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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q


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

For the quarterly period ended June 30, 2003

OR

o     
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

|                           
|---------------------------
|Commission File No. 1-10403



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TEPPCO Partners, L.P.


(Exact name of Registrant as specified in its charter)


|                                                  |  |                                                   
|------------------------------------------------- |  | --------------------------------------------------
|Delaware
(State of Incorporation
or Organization) |  | 76-0291058
(I.R.S. Employer
Identification Number)

|                                                                                                                       
|-----------------------------------------------------------------------------------------------------------------------
|2929 Allen Parkway
P.O. Box 2521
Houston, Texas 77252-2521
(Address of principal executive offices, including zip code)

|                                                                   
|-------------------------------------------------------------------
|(713) 759-3636
(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 þ  No o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes þ  No o

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date. Limited Partner Units
outstanding as of July 29, 2003: 57,751,447



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TABLE OF CONTENTS



|                                              |                                                                                               |                                             |  |  |  |  |  | 
|--------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                
|                                              | Item 1. Financial Statements                                                                 
|                                              |                                                                                               | CONSOLIDATED BALANCE SHEETS                
|                                              |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME          
|                                              |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS      
|                                              |                                                                                               | CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
|                                              |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
|                                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                              |                                                                                               | Forward-Looking Statements                 
|                                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                              | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                   
|                                              | Item 1. Legal Proceedings                                                                    
|                                              | Item 6. Exhibits and Reports on Form 8-K.                                                    
|SIGNATURES                                   
|INDEX TO EXHIBITS                            
|Credit Agreement dated June 27, 2003         
|Statement of Computation of Ratio of Earnings
|Certification of CEO Pursuant to Section 302 
|Certification of CFO Pursuant to Section 302 
|Certification of CEO Pursuant to Section 906 
|Certification of CFO Pursuant to Section 906 

TEPPCO PARTNERS, L.P.

TABLE OF CONTENTS

|                                                                                              |                                                                                                                |  |      |    | 
|--------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                              |                                                                                                                |  | Page
|                                                                                              |                                                                                                                |  |     
|PART I. FINANCIAL INFORMATION                                                                 |                                                                                                                |  |      |   
|Item 1. Financial Statements                                                                  |                                                                                                                |  |      |   
|                                                                                              | Consolidated Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002                              |  |      | 1  | 
|                                                                                              | Consolidated Statements of Income for the three months and six months ended June 30, 2003
and 2002 (unaudited) |  |      | 2  | 
|                                                                                              | Consolidated Statements of Cash Flows for the six months ended June 30, 2003
and 2002 (unaudited)              |  |      | 3  | 
|                                                                                              | Consolidated Statement of Partners Capital for the six months ended June 30, 2003 (unaudited)                 |  |      | 4  | 
|                                                                                              | Notes to the Consolidated Financial Statements (unaudited)                                                     |  |      | 5  | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                |  | 29   |   
|                                                                                              | Forward-Looking Statements                                                                                     |  |      | 46 | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                |  | 46   |   
|Item 4. Controls and Procedures                                                               |                                                                                                                |  | 48   |   
|PART II. OTHER INFORMATION                                                                    |                                                                                                                |  |      |   
|Item 1. Legal Proceedings                                                                     |                                                                                                                |  | 48   |   
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                |  | 48   |   
|Signatures                                                                                    |                                                                                                                |  | 54   |   

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PART I. FINANCIAL INFORMATION




Item 1. Financial Statements

TEPPCO PARTNERS, L.P.




CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                                                                                                   |                                                                                          |  |                                         |                         |   |             |           |              |   |           |         | 
|------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------- |  | --------------------------------------- | ----------------------- | - | ----------- | --------- | ------------ | - | --------- | ------- | 
|                                                                                                                   |                                                                                          |  |                                         |                         |   | June 30,    |           | December 31,
|                                                                                                                   |                                                                                          |  |                                         |                         |   | 2003        |           | 2002        
|                                                                                                                   |                                                                                          |  |                                         |                         |   |             |           |             
|                                                                                                                   |                                                                                          |  |                                         |                         |   | (Unaudited) |           |              |   |          
|ASSETS                                                                                                             |                                                                                          |  |                                         |                         |   |             |           |             
|Current assets:                                                                                                    |                                                                                          |  |                                         |                         |   |             |           |             
|                                                                                                                   | Cash and cash equivalents                                                                |  | $                                       | 30,824                  |   |             | $         | 30,968       |  
|                                                                                                                   | Accounts receivable, trade (net of allowance for
doubtful accounts of
$5,395 and $4,537) |  |                                         | 344,255                 |   |             |           | 276,163      |  
|                                                                                                                   | Accounts receivable, related parties                                                     |  |                                         | 3,153                   |   |             |           | 4,313        |  
|                                                                                                                   | Inventories                                                                              |  |                                         | 20,225                  |   |             |           | 17,166       |  
|                                                                                                                   | Other                                                                                    |  |                                         | 28,722                  |   |             |           | 31,670       |  
|                                                                                                                   |                                                                                          |  |                                         |                         |   |             |           |              |  
|                                                                                                                   |                                                                                          |  | Total current assets                    |                         |   | 427,179     |           |              |   | 360,280   |        
|                                                                                                                   |                                                                                          |  |                                         |                         |   |             |           |              |  
|Property, plant and equipment, at cost (net of accumulated
depreciation and amortization of $315,231 and $338,746) |                                                                                          |  | 1,526,153                               |                         |   |             | 1,587,824 |             
|Equity investments                                                                                                 |                                                                                          |  | 375,863                                 |                         |   |             | 284,705   |             
|Intangible assets                                                                                                  |                                                                                          |  | 445,633                                 |                         |   |             | 465,374   |             
|Goodwill                                                                                                           |                                                                                          |  | 16,944                                  |                         |   |             | 16,944    |             
|Other assets                                                                                                       |                                                                                          |  | 59,782                                  |                         |   |             | 55,228    |             
|                                                                                                                   |                                                                                          |  |                                         |                         |   |             |           |              |  
|                                                                                                                   |                                                                                          |  | Total assets                            |                         | $ | 2,851,554   |           |              | $ | 2,770,355 |        
|                                                                                                                   |                                                                                          |  |                                         |                         |   |             |           |              |  
|LIABILITIES AND PARTNERS CAPITAL                                                                                  |                                                                                          |  |                                         |                         |   |             |           |             
|Current liabilities:                                                                                               |                                                                                          |  |                                         |                         |   |             |           |             
|                                                                                                                   | Accounts payable and accrued liabilities                                                 |  | $                                       | 336,001                 |   |             | $         | 261,080      |  
|                                                                                                                   | Accounts payable, related parties                                                        |  |                                         | 14,619                  |   |             |           | 6,619        |  
|                                                                                                                   | Accrued interest                                                                         |  |                                         | 34,957                  |   |             |           | 29,726       |  
|                                                                                                                   | Other accrued taxes                                                                      |  |                                         | 11,801                  |   |             |           | 11,260       |  
|                                                                                                                   | Other                                                                                    |  |                                         | 55,110                  |   |             |           | 57,811       |  
|                                                                                                                   |                                                                                          |  |                                         |                         |   |             |           |              |  
|                                                                                                                   |                                                                                          |  | Total current liabilities               |                         |   | 452,488     |           |              |   | 366,496   |        
|                                                                                                                   |                                                                                          |  |                                         |                         |   |             |           |              |  
|Senior Notes                                                                                                       |                                                                                          |  | 1,144,094                               |                         |   |             | 945,692   |             
|Other long-term debt                                                                                               |                                                                                          |  | 263,000                                 |                         |   |             | 432,000   |             
|Other liabilities and deferred credits                                                                             |                                                                                          |  | 15,524                                  |                         |   |             | 30,962    |             
|Redeemable Class B Units held by related party                                                                     |                                                                                          |  |                                        |                         |   |             | 103,363   |             
|Commitments and contingencies                                                                                      |                                                                                          |  |                                         |                         |   |             |           |             
|Partners capital:                                                                                                 |                                                                                          |  |                                         |                         |   |             |           |             
|                                                                                                                   | Accumulated other comprehensive loss                                                     |  |                                         | (11,351                 | ) |             |           | (20,055      | )
|                                                                                                                   | General partners interest                                                               |  |                                         | 5,849                   |   |             |           | 12,770       |  
|                                                                                                                   | Limited partners interests                                                              |  |                                         | 981,950                 |   |             |           | 899,127      |  
|                                                                                                                   |                                                                                          |  |                                         |                         |   |             |           |              |  
|                                                                                                                   |                                                                                          |  |                                         | Total partners capital |   |             | 976,448   |              |   |           | 891,842 | 
|                                                                                                                   |                                                                                          |  |                                         |                         |   |             |           |              |  
|                                                                                                                   |                                                                                          |  | Total liabilities and partners capital |                         | $ | 2,851,554   |           |              | $ | 2,770,355 |        
|                                                                                                                   |                                                                                          |  |                                         |                         |   |             |           |              |  

See accompanying Notes to Consolidated Financial Statements.

1



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TEPPCO PARTNERS, L.P.




CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per Unit amounts)

|                                                                  |                                       |                            |         |                    |           |                  |         |         |         |      |         |           |           |   |         |           |           | 
|----------------------------------------------------------------- | ------------------------------------- | -------------------------- | ------- | ------------------ | --------- | ---------------- | ------- | ------- | ------- | ---- | ------- | --------- | --------- | - | ------- | --------- | --------- | 
|                                                                  |                                       |                            |         | Three Months Ended |           | Six Months Ended
|                                                                  |                                       |                            |         | June 30,           |           | June 30,        
|                                                                  |                                       |                            |         |                    |           |                 
|                                                                  |                                       |                            |         | 2003               |           | 2002             |         | 2003    |         | 2002
|                                                                  |                                       |                            |         |                    |           |                  |         |         |         |     
|Operating revenues:                                               |                                       |                            |         |                    |           |                  |         |         |         |      |         |           |           |   |         |          
|                                                                  | Sales of petroleum products           |                            | $       | 927,232            |           |                  | $       | 800,107 |         |      | $       | 1,903,192 |           |   | $       | 1,345,315 |          
|                                                                  | Transportation  Refined products     |                            |         | 37,802             |           |                  |         | 31,803  |         |      |         | 64,696    |           |   |         | 56,947    |          
|                                                                  | Transportation  LPGs                 |                            |         | 13,357             |           |                  |         | 10,813  |         |      |         | 44,178    |           |   |         | 34,173    |          
|                                                                  | Transportation  Crude oil            |                            |         | 7,059              |           |                  |         | 7,095   |         |      |         | 13,964    |           |   |         | 13,223    |          
|                                                                  | Transportation  NGLs                 |                            |         | 9,440              |           |                  |         | 10,544  |         |      |         | 19,339    |           |   |         | 16,850    |          
|                                                                  | Gathering  Natural gas               |                            |         | 32,264             |           |                  |         | 11,454  |         |      |         | 66,546    |           |   |         | 20,974    |          
|                                                                  | Mont Belvieu operations               |                            |         |                   |           |                  |         | 2,889   |         |      |         |          |           |   |         | 7,395     |          
|                                                                  | Other                                 |                            |         | 13,646             |           |                  |         | 13,624  |         |      |         | 28,124    |           |   |         | 24,589    |          
|                                                                  |                                       |                            |         |                    |           |                  |         |         |         |      |         |           |           |   |         |           |          
|                                                                  |                                       | Total operating revenues   |         |                    | 1,040,800 |                  |         |         | 888,329 |      |         |           | 2,140,039 |   |         |           | 1,519,466 | 
|                                                                  |                                       |                            |         |                    |           |                  |         |         |         |      |         |           |           |   |         |           |          
|Costs and expenses:                                               |                                       |                            |         |                    |           |                  |         |         |         |      |         |           |           |   |         |          
|                                                                  | Purchases of petroleum products       |                            |         | 912,344            |           |                  |         | 787,574 |         |      |         | 1,875,188 |           |   |         | 1,320,545 |          
|                                                                  | Operating, general and administrative |                            |         | 46,390             |           |                  |         | 35,083  |         |      |         | 89,025    |           |   |         | 66,528    |          
|                                                                  | Operating fuel and power              |                            |         | 9,970              |           |                  |         | 7,243   |         |      |         | 20,147    |           |   |         | 15,832    |          
|                                                                  | Depreciation and amortization         |                            |         | 23,487             |           |                  |         | 17,599  |         |      |         | 50,800    |           |   |         | 33,640    |          
|                                                                  | Taxes  other than income taxes       |                            |         | 4,571              |           |                  |         | 3,474   |         |      |         | 9,499     |           |   |         | 7,979     |          
|                                                                  | Gain on sale of assets                |                            |         | (3,948             | )         |                  |         |        |         |      |         | (3,948    | )         |   |         |          |          
|                                                                  |                                       |                            |         |                    |           |                  |         |         |         |      |         |           |           |   |         |           |          
|                                                                  |                                       | Total costs and expenses   |         |                    | 992,814   |                  |         |         | 850,973 |      |         |           | 2,040,711 |   |         |           | 1,444,524 | 
|                                                                  |                                       |                            |         |                    |           |                  |         |         |         |      |         |           |           |   |         |           |          
|                                                                  |                                       | Operating income           |         |                    | 47,986    |                  |         |         | 37,356  |      |         |           | 99,328    |   |         |           | 74,942    | 
|Interest expense                                                  |                                       |                            | (23,513 | )                  |           |                  | (16,829 | )       |         |      | (45,420 | )         |           |   | (33,616 | )        
|Interest capitalized                                              |                                       |                            | 963     |                    |           |                  | 1,029   |         |         |      | 1,559   |           |           |   | 3,138   |          
|Equity earnings                                                   |                                       |                            | 8,250   |                    |           |                  | 2,414   |         |         |      | 11,960  |           |           |   | 5,986   |          
|Other income  net                                                |                                       |                            | 258     |                    |           |                  | 407     |         |         |      | 442     |           |           |   | 735     |          
|                                                                  |                                       |                            |         |                    |           |                  |         |         |         |      |         |           |           |   |         |           |          
|                                                                  |                                       | Net income                 |         | $                  | 33,944    |                  |         | $       | 24,377  |      |         | $         | 67,869    |   |         | $         | 51,185    | 
|                                                                  |                                       |                            |         |                    |           |                  |         |         |         |      |         |           |           |   |         |           |          
|Net Income Allocation:                                            |                                       |                            |         |                    |           |                  |         |         |         |      |         |           |           |   |         |          
|Limited Partner Unitholders                                       |                                       | $                          | 24,654  |                    |           | $                | 16,467  |         |         | $    | 47,741  |           |           | $ | 35,061  |          
|Class B Unitholder                                                |                                       |                            | 126     |                    |           |                  | 1,441   |         |         |      | 1,806   |           |           |   | 3,234   |          
|General Partner                                                   |                                       |                            | 9,164   |                    |           |                  | 6,469   |         |         |      | 18,322  |           |           |   | 12,890  |          
|                                                                  |                                       |                            |         |                    |           |                  |         |         |         |      |         |           |           |   |         |           |          
|                                                                  |                                       | Total net income allocated |         | $                  | 33,944    |                  |         | $       | 24,377  |      |         | $         | 67,869    |   |         | $         | 51,185    | 
|                                                                  |                                       |                            |         |                    |           |                  |         |         |         |      |         |           |           |   |         |           |          
|Basic and diluted net income per Limited
Partner and Class B Unit |                                       | $                          | 0.43    |                    |           | $                | 0.39    |         |         | $    | 0.86    |           |           | $ | 0.84    |          
|                                                                  |                                       |                            |         |                    |           |                  |         |         |         |      |         |           |           |   |         |           |          
|Weighted average Limited Partner and Class B
Units outstanding    |                                       |                            | 57,749  |                    |           |                  | 46,346  |         |         |      | 57,739  |           |           |   | 45,457  |          

See accompanying Notes to Consolidated Financial Statements.

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TEPPCO PARTNERS, L.P.




CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

|                                                 |                                                                               |                                                               |                                                      |                                                     |          |                  |         |        |          |         |          |  
|------------------------------------------------ | ----------------------------------------------------------------------------- | ------------------------------------------------------------- | ---------------------------------------------------- | --------------------------------------------------- | -------- | ---------------- | ------- | ------ | -------- | ------- | -------- | -
|                                                 |                                                                               |                                                               |                                                      |                                                     |          | Six Months Ended
|                                                 |                                                                               |                                                               |                                                      |                                                     |          | June 30,        
|                                                 |                                                                               |                                                               |                                                      |                                                     |          |                 
|                                                 |                                                                               |                                                               |                                                      |                                                     |          | 2003             |         | 2002  
|                                                 |                                                                               |                                                               |                                                      |                                                     |          |                  |         |       
|Cash flows from operating activities:            |                                                                               |                                                               |                                                      |                                                     |          |                  |         |       
|                                                 | Net income                                                                    |                                                               | $                                                    | 67,869                                              |          |                  | $       | 51,185 |         
|                                                 | Adjustments to reconcile net income to cash provided by
operating activities: |                                                               |                                                      |                                                     |          |                  |         |        |         
|                                                 |                                                                               |                                                               | Depreciation and amortization                        |                                                     |          | 50,800           |         |        |          | 33,640  |         
|                                                 |                                                                               |                                                               | Earnings in equity investments, net of distributions |                                                     |          | (1,220           | )       |        |          | 7,444   |         
|                                                 |                                                                               |                                                               | Gain on sale of assets                               |                                                     |          | (3,948           | )       |        |          |        |         
|                                                 |                                                                               |                                                               | Non-cash portion of interest expense                 |                                                     |          | 3,075            |         |        |          | 2,284   |         
|                                                 |                                                                               |                                                               | Increase in accounts receivable                      |                                                     |          | (68,092          | )       |        |          | (56,270 | )       
|                                                 |                                                                               |                                                               | (Increase) decrease in inventories                   |                                                     |          | (3,059           | )       |        |          | 3,568   |         
|                                                 |                                                                               |                                                               | (Increase) decrease in other current assets          |                                                     |          | 2,948            |         |        |          | (11,557 | )       
|                                                 |                                                                               |                                                               | Increase in accounts payable and accrued expenses    |                                                     |          | 80,174           |         |        |          | 74,716  |         
|                                                 |                                                                               |                                                               | Other                                                |                                                     |          | 3,994            |         |        |          | (7,552  | )       
|                                                 |                                                                               |                                                               |                                                      |                                                     |          |                  |         |        |         
|                                                 |                                                                               |                                                               |                                                      | Net cash provided by operating activities           |          |                  | 132,541 |        |          |         | 97,458   |  
|                                                 |                                                                               |                                                               |                                                      |                                                     |          |                  |         |        |         
|Cash flows from investing activities:            |                                                                               |                                                               |                                                      |                                                     |          |                  |         |       
|                                                 |                                                                               | Acquisition of additional interest in Centennial Pipeline LLC |                                                      |                                                     | (20,000  | )                |         |        |         |        
|                                                 |                                                                               | Acquisition of crude oil assets                               |                                                      |                                                     | (5,459   | )                |         |        |         |        
|                                                 |                                                                               | Proceeds from the sale of assets                              |                                                      |                                                     | 8,531    |                  |         |        | 3,380    |        
|                                                 |                                                                               | Purchase of Val Verde Gas Gathering System                    |                                                      |                                                     |         |                  |         |        | (444,150 | )      
|                                                 |                                                                               | Purchase of Chaparral NGL System                              |                                                      |                                                     |         |                  |         |        | (132,140 | )      
|                                                 |                                                                               | Purchase of Jonah Gas Gathering Company                       |                                                      |                                                     |         |                  |         |        | (7,315   | )      
|                                                 |                                                                               | Investment in Centennial Pipeline LLC                         |                                                      |                                                     | (1,000   | )                |         |        | (7,726   | )      
|                                                 |                                                                               | Capital expenditures                                          |                                                      |                                                     | (45,919  | )                |         |        | (63,560  | )      
|                                                 |                                                                               |                                                               |                                                      |                                                     |          |                  |         |        |         
|                                                 |                                                                               |                                                               |                                                      | Net cash used in investing activities               |          |                  | (63,847 | )      |          |         | (651,511 | )
|                                                 |                                                                               |                                                               |                                                      |                                                     |          |                  |         |        |         
|Cash flows from financing activities:            |                                                                               |                                                               |                                                      |                                                     |          |                  |         |       
|                                                 |                                                                               | Proceeds from term and revolving credit facilities            |                                                      |                                                     | 335,000  |                  |         |        | 642,000  |        
|                                                 |                                                                               | Repayments on term and revolving credit facilities            |                                                      |                                                     | (504,000 | )                |         |        | (570,660 | )      
|                                                 |                                                                               | Issuance of Senior Notes                                      |                                                      |                                                     | 198,570  |                  |         |        | 497,805  |        
|                                                 |                                                                               | Debt issuance costs                                           |                                                      |                                                     | (3,079   | )                |         |        | (7,043   | )      
|                                                 |                                                                               | Issuance of Limited Partner Units, net                        |                                                      |                                                     | 114,457  |                  |         |        | 59,234   |        
|                                                 |                                                                               | Repurchase and retirement of Class B Units                    |                                                      |                                                     | (113,814 | )                |         |        |         |        
|                                                 |                                                                               | General Partners contributions                               |                                                      |                                                     | 2        |                  |         |        | 1,217    |        
|                                                 |                                                                               | Distributions paid                                            |                                                      |                                                     | (95,974  | )                |         |        | (68,575  | )      
|                                                 |                                                                               |                                                               |                                                      |                                                     |          |                  |         |        |         
|                                                 |                                                                               |                                                               |                                                      | Net cash provided by (used in) financing activities |          |                  | (68,838 | )      |          |         | 553,978  |  
|                                                 |                                                                               |                                                               |                                                      |                                                     |          |                  |         |        |         
|Net decrease in cash and cash equivalents        |                                                                               |                                                               | (144                                                 | )                                                   |          |                  | (75     | )     
|Cash and cash equivalents at beginning of period |                                                                               |                                                               | 30,968                                               |                                                     |          |                  | 25,479  |       
|                                                 |                                                                               |                                                               |                                                      |                                                     |          |                  |         |        |         
|Cash and cash equivalents at end of period       |                                                                               | $                                                             | 30,824                                               |                                                     |          | $                | 25,404  |       
|                                                 |                                                                               |                                                               |                                                      |                                                     |          |                  |         |        |         
|Non-cash investing activities:                   |                                                                               |                                                               |                                                      |                                                     |          |                  |         |       
|                                                 |                                                                               | Net assets transferred to Mont Belvieu Storage Partners, L.P. |                                                      | $                                                   | 69,459   |                  |         | $      |         |        
|                                                 |                                                                               |                                                               |                                                      |                                                     |          |                  |         |        |         
|Supplemental disclosure of cash flows:           |                                                                               |                                                               |                                                      |                                                     |          |                  |         |       
|                                                 |                                                                               | Cash paid for interest (net of amounts capitalized)           |                                                      | $                                                   | 39,567   |                  |         | $      | 19,499   |        
|                                                 |                                                                               |                                                               |                                                      |                                                     |          |                  |         |        |         

See accompanying Notes to Consolidated Financial Statements.

