ============




7. ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS
No. 142"), which eliminates the amortization for goodwill and other
intangible assets with indefinite lives. Under SFAS No. 142, intangible
assets with lives restricted by contractual, legal, or other means will
continue to be amortized over their useful lives. As of June 30, 2002, the
Partnership had no intangible assets subject to amortization under SFAS No.
142. Goodwill and other intangible assets not subject to amortization are
tested for impairment annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired. SFAS No. 142
requires a two-step process for testing impairment. First, the fair value
of each reporting unit is compared to its carrying value to determine
whether an indication of impairment exists. If an impairment is indicated,
then the fair value of the reporting unit's goodwill is determined by
allocating the unit's fair value to its assets and liabilities (including
any unrecognized intangible assets) as if the reporting unit had been
acquired in a business combination. The amount of impairment for goodwill
is measured as the excess of its carrying value over its fair value. Based
on valuations and analysis performed by the Partnership in the second
quarter of 2002, the Partnership determined that the implied fair value of
its goodwill exceeded carrying value, and therefore, no impairment charge
was necessary. Goodwill amortization included in the results of operations
of the Partnership for the three and six months ended June 30, 2001 was not
material.

Additionally, effective January 1, 2002, the Partnership adopted SFAS No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets", which
addresses financial accounting and reporting for the impairment or disposal
of long-lived assets. The adoption of SFAS No. 144, which superceded SFAS
No. 121, did not have a material impact on the consolidated financial
statements of the Partnership.




KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES


Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------

This discussion should be read in conjunction with the consolidated
financial statements of Kaneb Pipe Line Partners, L.P. (the "Partnership")
and notes thereto included elsewhere in this report.

Operating Results:



Pipeline Operations
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
(in thousands)

Revenues $ 19,322 $ 18,791 $ 36,948 $ 34,960
Operating costs 7,615 7,105 14,091 13,908
Depreciation and amortization 1,374 1,314 2,747 2,613
General and administrative 850 827 2,176 1,626
----------- ----------- ----------- -----------
Operating income $ 9,483 $ 9,545 $ 17,934 $ 16,813
=========== =========== =========== ===========



Pipeline revenues are based on volumes shipped and the distances over which
such volumes are transported. For the three and six month periods ended
June 30, 2002, revenues increased by 3% and 6%, respectively, compared to
the same 2001 periods, due to increases in short-haul volumes shipped and
increases in tarrif rates. Barrel miles totaled 4.6 billion and 4.8 billion
for the three months ended June 30, 2002 and 2001, respectively, and 8.8
billion and 8.9 billion for the six months ended June 30, 2002 and 2001,
respectively.

Operating costs, which include fuel and power costs, materials and
supplies, maintenance and repair costs, salaries, wages and employee
benefits, and property and other taxes, increased by $0.5 million and $0.2
million for the three and six month periods ended June 30, 2002,
respectively, when compared to 2001, due primarily to second quarter 2002
expenditures for routine repairs and maintenance. General and
administrative costs, which include managerial, accounting, and
administrative personnel costs, office rental and expense, legal and
professional costs and other non-operating costs, remained relatively flat
for the three month period ended June 30, 2002, and increased by $0.6
million for the six months ended June 30, 2002, due to first quarter 2002
increases in professional services and personnel related costs.





Terminaling Operations


Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
(in thousands)

Revenues $ 54,352 $ 34,161 $ 95,814 $ 66,061
Operating costs 24,070 15,177 42,388 30,029
Depreciation and amortization 8,412 4,637 14,085 9,089
General and administrative 4,022 2,021 6,857 3,550
----------- ----------- ----------- -----------
Operating income $ 17,848 $ 12,326 $ 32,484 $ 23,393
=========== =========== =========== ===========


Terminaling revenues increased by $20.2 million and $29.8 million,
respectively, for the three and six month periods ended June 30, 2002,
compared to the same 2001 periods due to the Statia acquisition and overall
increases in utilization at existing locations. Average annual tankage
utilized for the three and six month periods ended June 30, 2002 increased
to 49.1 million and 44.0 million barrels, up from 30.2 million and 30.1
million barrels for the comparable prior year periods. For the three and
six month periods ended June 30, 2002, average annualized revenues per
barrel of tankage utilized decreased to $4.44 and $4.39 per barrel,
compared to $4.54 and $4.42 per barrel for the same prior year period, due
to the storage of a larger proportionate volume of petroleum products,
which are historically at lower per barrel rates than specialty chemicals.