3



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##### 



TEPPCO PARTNERS, L.P.




CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
(Unaudited)
(in thousands, except Unit amounts)

|                                       |                                                            |  |             |           |           |   |           |         |               |   |         |         |             |   |         |       |  |   |         |         |  
|-------------------------------------- | ---------------------------------------------------------- |  | ----------- | --------- | --------- | - | --------- | ------- | ------------- | - | ------- | ------- | ----------- | - | ------- | ----- |  | - | ------- | ------- | -
|                                       |                                                            |  | Outstanding |           |           |   |           |         |               |   |         |         | Accumulated |   |         |       | 
|                                       |                                                            |  | Limited     |           | General   |   | Limited   |         | Other         |   |         |         |            
|                                       |                                                            |  | Partner     |           | Partners |   | Partners |         | Comprehensive |   |         |         |            
|                                       |                                                            |  | Units       |           | Interest  |   | Interests |         | Loss          |   | Total  
|                                       |                                                            |  |             |           |           |   |           |         |               |   |        
|Partners capital at December 31, 2002 |                                                            |  | 53,809,597  |           |           | $ | 12,770    |         |               | $ | 899,127 |         |             | $ | (20,055 | )     |  | $ | 891,842 |        
|                                       | Issuance of Limited Partner Units, net                     |  |             | 3,938,750 |           |   |           |        |               |   |         | 114,422 |             |   |         |      |  |   |         | 114,422 |  
|                                       | Retirement of Class B Units                                |  |             |          |           |   |           |        |               |   |         | (10,993 | )           |   |         |      |  |   |         | (10,993 | )
|                                       | Net gain on cash flow hedges                               |  |             |          |           |   |           |        |               |   |         |         |             |   |         | 8,704 |  |   |         | 8,704   |  
|                                       | Net income allocation                                      |  |             |          |           |   |           | 18,322  |               |   |         | 47,741  |             |   |         |      |  |   |         | 66,063  |  
|                                       | Cash distributions                                         |  |             |          |           |   |           | (25,245 | )             |   |         | (68,382 | )           |   |         |      |  |   |         | (93,627 | )
|                                       | Issuance of Limited Partner Units
upon exercise of options |  |             | 3,100     |           |   |           | 2       |               |   |         | 35      |             |   |         |      |  |   |         | 37      |  
|                                       |                                                            |  |             |           |           |   |           |         |               |   |         |         |             |   |         |       |  |   |         |        
|Partners capital at June 30, 2003     |                                                            |  | 57,751,447  |           |           | $ | 5,849     |         |               | $ | 981,950 |         |             | $ | (11,351 | )     |  | $ | 976,448 |        
|                                       |                                                            |  |             |           |           |   |           |         |               |   |         |         |             |   |         |       |  |   |         |        

See accompanying Notes to Consolidated Financial Statements.

4



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##### 



TEPPCO PARTNERS, L.P.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

TEPPCO Partners, L.P. (the Partnership), a Delaware limited partnership,
is a master limited partnership formed in March 1990. We operate through TE
Products Pipeline Company, Limited Partnership (TE Products), TCTM, L.P.
(TCTM) and TEPPCO Midstream Companies, L.P. (TEPPCO Midstream).
Collectively, TE Products, TCTM and TEPPCO Midstream are referred to as the
Operating Partnerships. Texas Eastern Products Pipeline Company, LLC (the
Company or General Partner), a Delaware limited liability company, serves
as our general partner and owns a 2% general partner interest in us. The
General Partner is a wholly owned subsidiary of Duke Energy Field Services, LLC
(DEFS), a joint venture between Duke Energy Corporation (Duke Energy) and
ConocoPhillips. Duke Energy holds an approximate 70% interest in DEFS, and
ConocoPhillips holds the remaining 30%. The Company, as general partner,
performs all management and operating functions required for us, except for the
management and operations of certain of the TEPPCO Midstream assets that are
managed by DEFS on our behalf. We reimburse the General Partner for all
reasonable direct and indirect expenses incurred in managing us.

As used in this Report, we, us, our, and the Partnership means
TEPPCO Partners, L.P. and, where the context requires, includes our
subsidiaries.

The accompanying unaudited consolidated financial statements reflect all
adjustments that are, in the opinion of the management of the Company, of a
normal and recurring nature and necessary for a fair statement of our financial
position as of June 30, 2003, and the results of our operations and cash flows
for the periods presented. The results of operations for the three months and
six months ended June 30, 2003, are not necessarily indicative of results of
our operations for the full year 2003. You should read the interim financial
statements in conjunction with our consolidated financial statements and notes
thereto presented in the TEPPCO Partners, L.P. Annual Report on Form 10-K for
the year ended December 31, 2002. We have reclassified certain amounts from
prior periods to conform with the current presentation.

We operate and report in three business segments: transportation and
storage of refined products, liquefied petroleum gases (LPGs) and
petrochemicals (Downstream Segment); gathering, transportation, marketing and
storage of crude oil and distribution of lubrication oils and specialty
chemicals (Upstream Segment); and gathering of natural gas, fractionation of
natural gas liquids (NGLs) and transportation of NGLs (Midstream Segment).
Our reportable segments offer different products and services and are managed
separately because each requires different business strategies.

Our interstate transportation operations, including rates charged to
customers, are subject to regulations prescribed by the Federal Energy
Regulatory Commission (FERC). We refer to refined products, LPGs,
petrochemicals, crude oil, NGLs and natural gas in this Report, collectively,
as petroleum products or products.

Net Income Per Unit

Basic net income per Limited Partner and Class B Unit (collectively,
Units) is computed by dividing net income, after deduction of the General
Partners interest, by the weighted average number of Units outstanding (a
total of 57.7 million and 45.5 million Units for the six months ended June 30,
2003, and 2002, respectively, and 57.7 million and 46.3 million Units for the
three months ended June 30, 2003, and 2002, respectively). The General
Partners percentage interest in our net income is based on its percentage of
cash distributions from Available Cash for each period (see Note 10. Quarterly
Distributions of Available Cash). The General Partner was allocated $18.3
million (representing 26.99%) and $12.9 million (representing 25.18%) of net
income for the six months ended June 30, 2003, and 2002, respectively. The
General Partners percentage interest in our net income increases as cash
distributions paid per Unit increase, pursuant to our limited partnership
agreement.

5



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
(Unaudited)

Diluted net income per Unit is similar to the computation of basic net
income per Unit above, except that the denominator was increased to include the
dilutive effect of outstanding Unit options by application of the treasury
stock method. For the three months ended June 30, 2003, and 2002, the
denominator was increased by 25,115 Units and 39,958 Units, respectively. For
the six months ended June 30, 2003, and 2002, the denominator was increased by
23,414 Units and 45,036 Units, respectively.

New Accounting Pronouncements

In December 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure. SFAS 148 amends SFAS No.
123, Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosure in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on the
reported results. The provisions of SFAS 148 are effective for financial
statements for fiscal years ending after December 15, 2002. We have not
granted options for any periods presented. For options outstanding under our
1994 Long Term Incentive Plan, we followed the intrinsic value method of
accounting for recognizing stock-based compensation expense. Under this
method, we record no compensation expense for unit options granted when the
exercise price of the options granted is equal to, or greater than, the market
price of our Units on the date of the grant. Assuming we had used the fair
value method of accounting for our unit option plan, pro forma net income for
the six months ended June 30, 2002, would be lower than reported net income by
an immaterial amount. Pro forma net income would equal reported net income for
the three months ended June 30, 2003, and 2002, and for the six months ended
June 30, 2003. Pro forma net income per Unit would equal reported net income
per Unit for the periods presented. The adoption of SFAS 148 did not affect
our financial position, results of operations or cash flows.

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51(FIN 46). FIN
46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. We are required
to apply FIN 46 to all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, we are required to apply FIN 46 on July 1, 2003. In
connection with the adoption of FIN 46, we evaluated our investments in
Centennial Pipeline LLC, Seaway Crude Pipeline Company and Mont Belvieu Storage
Partners, L.P. and determined that these entities are not variable interest
entities as defined by FIN 46, and thus we have accounted for them as equity
method investments (see Note 7. Equity Investments). We do not believe that
the adoption of FIN 46 will have an effect on our financial position, results
of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends SFAS 133 to
conform and incorporate derivative implementation issues and subsequently
issued accounting guidance. SFAS 149 clarifies under what circumstances a
contract with an initial net investment meets the characteristic of a
derivative, clarifies when a derivative contains a financing component, amends
the definition of an underlying to conform it to language used in FASB
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Othersand amends
certain other existing pronouncements. SFAS 149 is effective for contracts
entered into or modified after June 30, 2003, and should be applied
prospectively. However, certain SFAS 133 implementation issues that were
effective for all fiscal quarters prior to June 15, 2003, should continue to be
applied in accordance with their respective effective dates. We are required
to adopt SFAS 149 effective July 1, 2003. We

6



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
(Unaudited)

do not believe that the adoption
of SFAS 149 will have a material effect on our financial position, results of
operations or cash flows.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS 150 establishes standards for how an issuer classifies and
measures certain freestanding financial instruments with characteristics of
both liabilities and equity. SFAS 150 requires that an issuer classify a
financial instrument that is within its scope as a liability (or asset in some
circumstances). We are required to adopt SFAS 150 effective July 1, 2003. We
do not believe that the adoption of SFAS 150 will have a material effect on our
financial position, results of operations or cash flows.

In May 2003, the Emerging Issues Task Force (EITF) reached consensus in
EITF 03-04, Accounting for Cash Balance Pension Plans, to specifically
address the accounting for certain cash balance pension plans. The consensus
reached in EITF 03-04 requires certain cash balance pension plans to be
accounted for as defined benefit plans. For cash balance plans described in
the consensus, the consensus also requires the use of the traditional unit
credit method for purposes of measuring the benefit obligation and annual cost
of benefits earned as opposed to the projected unit credit method. We have
historically accounted for our cash balance plans as defined benefit plans;
however, we are required to adopt the measurement provisions of EITF 03-04 in
our cash balance plans next measurement date of December 31, 2003. Any
differences in the measurement of the obligation as a result of applying the
consensus will be reported as a component of actuarial gain or loss. We do not
believe that the adoption of EITF 03-04 will have a material effect on our
financial position, results of operations or cash flows.

In May 2003, the EITF reached consensus in EITF 01-08, Determining Whether
an Arrangement Contains a Lease, to clarify the requirements of identifying
whether an arrangement should be accounted for as a lease at its inception.
The guidance in the consensus is designed to mandate reporting revenue as
rental or leasing income that otherwise would be reported as part of product
sales or service revenue. EITF 01-08 requires both parties to an arrangement
to determine whether a service contract or similar arrangement is or includes a
lease within the scope of SFAS No. 13, Accounting For Leases. We have
historically leased storage capacity to outside parties as well as entered into
pipeline capacity lease agreements both as the lessee and as a lessor. Upon
application of EITF 01-08, the accounting requirements under the consensus
could affect the timing of revenue and expense recognition, and revenues
reported as transportation and storage services might have to be reported as
rental or leasing income. Should capital-lease treatment be necessary,
purchasers of transportation and storage services in the arrangements would
have to recognize new assets on their balance sheets. The consensus is to be
applied prospectively to arrangements agreed to, modified, or acquired in
business combinations in fiscal periods beginning after May 28, 2003. Previous
arrangements that would be leases or would contain a lease according to the
consensus will continue to be accounted for as transportation and storage
purchases or sales arrangements. We do not believe the adoption of EITF 01-08
will have a material effect on our financial position, results of operations or
cash flows.

NOTE 2. ASSET RETIREMENT OBLIGATIONS

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 requires us to record the fair value of an
asset retirement obligation as a liability in the period in which we incur a
legal obligation for the retirement of tangible long-lived assets. A
corresponding asset is also recorded and depreciated over the life of the
asset. After the initial measurement of the asset retirement obligation, the
liability will be adjusted at the end of each reporting period to reflect
changes in the estimated future cash flows underlying the obligation.
Determination of any amounts recognized upon adoption is based upon numerous
estimates and assumptions, including future retirement costs, future inflation
rates and the credit-adjusted risk-free interest rates.

7



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
(Unaudited)

The Downstream Segment assets consist primarily of a pipeline system and a
series of storage facilities that originate along the upper Texas Gulf Coast
and extend through the Midwest and northeastern United States. We transport
refined products, LPGs and petrochemicals through the pipeline system. These
products are primarily received in the south end of the system and stored
and/or transported to various points along the system per customer nominations.
The Upstream Segments operations include purchasing crude oil from producers
at the wellhead and providing delivery, storage and other services to its
customers. The properties in the Upstream Segment consist of interstate trunk
pipelines, pump stations, trucking facilities, storage tanks and various
gathering systems primarily in Texas and Oklahoma. The Midstream Segment
gathers natural gas from wells owned by producers and transports natural gas
and NGLs on its pipeline systems, primarily in Texas, Wyoming, New Mexico and
Colorado. The Midstream Segment also owns and operates two NGL fractionator
facilities in Colorado.

We have completed our assessment of SFAS 143, and we have determined that
we are obligated by contractual or regulatory requirements to remove facilities
or perform other remediation upon retirement of our assets. However, we are
not able to reasonably determine the fair value of the asset retirement
obligations for our trunk, interstate and gathering pipelines and our surface
facilities, since future dismantlement and removal dates are indeterminate.

In order to determine a removal date for our gathering lines and related
surface assets, reserve information regarding the production life of the
specific field is required. As a transporter and gatherer of crude oil and
natural gas, we are not a producer of the field reserves and as such, we do not
have access to adequate forecasts that predict the timing of expected
production for existing reserves on those fields in which we gather crude oil
and natural gas. In the absence of such information, we are not able to make a
reasonable estimate of when future dismantlement and removal dates of our
gathering assets will occur. With regard to our trunk and interstate pipelines
and their related surface assets, it is impossible to predict when demand for
transportation of the related products will cease. Our right-of-way agreements
allow us to maintain the right-of-way rather than remove the pipe. In
addition, we can evaluate our trunk pipelines for alternative uses, which can
be and have been found.

We will record such asset retirement obligations in the period in which
more information becomes available for us to reasonably estimate the settlement
dates of the retirement obligations. The adoption of SFAS 143 did not have an
effect on our financial position, results of operations or cash flows.

NOTE 3. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of purchase price over fair value of net
assets acquired and is presented on the consolidated balance sheets net of
accumulated amortization. We account for goodwill under SFAS No. 142, Goodwill
and Other Intangible Assets,which was issued by the FASB in July 2001. SFAS
142 prohibits amortization of goodwill and intangible assets with indefinite
useful lives, but instead requires testing for impairment at least annually.

To perform an impairment test of goodwill, we have identified our
reporting units and have determined the carrying value of each reporting unit
by assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units. We then determine the fair value
of each reporting unit and compare it to the carrying value of the reporting
unit. We will continue to compare the fair value of each reporting unit to its
carrying value on an annual basis to determine if an impairment loss has
occurred.

8



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

At June 30, 2003, we had $16.9 million of unamortized goodwill and $25.5
million of excess investment in our equity investment in Seaway Crude Pipeline
Company (equity method goodwill). The excess investment is included in our
equity investments account at June 30, 2003. The following table presents the
carrying amount of goodwill and equity method goodwill at June 30, 2003, by
business segment (in thousands):

|                       |  |            |   |           |  |          |       |          |  |   |        |  |  |   |        | 
|---------------------- |  | ---------- | - | --------- |  | -------- | ----- | -------- |  | - | ------ |  |  | - | ------ | 
|                       |  | Downstream |   | Midstream |  | Upstream |       | Segments
|                       |  | Segment    |   | Segment   |  | Segment  |       | Total   
|                       |  |            |   |           |  |          |       |         
|Goodwill               |  | $          |  |           |  | $        | 2,777 |          |  | $ | 14,167 |  |  | $ | 16,944 | 
|Equity method goodwill |  |            |  |           |  |          |      |          |  |   | 25,502 |  |  |   | 25,502 | 

Other Intangible Assets

The following table reflects the components of amortized intangible assets
(in thousands):

|                             |                                 |       |   |                |         |                   |   |                |         |              |   |         |         |  |   |         |         |  
|---------------------------- | ------------------------------- | ----- | - | -------------- | ------- | ----------------- | - | -------------- | ------- | ------------ | - | ------- | ------- |  | - | ------- | ------- | -
|                             |                                 |       |   | June 30, 2003  |         | December 31, 2002
|                             |                                 |       |   |                |         |                  
|                             |                                 |       |   | Gross Carrying |         | Accumulated       |   | Gross Carrying |         | Accumulated 
|                             |                                 |       |   | Amount         |         | Amortization      |   | Amount         |         | Amortization
|                             |                                 |       |   |                |         |                   |   |                |         |             
|Amortized intangible assets: |                                 |       |   |                |         |                   |   |                |         |              |   |         |         |  |   |        
|                             | Fractionation agreement         |       | $ | 38,000         |         |                   | $ | (9,975         | )       |              | $ | 38,000  |         |  | $ | (9,025  | )      
|                             | Natural gas gathering contracts |       |   | 462,449        |         |                   |   | (47,178        | )       |              |   | 462,449 |         |  |   | (28,710 | )      
|                             | Other                           |       |   | 3,745          |         |                   |   | (1,408         | )       |              |   | 3,745   |         |  |   | (1,085  | )      
|                             |                                 |       |   |                |         |                   |   |                |         |              |   |         |         |  |   |         |        
|                             |                                 | Total |   | $              | 504,194 |                   |   | $              | (58,561 | )            |   | $       | 504,194 |  |   | $       | (38,820 | )
|                             |                                 |       |   |                |         |                   |   |                |         |              |   |         |         |  |   |        

At June 30, 2003, we had $33.4 million of excess investment in our equity
investment in Centennial Pipeline LLC, which was created upon formation of the
company (see Note 7. Equity Investments). The excess investment is included
in our equity investments account at June 30, 2003. This excess investment is
accounted for as an intangible asset with an indefinite life. We will assess
the intangible asset for impairment on an annual basis.

SFAS 142 requires that intangible assets with finite useful lives be
amortized over their respective estimated useful lives. If an intangible asset
has a finite useful life, but the precise length of that life is not known,
that intangible asset shall be amortized over the best estimate of its useful
life. At a minimum, we will assess the useful lives and residual values of all
intangible assets on an annual basis to determine if adjustments are required.
With respect to our natural gas gathering contracts, we update throughput
estimates and evaluate the remaining expected useful life of the contract
assets on a quarterly basis based on the best available information.
Amortization expense on intangible assets was $8.3 million and $4.7 million for
the three months ended June 30, 2003 and 2002, respectively, and $19.7 million
and $9.3 million for the six months ended June 30, 2003 and 2002, respectively.

The value assigned to our intangible assets for natural gas gathering
contracts is amortized on a unit-of-production basis, based upon the actual
throughput of the system over the expected total throughput for the lives of
the contracts. Due to our recent expansions on the gathering systems at Jonah
Gas Gathering Company (Jonah) and because of certain limited production
forecasts obtained from producers on the Jonah system related to the
expansions, we have increased, in the second quarter of 2003, our best estimate
of future throughput on the Jonah system. This increase in the estimate of
future throughput will extend the amortization period of Jonahs natural gas
gathering contracts by an estimated 9 years, increasing from approximately 16
years to 25 years. Further revisions to this estimate may occur as additional
information becomes available.

9



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

The following table sets forth the estimated amortization expense on
intangible assets for the years ending December 31 (in thousands):

|     |  |   |       
|---- |  | - | ------
|2003 |  | $ | 42,455
|2004 |  |   | 40,167
|2005 |  |   | 39,534
|2006 |  |   | 36,834
|2007 |  |   | 33,990

NOTE 4. DERIVATIVE FINANCIAL INSTRUMENTS

We have entered into an interest rate swap agreement to hedge our exposure
to increases in the benchmark interest rate underlying our variable rate
revolving credit facility. This interest rate swap matures on April 6, 2004.
We designated this swap agreement, which hedges exposure to variability in
expected future cash flows attributed to changes in interest rates, as a cash
flow hedge. The swap agreement is based on a notional amount of $250.0 million.
Under the swap agreement, we pay a fixed rate of interest of 6.955% and
receive a floating rate based on a three-month U.S. Dollar LIBOR rate. Since
this swap is designated as a cash flow hedge, the changes in fair value, to the
extent the swap is effective, are recognized in other comprehensive income
until the hedged interest costs are recognized in earnings. During the six
months ended June 30, 2003, and 2002, we recognized increases in interest
expense of $7.0 million and $6.3 million, respectively, related to the
difference between the fixed rate and the floating rate of interest on the
interest rate swap. During the quarter ended June 30, 2003, we measured the
hedge effectiveness of this interest rate swap and noted that no gain or loss
from ineffectiveness was required to be recognized. On June 27, 2003, we
repaid the amounts outstanding under the revolving credit facility with
borrowings under a new three year revolving credit facility and canceled the
old facility (see Note 9. Debt). We redesignated the interest rate swap as a
hedge of our exposure to increases in the benchmark interest rate underlying
the new variable rate revolving credit facility. The fair value of the
interest rate swap was a loss of approximately $11.4 million and $20.1 million
at June 30, 2003, and December 31, 2002, respectively. The remaining fair
value of the interest rate swap will be transferred into earnings over the
remaining term of the interest rate swap.

On October 4, 2001, our TE Products subsidiary entered into an interest
rate swap agreement to hedge its exposure to changes in the fair value of its
fixed rate 7.51% Senior Notes due 2028. We designated this swap agreement as a
fair value hedge. The swap agreement has a notional amount of $210.0 million
and matures in January 2028 to match the principal and maturity of the TE
Products Senior Notes. Under the swap agreement, TE Products pays a floating
rate based on a three-month U.S. Dollar LIBOR rate, plus a spread, and receives
a fixed rate of interest of 7.51%. During the six months ended June 30, 2003,
and 2002, we recognized reductions in interest expense of $4.9 million and $3.6
million, respectively, related to the difference between the fixed rate and the
floating rate of interest on the interest rate swap. During the quarter ended
June 30, 2003, we measured the hedge effectiveness of this interest rate swap
and noted that no gain or loss from ineffectiveness was required to be
recognized. The fair value of this interest rate swap was a gain of
approximately $15.1 million and $13.6 million at June 30, 2003, and December
31, 2002, respectively.

On February 20, 2002, we entered into interest rate swap agreements,
designated as fair value hedges, to hedge our exposure to changes in the fair
value of our fixed rate 7.625% Senior Notes due 2012. The swap agreements had
a combined notional amount of $500.0 million and matured in 2012 to match the
principal and maturity of the Senior Notes. Under the swap agreements, we paid
a floating rate of interest based on a U.S. Dollar LIBOR rate, plus a spread,
and received a fixed rate of interest of 7.625%. On July 16, 2002, the swap
agreements were terminated resulting in a gain of approximately $18.0 million.
Concurrent with the swap terminations, we entered into new interest rate swap
agreements, with identical terms as the previous swap agreements; however, the

10



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

floating rate was based upon a spread of an additional 50 basis points. In
December 2002, the swap agreements entered into on July 16, 2002, were
terminated, resulting in a gain of approximately $26.9 million. The gains
realized from the July 2002 and December 2002 swap terminations have
been deferred as adjustments to the carrying value of the Senior Notes and are
being amortized using the effective interest method as reductions to future
interest expense over the remaining term of the Senior Notes. At June 30,
2003, the unamortized balance of the deferred gains was $42.4 million. In the
event of early extinguishment of the Senior Notes, any remaining unamortized
gains would be recognized in the consolidated statement of income at the time
of extinguishment.

NOTE 5. ACQUISITIONS AND DISPOSITIONS

Jonah Gas Gathering Company

On September 30, 2001, our subsidiaries completed the purchase of Jonah
from Alberta Energy Company for $359.8 million. The acquisition served as our
entry into the natural gas gathering industry. We paid an additional $7.3
million on February 4, 2002, for final purchase adjustments related primarily
to construction projects in progress at the time of closing.

Chaparral NGL System

On March 1, 2002, we completed the purchase of the Chaparral NGL system
(Chaparral) for $132.4 million from Diamond-Koch II, L.P. and Diamond-Koch
III, L.P., including acquisition related costs of approximately $0.4 million.
We funded the purchase by a borrowing under our $500.0 million revolving credit
facility (see Note 9. Debt). Chaparral is an NGL pipeline system that extends
from West Texas and New Mexico to Mont Belvieu. The pipeline delivers NGLs to
fractionators and to our existing storage in Mont Belvieu. Under a contractual
agreement, DEFS manages and operates Chaparral on our behalf. We accounted for
the acquisition of these assets under the purchase method of accounting, and we
allocated the purchase price to property, plant and equipment. Accordingly,
the results of the acquisition are included in the consolidated financial
statements from March 1, 2002.

Val Verde Gas Gathering Company

On June 30, 2002, we completed the purchase of Val Verde Gas Gathering
Company (Val Verde) for $444.2 million from Burlington Resources Gathering
Inc., a subsidiary of Burlington Resources Inc., including acquisition related
costs of approximately $1.2 million. We funded the purchase by borrowings of
$168.0 million under our $500.0 million revolving credit facility, $72.0
million under our 364-day revolving credit facility and $200.0 million under a
six-month term loan with SunTrust Bank (see Note 9. Debt). The remaining
purchase price was funded through working capital sources of cash. The Val
Verde system gathers coal bed methane (CBM) from the Fruitland Coal Formation
of the San Juan Basin in New Mexico and Colorado. The system is one of the
largest CBM gathering and treating facilities in the United States. Under a
contractual agreement, DEFS manages and operates Val Verde on our behalf. We
accounted for the acquisition of these assets under the purchase method of
accounting. Accordingly, the results of the acquisition are included in the
consolidated financial statements from June 30, 2002.

11



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

The following table allocates the estimated fair value of the Val Verde
assets acquired on June 30, 2002 (in thousands):

|                                                      |                     |   |         |         | 
|----------------------------------------------------- | ------------------- | - | ------- | ------- | 
|Property, plant and equipment                         |                     | $ | 205,146 |        
|Intangible assets (primarily gas gathering contracts) |                     |   | 239,649 |        
|                                                      |                     |   |         |        
|                                                      | Total assets        |   |         | 444,795 | 
|                                                      |                     |   |         |        
|Total liabilities assumed                             |                     |   | (645    | )      
|                                                      |                     |   |         |        
|                                                      | Net assets acquired |   | $       | 444,150 | 
|                                                      |                     |   |         |        

The value assigned to intangible assets relates to fixed-term contracts
with customers. We are amortizing the value assigned to intangible assets on a
units-of-production basis, based upon the actual throughput of the system over
the expected total throughput for the contracts. The period of amortization is
expected to be approximately 20 years from the date of acquisition.

The following table presents our unaudited pro forma results as though the
acquisition of Val Verde occurred at the beginning of 2002 (in thousands,
except per Unit amounts). The unaudited pro forma results give effect to
certain pro forma adjustments including depreciation and amortization expense
adjustments of property, plant and equipment and intangible assets based upon
the purchase price allocations, interest expense related to financing the
acquisition, amortization of debt issue costs and the removal of income tax
effects in historical results of operations. The pro forma results do not
include operating efficiencies or revenue growth from historical results.

|                                                                  |  |                    |         |                  |  |   |           | 
|----------------------------------------------------------------- |  | ------------------ | ------- | ---------------- |  | - | --------- | 
|                                                                  |  | Three Months Ended |         | Six Months Ended
|                                                                  |  | June 30,           |         | June 30,        
|                                                                  |  | 2002               |         | 2002            
|                                                                  |  |                    |         |                 
|Revenues                                                          |  | $                  | 908,010 |                  |  | $ | 1,557,251 | 
|Operating income                                                  |  |                    | 43,909  |                  |  |   | 86,412    | 
|Net income                                                        |  |                    | 29,652  |                  |  |   | 60,327    | 
|Basic and diluted net income per
Limited Partner and Class B Unit |  | $                  | 0.38    |                  |  | $ | 0.79      | 

The summarized pro forma information has been prepared for comparative
purposes only. It is not intended to be indicative of the actual operating
results that would have occurred had the acquisition been consummated at the
beginning of 2002, or the results which may be attained in the future.

Rancho Pipeline

We owned an approximate 25% undivided joint interest in the Rancho
Pipeline, which was a pipeline system acquired in connection with our
acquisition of crude oil assets in 2000. Under the terms of the Rancho
Pipeline operating agreement, the operating agreement terminated in March 2003,
and the Rancho Pipeline ceased operations in crude oil service from West Texas
to Houston, Texas. The Rancho Pipeline was divided into segments, and these
segments were sold to certain of the current owners of the Rancho Pipeline. We
acquired approximately 230 miles of the pipeline in exchange for cash of $5.5
million and our interests in other portions of the Rancho Pipeline. We sold
portions of the segment acquired to other entities for cash and assets valued
at approximately $8.5 million. We recorded a net gain of $3.9 million on the
transactions, which is included in the gain on sale of assets in our
consolidated statements of income.

12



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

NOTE 6. INVENTORIES

Inventories are carried at the lower of cost (based on weighted average
cost method) or market. The major components of inventories were as follows
(in thousands):

|                       |       |   |          |        |              |   |       |        | 
|---------------------- | ----- | - | -------- | ------ | ------------ | - | ----- | ------ | 
|                       |       |   | June 30, |        | December 31,
|                       |       |   | 2003     |        | 2002        
|                       |       |   |          |        |             
|Crude oil              |       | $ | 214      |        |              | $ |      |       
|Gasolines              |       |   | 3,305    |        |              |   | 4,700 |       
|Butanes                |       |   | 3,846    |        |              |   | 1,991 |       
|Transmix               |       |   | 1,712    |        |              |   | 2,526 |       
|Other products         |       |   | 4,326    |        |              |   | 3,836 |       
|Materials and supplies |       |   | 6,822    |        |              |   | 4,113 |       
|                       |       |   |          |        |              |   |       |       
|                       | Total |   | $        | 20,225 |              |   | $     | 17,166 | 
|                       |       |   |          |        |              |   |       |       

The costs of inventories did not exceed market values at June 30, 2003,
and December 31, 2002.

NOTE 7. EQUITY INVESTMENTS

Through one of our indirect wholly owned subsidiaries, we own a 50%
ownership interest in Seaway Crude Pipeline Company (Seaway). The remaining
50% interest is owned by ConocoPhillips. Seaway owns a pipeline that carries
mostly imported crude oil from a marine terminal at Freeport, Texas, to
Cushing, Oklahoma, and from a marine terminal at Texas City, Texas, to
refineries in the Texas City and Houston areas. The Seaway Crude Pipeline
Company Partnership Agreement provides for varying participation ratios
throughout the life of the Seaway partnership. From July 20, 2000, through May
2002, we received 80% of revenue and expense of Seaway. From June 2002 through
May 2006, we receive 60% of revenue and expense of Seaway. Thereafter, the
sharing ratio becomes 40% of revenue and expense to us. For the year ended
December 31, 2002, our portion of equity earnings on a pro-rated basis averaged
approximately 67%.

In August 2000, TE Products entered into agreements with Panhandle Eastern
Pipeline Company (PEPL), a former subsidiary of CMS Energy Corporation, and
Marathon Ashland Petroleum LLC (Marathon) to form Centennial Pipeline LLC
(Centennial). Centennial owns an interstate refined petroleum products
pipeline extending from the upper Texas Gulf Coast to Illinois. Through
February 9, 2003, each participant owned a one-third interest in Centennial.
On February 10, 2003, TE Products and Marathon each acquired an additional
interest in Centennial from PEPL for $20.0 million each, increasing their
percentage ownerships in Centennial to 50% each. During the six months ended
June 30, 2003, excluding the amount paid for the acquisition of the additional
ownership interest, TE Products contributed approximately $1.0 million for its
investment in Centennial, which is included in the equity investment balance at
June 30, 2003.

As of January 1, 2003, TE Products and Louis Dreyfus Energy Services, L.P.
(Louis Dreyfus) effectively formed Mont Belvieu Storage Partners, L.P. (MB
Storage). TE Products and Louis Dreyfus each own a 50% ownership interest in
MB Storage. The purpose of MB Storage is to expand services to the upper Texas
Gulf Coast energy marketplace by increasing pipeline throughput and the mix of
products handled through the existing system and establishing new receipt and
delivery connections. MB Storage is a service-oriented, fee-based venture with
no commodity trading activity. TE Products continues to operate the facilities
for MB Storage. Effective January 1, 2003, TE Products contributed property
and equipment with a net book value of $75.5 million to MB Storage.
Additionally, as of the contribution date, Louis Dreyfus had invested $6.1
million for expansion projects for MB Storage that TE Products was required to
reimburse if the original joint development and marketing agreement was

13



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

terminated by either party. This deferred liability was also contributed and
converted to the capital account of Louis Dreyfus in MB Storage.

We use the equity method of accounting to account for our investments in
Seaway, Centennial and MB Storage. Summarized combined financial information
for Seaway and Centennial for the six months ended June 30, 2003 and 2002, and
MB Storage for the six months ended June 30, 2003, is presented below (in
thousands):

|           |  |                  |        |      |  |   |        | 
|---------- |  | ---------------- | ------ | ---- |  | - | ------ | 
|           |  | Six Months Ended
|           |  | June 30,        
|           |  |                 
|           |  | 2003             |        | 2002
|           |  |                  |        |     
|Revenues   |  | $                | 59,759 |      |  | $ | 35,847 | 
|Net income |  |                  | 18,301 |      |  |   | 5,256  | 

Summarized combined balance sheet data for Seaway and Centennial as of
June 30, 2003, and December 31, 2002, and for MB Storage as of June 30, 2003,
is presented below (in thousands):

|                       |  |          |         |              |  |   |         | 
|---------------------- |  | -------- | ------- | ------------ |  | - | ------- | 
|                       |  | June 30, |         | December 31,
|                       |  | 2003     |         | 2002        
|                       |  |          |         |             
|Current assets         |  | $        | 52,362  |              |  | $ | 32,528  | 
|Noncurrent assets      |  |          | 619,450 |              |  |   | 551,324 | 
|Current liabilities    |  |          | 39,936  |              |  |   | 28,681  | 
|Long-term debt         |  |          | 140,000 |              |  |   | 140,000 | 
|Noncurrent liabilities |  |          | 13,831  |              |  |   | 14,875  | 
|Partners capital      |  |          | 478,045 |              |  |   | 400,296 | 

Our investments in Seaway and Centennial include excess net investment
amounts of $25.5 million and $33.4 million, respectively. Excess investment is
the amount by which our investment balance exceeds our proportionate share of
the net assets of the investment. Prior to January 1, 2002, and the adoption
of SFAS 142, we were amortizing the excess investment in Seaway using the
straight-line method over 20 years.

NOTE 8. PARTNERS CAPITAL

On April 2, 2003, we sold in an underwritten public offering 3.9 million
Units at $30.35 per Unit. The proceeds from the offering, net of underwriting
discount, totaled approximately $114.5 million, of which approximately $113.8
million was used to repurchase and retire all of the 3,916,547 previously
outstanding Class B Units held by Duke Energy Transport and Trading Company,
LLC (DETTCO), an affiliate of Duke Energy. We received approximately $0.7
million in proceeds from the offering in excess of the amount needed to
repurchase and retire the Class B Units.

NOTE 9. DEBT

Senior Notes

On January 27, 1998, TE Products completed the issuance of $180.0 million
principal amount of 6.45% Senior Notes due 2008, and $210.0 million principal
amount of 7.51% Senior Notes due 2028 (collectively the TE Products Senior
Notes). The 6.45% TE Products Senior Notes were issued at a discount of $0.3
million and are

14



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

being accreted to their face value over the term of the notes.
The 6.45% TE Products Senior Notes due 2008 are not subject to redemption prior
to January 15, 2008. The 7.51% TE Products Senior Notes due 2028, issued at
par, may be redeemed at any time after January 15, 2008, at the option of TE
Products, in whole or in part, at a premium.

The TE Products Senior Notes do not have sinking fund requirements.
Interest on the TE Products Senior Notes is payable semiannually in arrears on
January 15 and July 15 of each year. The TE Products Senior Notes are
unsecured obligations of TE Products and rank on a parity with all other
unsecured and unsubordinated indebtedness of TE Products. The indenture
governing the TE Products Senior Notes contains covenants, including, but not
limited to, covenants limiting the creation of liens securing indebtedness and
sale and leaseback transactions. However, the indenture does not limit our
ability to incur additional indebtedness. As of June 30, 2003, TE Products was
in compliance with the covenants of the TE Products Senior Notes.

On February 20, 2002, we completed the issuance of $500.0 million
principal amount of 7.625% Senior Notes due 2012. The 7.625% Senior Notes were
issued at a discount of $2.2 million and are being accreted to their face value
over the term of the notes. We used the proceeds from the offering to reduce a
portion of the outstanding balances of our credit facilities, including those
issued in connection with the acquisition of Jonah. The Senior Notes may be
redeemed at any time at our option with the payment of accrued interest and a
make-whole premium determined by discounting remaining interest and principal
payments using a discount rate equal to the rate of the United States Treasury
securities of comparable remaining maturity plus 35 basis points. The
indenture governing our 7.625% Senior Notes contains covenants, including, but
not limited to, covenants limiting the creation of liens securing indebtedness
and sale and leaseback transactions. However, the indenture does not limit our
ability to incur additional indebtedness. As of June 30, 2003, we were in
compliance with the covenants of these Senior Notes.

On January 30, 2003, we completed the issuance of $200.0 million principal
amount of 6.125% Senior Notes due 2013. The 6.125% Senior Notes were issued at
a discount of $1.4 million and are being accreted to their face value over the
term of the notes. We used $182.0 million of the proceeds from the offering to
reduce the outstanding principal on our $500.0 million revolving credit
facility to $250.0 million. The balance of the net proceeds received was used
for general purposes. The Senior Notes may be redeemed at any time at our
option with the payment of accrued interest and a make-whole premium determined
by discounting remaining interest and principal payments using a discount rate
equal to the rate of the United States Treasury securities of comparable
remaining maturity plus 35 basis points. The indenture governing our 6.125%
Senior Notes contains covenants, including, but not limited to, covenants
limiting the creation of liens securing indebtedness and sale and leaseback
transactions. However, the indenture does not limit our ability to incur
additional indebtedness. As of June 30, 2003, we were in compliance with the
covenants of these Senior Notes.

We have entered into interest rate swap agreements to hedge our exposure
to changes in the fair value on a portion of the Senior Notes discussed above.
See Note 4. Derivative Financial Instruments.

Other Long Term Debt and Credit Facilities

On April 6, 2001, we entered into a $500.0 million revolving credit
facility including the issuance of letters of credit of up to $20.0 million
(Three Year Facility). The interest rate was based, at our option, on either
the lenders base rate plus a spread, or LIBOR plus a spread in effect at the
time of the borrowings. The credit agreement for the Three Year Facility
contained certain restrictive financial covenant ratios. During 2002,
borrowings under the Three Year Facility were used to finance the acquisitions
of Chaparral on March 1, 2002, and Val Verde on June 30, 2002, and for general
purposes. During 2002, repayments were made on the Three Year Facility with
proceeds from the issuance of our 7.625% Senior Notes, proceeds from the
issuance of additional Units and proceeds from the termination of interest rate
swaps (see Note 4. Derivative Financial Instruments). During the

15



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

first
quarter of 2003, we repaid $182.0 million of the outstanding balance of the
Three Year Facility with proceeds from the issuance of our 6.125% Senior Notes
on January 30, 2003. On June 27, 2003, we repaid the outstanding balance under
the Three Year Facility with borrowings under a new credit facility, and
canceled the Three Year Facility.

On June 27, 2003, we entered into a $550.0 million revolving credit
facility including the issuance of letters of credit of up to $20.0 million
(Revolving Credit Facility) with a three year term. The interest rate is
based, at our option, on either the lenders base rate plus a spread, or LIBOR
plus a spread in effect at the time of the borrowings. The credit agreement
for the Revolving Credit Facility contains certain restrictive financial
covenant ratios. We borrowed $263.0 million under the Revolving Credit
Facility and repaid the outstanding balance of the Three Year Facility. On
June 30, 2003, $263.0 million was outstanding under the Revolving Credit
Facility at a weighted average interest rate, before the effects of hedging
activities, of 1.8%. At June 30, 2003, we were in compliance with the
covenants contained in this credit agreement.

We have entered into an interest rate swap agreement to hedge our exposure
to increases in interest rates on a portion of the credit facilities discussed
above. See Note 4. Derivative Financial Instruments.

Short Term Credit Facilities

On April 6, 2001, we entered into a 364-day, $200.0 million revolving
credit agreement (Short-term Revolver). The interest rate was based, at our
option, on either the lenders base rate plus a spread, or LIBOR plus a spread
in effect at the time of the borrowings. The credit agreement contained certain
restrictive financial covenant ratios. On March 28, 2002, the Short-term
Revolver was extended for an additional period of 364 days, ending in March
2003. During 2002, borrowings under the Short-term Revolver were used to
finance the acquisition of the Val Verde assets and for other purposes. During
2002, we repaid the existing amounts outstanding under the Short-term Revolver
with proceeds we received from the issuance of Units in 2002. The Short-term
Revolver expired on March 27, 2003.

On June 27, 2002, we entered into a $200.0 million six-month term loan
with SunTrust Bank (Six-Month Term Loan) payable in December 2002. We
borrowed $200.0 million under the Six-Month Term Loan to acquire the Val Verde
assets (see Note 5. Acquisitions and Dispositions). The interest rate was
based, at our option, on either the lenders base rate plus a spread, or LIBOR
plus a spread in effect at the time of the borrowings. The credit agreement
contained certain restrictive financial covenant ratios. On July 11, 2002, we
repaid $90.0 million of the outstanding principal from proceeds primarily
received from the issuance of Units in July 2002. On September 10, 2002, we
repaid the remaining outstanding balance of $110.0 million with proceeds
received from the issuance of Units in September 2002, and canceled the
facility.

16



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

The following table summarizes the principal outstanding under our credit
facilities as of June 30, 2003, and December 31, 2002 (in thousands):

|                             |  |                                                                   |                                   |   |          |           |              |   |         |           | 
|---------------------------- |  | ----------------------------------------------------------------- | --------------------------------- | - | -------- | --------- | ------------ | - | ------- | --------- | 
|                             |  |                                                                   |                                   |   | June 30, |           | December 31,
|                             |  |                                                                   |                                   |   | 2003     |           | 2002        
|                             |  |                                                                   |                                   |   |          |           |             
|Long Term Credit Facilities: |  |                                                                   |                                   |   |          |           |              |  
|                             |  | Three Year Facility, due April 2004                               |                                   | $ |         |           |              | $ | 432,000 |          
|                             |  | Revolving Credit Facility, due June 2006                          |                                   |   | 263,000  |           |              |   |        |          
|                             |  | 6.45% TE Products Senior Notes, due January 2008                  |                                   |   | 179,860  |           |              |   | 179,845 |          
|                             |  | 7.625% Senior Notes, due February 2012                            |                                   |   | 498,136  |           |              |   | 497,995 |          
|                             |  | 6.125% Senior Notes, due February 2013                            |                                   |   | 198,630  |           |              |   |        |          
|                             |  | 7.51% TE Products Senior Notes, due January 2028                  |                                   |   | 210,000  |           |              |   | 210,000 |          
|                             |  |                                                                   |                                   |   |          |           |              |  
|                             |  |                                                                   | Total borrowings                  |   |          | 1,349,626 |              |   |         | 1,319,840 | 
|                             |  | Adjustment to carrying value associated with
hedges of fair value |                                   |   | 57,468   |           |              |   | 57,852  |          
|                             |  |                                                                   |                                   |   |          |           |              |  
|                             |  |                                                                   | Total Long Term Credit Facilities |   | $        | 1,407,094 |              |   | $       | 1,377,692 | 
|                             |  |                                                                   |                                   |   |          |           |              |  

NOTE 10. QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH

We make quarterly cash distributions of all of our Available Cash,
generally defined as consolidated cash receipts less consolidated cash
disbursements and cash reserves established by the General Partner in its sole
discretion. Pursuant to the Partnership Agreement, the Company receives
incremental incentive cash distributions when cash distributions exceed certain
target thresholds as follows:

|                                      |                                                                     |  |             |    |         |  |         |    |  
|------------------------------------- | ------------------------------------------------------------------- |  | ----------- | -- | ------- |  | ------- | -- | -
|                                      |                                                                     |  |             |    |         |  | General
|                                      |                                                                     |  | Unitholders |    | Partner
|                                      |                                                                     |  |             |    |        
|Quarterly Cash Distribution per Unit: |                                                                     |  |             |    |         |  |         |   
|                                      | Up to Minimum Quarterly Distribution ($0.275 per Unit)              |  |             | 98 | %       |  |         | 2  | %
|                                      | First Target - $0.276 per Unit up to $0.325 per Unit                |  |             | 85 | %       |  |         | 15 | %
|                                      | Second Target - $0.326 per Unit up to $0.45 per Unit                |  |             | 75 | %       |  |         | 25 | %
|                                      | Over Second Target - Cash distributions greater than $0.45 per Unit |  |             | 50 | %       |  |         | 50 | %

The following table reflects the allocation of total distributions paid
during the six months ended June 30, 2003, and 2002 (in thousands, except per
Unit amounts).

|                                       |                                            |   |                           |        |      |   |        |        | 
|-------------------------------------- | ------------------------------------------ | - | ------------------------- | ------ | ---- | - | ------ | ------ | 
|                                       |                                            |   | Six Months Ended June 30,
|                                       |                                            |   |                          
|                                       |                                            |   | 2003                      |        | 2002
|                                       |                                            |   |                           |        |     
|Limited Partner Units                  |                                            | $ | 68,382                    |        |      | $ | 47,646 |       
|General Partner Ownership Interest     |                                            |   | 1,444                     |        |      |   | 1,064  |       
|General Partner Incentive              |                                            |   | 23,801                    |        |      |   | 15,361 |       
|                                       |                                            |   |                           |        |      |   |        |       
|                                       | Total Partners Capital Cash Distributions |   |                           | 93,627 |      |   |        | 64,071 | 
|Class B Units                          |                                            |   | 2,347                     |        |      |   | 4,504  |       
|                                       |                                            |   |                           |        |      |   |        |       
|                                       | Total Cash Distributions Paid              |   | $                         | 95,974 |      |   | $      | 68,575 | 
|                                       |                                            |   |                           |        |      |   |        |       
|Total Cash Distributions Paid Per Unit |                                            | $ | 1.225                     |        |      | $ | 1.150  |       
|                                       |                                            |   |                           |        |      |   |        |       

On August 8, 2003, we will pay a cash distribution of $0.625 per Unit for
the quarter ended June 30, 2003. The second quarter 2003 cash distribution
will total $49.4 million.