For the three and six month periods ended June 30, 2002, operating costs
increased by $8.9 million and $12.4 million, respectively, when compared to
the same 2001 periods, the result of the Statia acquisition and increases
in volumes stored. General and administrative costs for the three and six
month periods ended June 30, 2002, increased by $2.0 million and $3.3
million, when compared to the same 2001 periods due to the Statia
acquisition.





Product Sales Operations


Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
(in thousands)


Revenues $ 27,028 $ - $ 35,582 $ -
Cost of products sold 25,103 - 32,932 -
----------- ----------- ----------- -----------
Gross margin $ 1,925 $ - $ 2,650 $ -
=========== =========== =========== ===========
Operating income $ 425 $ - $ 563 $ -
=========== =========== =========== ===========


The product sales business, which was acquired with Statia on February 28,
2002 (see "Liquidity and Capital Resources"), delivers bunker fuels to
ships in the Caribbean and Nova Scotia, Canada and sells bulk petroleum
products to various commercial interests. For the three months ended June
30, 2002, product sales revenues, gross margin and operating income were
$27.0 million, $1.9 million and $0.4 million, respectively. For the six
months ended June 30, 2002, product sales revenues, gross margin and
operating income were $35.6 million, $2.7 million and $0.6 million,
respectively.


Interest and Other Income

In March of 2001, a wholly-owned subsidiary of the Partnership entered into
two contracts for the purpose of locking in interest rates on $100 million
of anticipated ten-year public debt offerings. As the interest rate locks
were not designated as hedging instruments pursuant to the requirements of
Statement of Financial Accounting Standards ("SFAS") No. 133, increases or
decreases in the fair value of the contracts are included as a component of
interest and other income. On May 22, 2001, the contracts were settled
resulting in an aggregate gain of $3.8 million.


Interest Expense

For the three and six months ended June 30, 2002, interest expense
increased by $3.6 million and $4.2 million, respectively, compared to the
same 2001 periods, due to increases in debt resulting from the Statia
acquisition (see "Liquidity and Capital Resources"), partially offset by
overall declines in variable interest rates.


Income Tax Provision

Income tax provision for the three and six months ended June 30, 2002
includes $0.7 million and $0.8 million, respectively, in income tax expense
relating to separate taxable wholly-owned corporate subsidiaries acquired
with Statia (see "Liquidity and Capital Resources").


Liquidity and Capital Resources

During the first six months of 2002, the Partnership's working capital
requirements for operations, capital expenditures (excluding acquisitions)
and cash distributions were funded through the use of internally generated
funds.

Cash provided by operations was $45.3 million and $53.3 million for the six
months ended June 30, 2002 and 2001, respectively. The decrease in cash
provided by operations for the six months ended June 30, 2002, compared to
the same 2001 period, was due to normal changes in working capital
components resulting from the timing of cash receipts and disbursements.
Capital expenditures (excluding acquisitions) were $14.2 million for the
six months ended June 30, 2002, compared to $6.2 million during the same
2001 period. The Partnership anticipates that routine maintenance capital
expenditures will total approximately $20 million to $25 million (excluding
acquisitions) for the year ending December 31, 2002.