17



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

NOTE 11. SEGMENT DATA

We have three reporting segments: transportation and storage of refined
products, LPGs and petrochemicals, which operates as the Downstream Segment;
gathering, transportation, marketing and storage of crude oil and distribution
of lubrication oils and specialty chemicals, which operates as the Upstream
Segment; and gathering of natural gas, fractionation of NGLs and transportation
of NGLs, which operates as the Midstream Segment. The amounts indicated below
as Partnership and Other relate primarily to intersegment eliminations and
assets that we hold that have not been allocated to any of our reporting
segments.

Our Downstream Segment revenues are earned from transportation and storage
of refined products and LPGs, intrastate transportation of petrochemicals, sale
of product inventory and other ancillary services. The two largest operating
expense items of the Downstream Segment are labor and electric power. We
generally realize higher revenues during the first and fourth quarters of each year since
our operations are somewhat seasonal. Refined products volumes are generally
higher during the second and third quarters because of greater demand for
gasolines during the spring and summer driving seasons. LPGs volumes are
generally higher from November through March due to higher demand in the
Northeast for propane, a major fuel for residential heating. Our Downstream
Segment also includes the results of operations of the northern portion of the
Dean Pipeline. Beginning in January 2003, the northern portion of the Dean
Pipeline was converted to transport refinery grade propylene (RGPs) from Mont
Belvieu to Point Comfort, Texas. As a result, the revenues and expenses of the
northern portion of the Dean Pipeline are included in the Downstream Segment.
Our Downstream Segment also includes our equity investments in Centennial and
MB Storage (see Note 7. Equity Investments).

Our Upstream Segment revenues are earned from gathering, transportation,
marketing and storage of crude oil and distribution of lubrication oils and
specialty chemicals, principally in Oklahoma, Texas and the Rocky Mountain
region. Marketing operations consist primarily of aggregating purchased crude
oil along our pipeline systems, or from third party pipeline systems, and
arranging the necessary logistics for the ultimate sale of the crude oil to
local refineries, marketers or other end users. Our Upstream Segment also
includes the equity earnings from our investment in Seaway. Seaway consists of
large diameter pipelines that transport crude oil from Seaways marine
terminals on the U.S. Gulf Coast to Cushing, Oklahoma, a crude oil distribution
point for the Central United States, and to refineries in the Texas City and
Houston areas.

Our Midstream Segment revenues are earned from the fractionation of NGLs
in Colorado, transportation of NGLs from two trunkline NGL pipelines in South
Texas, two NGL pipelines in East Texas and a pipeline system (Chaparral) from
West Texas and New Mexico to Mont Belvieu; the gathering of natural gas in the
Green River Basin in southwestern Wyoming, through Jonah and the gathering of
CBM from the Fruitland Coal Formation of the San Juan Basin in New Mexico and
Colorado, through Val Verde. DEFS manages and operates the Val Verde, Jonah
and Chaparral assets for us under contractual agreements. The results of
operations of the Chaparral and Val Verde acquisitions are included in periods
subsequent to their respective acquisition dates (see Note 5. Acquisitions and
Dispositions).

18



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

The table below includes interim financial information by reporting
segment for the interim periods ended June 30, 2003 and 2002 (in thousands):

|                                      |                          |   |                                  |        |          |   |           |        |          |   |             |        |              |   |           |        |  |   |      |     |   |   |           |        | 
|------------------------------------- | ------------------------ | - | -------------------------------- | ------ | -------- | - | --------- | ------ | -------- | - | ----------- | ------ | ------------ | - | --------- | ------ |  | - | ---- | --- | - | - | --------- | ------ | 
|                                      |                          |   | Three Months Ended June 30, 2003
|                                      |                          |   |                                 
|                                      |                          |   | Downstream                       |        | Upstream |   | Midstream |        | Segments |   | Partnership |        |              |   |          
|                                      |                          |   | Segment                          |        | Segment  |   | Segment   |        | Total    |   | and Other   |        | Consolidated
|                                      |                          |   |                                  |        |          |   |           |        |          |   |             |        |             
|Revenues                              |                          | $ | 60,058                           |        |          | $ | 936,698   |        |          | $ | 44,462      |        |              | $ | 1,041,218 |        |  | $ | (418 | )   |   | $ | 1,040,800 |       
|Purchases of petroleum
products       |                          |   |                                 |        |          |   | 912,762   |        |          |   |            |        |              |   | 912,762   |        |  |   | (418 | )   |   |   | 912,344   |       
|Operating expenses,
including power   |                          |   | 36,268                           |        |          |   | 13,755    |        |          |   | 10,908      |        |              |   | 60,931    |        |  |   |     |     |   |   | 60,931    |       
|Depreciation and
amortization expense |                          |   | 7,067                            |        |          |   | 2,466     |        |          |   | 13,954      |        |              |   | 23,487    |        |  |   |     |     |   |   | 23,487    |       
|Gain on sale of assets                |                          |   |                                 |        |          |   | (3,948    | )      |          |   |            |        |              |   | (3,948    | )      |  |   |     |     |   |   | (3,948    | )     
|                                      |                          |   |                                  |        |          |   |           |        |          |   |             |        |              |   |           |        |  |   |      |     |   |   |           |       
|                                      | Operating income         |   |                                  | 16,723 |          |   |           | 11,663 |          |   |             | 19,600 |              |   |           | 47,986 |  |   |      |    |   |   |           | 47,986 | 
|Equity earnings                       |                          |   | 64                               |        |          |   | 8,186     |        |          |   |            |        |              |   | 8,250     |        |  |   |     |     |   |   | 8,250     |       
|Other income, net                     |                          |   | 55                               |        |          |   | 213       |        |          |   | 27          |        |              |   | 295       |        |  |   | (37  | )   |   |   | 258       |       
|                                      |                          |   |                                  |        |          |   |           |        |          |   |             |        |              |   |           |        |  |   |      |     |   |   |           |       
|                                      | Earnings before interest |   | $                                | 16,842 |          |   | $         | 20,062 |          |   | $           | 19,627 |              |   | $         | 56,531 |  |   | $    | (37 | ) |   | $         | 56,494 | 
|                                      |                          |   |                                  |        |          |   |           |        |          |   |             |        |              |   |           |        |  |   |      |     |   |   |           |       

|                                      |                          |   |                                  |        |          |   |           |        |          |   |             |        |              |   |         |        |  |   |      |   |  |   |         |        | 
|------------------------------------- | ------------------------ | - | -------------------------------- | ------ | -------- | - | --------- | ------ | -------- | - | ----------- | ------ | ------------ | - | ------- | ------ |  | - | ---- | - |  | - | ------- | ------ | 
|                                      |                          |   | Three Months Ended June 30, 2002
|                                      |                          |   |                                 
|                                      |                          |   | Downstream                       |        | Upstream |   | Midstream |        | Segments |   | Partnership |        |              |   |        
|                                      |                          |   | Segment                          |        | Segment  |   | Segment   |        | Total    |   | and Other   |        | Consolidated
|                                      |                          |   |                                  |        |          |   |           |        |          |   |             |        |             
|Revenues                              |                          | $ | 54,656                           |        |          | $ | 809,779   |        |          | $ | 24,366      |        |              | $ | 888,801 |        |  | $ | (472 | ) |  | $ | 888,329 |       
|Purchases of petroleum
products       |                          |   |                                 |        |          |   | 788,046   |        |          |   |            |        |              |   | 788,046 |        |  |   | (472 | ) |  |   | 787,574 |       
|Operating expenses,
including power   |                          |   | 28,715                           |        |          |   | 12,582    |        |          |   | 4,503       |        |              |   | 45,800  |        |  |   |     |   |  |   | 45,800  |       
|Depreciation and
amortization expense |                          |   | 7,364                            |        |          |   | 2,089     |        |          |   | 8,146       |        |              |   | 17,599  |        |  |   |     |   |  |   | 17,599  |       
|                                      |                          |   |                                  |        |          |   |           |        |          |   |             |        |              |   |         |        |  |   |      |   |  |   |         |       
|                                      | Operating income         |   |                                  | 18,577 |          |   |           | 7,062  |          |   |             | 11,717 |              |   |         | 37,356 |  |   |      |  |  |   |         | 37,356 | 
|Equity earnings                       |                          |   | (2,190                           | )      |          |   | 4,604     |        |          |   |            |        |              |   | 2,414   |        |  |   |     |   |  |   | 2,414   |       
|Other income, net                     |                          |   | 70                               |        |          |   | 175       |        |          |   | 162         |        |              |   | 407     |        |  |   |     |   |  |   | 407     |       
|                                      |                          |   |                                  |        |          |   |           |        |          |   |             |        |              |   |         |        |  |   |      |   |  |   |         |       
|                                      | Earnings before interest |   | $                                | 16,457 |          |   | $         | 11,841 |          |   | $           | 11,879 |              |   | $       | 40,177 |  |   | $    |  |  |   | $       | 40,177 | 
|                                      |                          |   |                                  |        |          |   |           |        |          |   |             |        |              |   |         |        |  |   |      |   |  |   |         |       

19



---



##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

|                                      |                          |   |                                |        |          |   |           |        |          |   |             |        |              |   |           |         |  |   |        |     |   |   |           |         | 
|------------------------------------- | ------------------------ | - | ------------------------------ | ------ | -------- | - | --------- | ------ | -------- | - | ----------- | ------ | ------------ | - | --------- | ------- |  | - | ------ | --- | - | - | --------- | ------- | 
|                                      |                          |   | Six Months Ended June 30, 2003
|                                      |                          |   |                               
|                                      |                          |   | Downstream                     |        | Upstream |   | Midstream |        | Segments |   | Partnership |        |              |   |          
|                                      |                          |   | Segment                        |        | Segment  |   | Segment   |        | Total    |   | and Other   |        | Consolidated
|                                      |                          |   |                                |        |          |   |           |        |          |   |             |        |             
|Revenues                              |                          | $ | 128,023                        |        |          | $ | 1,922,078 |        |          | $ | 91,366      |        |              | $ | 2,141,467 |         |  | $ | (1,428 | )   |   | $ | 2,140,039 |        
|Purchases of petroleum
products       |                          |   |                               |        |          |   | 1,876,616 |        |          |   |            |        |              |   | 1,876,616 |         |  |   | (1,428 | )   |   |   | 1,875,188 |        
|Operating expenses,
including power   |                          |   | 67,817                         |        |          |   | 28,592    |        |          |   | 22,262      |        |              |   | 118,671   |         |  |   |       |     |   |   | 118,671   |        
|Depreciation and
amortization expense |                          |   | 14,214                         |        |          |   | 5,531     |        |          |   | 31,055      |        |              |   | 50,800    |         |  |   |       |     |   |   | 50,800    |        
|Gain on sale of assets                |                          |   |                               |        |          |   | (3,948    | )      |          |   |            |        |              |   | (3,948    | )       |  |   |       |     |   |   | (3,948    | )      
|                                      |                          |   |                                |        |          |   |           |        |          |   |             |        |              |   |           |         |  |   |        |     |   |   |           |        
|                                      | Operating income         |   |                                | 45,992 |          |   |           | 15,287 |          |   |             | 38,049 |              |   |           | 99,328  |  |   |        |    |   |   |           | 99,328  | 
|Equity earnings                       |                          |   | (1,195                         | )      |          |   | 13,155    |        |          |   |            |        |              |   | 11,960    |         |  |   |       |     |   |   | 11,960    |        
|Other income, net                     |                          |   | 49                             |        |          |   | 402       |        |          |   | 64          |        |              |   | 515       |         |  |   | (73    | )   |   |   | 442       |        
|                                      |                          |   |                                |        |          |   |           |        |          |   |             |        |              |   |           |         |  |   |        |     |   |   |           |        
|                                      | Earnings before interest |   | $                              | 44,846 |          |   | $         | 28,844 |          |   | $           | 38,113 |              |   | $         | 111,803 |  |   | $      | (73 | ) |   | $         | 111,730 | 
|                                      |                          |   |                                |        |          |   |           |        |          |   |             |        |              |   |           |         |  |   |        |     |   |   |           |        

|                                      |                          |   |                                |        |          |   |           |        |          |   |             |        |              |   |           |        |  |   |        |   |  |   |           |        | 
|------------------------------------- | ------------------------ | - | ------------------------------ | ------ | -------- | - | --------- | ------ | -------- | - | ----------- | ------ | ------------ | - | --------- | ------ |  | - | ------ | - |  | - | --------- | ------ | 
|                                      |                          |   | Six Months Ended June 30, 2002
|                                      |                          |   |                               
|                                      |                          |   | Downstream                     |        | Upstream |   | Midstream |        | Segments |   | Partnership |        |              |   |          
|                                      |                          |   | Segment                        |        | Segment  |   | Segment   |        | Total    |   | and Other   |        | Consolidated
|                                      |                          |   |                                |        |          |   |           |        |          |   |             |        |             
|Revenues                              |                          | $ | 114,242                        |        |          | $ | 1,363,667 |        |          | $ | 42,736      |        |              | $ | 1,520,645 |        |  | $ | (1,179 | ) |  | $ | 1,519,466 |       
|Purchases of petroleum
products       |                          |   |                               |        |          |   | 1,321,724 |        |          |   |            |        |              |   | 1,321,724 |        |  |   | (1,179 | ) |  |   | 1,320,545 |       
|Operating expenses,
including power   |                          |   | 57,822                         |        |          |   | 24,521    |        |          |   | 7,996       |        |              |   | 90,339    |        |  |   |       |   |  |   | 90,339    |       
|Depreciation and
amortization expense |                          |   | 14,196                         |        |          |   | 4,153     |        |          |   | 15,291      |        |              |   | 33,640    |        |  |   |       |   |  |   | 33,640    |       
|                                      |                          |   |                                |        |          |   |           |        |          |   |             |        |              |   |           |        |  |   |        |   |  |   |           |       
|                                      | Operating income         |   |                                | 42,224 |          |   |           | 13,269 |          |   |             | 19,449 |              |   |           | 74,942 |  |   |        |  |  |   |           | 74,942 | 
|Equity earnings                       |                          |   | (2,986                         | )      |          |   | 8,972     |        |          |   |            |        |              |   | 5,986     |        |  |   |       |   |  |   | 5,986     |       
|Other income, net                     |                          |   | 194                            |        |          |   | 360       |        |          |   | 181         |        |              |   | 735       |        |  |   |       |   |  |   | 735       |       
|                                      |                          |   |                                |        |          |   |           |        |          |   |             |        |              |   |           |        |  |   |        |   |  |   |           |       
|                                      | Earnings before interest |   | $                              | 39,432 |          |   | $         | 22,601 |          |   | $           | 19,630 |              |   | $         | 81,663 |  |   | $      |  |  |   | $         | 81,663 | 
|                                      |                          |   |                                |        |          |   |           |        |          |   |             |        |              |   |           |        |  |   |        |   |  |   |           |       

The following table provides the total assets, capital expenditures and
significant non-cash investing activities for each segment as of and for the
periods ended June 30, 2003, and December 31, 2002 (in thousands):

|                   |                               |  |            |         |          |  |           |         |          |  |             |           |              |  |   |           |  |  |   |         |   |  |   |           | 
|------------------ | ----------------------------- |  | ---------- | ------- | -------- |  | --------- | ------- | -------- |  | ----------- | --------- | ------------ |  | - | --------- |  |  | - | ------- | - |  | - | --------- | 
|                   |                               |  | Downstream |         | Upstream |  | Midstream |         | Segments |  | Partnership |           |              |  |  
|                   |                               |  | Segment    |         | Segment  |  | Segment   |         | Total    |  | and Other   |           | Consolidated
|                   |                               |  |            |         |          |  |           |         |          |  |             |           |             
|June 30, 2003:     |                               |  |            |         |          |  |           |         |          |  |             |           |              |  |   |           |  |  |   |         |   |  |   |          
|                   | Total assets                  |  | $          | 935,657 |          |  | $         | 794,164 |          |  | $           | 1,155,173 |              |  | $ | 2,884,994 |  |  | $ | (33,440 | ) |  | $ | 2,851,554 | 
|                   | Capital expenditures          |  |            | 25,376  |          |  |           | 6,226   |          |  |             | 14,317    |              |  |   | 45,919    |  |  |   |        |   |  |   | 45,919    | 
|                   | Non-cash investing activities |  |            | 69,459  |          |  |           |        |          |  |             |          |              |  |   | 69,459    |  |  |   |        |   |  |   | 69,459    | 
|December 31, 2002: |                               |  |            |         |          |  |           |         |          |  |             |           |              |  |   |           |  |  |   |         |   |  |   |          
|                   | Total assets                  |  |            | 883,163 |          |  |           | 724,860 |          |  |             | 1,174,010 |              |  |   | 2,782,033 |  |  |   | (11,678 | ) |  |   | 2,770,355 | 
|                   | Capital expenditures          |  |            | 60,900  |          |  |           | 10,212  |          |  |             | 62,260    |              |  |   | 133,372   |  |  |   |        |   |  |   | 133,372   | 

20



---



##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

The following table reconciles the segments total earnings before interest
to consolidated net income (in thousands):

|                         |            |   |                             |        |                           |   |         |        |      |   |         |        |  |   |         |        | 
|------------------------ | ---------- | - | --------------------------- | ------ | ------------------------- | - | ------- | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ | 
|                         |            |   | Three Months Ended June 30, |        | Six Months Ended June 30,
|                         |            |   |                             |        |                          
|                         |            |   | 2003                        |        | 2002                      |   | 2003    |        | 2002
|                         |            |   |                             |        |                           |   |         |        |     
|Earnings before interest |            | $ | 56,494                      |        |                           | $ | 40,177  |        |      | $ | 111,730 |        |  | $ | 81,663  |       
|Interest expense         |            |   | (23,513                     | )      |                           |   | (16,829 | )      |      |   | (45,420 | )      |  |   | (33,616 | )     
|Interest capitalized     |            |   | 963                         |        |                           |   | 1,029   |        |      |   | 1,559   |        |  |   | 3,138   |       
|                         |            |   |                             |        |                           |   |         |        |      |   |         |        |  |   |         |       
|                         | Net income |   | $                           | 33,944 |                           |   | $       | 24,377 |      |   | $       | 67,869 |  |   | $       | 51,185 | 
|                         |            |   |                             |        |                           |   |         |        |      |   |         |        |  |   |         |       

NOTE 12. COMMITMENTS AND CONTINGENCIES

In the fall of 1999 and on December 1, 2000, the General Partner and the
Partnership were named as defendants in two separate lawsuits in Jackson County
Circuit Court, Jackson County, Indiana, styled Ryan E. McCleery and Marcia S.
McCleery, et. al. v. Texas Eastern Corporation, et. al.(including the General
Partner and Partnership) and Gilbert Richards and Jean Richards v. Texas
Eastern Corporation, et. al.(including the General Partner and Partnership).
In both cases, the plaintiffs contend, among other things, that we and other
defendants stored and disposed of toxic and hazardous substances and hazardous
wastes in a manner that caused the materials to be released into the air, soil
and water. They further contend that the release caused damages to the
plaintiffs. In their complaints, the plaintiffs allege strict liability for
both personal injury and property damage together with gross negligence,
continuing nuisance, trespass, criminal mischief and loss of consortium. The
plaintiffs are seeking compensatory, punitive and treble damages. We have
filed an answer to both complaints, denying the allegations, as well as various
other motions. These cases are not covered by insurance. Discovery is
ongoing, and we are defending ourselves vigorously against the lawsuits. The
plaintiffs have not stipulated the amount of damages that they are seeking in
the suit. We cannot estimate the loss, if any, associated with these pending
lawsuits.

On December 21, 2001, TE Products was named as a defendant in a lawsuit in
the 10th Judicial District, Natchitoches Parish, Louisiana, styled Rebecca L.
Grisham et. al. v. TE Products Pipeline Company, Limited Partnership. In this
case, the plaintiffs contend that our pipeline, which crosses the plaintiffs
property, leaked toxic products onto the plaintiffs property. The plaintiffs
further contend that this leak caused damages to the plaintiffs. We have filed
an answer to the plaintiffs petition denying the allegations. The plaintiffs
have not stipulated the amount of damages they are seeking in the suit. We are
defending ourselves vigorously against the lawsuit. We cannot estimate the
damages, if any, associated with this pending lawsuit; however, this case is
covered by insurance.

On April 19, 2002, we, through our subsidiary TEPPCO Crude Oil, L.P.,
filed a declaratory judgment action in the U.S. District Court for the Western
District of Oklahoma against D.R.D. Environmental Services, Inc. (D.R.D.)
seeking resolution of billing and other contractual disputes regarding
potential overcharges for environmental remediation services provided by D.R.D.
On May 28, 2002, D.R.D. filed a counterclaim for alleged breach of contract in
the amount of $2,243,525, and for unspecified damages for alleged tortious
interference with D.R.D.s contractual relations with DEFS. On July 16, 2003,
the parties entered into a Settlement Agreement and Mutual Release, dismissing
all claims and counterclaims against each other. The terms of the Settlement
Agreement and Mutual Release will not have a material adverse effect on our
financial position, results of operations or cash flows.

In May 2003, the General Partner was named as a defendant in a lawsuit
styled John R. James, et al. v. J Graves Insulation Company, et al.as filed in
the first Judicial District Court, Caddo Parish, Louisiana. There are numerous
plaintiffs identified in the action that are alleged to have suffered damages
as the result of alleged exposure to asbestos-containing products and
materials. According to the petition and as a result of a preliminary

21



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

investigation, the General Partner believes that the only claim asserted
against it results from one individual for the period of July 1971 through June
1972, who is alleged to have worked on a facility owned by the General
Partners predecessor. This period is a relatively minor period with respect
to the total alleged exposure period for this individual from January 1964
through December 2001. The individuals claims involve numerous employers and
alleged job sites. Currently, the General Partner has been unable to confirm
involvement by the General Partner or its predecessors with the alleged
location, and it is currently uncertain whether this case is covered by
insurance. Discovery is planned and, if the General Partner is unable to obtain
early voluntary dismissal, the General Partner intends to defend itself
vigorously against this lawsuit. The plaintiffs have not stipulated the amount
of damages that they are seeking in this suit. We are obligated to reimburse
the General Partner for any costs it incurs related to this lawsuit. We cannot
estimate the loss, if any, associated with this pending lawsuit. We do not
believe that the outcome of this lawsuit will have a material adverse effect on
our financial position, results of operations or cash flows.

On April 2, 2003, Centennial was served with a petition in a matter styled
Adams, et al. v. Centennial Pipeline Company LLC, et al. This matter involves
approximately 2,000 plaintiffs who allege that over 200 defendants, including
Centennial, generated, transported, and/or disposed of hazardous and toxic
waste at two sites in Bayou Sorrell, Louisiana, an underground injection well
and a landfill. The plaintiffs allege personal injuries ranging from headaches
and allergies to birth defects, cancer and death. The underground injection
well has been in operation since May 1976. Based upon current information,
Centennial appears to be a de minimiscontributor, having used the disposal
site during the two month time period of December 2001 and January 2002. The
plaintiffs have made a global settlement offer of $198.5 million. The
defendants have made a global settlement counteroffer of $20.0 million, which
is based on a per capita payment of $80,000 per party. Marathon is handling
this matter for Centennial under its operating agreement with Centennial. TE
Products has a 50% ownership interest in Centennial. Based upon Centennials
limited involvement with the disposal site, we do not believe that the outcome
of this matter will have a material adverse effect on our financial position,
results of operations or cash flows.

In addition to the litigation discussed above, we have been, in the
ordinary course of business, a defendant in various lawsuits and a party to
various other legal proceedings, some of which are covered in whole or in part
by insurance. We believe that the outcome of these lawsuits and other
proceedings will not individually or in the aggregate have a material adverse
effect on our consolidated financial position, results of operations or cash
flows.

Our operations are subject to federal, state and local laws and
regulations governing the discharge of materials into the environment. Failure
to comply with these laws and regulations may result in the assessment of
administrative, civil and criminal penalties, imposition of injunctions
delaying or prohibiting certain activities and the need to perform
investigatory and remedial activities. Although we believe our operations are
in material compliance with applicable environmental laws and regulations,
risks of significant costs and liabilities are inherent in pipeline operations,
and we cannot assure you that significant costs and liabilities will not be
incurred. Moreover, it is possible that other developments, such as
increasingly strict environmental laws and regulations and enforcement policies
thereunder, and claims for damages to property or persons resulting from our
operations, could result in substantial costs and liabilities to us. We
believe that changes in environmental laws and regulations will not have a
material adverse effect on our financial position, results of operations or
cash flows in the near term.

In 1994, the Louisiana Department of Environmental Quality (LDEQ) issued
a compliance order for environmental contamination at our Arcadia, Louisiana,
facility. This contamination may be attributable to our operations, as well as
adjacent petroleum terminals operated by other companies. In 1999, our Arcadia
facility and adjacent terminals were directed by the Remediation Services
Division of the LDEQ to pursue remediation of this containment phase. At June
30, 2003, we have an accrued liability of $0.1 million for remediation costs at
our Arcadia facility. We do not expect that the completion of the remediation
program that we have proposed will have a future material adverse effect on our
financial position, results of operations or cash flows.

22



---



##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

On March 17, 2003, we experienced a release of 511 barrels of jet fuel
from a tank at our Blue Island terminal located in Cook County, Illinois. As a
result of the release, we have entered into an Agreed Preliminary Injunction
and Order (Agreed Order) with the State of Illinois. The Agreed Order
requires us, in part, to complete a site investigation plan to delineate the
scope of any potential contamination resulting from the release and to
remediate any contamination. The Agreed Order does not contain any provision
for any fines or penalties; however, it does not preclude the State of Illinois
from assessing these at a later date. We do not expect that the completion of
the remediation program will have a future material adverse effect on our
financial position, results of operations or cash flows.

At June 30, 2003, we have an accrued liability of $6.6 million related to
various TCTM sites requiring environmental remediation activities. We have a
contractual indemnity obligation from DETTCO, an affiliate of Duke Energy, that
we received in connection with our acquisition of assets from DETTCO in
November 1998. The indemnity relates to future environmental remediation
activities attributable to operations of these assets prior to our acquisition.
Under this indemnity obligation, we are responsible for the first $3.0 million
in specified environmental liabilities, and DETTCO is responsible for those
environmental liabilities in excess of $3.0 million, up to a maximum amount of
$25.0 million. At December 31, 2002, we had a receivable
balance from DETTCO of
$4.2 million, the majority of which related to
remediation activities at the Velma crude oil site in Stephens County,
Oklahoma. On March 31, 2003, we received $2.4 million under the
indemnity obligation with DETTCO. The remaining $1.8 million due was
subsequently written off as a result of final settlement discussions
with DETTCO on this matter. The accrued liability balance at June 30, 2003, also includes an
accrual of $2.3 million related to a crude oil site. We are currently in
discussions with DETTCO regarding various matters relative to DETTCOs
indemnifications. We do not expect that the completion of remediation programs
associated with TCTM activities will have a future material adverse effect on
our financial position, results of operations or cash flows.

Centennial entered into credit facilities totaling $150.0 million, and as
of June 30, 2003, $150.0 million was outstanding under those credit facilities.
The proceeds were used to fund construction and conversion costs of its
pipeline system. Each of the participants in Centennial, including TE
Products, originally guaranteed one-third of Centennials debt up to a maximum
amount of $50.0 million. During the third quarter of 2002, PEPL, one of the
participants in Centennial, was downgraded by Moodys and Standard & Poors to
below investment grade, which resulted in PEPL being in default under its
portion of the Centennial guaranty. Effective September 27, 2002, TE Products
and Marathon increased their guaranteed amounts to one-half of the debt of
Centennial, up to a maximum amount of $75.0 million each, to avoid a default on
the Centennial debt. As compensation to TE Products and Marathon for providing
their additional guarantees, PEPL was required to pay interest at a rate of 4%
per annum to each of TE Products and Marathon on the portion of the additional
guaranty that each had provided for PEPL. In connection with the acquisition
of the additional interest in Centennial on February 10, 2003, the guaranty
agreement between TE Products, Marathon, and PEPL was terminated. TE Products
guaranty of up to a maximum of $75.0 million of Centennials debt remains in
effect.

In May 2003, we entered into an agreement with Williams Gas Processing
Company (Williams) that requires Williams to build, own, and operate a
central dehydration facility to be used as a bulk water removal plant for gas
gathered on the Jonah system. The cost of building this facility was estimated
at $4.5 million. Under the agreement, Williams will supply the land for the
facility, and we are required to deposit $4.5 million into an escrow account to
be used by Williams to cover costs of construction of the facility. Williams
will retain ultimate title to the facility, and we will be reimbursed for the
escrowed amounts used by Williams through surcharges paid to us by the
producers on the Jonah system. In accordance with the agreement, we funded
$1.0 million of the $4.5 million required escrow amount in the second quarter
of 2003, and we are obligated to fund the remaining $3.5 million by August 31,
2003.

23



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

NOTE 13. COMPREHENSIVE INCOME

SFAS No. 130, Reporting Comprehensive Incomerequires certain items such
as foreign currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on certain investments to be
reported in a financial statement. As of and for the six months ended June 30,
2003, and 2002, the components of comprehensive income were due to the interest
rate swap related to our variable rate revolving credit facility, which is
designated as a cash flow hedge. Changes in the fair value of the cash flow
hedge, to the extent the hedge is effective, are recognized in other
comprehensive income until the hedge interest costs are recognized in earnings.
The table below reconciles reported net income to total comprehensive income
for the three months and six months ended June 30, 2003, and 2002 (in
thousands).

|                                      |                            |   |                             |        |                           |   |        |        |      |   |        |        |  |   |        |        | 
|------------------------------------- | -------------------------- | - | --------------------------- | ------ | ------------------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                      |                            |   | Three Months Ended June 30, |        | Six Months Ended June 30,
|                                      |                            |   |                             |        |                          
|                                      |                            |   | 2003                        |        | 2002                      |   | 2003   |        | 2002
|                                      |                            |   |                             |        |                           |   |        |        |     
|Net income                            |                            | $ | 33,944                      |        |                           | $ | 24,377 |        |      | $ | 67,869 |        |  | $ | 51,185 |       
|Net income (loss) on cash flow hedges |                            |   | 3,235                       |        |                           |   | (2,952 | )      |      |   | 8,704  |        |  |   | 348    |       
|                                      |                            |   |                             |        |                           |   |        |        |      |   |        |        |  |   |        |       
|                                      | Total comprehensive income |   | $                           | 37,179 |                           |   | $      | 21,425 |      |   | $      | 76,573 |  |   | $      | 51,533 | 
|                                      |                            |   |                             |        |                           |   |        |        |      |   |        |        |  |   |        |       

The accumulated balance of other comprehensive loss related to cash flow
hedges is as follows (in thousands):

|                             |                                |   |         |       | 
|---------------------------- | ------------------------------ | - | ------- | ----- | 
|Balance at December 31, 2001 |                                | $ | (20,324 | )    
|                             | Net income on cash flow hedges |   |         | 269   | 
|                             |                                |   |         |      
|Balance at December 31, 2002 |                                | $ | (20,055 | )    
|                             | Net income on cash flow hedges |   |         | 8,704 | 
|                             |                                |   |         |      
|Balance at June 30, 2003     |                                | $ | (11,351 | )    
|                             |                                |   |         |      

NOTE 14. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

In connection with our issuance of Senior Notes on February 20, 2002, TE
Products Pipeline Company, Limited Partnership, TCTM, L.P., TEPPCO Midstream
Companies, L.P. and Jonah Gas Gathering Company, our significant operating
subsidiaries, issued unconditional guarantees of our debt securities.
Effective with the acquisition of the Val Verde assets on June 30, 2002, our
subsidiary, Val Verde Gas Gathering Company, L.P. also became a significant
operating subsidiary and issued unconditional guarantees of our debt
securities. The guarantees are full, unconditional, and joint and several. TE
Products Pipeline Company, Limited Partnership, TCTM, L.P., TEPPCO Midstream
Companies, L.P., Jonah Gas Gathering Company and Val Verde Gas Gathering
Company, L.P. are collectively referred to as the Guarantor Subsidiaries.
The Guarantor Subsidiaries have also issued guarantees of our 6.125% Senior
Notes issued in January 2003.

The following supplemental condensed consolidating financial information
reflects our separate accounts, the combined accounts of the Guarantor
Subsidiaries, the combined accounts of our other non-guarantor subsidiaries,
the combined consolidating adjustments and eliminations and our consolidated
accounts for the dates and periods indicated. For purposes of the following
consolidating information, our investments in our subsidiaries and the
Guarantor Subsidiaries investments in their subsidiaries are accounted for
under the equity method of accounting.

24



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

|                                  |                                     |                                         |   |                 |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   |           |           | 
|--------------------------------- | ----------------------------------- | --------------------------------------- | - | --------------- | --------- | ------------ | - | ------------- | --------- | ------------- | - | -------------- | --------- |  | - | ---------- | ---------- | - | - | --------- | --------- | 
|                                  |                                     |                                         |   | June 30, 2003  
|                                  |                                     |                                         |   |                
|                                  |                                     |                                         |   |                 |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   | TEPPCO   
|                                  |                                     |                                         |   | TEPPCO          |           | Guarantor    |   | Non-Guarantor |           | Consolidating |   | Partners, L.P.
|                                  |                                     |                                         |   | Partners, L .P. |           | Subsidiaries |   | Subsidiaries  |           | Adjustments   |   | Consolidated  
|                                  |                                     |                                         |   |                 |           |              |   |               |           |               |   |               
|                                  |                                     |                                         |   |                 |           |              |   |               |           |               |   | (in thousands) |           |  |   |            |            |   |   |          
|Assets                            |                                     |                                         |   |                 |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   |          
|                                  | Current assets                      |                                         | $ | 21,836          |           |              | $ | 100,260       |           |               | $ | 354,522        |           |  | $ | (49,439    | )          |   | $ | 427,179   |          
|                                  | Property, plant and equipment  net |                                         |   |                |           |              |   | 1,068,212     |           |               |   | 457,941        |           |  |   |           |            |   |   | 1,526,153 |          
|                                  | Equity investments                  |                                         |   | 987,830         |           |              |   | 935,581       |           |               |   | 213,702        |           |  |   | (1,761,250 | )          |   |   | 375,863   |          
|                                  | Intercompany notes receivable       |                                         |   | 996,372         |           |              |   |              |           |               |   |               |           |  |   | (996,372   | )          |   |   |          |          
|                                  | Intangible assets                   |                                         |   |                |           |              |   | 416,438       |           |               |   | 29,195         |           |  |   |           |            |   |   | 445,633   |          
|                                  | Other assets                        |                                         |   | 6,420           |           |              |   | 33,102        |           |               |   | 37,204         |           |  |   |           |            |   |   | 76,726    |          
|                                  |                                     |                                         |   |                 |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   |           |          
|                                  |                                     | Total assets                            |   | $               | 2,012,458 |              |   | $             | 2,553,593 |               |   | $              | 1,092,564 |  |   | $          | (2,807,061 | ) |   | $         | 2,851,554 | 
|                                  |                                     |                                         |   |                 |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   |          
|Liabilities and partners capital |                                     |                                         |   |                 |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   |          
|                                  | Current liabilities                 |                                         | $ | 22,444          |           |              | $ | 113,289       |           |               | $ | 354,137        |           |  | $ | (37,382    | )          |   | $ | 452,488   |          
|                                  | Long-term debt                      |                                         |   | 1,002,214       |           |              |   | 404,880       |           |               |   |               |           |  |   |           |            |   |   | 1,407,094 |          
|                                  | Intercompany notes payable          |                                         |   |                |           |              |   | 578,832       |           |               |   | 418,249        |           |  |   | (997,081   | )          |   |   |          |          
|                                  | Other long term liabilities         |                                         |   |                |           |              |   | 15,315        |           |               |   | 209            |           |  |   |           |            |   |   | 15,524    |          
|                                  | Total partners capital             |                                         |   | 987,800         |           |              |   | 1,441,277     |           |               |   | 319,969        |           |  |   | (1,772,598 | )          |   |   | 976,448   |          
|                                  |                                     |                                         |   |                 |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   |           |          
|                                  |                                     | Total liabilities and partners capital |   | $               | 2,012,458 |              |   | $             | 2,553,593 |               |   | $              | 1,092,564 |  |   | $          | (2,807,061 | ) |   | $         | 2,851,554 | 
|                                  |                                     |                                         |   |                 |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   |          

|                                  |                                                |                                         |   |                   |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   |           |           | 
|--------------------------------- | ---------------------------------------------- | --------------------------------------- | - | ----------------- | --------- | ------------ | - | ------------- | --------- | ------------- | - | -------------- | --------- |  | - | ---------- | ---------- | - | - | --------- | --------- | 
|                                  |                                                |                                         |   | December 31, 2002
|                                  |                                                |                                         |   |                  
|                                  |                                                |                                         |   |                   |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   | TEPPCO   
|                                  |                                                |                                         |   | TEPPCO            |           | Guarantor    |   | Non-Guarantor |           | Consolidating |   | Partners, L.P.
|                                  |                                                |                                         |   | Partners, L.P.    |           | Subsidiaries |   | Subsidiaries  |           | Adjustments   |   | Consolidated  
|                                  |                                                |                                         |   |                   |           |              |   |               |           |               |   |               
|                                  |                                                |                                         |   |                   |           |              |   |               |           |               |   | (in thousands) |           |  |   |            |            |   |   |          
|Assets                            |                                                |                                         |   |                   |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   |          
|                                  | Current assets                                 |                                         | $ | 241               |           |              | $ | 92,511        |           |               | $ | 286,379        |           |  | $ | (18,851    | )          |   | $ | 360,280   |          
|                                  | Property, plant and equipment  net            |                                         |   |                  |           |              |   | 1,128,803     |           |               |   | 459,021        |           |  |   |           |            |   |   | 1,587,824 |          
|                                  | Equity investments                             |                                         |   | 1,011,935         |           |              |   | 846,991       |           |               |   | 211,229        |           |  |   | (1,785,450 | )          |   |   | 284,705   |          
|                                  | Intercompany notes receivable                  |                                         |   | 986,852           |           |              |   |              |           |               |   |               |           |  |   | (986,852   | )          |   |   |          |          
|                                  | Intangible assets                              |                                         |   |                  |           |              |   | 434,941       |           |               |   | 30,433         |           |  |   |           |            |   |   | 465,374   |          
|                                  | Other assets                                   |                                         |   | 6,200             |           |              |   | 31,135        |           |               |   | 34,837         |           |  |   |           |            |   |   | 72,172    |          
|                                  |                                                |                                         |   |                   |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   |           |          
|                                  |                                                | Total assets                            |   | $                 | 2,005,228 |              |   | $             | 2,534,381 |               |   | $              | 1,021,899 |  |   | $          | (2,791,153 | ) |   | $         | 2,770,355 | 
|                                  |                                                |                                         |   |                   |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   |          
|Liabilities and partners capital |                                                |                                         |   |                   |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   |          
|                                  | Current liabilities                            |                                         | $ | 30,715            |           |              | $ | 122,882       |           |               | $ | 272,538        |           |  | $ | (59,639    | )          |   | $ | 366,496   |          
|                                  | Long-term debt                                 |                                         |   | 974,264           |           |              |   | 403,428       |           |               |   |               |           |  |   |           |            |   |   | 1,377,692 |          
|                                  | Intercompany notes payable                     |                                         |   |                  |           |              |   | 508,652       |           |               |   | 437,411        |           |  |   | (946,063   | )          |   |   |          |          
|                                  | Other long term liabilities                    |                                         |   | 6,523             |           |              |   | 24,230        |           |               |   | 209            |           |  |   |           |            |   |   | 30,962    |          
|                                  | Redeemable Class B Units held by related
party |                                         |   | 103,363           |           |              |   |              |           |               |   |               |           |  |   |           |            |   |   | 103,363   |          
|                                  | Total partners capital                        |                                         |   | 890,363           |           |              |   | 1,475,189     |           |               |   | 311,741        |           |  |   | (1,785,451 | )          |   |   | 891,842   |          
|                                  |                                                |                                         |   |                   |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   |           |          
|                                  |                                                | Total liabilities and partners capital |   | $                 | 2,005,228 |              |   | $             | 2,534,381 |               |   | $              | 1,021,899 |  |   | $          | (2,791,153 | ) |   | $         | 2,770,355 | 
|                                  |                                                |                                         |   |                   |           |              |   |               |           |               |   |                |           |  |   |            |            |   |   |          

25



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
(Unaudited)

|                       |                  |   |                                  |        |              |   |               |        |               |   |                |        |  |   |         |         |   |   |           |        | 
|---------------------- | ---------------- | - | -------------------------------- | ------ | ------------ | - | ------------- | ------ | ------------- | - | -------------- | ------ |  | - | ------- | ------- | - | - | --------- | ------ | 
|                       |                  |   | Three Months Ended June 30, 2003
|                       |                  |   |                                 
|                       |                  |   |                                  |        |              |   |               |        |               |   |                |        |  |   |         |         |   |   | TEPPCO   
|                       |                  |   | TEPPCO                           |        | Guarantor    |   | Non-Guarantor |        | Consolidating |   | Partners, L.P.
|                       |                  |   | Partners, L.P.                   |        | Subsidiaries |   | Subsidiaries  |        | Adjustments   |   | Consolidated  
|                       |                  |   |                                  |        |              |   |               |        |               |   |               
|                       |                  |   |                                  |        |              |   |               |        |               |   | (in thousands) |        |  |   |         |         |   |   |          
|Operating revenues     |                  | $ |                                 |        |              | $ | 91,812        |        |               | $ | 949,406        |        |  | $ | (418    | )       |   | $ | 1,040,800 |       
|Costs and expenses     |                  |   |                                 |        |              |   | 62,363        |        |               |   | 934,817        |        |  |   | (418    | )       |   |   | 996,762   |       
|Gain on sale of assets |                  |   |                                 |        |              |   |              |        |               |   | (3,948         | )      |  |   |        |         |   |   | (3,948    | )     
|                       |                  |   |                                  |        |              |   |               |        |               |   |                |        |  |   |         |         |   |   |           |       
|                       | Operating income |   |                                  |       |              |   |               | 29,449 |               |   |                | 18,537 |  |   |         |        |   |   |           | 47,986 | 
|                       |                  |   |                                  |        |              |   |               |        |               |   |                |        |  |   |         |         |   |   |           |       
|Interest expense  net |                  |   | (19,007                          | )      |              |   | (14,472       | )      |               |   | (8,115         | )      |  |   | 19,044  |         |   |   | (22,550   | )     
|Equity earnings        |                  |   | 33,944                           |        |              |   | 26,550        |        |               |   | 8,186          |        |  |   | (60,430 | )       |   |   | 8,250     |       
|Other income  net     |                  |   | 19,007                           |        |              |   | 49            |        |               |   | 246            |        |  |   | (19,044 | )       |   |   | 258       |       
|                       |                  |   |                                  |        |              |   |               |        |               |   |                |        |  |   |         |         |   |   |           |       
|                       | Net income       |   | $                                | 33,944 |              |   | $             | 41,576 |               |   | $              | 18,854 |  |   | $       | (60,430 | ) |   | $         | 33,944 | 
|                       |                  |   |                                  |        |              |   |               |        |               |   |                |        |  |   |         |         |   |   |           |       

|                       |                  |            |         |                                  |        |              |        |               |        |               |         |                |        |   |         |   |         |   |         |        |        | 
|---------------------- | ---------------- | ---------- | ------- | -------------------------------- | ------ | ------------ | ------ | ------------- | ------ | ------------- | ------- | -------------- | ------ | - | ------- | - | ------- | - | ------- | ------ | ------ | 
|                       |                  |            |         | Three Months Ended June 30, 2002
|                       |                  |            |         |                                 
|                       |                  |            |         |                                  |        |              |        |               |        |               |         |                |        |   |         |   |         |   |         | TEPPCO
|                       |                  |            |         | TEPPCO                           |        | Guarantor    |        | Non-Guarantor |        | Consolidating |         | Partners, L.P.
|                       |                  |            |         | Partners, L.P.                   |        | Subsidiaries |        | Subsidiaries  |        | Adjustments   |         | Consolidated  
|                       |                  |            |         |                                  |        |              |        |               |        |               |         |               
|                       |                  |            |         |                                  |        |              |        |               |        |               |         | (in thousands) |        |   |         |   |         |   |         |       
|Operating revenues     |                  | $          |        |                                  |        | $            | 66,574 |               |        | $             | 822,227 |                |        | $ | (472    | ) |         | $ | 888,329 |       
|Costs and expenses     |                  |            |        |                                  |        |              | 43,612 |               |        |               | 807,833 |                |        |   | (472    | ) |         |   | 850,973 |       
|                       |                  |            |         |                                  |        |              |        |               |        |               |         |                |        |   |         |   |         |   |         |       
|                       | Operating income |            |         |                                 |        |              |        | 22,962        |        |               |         | 14,394         |        |   |         |  |         |   |         | 37,356 |       
|                       |                  |            |         |                                  |        |              |        |               |        |               |         |                |        |   |         |   |         |   |         |       
|Interest expense  net |                  |            | (11,706 | )                                |        |              | (8,888 | )             |        |               | (6,912  | )              |        |   | 11,706  |   |         |   | (15,800 | )     
|Equity earnings        |                  |            | 24,377  |                                  |        |              | 12,442 |               |        |               | 4,604   |                |        |   | (39,009 | ) |         |   | 2,414   |       
|Other income  net     |                  |            | 11,706  |                                  |        |              | 220    |               |        |               | 187     |                |        |   | (11,706 | ) |         |   | 407     |       
|                       |                  |            |         |                                  |        |              |        |               |        |               |         |                |        |   |         |   |         |   |         |       
|                       |                  | Net income |         | $                                | 24,377 |              |        | $             | 26,736 |               |         | $              | 12,273 |   |         | $ | (39,009 | ) |         | $      | 24,377 | 
|                       |                  |            |         |                                  |        |              |        |               |        |               |         |                |        |   |         |   |         |   |         |       