The Partnership has a credit agreement with a group of banks that provides
for a $275 million unsecured revolving credit facility through December
2003. The credit facility bears interest at variable rates and has a
variable commitment fee on unutilized amounts. The credit facility contains
certain financial and operational covenants, including limitations on
investments, sales of assets and transactions with affiliates, and, absent
an event of default, the covenants do not restrict distributions to
unitholders. At June 30, 2002, $243.0 million was drawn on the facility, at
an interest rate of 3.12%.

In January 2001, the Partnership used proceeds from its revolving credit
agreement to repay in full its $128 million of mortgage notes. Under the
provisions of the mortgage notes, the Partnership incurred a $6.5 million
prepayment penalty which, net of minority interest and income taxes, was
recognized as an extraordinary expense in the first quarter of 2001.

On January 3, 2001, the Partnership, through a wholly-owned subsidiary,
acquired Shore Terminals LLC ("Shore") for $107 million in cash and
1,975,090 Partnership units (valued at $56.5 million on the date of
agreement and its announcement). Financing for the cash portion of the
purchase price was supplied by the Partnership's revolving credit
agreement.

In January of 2002, the Partnership issued 1,250,000 limited Partnership
units in a public offering at $41.65 per unit, generating approximately
$49.7 million in net proceeds. The proceeds were used to reduce the amount
of indebtedness outstanding under the Partnership's revolving credit
agreement.

In February 2002, Kaneb Pipe Line Operating Partnership, L.P. ("KPOP"), an
operating subsidiary of the Partnership, issued $250 million of 7.75%
senior unsecured notes due February 15, 2012. The net proceeds from the
public offering, $248.2 million, were used to repay the Partnership's
revolving credit agreement and to partially fund the acquisition of all of
the liquids terminaling subsidiaries of Statia Terminals Group NV
("Statia").

On February 28, 2002, the Partnership acquired Statia for approximately
$178 million in cash (net of acquired cash). The acquired Statia
subsidiaries had approximately $107 million in outstanding debt, including
$101 million of 11.75% notes due in November 2003. The cash portion of the
purchase price was funded by the Partnership's revolving credit agreement
and proceeds from KPOP's February 2002 public debt offering.

On April 5, 2002, the Partnership redeemed all of Statia's 11.75% notes at
102.938% of the principal amount, plus accrued interest. The redemption was
funded by the Partnership's revolving credit facility. Under the provisions
of the 11.75% notes, the Partnership incurred a $3.0 million prepayment
penalty, of which $2.0 million, net of minority interest, was recognized as
an extraordinary expense in the second quarter of 2002.

In May of 2002, the Partnership issued 1,565,000 limited Partnership units
in a public offering at a price of $39.60 per unit, generating
approximately $59.1 million in net proceeds. The offering proceeds are
expected to be used to reduce the amount of indebtedness outstanding under
the Partnership's revolving credit agreement upon maturity of the interest
rate periods currently selected.

The Partnership makes quarterly distributions of 100% of its available
cash, as defined in its Partnership agreement, to holders of limited
Partnership units and the general partner. Available cash consists
generally of all the cash receipts of the Partnership, plus the beginning
cash balance less all of its cash disbursements and reserves. The
Partnership expects to make distributions of all available cash within 45
days after the end of each quarter to unitholders of record on the
applicable record date. A cash distribution of $0.79 per unit for the first
quarter of 2002 was paid on May 15, 2002. A cash distribution of $0.79 per
unit for the second quarter of 2002 was declared to holders of record on
July 31, 2002 and will be paid on August 14, 2002.

The Partnership expects to fund future cash distributions and maintenance
capital expenditures with existing cash and anticipated cash flows from
operations. Expansionary capital expenditures are expected to be funded
through additional Partnership borrowings and/or future public unit
offerings.

Additional information relative to sources and uses of cash is presented in
the financial statements included in this report.

Information regarding the Partnership's Critical Accounting Policies is
included in Item 7 of the Partnership's Annual Report on Form 10-K for the
year ended December 31, 2001.