|                       |                  |   |                                |        |              |   |               |        |               |   |                |        |  |   |          |          |   |   |           |        | 
|---------------------- | ---------------- | - | ------------------------------ | ------ | ------------ | - | ------------- | ------ | ------------- | - | -------------- | ------ |  | - | -------- | -------- | - | - | --------- | ------ | 
|                       |                  |   | Six Months Ended June 30, 2003
|                       |                  |   |                               
|                       |                  |   |                                |        |              |   |               |        |               |   |                |        |  |   |          |          |   |   | TEPPCO   
|                       |                  |   | TEPPCO                         |        | Guarantor    |   | Non-Guarantor |        | Consolidating |   | Partners, L.P.
|                       |                  |   | Partners, L.P.                 |        | Subsidiaries |   | Subsidiaries  |        | Adjustments   |   | Consolidated  
|                       |                  |   |                                |        |              |   |               |        |               |   |               
|                       |                  |   |                                |        |              |   |               |        |               |   | (in thousands) |        |  |   |          |          |   |   |          
|Operating revenues     |                  | $ |                               |        |              | $ | 193,891       |        |               | $ | 1,947,576      |        |  | $ | (1,428   | )        |   | $ | 2,140,039 |       
|Costs and expenses     |                  |   |                               |        |              |   | 123,240       |        |               |   | 1,922,847      |        |  |   | (1,428   | )        |   |   | 2,044,659 |       
|Gain on sale of assets |                  |   |                               |        |              |   |              |        |               |   | (3,948         | )      |  |   |         |          |   |   | (3,948    | )     
|                       |                  |   |                                |        |              |   |               |        |               |   |                |        |  |   |          |          |   |   |           |       
|                       | Operating income |   |                                |       |              |   |               | 70,651 |               |   |                | 28,677 |  |   |          |         |   |   |           | 99,328 | 
|                       |                  |   |                                |        |              |   |               |        |               |   |                |        |  |   |          |          |   |   |           |       
|Interest expense  net |                  |   | (36,416                        | )      |              |   | (27,991       | )      |               |   | (15,943        | )      |  |   | 36,489   |          |   |   | (43,861   | )     
|Equity earnings        |                  |   | 67,869                         |        |              |   | 40,104        |        |               |   | 13,155         |        |  |   | (109,168 | )        |   |   | 11,960    |       
|Other income  net     |                  |   | 36,416                         |        |              |   | 38            |        |               |   | 477            |        |  |   | (36,489  | )        |   |   | 442       |       
|                       |                  |   |                                |        |              |   |               |        |               |   |                |        |  |   |          |          |   |   |           |       
|                       | Net income       |   | $                              | 67,869 |              |   | $             | 82,802 |               |   | $              | 26,366 |  |   | $        | (109,168 | ) |   | $         | 67,869 | 
|                       |                  |   |                                |        |              |   |               |        |               |   |                |        |  |   |          |          |   |   |           |       

26



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
(Unaudited)

|                       |                  |   |                                |        |              |   |               |        |               |   |                |        |  |   |         |         |   |   |           |        | 
|---------------------- | ---------------- | - | ------------------------------ | ------ | ------------ | - | ------------- | ------ | ------------- | - | -------------- | ------ |  | - | ------- | ------- | - | - | --------- | ------ | 
|                       |                  |   | Six Months Ended June 30, 2002
|                       |                  |   |                               
|                       |                  |   |                                |        |              |   |               |        |               |   |                |        |  |   |         |         |   |   | TEPPCO   
|                       |                  |   | TEPPCO                         |        | Guarantor    |   | Non-Guarantor |        | Consolidating |   | Partners, L.P.
|                       |                  |   | Partners, L.P.                 |        | Subsidiaries |   | Subsidiaries  |        | Adjustments   |   | Consolidated  
|                       |                  |   |                                |        |              |   |               |        |               |   |               
|                       |                  |   |                                |        |              |   |               |        |               |   | (in thousands) |        |  |   |         |         |   |   |          
|Operating revenues     |                  | $ |                               |        |              | $ | 136,362       |        |               | $ | 1,384,283      |        |  | $ | (1,179  | )       |   | $ | 1,519,466 |       
|Costs and expenses     |                  |   |                               |        |              |   | 86,636        |        |               |   | 1,359,067      |        |  |   | (1,179  | )       |   |   | 1,444,524 |       
|                       |                  |   |                                |        |              |   |               |        |               |   |                |        |  |   |         |         |   |   |           |       
|                       | Operating income |   |                                |       |              |   |               | 49,726 |               |   |                | 25,216 |  |   |         |        |   |   |           | 74,942 | 
|                       |                  |   |                                |        |              |   |               |        |               |   |                |        |  |   |         |         |   |   |           |       
|Interest expense  net |                  |   | (23,139                        | )      |              |   | (16,538       | )      |               |   | (13,940        | )      |  |   | 23,139  |         |   |   | (30,478   | )     
|Equity earnings        |                  |   | 51,185                         |        |              |   | 20,550        |        |               |   | 8,972          |        |  |   | (74,721 | )       |   |   | 5,986     |       
|Other income  net     |                  |   | 23,139                         |        |              |   | 353           |        |               |   | 382            |        |  |   | (23,139 | )       |   |   | 735       |       
|                       |                  |   |                                |        |              |   |               |        |               |   |                |        |  |   |         |         |   |   |           |       
|                       | Net income       |   | $                              | 51,185 |              |   | $             | 54,091 |               |   | $              | 20,630 |  |   | $       | (74,721 | ) |   | $         | 51,185 | 
|                       |                  |   |                                |        |              |   |               |        |               |   |                |        |  |   |         |         |   |   |           |       

|                                                     |                                                                                   |                                             |         |                                |         |              |         |               |        |               |         |                |        |   |          |   |         |   |         |        |        |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------- | ------- | ------------------------------ | ------- | ------------ | ------- | ------------- | ------ | ------------- | ------- | -------------- | ------ | - | -------- | - | ------- | - | ------- | ------ | ------ | -
|                                                     |                                                                                   |                                             |         | Six Months Ended June 30, 2003
|                                                     |                                                                                   |                                             |         |                               
|                                                     |                                                                                   |                                             |         |                                |         |              |         |               |        |               |         |                |        |   |          |   |         |   |         | TEPPCO
|                                                     |                                                                                   |                                             |         | TEPPCO                         |         | Guarantor    |         | Non-Guarantor |        | Consolidating |         | Partners, L.P.
|                                                     |                                                                                   |                                             |         | Partners, L.P.                 |         | Subsidiaries |         | Subsidiaries  |        | Adjustments   |         | Consolidated  
|                                                     |                                                                                   |                                             |         |                                |         |              |         |               |        |               |         |               
|                                                     |                                                                                   |                                             |         |                                |         |              |         |               |        |               |         | (in thousands) |        |   |          |   |         |   |         |       
|Cash flows from operating activities                 |                                                                                  
|Net income                                           |                                                                                   | $                                           | 67,869  |                                |         | $            | 82,802  |               |        | $             | 26,366  |                |        | $ | (109,168 | ) |         | $ | 67,869  |       
|                                                     | Adjustments to reconcile net income to net cash provided by
operating activities: |                                             |         |                                |         |              |         |               |        |               |         |                |        |   |          |   |         |   |         |        |       
|                                                     |                                                                                   | Depreciation and amortization               |         |                                |        |              |         |               | 40,590 |               |         |                | 10,210 |   |          |   |        |   |         |        | 50,800 |  
|                                                     |                                                                                   | Equity earnings, net of distributions       |         |                                | 28,105  |              |         |               | 4,670  |               |         |                | (2,415 | ) |          |   | (31,580 | ) |         |        | (1,220 | )
|                                                     |                                                                                   | Changes in assets and liabilities and other |         |                                | (24,615 | )            |         |               | 17,259 |               |         |                | (1,154 | ) |          |   | 23,602  |   |         |        | 15,092 |  
|                                                     |                                                                                   |                                             |         |                                |         |              |         |               |        |               |         |                |        |   |          |   |         |   |         |       
|Net cash provided by operating activities            |                                                                                   |                                             | 71,359  |                                |         |              | 145,321 |               |        |               | 33,007  |                |        |   | (117,146 | ) |         |   | 132,541 |       
|                                                     |                                                                                   |                                             |         |                                |         |              |         |               |        |               |         |                |        |   |          |   |         |   |         |       
|Cash flows from investing activities                 |                                                                                   |                                             | (2,519  | )                              |         |              | (59,883 | )             |        |               | (3,964  | )              |        |   | 2,519    |   |         |   | (63,847 | )     
|Cash flows from financing activities                 |                                                                                   |                                             | (68,840 | )                              |         |              | (79,927 | )             |        |               | (34,698 | )              |        |   | 114,627  |   |         |   | (68,838 | )     
|                                                     |                                                                                   |                                             |         |                                |         |              |         |               |        |               |         |                |        |   |          |   |         |   |         |       
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                             |        |                                |         |              | 5,511   |               |        |               | (5,655  | )              |        |   |         |   |         |   | (144    | )     
|Cash and cash equivalents at beginning of period     |                                                                                   |                                             |        |                                |         |              | 8,247   |               |        |               | 22,721  |                |        |   |         |   |         |   | 30,968  |       
|                                                     |                                                                                   |                                             |         |                                |         |              |         |               |        |               |         |                |        |   |          |   |         |   |         |       
|Cash and cash equivalents at end of period           |                                                                                   | $                                           |        |                                |         | $            | 13,758  |               |        | $             | 17,066  |                |        | $ |         |   |         | $ | 30,824  |       
|                                                     |                                                                                   |                                             |         |                                |         |              |         |               |        |               |         |                |        |   |          |   |         |   |         |       

27



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)

|                                                     |                                                                                             |                                             |          |                                |          |              |          |               |        |               |          |                |         |   |          |   |         |   |          |        |        | 
|---------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------------- | -------- | ------------------------------ | -------- | ------------ | -------- | ------------- | ------ | ------------- | -------- | -------------- | ------- | - | -------- | - | ------- | - | -------- | ------ | ------ | 
|                                                     |                                                                                             |                                             |          | Six Months Ended June 30, 2002
|                                                     |                                                                                             |                                             |          |                               
|                                                     |                                                                                             |                                             |          |                                |          |              |          |               |        |               |          |                |         |   |          |   |         |   |          | TEPPCO
|                                                     |                                                                                             |                                             |          | TEPPCO                         |          | Guarantor    |          | Non-Guarantor |        | Consolidating |          | Partners, L.P.
|                                                     |                                                                                             |                                             |          | Partners, L.P.                 |          | Subsidiaries |          | Subsidiaries  |        | Adjustments   |          | Consolidated  
|                                                     |                                                                                             |                                             |          |                                |          |              |          |               |        |               |          |               
|                                                     |                                                                                             |                                             |          |                                |          |              |          |               |        |               |          | (in thousands) |         |   |          |   |         |   |          |       
|Cash flows from operating activities                 |                                                                                            
|Net income                                           |                                                                                             | $                                           | 51,185   |                                |          | $            | 54,091   |               |        | $             | 20,630   |                |         | $ | (74,721  | ) |         | $ | 51,185   |       
|                                                     | Adjustments to reconcile net income to
net cash provided by (used in)
operating activities: |                                             |          |                                |          |              |          |               |        |               |          |                |         |   |          |   |         |   |          |        |       
|                                                     |                                                                                             | Depreciation and amortization               |          |                                |         |              |          |               | 25,021 |               |          |                | 8,619   |   |          |   |        |   |          |        | 33,640 | 
|                                                     |                                                                                             | Equity earnings, net of distributions       |          |                                | 17,391   |              |          |               | 2,142  |               |          |                | 4,458   |   |          |   | (16,547 | ) |          |        | 7,444  | 
|                                                     |                                                                                             | Changes in assets and liabilities
and other |          |                                | (564,188 | )            |          |               | 25,389 |               |          |                | (17,880 | ) |          |   | 561,868 |   |          |        | 5,189  | 
|                                                     |                                                                                             |                                             |          |                                |          |              |          |               |        |               |          |                |         |   |          |   |         |   |          |       
|Net cash provided by (used in) operating
activities  |                                                                                             |                                             | (495,612 | )                              |          |              | 106,643  |               |        |               | 15,827   |                |         |   | 470,600  |   |         |   | 97,458   |       
|                                                     |                                                                                             |                                             |          |                                |          |              |          |               |        |               |          |                |         |   |          |   |         |   |          |       
|Cash flows from investing activities                 |                                                                                             |                                             | (58,406  | )                              |          |              | (511,431 | )             |        |               | (140,080 | )              |         |   | 58,406   |   |         |   | (651,511 | )     
|Cash flows from financing activities                 |                                                                                             |                                             | 554,018  |                                |          |              | 408,499  |               |        |               | 120,467  |                |         |   | (529,006 | ) |         |   | 553,978  |       
|                                                     |                                                                                             |                                             |          |                                |          |              |          |               |        |               |          |                |         |   |          |   |         |   |          |       
|Net increase (decrease) in cash and cash
equivalents |                                                                                             |                                             |         |                                |          |              | 3,711    |               |        |               | (3,786   | )              |         |   |         |   |         |   | (75      | )     
|Cash and cash equivalents at beginning of
period     |                                                                                             |                                             |         |                                |          |              | 3,655    |               |        |               | 21,824   |                |         |   |         |   |         |   | 25,479   |       
|                                                     |                                                                                             |                                             |          |                                |          |              |          |               |        |               |          |                |         |   |          |   |         |   |          |       
|Cash and cash equivalents at end of period           |                                                                                             | $                                           |         |                                |          | $            | 7,366    |               |        | $             | 18,038   |                |         | $ |         |   |         | $ | 25,404   |       
|                                                     |                                                                                             |                                             |          |                                |          |              |          |               |        |               |          |                |         |   |          |   |         |   |          |       

28



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

General

You should read the following review of our financial position and results
of operations in conjunction with the Consolidated Financial Statements.
Material period-to-period variances in the consolidated statements of income
are discussed under Results of Operations. The Financial Condition and
Liquidity section analyzes cash flows and financial position. Other
Considerations addresses trends, future plans and contingencies that are
reasonably likely to materially affect future liquidity or earnings. The
Consolidated Financial Statements should be read in conjunction with the
financial statements and related notes, together with our discussion and
analysis of financial position and results of operations included in our Annual
Report on Form 10-K for the year ended December 31, 2002.

We operate and report in three business segments:



| |  |  | Downstream Segment  transportation and storage of refined products, LPGs and petrochemicals;                                                     
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Upstream Segment  gathering, transportation, marketing and
storage of crude oil and distribution of lubrication oils and
specialty chemicals; and
|
| |  |  | Midstream Segment  gathering of natural gas, fractionation
of NGLs and transportation of NGLs.                                                   

Our reportable segments offer different products and services and are
managed separately because each requires different business strategies. TEPPCO
GP, Inc., our wholly owned subsidiary, acts as managing general partner of our
Operating Partnerships, with a 0.001% general partner interest and manages our
subsidiaries.

Our Downstream Segment revenues are earned from transportation and storage
of refined products and LPGs, intrastate transportation of petrochemicals, sale
of product inventory and other ancillary services. The two largest operating
expense items of the Downstream Segment are labor and electric power. We
generally realize higher revenues during the first and fourth quarters of each
year since our operations are somewhat seasonal. Refined products volumes are
generally higher during the second and third quarters because of greater demand
for gasolines during the spring and summer driving seasons. LPGs volumes are
generally higher from November through March due to higher demand in the
Northeast for propane, a major fuel for residential heating. Our Downstream
Segment also includes the results of operations of the northern portion of the
Dean Pipeline. Beginning in January 2003, the northern portion of the Dean
Pipeline was converted to transport refinery grade propylene (RGPs) from Mont
Belvieu to Point Comfort, Texas. As a result, the revenues and expenses of the
northern portion of the Dean Pipeline are included in the Downstream Segment.
Our Downstream Segment also includes our equity investments in Centennial
Pipeline LLC (Centennial) and Mont Belvieu Storage Partners, L.P. (MB
Storage) (see Note 7. Equity Investments).

Our Upstream Segment revenues are earned from gathering, transportation,
marketing and storage of crude oil and distribution of lubrication oils and
specialty chemicals, principally in Oklahoma, Texas and the Rocky Mountain
region. Marketing operations consist primarily of aggregating purchased crude
oil along our pipeline systems, or from third party pipeline systems, and
arranging the necessary logistics for the ultimate sale of the crude oil to
local refineries, marketers or other end users. Our Upstream Segment also
includes the equity earnings from our investment in Seaway Crude Pipeline
Company (Seaway). Seaway consists of large diameter pipelines that transport
crude oil from Seaways marine terminals on the U.S. Gulf Coast to Cushing,
Oklahoma, a crude oil distribution point for the Central United States, and to
refineries in the Texas City and Houston areas.

Our Midstream Segment revenues are earned from the fractionation of NGLs
in Colorado, transportation of NGLs from two trunkline NGL pipelines in South
Texas, two NGL pipelines in East Texas and a pipeline system (Chaparral) from
West Texas and New Mexico to Mont Belvieu; the gathering of natural gas in the
Green River Basin in southwestern Wyoming, through Jonah Gas Gathering Company
(Jonah) and the gathering
of CBM from

29



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##### 



the Fruitland Coal Formation of the San Juan Basin in New Mexico
and Colorado, through Val Verde Gas Gathering Company (Val Verde). DEFS
manages and operates the Val Verde, Jonah and Chaparral assets for us under
contractual agreements. The results of operations of the Chaparral and Val
Verde acquisitions are included in periods subsequent to their respective
acquisition dates (see Note 5. Acquisitions and Dispositions).

Results of Operations

The following table summarizes financial data by business segment (in
thousands):

|                          |                           |                                |         |                             |           |                           |         |         |         |      |         |           |           |  |         |           |           | 
|------------------------- | ------------------------- | ------------------------------ | ------- | --------------------------- | --------- | ------------------------- | ------- | ------- | ------- | ---- | ------- | --------- | --------- |  | ------- | --------- | --------- | 
|                          |                           |                                |         | Three Months Ended June 30, |           | Six Months Ended June 30,
|                          |                           |                                |         |                             |           |                          
|                          |                           |                                |         | 2003                        |           | 2002                      |         | 2003    |         | 2002
|                          |                           |                                |         |                             |           |                           |         |         |         |     
|Operating revenues:       |                           |                                |         |                             |           |                           |         |         |         |      |         |           |           |  |         |          
|                          | Downstream Segment        |                                | $       | 60,058                      |           |                           | $       | 54,656  |         |      | $       | 128,023   |           |  | $       | 114,242   |          
|                          | Upstream Segment          |                                |         | 936,698                     |           |                           |         | 809,779 |         |      |         | 1,922,078 |           |  |         | 1,363,667 |          
|                          | Midstream Segment         |                                |         | 44,462                      |           |                           |         | 24,366  |         |      |         | 91,366    |           |  |         | 42,736    |          
|                          | Intersegment eliminations |                                |         | (418                        | )         |                           |         | (472    | )       |      |         | (1,428    | )         |  |         | (1,179    | )        
|                          |                           |                                |         |                             |           |                           |         |         |         |      |         |           |           |  |         |           |          
|                          |                           | Total operating revenues       |         |                             | 1,040,800 |                           |         |         | 888,329 |      |         |           | 2,140,039 |  |         |           | 1,519,466 | 
|                          |                           |                                |         |                             |           |                           |         |         |         |      |         |           |           |  |         |          
|Operating income:         |                           |                                |         |                             |           |                           |         |         |         |      |         |           |           |  |         |          
|                          | Downstream Segment        |                                |         | 16,723                      |           |                           |         | 18,577  |         |      |         | 45,992    |           |  |         | 42,224    |          
|                          | Upstream Segment          |                                |         | 11,663                      |           |                           |         | 7,062   |         |      |         | 15,287    |           |  |         | 13,269    |          
|                          | Midstream Segment         |                                |         | 19,600                      |           |                           |         | 11,717  |         |      |         | 38,049    |           |  |         | 19,449    |          
|                          |                           |                                |         |                             |           |                           |         |         |         |      |         |           |           |  |         |           |          
|                          |                           | Total operating income         |         |                             | 47,986    |                           |         |         | 37,356  |      |         |           | 99,328    |  |         |           | 74,942    | 
|                          |                           |                                |         |                             |           |                           |         |         |         |      |         |           |           |  |         |          
|Earnings before interest: |                           |                                |         |                             |           |                           |         |         |         |      |         |           |           |  |         |          
|                          | Downstream Segment        |                                |         | 16,842                      |           |                           |         | 16,457  |         |      |         | 44,846    |           |  |         | 39,432    |          
|                          | Upstream Segment          |                                |         | 20,062                      |           |                           |         | 11,841  |         |      |         | 28,844    |           |  |         | 22,601    |          
|                          | Midstream Segment         |                                |         | 19,627                      |           |                           |         | 11,879  |         |      |         | 38,113    |           |  |         | 19,630    |          
|                          | Intersegment eliminations |                                |         | (37                         | )         |                           |         |        |         |      |         | (73       | )         |  |         |          |          
|                          |                           |                                |         |                             |           |                           |         |         |         |      |         |           |           |  |         |           |          
|                          |                           | Total earnings before interest |         |                             | 56,494    |                           |         |         | 40,177  |      |         |           | 111,730   |  |         |           | 81,663    | 
|                          |                           |                                |         |                             |           |                           |         |         |         |      |         |           |           |  |         |          
|Interest expense          |                           |                                | (23,513 | )                           |           |                           | (16,829 | )       |         |      | (45,420 | )         |           |  | (33,616 | )        
|Interest capitalized      |                           |                                | 963     |                             |           |                           | 1,029   |         |         |      | 1,559   |           |           |  | 3,138   |          
|                          |                           |                                |         |                             |           |                           |         |         |         |      |         |           |           |  |         |           |          
|                          |                           | Net income                     |         | $                           | 33,944    |                           |         | $       | 24,377  |      |         | $         | 67,869    |  |         | $         | 51,185    | 
|                          |                           |                                |         |                             |           |                           |         |         |         |      |         |           |           |  |         |          

Below is a detailed analysis of the results of operations, including
reasons for changes in results, by each of our operating segments.

30



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##### 



Downstream Segment

The following table presents volumes delivered in barrels and average
tariff per barrel for the three months and six months ended June 30, 2003, and
2002:

|                          |                  |  |                                  |        |                    |        |            |        |                                           |        |                  |    |      |    |            |        |   |        |   |        |   |        |  |    |    |    |  
|------------------------- | ---------------- |  | -------------------------------- | ------ | ------------------ | ------ | ---------- | ------ | ----------------------------------------- | ------ | ---------------- | -- | ---- | -- | ---------- | ------ | - | ------ | - | ------ | - | ------ |  | -- | -- | -- | -
|                          |                  |  |                                  |        | Three Months Ended |        |            |        |                                           |        | Six Months Ended |    |      |    |           
|                          |                  |  |                                  |        | June 30,           |        | Percentage |        | June 30,                                  |        | Percentage      
|                          |                  |  |                                  |        |                    |        | Increase   |        |                                           |        | Increase        
|                          |                  |  |                                  |        | 2003               |        | 2002       |        | (Decrease)                                |        | 2003             |    | 2002 |    | (Decrease)
|                          |                  |  |                                  |        |                    |        |            |        |                                           |        |                  |    |      |    |           
|                          |                  |  |                                  |        |                    |        |            |        | (in thousands, except tariff information) |        |                  |    |     
|Volumes Delivered         |                  |  |                                  |        |                    |        |            |        |                                           |        |                  |    |      |    |            |        |   |        |   |        |   |        |  |   
|                          | Refined products |  |                                  | 42,256 |                    |        |            | 35,344 |                                           |        |                  | 20 | %    |    |            | 72,488 |   |        |   | 61,109 |   |        |  | 19 | % 
|                          | LPGs             |  |                                  | 6,832  |                    |        |            | 7,056  |                                           |        |                  | (3 | %)   |    |            | 20,532 |   |        |   | 19,091 |   |        |  | 8  | % 
|                          |                  |  |                                  |        |                    |        |            |        |                                           |        |                  |    |      |    |            |        |   |        |   |        |   |        |  |    |    |   
|                          |                  |  | Total                            |        |                    | 49,088 |            |        |                                           | 42,400 |                  |    |      | 16 | %          |        |   | 93,020 |   |        |   | 80,200 |  |    |    | 16 | %
|                          |                  |  |                                  |        |                    |        |            |        |                                           |        |                  |    |      |    |            |        |   |        |   |        |   |        |  |   
|Average Tariff per Barrel |                  |  |                                  |        |                    |        |            |        |                                           |        |                  |    |      |    |            |        |   |        |   |        |   |        |  |   
|                          | Refined products |  | $                                | 0.89   |                    |        | $          | 0.90   |                                           |        |                  | (1 | %)   |    | $          | 0.89   |   |        | $ | 0.93   |   |        |  | (4 | %)
|                          | LPGs             |  |                                  | 1.96   |                    |        |            | 1.53   |                                           |        |                  | 28 | %    |    |            | 2.15   |   |        |   | 1.79   |   |        |  | 20 | % 
|                          |                  |  | Average system tariff per barrel |        | $                  | 1.04   |            |        | $                                         | 1.01   |                  |    |      | 3  | %          |        | $ | 1.17   |   |        | $ | 1.14   |  |    |    | 3  | %
|                          |                  |  |                                  |        |                    |        |            |        |                                           |        |                  |    |      |    |            |        |   |        |   |        |   |        |  |   

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30,
2002

Our Downstream Segment reported earnings before interest of $16.8 million
for the three months ended June 30, 2003, compared with earnings before
interest of $16.4 million for the three months ended June 30, 2002. Earnings
before interest increased $0.4 million primarily due to an increase of $5.4
million in operating revenues and increased income of $2.3 million from equity
investments, partially offset by an increase of $7.3 million in costs and
expenses. We discuss the factors influencing these variances below.

Revenues from refined products transportation increased $6.0 million for
the three months ended June 30, 2003, compared with the three months ended June
30, 2002, due to an overall increase of 20% in the refined products volumes
delivered. This increase was primarily due to deliveries of product received
into our pipeline from Centennial at Creal Springs, Illinois. Centennial,
which commenced refined products deliveries to us in April 2002, has provided
our system with additional pipeline capacity for product originating in the
U.S. Gulf Coast area. With this incremental pipeline capacity, our previously
constrained system has expanded deliveries in markets both south and north of
Creal Springs. The 20% increase in our overall refined products deliveries was
composed of a 19% increase in motor fuel deliveries, a 29% increase in
distillate volume deliveries, a 6% increase in jet fuel deliveries and a 25%
increase in natural gasoline deliveries from the prior year period. Volume
increases were due to increased demand for product supplied by the U.S. Gulf
Coast into Midwest markets resulting from colder weather during the second
quarter of 2003, which both increased demand for and caused higher prices of
natural gas. As a result of high natural gas prices, utilities use distillates
as a substitute for natural gas for their facilities. The refined products
average rate per barrel decreased 1% from the prior year period primarily due
to the impact of the Midwest origin point for volumes received from Centennial,
which resulted in an increase in short-haul volumes transported on our system.

Revenues from LPGs transportation increased $2.5 million for the three
months ended June 30, 2003, compared with the three months ended June 30, 2002,
primarily due to increased deliveries of propane in the upper Midwest and
Northeast market areas attributable to colder weather during the second quarter
of 2003 and the impact of lower inventories at competing supply locations.
Butane deliveries also increased in the Midwest as a result of increased
isobutane deliveries to refineries in the Chicago area. The decrease in total
volumes of LPGs delivered was due primarily to decreased short-haul deliveries
of LPGs to Gulf Coast petrochemical facilities attributable to higher prices of
propane relative to other feedstocks. The LPGs average rate per barrel
increased 28% from the prior year period as a result of an increased percentage
of long-haul deliveries during the three months ended June 30, 2003.

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Effective January 1, 2003, TE Products 50% ownership interest in MB
Storage is accounted for as an equity investment. Revenues generated from Mont
Belvieu operations totaled $2.9 million during the three months ended June 30,
2002. As a result of the formation of MB Storage, revenues and expenses
related to Mont Belvieu operations are now recorded within equity earnings.
See discussion regarding changes in equity earnings/losses below. The purpose
of MB Storage is to expand services to the upper Texas Gulf Coast energy
marketplace by increasing pipeline throughput and the mix of products handled
through the existing system and establishing new receipt and delivery
connections.

Other operating revenues decreased $0.2 million for the three months ended
June 30, 2003, compared with the three months ended June 30, 2002, primarily
due to lower volume of product inventory sales and lower revenues from product
location exchanges which are used to position product in the Midwest market
area, partially offset by higher propane deliveries at our Providence, Rhode
Island import facility and higher refined product rental charges and loading
fees. Other operating revenues also increased $1.3 million due to the addition
of the northern portion of the Dean Pipeline to the Downstream Segment in
January 2003, which began transporting RGPs in January 2003.

Costs and expenses increased $7.3 million for the three months ended June
30, 2003, compared with the three months ended June 30, 2002. The increase was
made up of an increase of $5.7 million in operating, general and administrative
expenses and an increase of $2.2 million in operating fuel and power, partially
offset by a decrease of $0.3 million in depreciation and amortization expense
and a decrease of $0.3 million in taxes  other than income taxes. Operating,
general and administrative expenses increased primarily due to higher pipeline
maintenance expenses, increased consulting and contract services, increased
labor costs and increased general and administrative supplies expense,
increased insurance expense and expense from the Centennial lease agreement
that we entered into in 2003. The addition of the northern portion of the Dean
Pipeline to the Downstream Segment increased operating, general and
administrative expense by $0.2 million. Operating fuel and power expense
increased as a result of increased mainline throughput and higher power costs
due to an increase in the price of natural gas. Depreciation expense decreased
from the prior year period because of assets retired during the three months
ended June 30, 2003, which reduced the asset base, and due to the assets
transferred to MB Storage, which also reduced depreciation expense. Taxes 
other than income taxes decreased as a result of actual property taxes being
lower than previously estimated and due to the transfer of assets to MB
Storage.

Net losses from equity investments decreased $2.3 million for the three
months ended June 30, 2003, compared with the three months ended June 30, 2002.
Centennial, which commenced operations in April 2002, accounted for $1.8
million of the equity losses during the three months ended June 30, 2003. On
February 10, 2003, TE Products acquired an additional 16.7% interest in
Centennial, bringing its ownership interest to 50%. The losses from Centennial
are offset by equity earnings of $1.9 million from our 50% ownership interest
in MB Storage, which was formed effective January 1, 2003. Amounts in the
prior year period related to Mont Belvieu operations recorded to revenues and
costs and expenses are now being recorded within equity earnings based upon our
50% ownership interest in MB Storage, effective with its formation on January
1, 2003. If the 2002 revenues and costs and expenses from the Mont Belvieu
operations had been accounted for under the same method as 2003, equity
earnings would have increased $0.4 million in 2003, compared with the prior
year, due to increased contract shuttle deliveries and increased storage
revenue.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Our Downstream Segment reported earnings before interest of $44.8 million
for the six months ended June 30, 2003, compared with earnings before interest
of $39.4 million for the six months ended June 30, 2002. Earnings before
interest increased $5.4 million primarily due to an increase of $13.8 million
in operating revenues and increased income of $1.8 million from equity
investments, partially offset by an increase of $10.0 million in costs and
expenses and a decrease of $0.2 million in other income  net. We discuss the
factors influencing these variances below.

Revenues from refined products transportation increased $7.7 million for
the six months ended June 30, 2003, compared with the six months ended June 30,
2002, due to an overall increase of 19% in the refined products volumes
delivered. This increase was primarily due to deliveries of product received
into our pipeline from

32



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Centennial at Creal Springs, Illinois. Centennial,
which commenced refined products deliveries to us in April 2002, has provided
our system with additional pipeline capacity for product originating in the
U.S. Gulf Coast area. With this incremental pipeline capacity, our previously
constrained system has expanded deliveries in markets both south and north of
Creal Springs. The 19% increase in our overall refined products deliveries was
composed of an 18% increase in motor fuel deliveries, a 28% increase in
distillate volume deliveries, a 4% increase in jet fuel deliveries and a 33%
increase in natural gasoline deliveries from the prior year period. Volume
increases were due to increased demand for product supplied by the U.S. Gulf
Coast into Midwest markets resulting from colder weather during the second
quarter of 2003, which both increased demand for and caused higher prices of
natural gas. As a result of high natural gas prices, utilities use distillates
as a substitute for natural gas for their facilities. The refined products
average rate per barrel decreased 4% from the prior year period primarily due
to the impact of the Midwest origin point for volumes received from Centennial,
which resulted in an increase in short-haul volumes transported on our system.

Revenues from LPGs transportation increased $10.0 million for the six
months ended June 30, 2003, compared with the six months ended June 30, 2002,
primarily due to increased deliveries of propane in the upper Midwest and
Northeast market areas attributable to colder than normal weather during the
first quarter of 2003 and due to low inventories at competing supply locations.
Butane deliveries also increased due to the increased demand by refineries for
normal butane for use in gasoline blending and increased isobutane deliveries
to Chicago area refineries. The LPGs average rate per barrel increased 20%
from the prior year period as a result of an increased percentage of long-haul
deliveries during the six months ended June 30, 2003.

Effective January 1, 2003, TE Products 50% ownership interest in MB
Storage is accounted for as an equity investment. Revenues generated from Mont
Belvieu operations totaled $7.4 million during the six months ended June 30,
2002. As a result of the formation of MB Storage, revenues and expenses
related to Mont Belvieu operations are now recorded within equity earnings.
See discussion regarding changes in equity earnings/losses below. The purpose
of MB Storage is to expand services to the upper Texas Gulf Coast energy
marketplace by increasing pipeline throughput and the mix of products handled
through the existing system and establishing new receipt and delivery
connections.

Other operating revenues increased $3.5 million for the six months ended
June 30, 2003, compared with the six months ended June 30, 2002, primarily due
to higher propane deliveries at our Providence, Rhode Island import facility,
higher refined product rental charges and loading fees and higher revenues from
product loans. Other operating revenues also increased $2.2 million due to the
addition of the northern portion of the Dean Pipeline to the Downstream Segment
in January 2003, which began transporting RGPs in January 2003. These
increases were partially offset by lower revenues from product location
exchanges which are used to position product in the Midwest market area and
lower volume of product inventory sales.

Costs and expenses increased $10.0 million for the six months ended June
30, 2003, compared with the six months ended June 30, 2002. The increase was
made up of an increase of $7.4 million in operating, general and administrative
expenses and an increase of $3.3 million in operating fuel and power, partially
offset by a decrease of $0.7 million in taxes  other than income taxes.
Operating, general and administrative expenses increased primarily due to
higher pipeline maintenance expenses, increased consulting and contract
services, increased labor costs and increased general and administrative
supplies expense, increased insurance expense, expense from the Centennial
lease agreement that we entered into in 2003 and the write off of receivables
of $0.4 million related to customer bankruptcies. The addition of the northern
portion of the Dean Pipeline to the Downstream Segment increased operating,
general and administrative expense by $0.4 million. Operating fuel and power
expense increased as a result of increased mainline throughput and higher power
costs due to an increase in the price of natural gas. Taxes  other than
income taxes decreased as a result of actual property taxes being lower than
previously estimated and the transfer of assets to MB Storage.

Net losses from equity investments decreased $1.8 million for the six
months ended June 30, 2003, compared with the six months ended June 30, 2002.
Centennial, which commenced operations in April 2002, accounted for $5.0
million of the equity losses during the six months ended June 30, 2003. On
February 10, 2003,

33



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TE Products acquired an additional 16.7% interest in
Centennial, bringing its ownership interest to 50%. The losses from Centennial
are partially offset by equity earnings of $3.8 million from our 50% ownership
interest in MB Storage, which was formed effective January 1, 2003. Amounts in
the prior year period related to Mont Belvieu operations recorded to revenues
and costs and expenses are now being recorded within equity earnings based upon
our 50% ownership interest in MB Storage, effective with its formation on
January 1, 2003. If the 2002 revenues and costs and expenses from the Mont
Belvieu operations had been accounted for under the same method as 2003, equity
earnings from MB Storage would have remained unchanged between years.

Other  net decreased $0.2 million for the six months ended June 30, 2003,
compared with the six months ended June 30, 2002, primarily due to lower
interest income received on short-term investments.

Upstream Segment

Information presented in the following table includes the margin of the
Upstream Segment, which may be viewed as a non-GAAP (Generally Accepted
Accounting Principles) financial measure under the rules of the Securities and
Exchange Commission. We calculate the margin of the Upstream Segment as
revenues generated from the sale of crude oil and lubrication oil, and
transportation of crude oil, less the costs of purchases of crude oil and
lubrication oil. Margin is a more meaningful measure of financial performance
than operating revenues and operating expenses due to the significant
fluctuations in revenues and expenses caused by variations in the level of
marketing activity and prices for products marketed. Margin and volume
information for the three months and six months ended June 30, 2003, and 2002,
is presented below (in thousands, except per barrel and per gallon amounts):

|                                       |                          |              |       |                    |        |            |       |            |        |                  |     |      |    |            |       |        |        |  |       |        |        |  |   |     |    |  
|-------------------------------------- | ------------------------ | ------------ | ----- | ------------------ | ------ | ---------- | ----- | ---------- | ------ | ---------------- | --- | ---- | -- | ---------- | ----- | ------ | ------ |  | ----- | ------ | ------ |  | - | --- | -- | -
|                                       |                          |              |       | Three Months Ended |        |            |       |            |        | Six Months Ended |     |      |    |           
|                                       |                          |              |       | June 30,           |        | Percentage |       | June 30,   |        | Percentage      
|                                       |                          |              |       |                    |        | Increase   |       |            |        | Increase        
|                                       |                          |              |       | 2003               |        | 2002       |       | (Decrease) |        | 2003             |     | 2002 |    | (Decrease)
|                                       |                          |              |       |                    |        |            |       |            |        |                  |     |      |    |           
|Margins:                               |                          |              |       |                    |        |            |       |            |        |                  |     |      |    |            |       |        |        |  |       |        |        |  |   |    
|                                       | Crude oil transportation |              | $     | 11,129             |        |            | $     | 9,622      |        |                  |     | 16   | %  |            | $     | 21,785 |        |  | $     | 18,693 |        |  |   | 17  | % 
|                                       | Crude oil marketing      |              |       | 6,632              |        |            |       | 5,664      |        |                  |     | 17   | %  |            |       | 11,515 |        |  |       | 10,667 |        |  |   | 8   | % 
|                                       | Crude oil terminaling    |              |       | 2,429              |        |            |       | 2,640      |        |                  |     | (8   | %) |            |       | 4,549  |        |  |       | 5,089  |        |  |   | (11 | %)
|                                       | Lubrication oil sales    |              |       | 1,339              |        |            |       | 1,230      |        |                  |     | 9    | %  |            |       | 2,691  |        |  |       | 2,365  |        |  |   | 14  | % 
|                                       |                          |              |       |                    |        |            |       |            |        |                  |     |      |    |            |       |        |        |  |       |        |        |  |   |     |   
|                                       |                          | Total margin |       | $                  | 21,529 |            |       | $          | 19,156 |                  |     |      | 12 | %          |       | $      | 40,540 |  |       | $      | 36,814 |  |   |     | 10 | %
|                                       |                          |              |       |                    |        |            |       |            |        |                  |     |      |    |            |       |        |        |  |       |        |        |  |   |    
|Total barrels:                         |                          |              |       |                    |        |            |       |            |        |                  |     |      |    |            |       |        |        |  |       |        |        |  |   |    
|                                       | Crude oil transportation |              |       | 25,931             |        |            |       | 21,672     |        |                  |     | 20   | %  |            |       | 48,556 |        |  |       | 42,788 |        |  |   | 13  | % 
|                                       | Crude oil marketing      |              |       | 36,903             |        |            |       | 42,927     |        |                  |     | (14  | %) |            |       | 74,575 |        |  |       | 73,279 |        |  |   | 2   | % 
|                                       | Crude oil terminaling    |              |       | 28,193             |        |            |       | 33,064     |        |                  |     | (15  | %) |            |       | 55,562 |        |  |       | 62,339 |        |  |   | (11 | %)
|Lubrication oil volume (total gallons) |                          |              | 2,310 |                    |        |            | 2,698 |            |        |                  | (14 | %)   |    |            | 5,153 |        |        |  | 4,892 |        |        |  | 5 | %  
|Margin per barrel:                     |                          |              |       |                    |        |            |       |            |        |                  |     |      |    |            |       |        |        |  |       |        |        |  |   |    
|                                       | Crude oil transportation |              | $     | 0.429              |        |            | $     | 0.444      |        |                  |     | (3   | %) |            | $     | 0.449  |        |  | $     | 0.437  |        |  |   | 3   | % 
|                                       | Crude oil marketing      |              |       | 0.180              |        |            |       | 0.132      |        |                  |     | 36   | %  |            |       | 0.154  |        |  |       | 0.146  |        |  |   | 5   | % 
|                                       | Crude oil terminaling    |              |       | 0.086              |        |            |       | 0.080      |        |                  |     | 8    | %  |            |       | 0.082  |        |  |       | 0.082  |        |  |   |    |   
|Lubrication oil margin (per gallon)    |                          |              | 0.580 |                    |        |            | 0.456 |            |        |                  | 27  | %    |    |            | 0.522 |        |        |  | 0.483 |        |        |  | 8 | %  

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The following table reconciles the Upstream Segment margin to the
consolidated statements of income using the information presented in the
consolidated statements of income and the statements of income in Note 11.
Segment Data (in thousands):

|                                      |              |   |                             |        |                           |   |          |        |      |   |            |        |  |   |            |        | 
|------------------------------------- | ------------ | - | --------------------------- | ------ | ------------------------- | - | -------- | ------ | ---- | - | ---------- | ------ |  | - | ---------- | ------ | 
|                                      |              |   | Three Months Ended June 30, |        | Six Months Ended June 30,
|                                      |              |   |                             |        |                          
|                                      |              |   | 2003                        |        | 2002                      |   | 2003     |        | 2002
|                                      |              |   |                             |        |                           |   |          |        |     
|Sales of petroleum products           |              | $ | 927,232                     |        |                           | $ | 800,107  |        |      | $ | 1,903,192  |        |  | $ | 1,345,315  |       
|Transportation  Crude oil            |              |   | 7,059                       |        |                           |   | 7,095    |        |      |   | 13,964     |        |  |   | 13,223     |       
|Less: Purchases of petroleum products |              |   | (912,762                    | )      |                           |   | (788,046 | )      |      |   | (1,876,616 | )      |  |   | (1,321,724 | )     
|                                      |              |   |                             |        |                           |   |          |        |      |   |            |        |  |   |            |       
|                                      | Total margin |   | $                           | 21,529 |                           |   | $        | 19,156 |      |   | $          | 40,540 |  |   | $          | 36,814 | 
|                                      |              |   |                             |        |                           |   |          |        |      |   |            |        |  |   |            |       

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30,
2002

Our Upstream Segment reported earnings before interest of $20.0 million
for the three months ended June 30, 2003, compared with earnings before
interest of $11.8 million for the three months ended June 30, 2002. Earnings
before interest increased $8.2 million primarily due to an increase of $2.4
million in margin, an increase of $3.6 million in equity earnings of Seaway and
a gain of $3.9 million from the sale of assets, partially offset by an increase
of $1.5 million in costs and expenses (excluding purchases of crude oil and
lubrication oil) and a decrease of $0.2 million in other operating revenues.
We discuss factors influencing these variances below.

Our margin increased $2.4 million for the three months ended June 30,
2003, compared with the three months ended June 30, 2002. Crude oil
transportation margin increased $1.5 million primarily due to increased
revenues on our Red River, Basin, South Texas and West Texas systems resulting
from an increase of 20% in transportation volumes, slightly offset by a
decrease in the margin per barrel. Crude oil marketing margin increased $1.0
million primarily from more favorable crude oil price differentials,
renegotiated supply contracts and lower trucking expenses, partially offset by
decreased volumes marketed. Lubrication oil sales margin increased $0.1
million due to higher margins on lubrication sales. Crude oil terminaling
margin decreased $0.2 million as a result of lower pumpover volumes at Midland,
Texas, and Cushing, Oklahoma.

Other operating revenue of the Upstream Segment decreased $0.2 million for
the three months ended June 30, 2003, compared with the three months ended June
30, 2002, due to lower revenues from documentation and other services to
support customers trading activity at Midland and Cushing.