Recent Accounting Pronouncements

The FASB has issued SFAS No. 143 "Accounting for Asset Retirement
Obligations", which establishes requirements for the removal-type costs
associated with asset retirements. The Partnership is currently assessing
the impact of SFAS No. 143, which must be adopted in the first quarter of
2003.

In April of 2002, the FASB issued SFAS No. 145, which, among other items,
affects the income statement classification of gains and losses from early
extinguishment of debt. Under SFAS No. 145, which must be adopted by the
first quarter of 2003, early extinguishment of debt is now considered a
risk management strategy, with resulting gains and losses no longer
classified an extraordinary item, unless the debt extinguishment meets
certain unusual in nature and infrequency of occurrence criteria, which is
expected to be rare. Upon adoption, companies must reclassify prior items
that do not meet the new extraordinary item classification criteria as a
component of operating income. Had the provisions of SFAS No. 145 been
applied at June 30, 2002, the extraordinary items (before minority interest
and income taxes) recorded for the three and six month periods ended June
30, 2002 and 2001, respectively, would be reclassified as components of
operating income. Adoption of SFAS No. 145 will have no effect on the net
income of the Partnership.

In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities", which requires all restructurings
initiated after December 31, 2002 be recorded when they are incurred and
can be measured at fair value. The Partnership is currently assessing the
impact of SFAS No. 146, which must be adopted in the first quarter of 2003.






KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES



- --------------------------------------------------------------------------------


Item 3. Quantitative and Qualitative Disclosure About Market Risk

The principal market risks (i.e., the risk of loss arising from the adverse
changes in market rates and prices) to which the Partnership is exposed are
interest rates on the Partnership's debt and investment portfolios. The
Partnership's investment portfolio consists of cash equivalents; accordingly,
the carrying amounts approximate fair value. The Partnership's investments are
not material to its financial position or performance. Assuming variable rate
debt of $243.0 million at June 30, 2002, a one percent increase in interest
rates would increase annual net interest expense by approximately $2.4 million.


Part II - Other Information

Item 1. Legal Proceedings

The information contained in Note 5 of the Notes to Consolidated Financial
Statements included in this report is hereby incorporated by reference.


Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits.

3.1 Amended and Restated Agreement of Limited Partnership dated September
27, 1989, as revised July 23, 1998, filed as Exhibit 3.1 to
Registrant's Form 10-K for the year ended December 31, 2000, which
exhibit is hereby incorporated by reference.

10.1 ST Agreement and Plan of Merger dated December 21, 1992 by and between
Grace Energy Corporation, Support Terminal Services, Inc., Standard
Transpipe Corp., and Kaneb Pipe Line Operating Partnership, NSTS, Inc.
and NSTI, Inc. as amended by Amendment of STS Merger Agreement dated
March 2, 1993, filed as Exhibit 10.1 of the exhibits to Registrant's
Current Report on Form 8-K ("Form 8-K"), dated March 16, 1993, which
exhibit is hereby incorporated by reference.

10.2 Agreement for Sale and Purchase of Assets between Wyco Pipe Line
Company and KPOP, dated February 19, 1995, filed as Exhibit 10.1 of
the exhibits to the Registrant's March 1995 Form 8-K, which exhibit is
hereby incorporated by reference.

10.3 Asset Purchase Agreements between and among Steuart Petroleum Company,
SPC Terminals, Inc., Piney Point Industries, Inc., Steuart Investment
Company, Support Terminals Operating Partnership, L.P. and KPOP, as
amended, dated August 27, 1995, filed as Exhibits 10.1, 10.2, 10.3,
and 10.4 of the exhibits to Registrant's Current Report on Form 8-K
dated January 3, 1996, which exhibits are hereby incorporated by
reference.

10.4 Formation and Purchase Agreement, between and among Support Terminal
Operating Partnership, L.P., Northville Industries Corp. and AFFCO,
Corp., dated October 30, 1998, filed as exhibit 10.9 to the
Registrant's Form 10-K for the year ended December 31, 1998, which
exhibit is hereby incorporated by reference.

10.5 Agreement, between and among, GATX Terminals Limited, ST Services,
Ltd., ST Eastham, Ltd., GATX Terminals Corporation, Support Terminals
Operating Partnership, L.P. and Kaneb Pipe Line Partners, L.P., dated
January 26, 1999, filed as Exhibit 10.10 to the Registrant's Form 10-K
for the year ended December 31, 1998, which exhibit is hereby
incorporated by reference.

10.6 Credit Agreement, between and among, Kaneb Pipe Line Operating
Partnership, L.P., ST Services, Ltd. and SunTrust Bank, Atlanta, dated
January 27, 1999, filed as Exhibit 10.11 to the Registrant's Form 10-K
for the year ended December 31, 1998, which exhibit is hereby
incorporated by reference.

10.7 Revolving Credit Agreement, dated as of December 28, 2000 among Kaneb
Pipe Line Operating Partnership, L.P., Kaneb Pipe Line Partners, L.P.,
The Lenders From Time To Time Party Hereto, and SunTrust Bank, as
Administrative Agent, filed as Exhibit 10.7 to the Registrant's Form
10-K for the year ended December 31, 2001, which exhibit is
incorporated herein by reference.

10.8 Securities Purchase Agreement Among Shore Terminals LLC, Kaneb Pipe
Line Partners, L.P. and the Sellers Named Therein, dated as of
September 22, 2000, Amendment No. 1 To Securities Purchase Agreement,
dated as of November 28, 2000 and Registration Rights Agreement, dated
as of January 3, 2001, filed as Exhibits 10.1, 10.2 and 10.3 of the
exhibits to Registrant's Current Report on Form 8-K dated January 3,
2001, which exhibits are hereby incorporated by reference.

10.9 Stock Purchase Agreement, dated as of November 12, 2001, by and
between Kaneb Pipe Line Operating Partnership, L.P., and Statia
Terminals Group NV, a public company with limited liability organized
under the laws of the Netherlands Antilles, filed as Exhibit 10.1 to
the exhibits to Registrant's Current Report on Form 8-K, dated January
11, 2002, and incorporated herein by reference.

10.10 Voting and Option Agreement dated as of November 12, 2001, by and
between Kaneb Pipe Line Operating Partnership, L.P., and Statia
Terminals Holdings N.V., a Netherlands Antilles company and a
shareholder of Statia Terminals Group NV, a Netherlands Antilles
company filed as Exhibit 10.1 to the exhibits to Registrant's Current
Report on Form 8-K, dated January 11, 2002, and incorporated herein by
reference.


(b) Reports on Form 8-K

Current Report on Form 8-K, filed May 9, 2002.

Current Report on Form 8-K, filed May 16, 2002.



Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned.



KANEB PIPE LINE PARTNERS, L.P.
(Registrant)
By KANEB PIPE LINE COMPANY LLC
(Managing General Partner)


Date: August 13, 2002 //s//
--------------------------------------
Howard C. Wadsworth
Vice President, Treasurer and Secretary




CERTIFICATE OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002

The undersigned, being the Chief Executive Officer of Kaneb Pipe Line Company
LLC, as General Partner of Kaneb Pipe Line Partners, L.P. (the "Partnership")
hereby certifies that the Partnership's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2002, filed with the United States Securities
and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
and that information contained in such Quarterly Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.

Date: August 13, 2002.


//s//
---------------------------------------
Edward D. Doherty
Chief Executive Officer



CERTIFICATE OF CHIEF FINANCIAL OFFICER

Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002

The undersigned, being the Chief Financial Officer of Kaneb Pipe Line Company
LLC, as General Partner of Kaneb Pipe Line Partners, L.P. (the "Partnership")
hereby certifies that the Partnership's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2002, filed with the United States Securities
and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
and that information contained in such Quarterly Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.

Date: August 13, 2002.


//s//
---------------------------------------
Howard C. Wadsworth
Vice President, Treasurer and Secretary
(Chief Financial Officer)