Costs and expenses, excluding expenses associated with purchases of crude
oil and lubrication oil, increased $1.5 million for the three months ended June
30, 2003, compared with the three months ended June 30, 2002. Operating,
general and administrative expenses increased $0.4 million from the prior year
period. The increase includes $2.3 million for environmental remediation and
assessment activities in the three months ended June 30, 2003, partially offset
by lower labor costs and lower general and administrative supplies expense.
Taxes  other than income taxes increased $0.7 million due to increases in
property tax accruals. Depreciation and amortization expense increased $0.4
million due to assets placed in service in 2002. Operating fuel and power
remained constant during the period due to efficient use of transportation
assets in 2003.

Equity earnings in Seaway for the three months ended June 30, 2003,
increased $3.6 million from the three months ended June 30, 2002, due to higher
long-haul transportation volumes and lower general and administrative expenses,
partially offset by our portion of equity earnings decreasing from 80% to 60%
on a pro-rated basis in 2002 (averaging approximately 67% for the year ended
December 31, 2002), to 60% in 2003.

In June 2003, we recorded a net gain of $3.9 million on the sale of
certain of the assets of the Rancho Pipeline. We owned an approximate 25%
undivided joint interest in the Rancho Pipeline, which was a pipeline system
acquired in connection with our acquisition of crude oil assets in 2000. Under
the terms of the Rancho Pipeline operating agreement, the operating agreement
terminated in March 2003, and the Rancho Pipeline ceased operations in crude
oil service from West Texas to Houston, Texas. The Rancho Pipeline was divided
into

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segments, and these segments were sold to certain of the current owners of
the Rancho Pipeline. We acquired approximately 230 miles of the pipeline in
exchange for cash of $5.5 million and our interests in other portions of the
Rancho Pipeline. We sold portions of the segment acquired to other entities
for cash and assets valued at approximately $8.5 million. We recorded a net
gain of $3.9 million on the transactions, which is included in the gain on sale
of assets in our consolidated statements of income.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Our Upstream Segment reported earnings before interest of $28.8 million
for the six months ended June 30, 2003, compared with earnings before interest
of $22.6 million for the six months ended June 30, 2002. Earnings before
interest increased $6.2 million primarily due to an increase of $3.7 million in
margin, an increase of $4.2 million in equity earnings of Seaway and a gain of
$3.9 million from the sale of assets, partially offset by an increase of $5.5
million in costs and expenses (excluding purchases of crude oil and lubrication
oil) and a decrease of $0.1 million in other operating revenues. We discuss
factors influencing these variances below.

Our margin increased $3.7 million for the six months ended June 30, 2003,
compared with the six months ended June 30, 2002. Crude oil transportation
margin increased $3.1 million primarily due to increased revenues on our Red
River, Basin, South Texas and West Texas systems resulting from an increase of
20% in transportation volumes on these systems. Crude oil marketing margin
increased $0.8 million primarily due to increased volumes marketed,
renegotiated supply contracts, lower trucking expenses and more favorable crude
oil price differentials, partially offset by a pricing settlement on a
marketing contract in the first quarter of 2003. Lubrication oil sales margin
increased $0.3 million due to increased sales of chemical volumes and higher
margins on lubrication sales. Crude oil terminaling margin decreased $0.5
million as a result of an 11% decrease in pumpover volumes at Midland, Texas,
and Cushing, Oklahoma.

Other operating revenue of the Upstream Segment decreased $0.1 million for
the six months ended June 30, 2003, compared with the six months ended June 30,
2002, due to lower revenues from documentation and other services to support
customers trading activity at Midland and Cushing.

Costs and expenses, excluding expenses associated with purchases of crude
oil and lubrication oil, increased $5.5 million for the six months ended June
30, 2003, compared with the six months ended June 30, 2002. Operating, general
and administrative expenses increased $3.6 million from the prior year period.
The increase includes $3.9 million for environmental assessment and remediation
costs in 2003, higher legal costs related to the litigation with D.R.D. (see
Note 12. Commitments and Contingencies) and $1.7 million from the net
settlement of crude oil imbalances with customers, partially offset by lower
labor costs and lower general and administrative supplies expenses during the
period. Depreciation and amortization expense increased $1.4 million due to
assets placed in service in 2002. Taxes  other than income taxes increased
$0.6 million due to increases in property tax accruals. These increases were
partially offset by a decrease of $0.1 million in operating fuel and power
attributable to a more efficient use of transportation assets in 2003.

Equity earnings in Seaway for the six months ended June 30, 2003,
increased $4.2 million from the six months ended June 30, 2002, due to the
settlement of crude oil imbalances with customers, lower general and
administrative expenses and higher long-haul transportation volumes, partially
offset by our portion of equity earnings decreasing from 80% to 60% on a
pro-rated basis in 2002 (averaging approximately 67% for the year ended
December 31, 2002), to 60% in 2003.

In June 2003, we recorded a net gain of $3.9 million on the sale of
certain of the assets of the Rancho Pipeline. We owned an approximate 25%
undivided joint interest in the Rancho Pipeline, which was a pipeline system
acquired in connection with our acquisition of crude oil assets in 2000. Under
the terms of the Rancho Pipeline operating agreement, the operating agreement
terminated in March 2003, and the Rancho Pipeline ceased operations in crude
oil service from West Texas to Houston, Texas. The Rancho Pipeline was divided
into segments, and these segments were sold to certain of the current owners of
the Rancho Pipeline. We acquired approximately 230 miles of the pipeline in
exchange for cash of $5.5 million and our interests in other portions of the

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Rancho Pipeline. We sold portions of the segment acquired to other entities
for cash and assets valued at approximately $8.5 million. We recorded a net
gain of $3.9 million on the transactions, which is included in the gain on sale
of assets in our consolidated statements of income.

Midstream Segment

The following table presents volume and average rate information for the
three months and six months ended June 30, 2003, and 2002:

|                         |                                         |  |                    |         |            |  |            |        |                  |  |      |     |            |  |   |         |  |  |   |         |  |  |  |     |   
|------------------------ | --------------------------------------- |  | ------------------ | ------- | ---------- |  | ---------- | ------ | ---------------- |  | ---- | --- | ---------- |  | - | ------- |  |  | - | ------- |  |  |  | --- | --
|                         |                                         |  | Three Months Ended |         |            |  |            |        | Six Months Ended |  |      |     |           
|                         |                                         |  | June 30,           |         | Percentage |  | June 30,   |        | Percentage      
|                         |                                         |  |                    |         | Increase   |  |            |        | Increase        
|                         |                                         |  | 2003               |         | 2002       |  | (Decrease) |        | 2003             |  | 2002 |     | (Decrease)
|                         |                                         |  |                    |         |            |  |            |        |                  |  |      |     |           
|Gathering  Natural Gas: |                                         |  |                    |         |            |  |            |        |                  |  |      |     |            |  |   |         |  |  |   |         |  |  |  |    
|                         | Million cubic feet                      |  |                    | 110,455 |            |  |            | 59,805 |                  |  |      | 85  | %          |  |   | 226,429 |  |  |   | 109,976 |  |  |  | 106 | % 
|                         | Million British
thermal units
(MMBtu) |  |                    | 112,001 |            |  |            | 66,493 |                  |  |      | 68  | %          |  |   | 229,212 |  |  |   | 122,221 |  |  |  | 88  | % 
|                         | Average fee per MMBtu                   |  | $                  | 0.288   |            |  | $          | 0.173  |                  |  |      | 66  | %          |  | $ | 0.290   |  |  | $ | 0.172   |  |  |  | 69  | % 
|Transportation  NGLs:   |                                         |  |                    |         |            |  |            |        |                  |  |      |     |            |  |   |         |  |  |   |         |  |  |  |    
|                         | Thousand barrels                        |  |                    | 13,953  |            |  |            | 15,557 |                  |  |      | (10 | %)         |  |   | 28,221  |  |  |   | 23,471  |  |  |  | 20  | % 
|                         | Average rate per barrel                 |  | $                  | 0.677   |            |  | $          | 0.678  |                  |  |      |    |            |  | $ | 0.685   |  |  | $ | 0.718   |  |  |  | (5  | %)
|Fractionation  NGLs:    |                                         |  |                    |         |            |  |            |        |                  |  |      |     |            |  |   |         |  |  |   |         |  |  |  |    
|                         | Thousand barrels                        |  |                    | 1,007   |            |  |            | 1,032  |                  |  |      | (2  | %)         |  |   | 2,078   |  |  |   | 2,043   |  |  |  | 2   | % 
|                         | Average rate per barrel                 |  | $                  | 1.846   |            |  | $          | 1.840  |                  |  |      |    |            |  | $ | 1.788   |  |  | $ | 1.827   |  |  |  | (2  | %)
|Sales  Condensate:      |                                         |  |                    |         |            |  |            |        |                  |  |      |     |            |  |   |         |  |  |   |         |  |  |  |    
|                         | Thousand barrels                        |  |                    | 15.2    |            |  |            | 18.3   |                  |  |      | (17 | %)         |  |   | 46.0    |  |  |   | 50.6    |  |  |  | (9  | %)
|                         | Average rate per barrel                 |  | $                  | 27.43   |            |  | $          | 28.37  |                  |  |      | (3  | %)         |  | $ | 31.05   |  |  | $ | 23.99   |  |  |  | 29  | % 

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30,
2002

Our Midstream Segment reported earnings before interest of $19.6 million
for the three months ended June 30, 2003, compared with earnings before
interest of $11.9 million for the three months ended June 30, 2002. Earnings
before interest increased $7.7 million due to an increase of $20.1 million in
operating revenues, partially offset by an increase of $12.2 million in costs
and expenses and a decrease of $0.2 million in other income  net. We discuss
factors influencing these variances below.

Operating revenues increased $20.1 million for the three months ended June
30, 2003, compared with the three months ended June 30, 2002, due to an
increase of $20.8 million in natural gas gathering revenues and an increase of
$0.4 million in other revenues, partially offset by a decrease of $1.1 million
in NGL transportation revenues. Natural gas gathering revenues from the Jonah
system increased $3.6 million and volumes delivered increased 10.7 billion
cubic feet during the three months ended June 30, 2003, due to the expansions
of the Jonah system during 2002. The first expansion, which was completed in March 2002,
increased the capacity of the Jonah system by 62%, from approximately 450
million cubic feet per day (MMcf/day) to approximately 730 MMcf/day. In
October 2002, additional expansion projects were completed, which increased the
capacity of the Jonah system from 730 MMcf/day to approximately 880 MMcf/day.
Natural gas gathering revenues from the Val Verde system, which was acquired on
June 30, 2002, totaled $17.2 million and volumes delivered totaled 39.9 billion
cubic feet during the three months ended June 30, 2003. NGL transportation
revenues decreased primarily due to a decrease of $0.4 million in revenues on
the Dean Pipeline as a result of lower transportation volumes in 2003. Lower
transportation volumes resulted from the conversion of the northern portion of
the pipeline to transport RGPs and

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subsequent classification as a part of the Downstream Segment. NGL
transportation revenues also decreased $0.6 million due to lower transportation
volumes on the Panola Pipeline.

Costs and expenses increased $12.2 million for the three months ended June
30, 2003, compared with the three months ended June 30, 2002, due to an
increase of $5.8 million in depreciation and amortization expense, an increase
of $5.2 million in operating, general and administrative expense, an increase
of $0.7 million in taxes  other than income taxes and an increase of $0.5
million in operating fuel and power. Depreciation and amortization expense
increased $7.2 million due to the acquisition of the Val Verde assets on June
30, 2002, and $0.7 million due to assets placed in service in 2002 related
primarily to the expansion of the Jonah system. These increases were partially
offset by a decrease of $1.5 million in the amortization expense of the Jonah
gas gathering contract intangible assets under units-of-production due to an
adjustment in estimated total throughput of the system which extended the
expected amortization period from 16 years to 25 years (see Note 3. Goodwill
and Other Intangible Assets). Operating, general and administrative expense
increased $4.3 million from the Val Verde assets acquired, and $1.1 million due
to higher general and administrative labor and supplies expense. Operating
fuel and power costs increased $0.5 million due to increased transportation
volumes on Chaparral. Taxes  other than income taxes increased $0.2 million
due to the acquisition of Val Verde, $0.2 million due to a higher property tax
base on Jonah as a result of the expansions and $0.3 million due to adjustments
to the estimated property taxes for the period.

Other income  net decreased $0.2 million during the three months ended
June 30, 2003, compared with the three months ended June 30, 2003, due to a
reduction in interest income. During the three months ended June 30, 2002, we
recognized interest income on the timing of the debt borrowings related to the
Val Verde transaction.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Our Midstream Segment reported earnings before interest of $38.1 million
for the six months ended June 30, 2003, compared with earnings before interest
of $19.6 million for the six months ended June 30, 2002. Earnings before
interest increased $18.5 million due to an increase of $48.6 million in
operating revenues, partially offset by an increase of $30.0 million in costs
and expenses and a decrease of $0.1 million in other income  net. We discuss
factors influencing these variances below.

Operating revenues increased $48.6 million for the six months ended June
30, 2003, compared with the six months ended June 30, 2002, due to an increase
of $45.6 million in natural gas gathering revenues, an increase of $2.5 million
in NGL transportation revenues and an increase of $0.5 million in other
revenues. Natural gas gathering revenues from the Jonah system increased $9.7
million and volumes delivered increased 34.8 billion cubic feet during the six
months ended June 30, 2003, due to the expansions of the Jonah system during
2002. Natural gas gathering revenues from the Val Verde system, which was
acquired on June 30, 2002, totaled $35.9 million and volumes delivered totaled
81.6 billion cubic feet during the six months ended June 30, 2003. Other
revenues increased $0.5 million primarily due to sales of gas condensate from
the Jonah system. NGL transportation revenues increased $2.5 million,
primarily due to an increase of $4.3 million related to the acquisition of
Chaparral on March 1, 2002. This increase was partially offset by a decrease
of $0.8 million on the Dean Pipeline due to decreased transportation volumes.
Lower transportation volumes resulted from the conversion of the northern
portion of the pipeline to transport RGPs and subsequent classification as a
part of the Downstream Segment. NGL transportation revenues also decreased
$1.0 million due to lower transportation volumes on the Panola Pipeline. The
decrease in the NGL transportation average rate per barrel resulted from a
lower average rate per barrel on volumes transported on Chaparral.

Costs and expenses increased $30.0 million for the six months ended June
30, 2003, compared with the six months ended June 30, 2002, due to an increase
of $15.8 million in depreciation and amortization expense, an increase of $11.5
million in operating, general and administrative expense, an increase of $1.6
million in taxes  other than income taxes and an increase of $1.1 million in
operating fuel and power. Depreciation and amortization expense increased
$14.0 million due to the acquisitions of the Chaparral and Val Verde assets
acquired on March 1, 2002, and June 30, 2002, respectively, and $1.8 million
due to assets placed in service in 2002 related primarily to the expansions of
the Jonah system. Operating, general and administrative expense increased $9.7
million from the

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assets acquired, and due to higher general and administrative
labor and supplies expense. Operating fuel and power costs increased $1.1
million due to the assets acquired and due to increased volumes transported on
Chaparral.
Taxes  other than income taxes increased $1.1 million due to the assets
acquired and $0.4 million due to a higher property tax base on Jonah as a
result of the expansions.

Interest Expense and Capitalized Interest

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30,
2002

Interest expense increased $6.7 million during the three months ended June
30, 2003, compared with the three months ended June 30, 2002, primarily due to
higher outstanding debt balances used for capital expenditures and to finance
the acquisition of assets acquired through the Midstream Segment, an increased
percentage of fixed-rate debt in 2003 and $1.3 million of debt issuance costs
written off during the three months ended June 30, 2003, related to the
refinancing of our revolving credit facility.

Capitalized interest decreased $0.1 million during the three months ended
June 30, 2003, compared with the three months ended June 30, 2002, due to
interest capitalized on capital expenditures during the construction of the
Jonah expansions in 2002 and decreased balances during 2003 on overall
construction work-in-progress.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Interest expense increased $11.8 million during the six months ended June
30, 2003, compared with the six months ended June 30, 2002, primarily due to
higher outstanding debt balances used for capital expenditures and to finance
the acquisition of assets acquired through the Midstream Segment, an increased
percentage of fixed-rate debt in 2003 and $1.3 million of debt issuance costs
written off during the six months ended June 30, 2003, related to the
refinancing of our revolving credit facility.

Capitalized interest decreased $1.6 million during the six months ended
June 30, 2003, compared with the six months ended June 30, 2002, due to
interest capitalized on capital expenditures during the construction of the
Jonah expansions in 2002, interest capitalized on our investment in Centennial
during the first quarter of 2002, and decreased balances during 2003 on overall
construction work-in-progress.

Financial Condition and Liquidity

Net cash from operating activities totaled $132.5 million for the six
months ended June 30, 2003. This cash was made up of $118.7 million of income
before charges for depreciation and amortization and $13.8 million of cash
provided by working capital. This compares with net cash from operating
activities of $97.5 million for the corresponding period in 2002, comprised of
$84.8 million of income before charges for depreciation and amortization and
$12.7 million of cash provided by working capital. Net cash from operating
activities for the six months ended June 30, 2003, and 2002, included interest
payments of $39.6 million and $19.5 million, respectively.

Cash
flows used in investing activities totaled $63.9 million for the six
months ended June 30, 2003, and were comprised of $45.9 million of capital
expenditures, $20.0 million for TE Products acquisition of an additional
ownership interest in Centennial, $1.0 million of cash contributions for TE
Products ownership interest in Centennial, and $5.5 million for the purchase
of crude oil assets as part of the Rancho transaction. These uses of cash were
partially offset by $8.5 million in cash proceeds from the sale of the Rancho
assets. Cash flows used in investing activities totaled $651.5 million for the
six months ended June 30, 2002, and were comprised of $7.3 million for the
final purchase price adjustments on the acquisition of Jonah, $63.6 million of
capital expenditures, $7.7 million of cash contributions for TE Products
ownership interest in Centennial, $132.1 million for the purchase of Chaparral
on March 1, 2002, and $444.2 million for the purchase of Val Verde on June 30,
2002. These uses of cash were partially offset by $3.4 million in cash
proceeds from the sale of assets.

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Cash flows used in financing activities totaled $68.8 million for the six
months ended June 30, 2003, and were comprised of $335.0 million in proceeds
from term and revolving credit facilities; $198.6 million from the issuance in
January 2003 of our 6.125% Senior Notes due 2013, partially offset by debt
issuance costs of $3.1
million; and $114.5 million from the issuance of 3.9 million Units in April
2003. These sources of cash for the six months ended June 30, 2003, were
partially offset by $504.0 million of repayments on our term and revolving
credit facilities; $113.8 million to repurchase and retire the
outstanding Class
B Units, and $96.0 million of distributions to unitholders. Cash flows
provided by financing activities totaled $554.0 million for the six months
ended June 30, 2002, and were comprised of $642.0 million of proceeds from term
and revolving credit facilities; $497.8 million from the issuance in February
2002 of our 7.625% Senior Notes due 2012, partially offset by debt issuance
costs of $7.0 million; and $59.3 million from the issuance
of 2.0 million Units
and $1.2 million of related General Partner contributions. These sources of
cash for the six months ended June 30, 2002, were partially offset by $570.7
million of repayments on our term and revolving credit facilities and $68.6
million of distributions to unitholders.

In August 2000, TE Products entered into agreements with Panhandle Eastern
Pipeline Company (PEPL) and Marathon Ashland Petroleum LLC (Marathon) to
form Centennial. Centennial owns an interstate refined petroleum products
pipeline extending from the upper Texas Gulf Coast to Illinois. Through
February 9, 2003, each original participant owned a one-third interest in
Centennial. On February 10, 2003, TE Products and Marathon each acquired an
additional 16.7% interest in Centennial, bringing their ownership interest to
50% each. Excluding TE Products purchase of its additional ownership interest
of 16.7% on February 10, 2003, we expect to contribute an additional $5.0
million to Centennial in 2003.

Centennial entered into credit facilities totaling $150.0 million, and as
of June 30, 2003, $150.0 million was outstanding under those credit facilities.
The proceeds were used to fund construction and conversion costs of its
pipeline system. Each of the participants in Centennial, including TE
Products, originally guaranteed one-third of Centennials debt, up to a maximum
amount of $50.0 million. During the third quarter of 2002, PEPL, one of the
participants in Centennial, was downgraded by Moodys and Standard & Poors to
below investment grade, which resulted in PEPL being in default under its
portion of the Centennial guaranty. Effective September 27, 2002, TE Products
and Marathon increased their guaranteed amounts to one-half of the debt of
Centennial, up to a maximum amount of $75.0 million each, to avoid a default on
the Centennial debt. As compensation to TE Products and Marathon for providing
their additional guarantees, PEPL was required to pay interest at a rate of 4%
per annum to each of TE Products and Marathon on the portion of the additional
guaranty that each had provided for PEPL. In connection with the acquisition
of the additional interest in Centennial on February 10, 2003, the guaranty
agreement between TE Products, Marathon and PEPL was terminated. TE Products
guaranty of up to a maximum of $75.0 million of Centennials debt remains in
effect.

Credit Facilities and Interest Rate Swap Agreements

On April 6, 2001, we entered into a $500.0 million revolving credit
facility including the issuance of letters of credit of up to $20.0 million
(Three Year Facility). The interest rate was based, at our option, on either
the lenders base rate plus a spread, or LIBOR plus a spread in effect at the
time of the borrowings. The credit agreement for the Three Year Facility
contained certain restrictive financial covenant ratios. During 2002,
borrowings under the Three Year Facility were used to finance the acquisitions
of Chaparral on March 1, 2002, and Val Verde on June 30, 2002, and for general
purposes. During 2002, repayments were made on the Three Year Facility with
proceeds from the issuance of our 7.625% Senior Notes, proceeds from the
issuance of additional Units and proceeds from the termination of interest rate
swaps (see Note 4. Derivative Financial Instruments). During the first
quarter of 2003, we repaid $182.0 million of the outstanding balance of the
Three Year Facility with proceeds from the issuance of our 6.125% Senior Notes
on January 30, 2003. On June 27, 2003, we repaid the outstanding balance under
the Three Year Facility with borrowings under a new credit facility, and
canceled the Three Year Facility.

On June 27, 2003, we entered into a $550.0 million revolving credit
facility including the issuance of letters of credit of up to $20.0 million
(Revolving Credit Facility) with a three year term. The interest rate is
based, at our option, on either the lenders base rate plus a spread, or LIBOR
plus a spread in effect at the time of the borrowings.

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The credit agreement
for the Revolving Credit Facility contains certain restrictive financial
covenant ratios. We borrowed $263.0 million under the Revolving Credit
Facility and repaid the outstanding balance of the Three Year Facility. On
June 30, 2003, $263.0 million was outstanding under the Revolving Credit
Facility at a weighted
average interest rate, before the effects of hedging activities, of 1.8%. At
June 30, 2003, we were in compliance with the covenants contained in this
credit agreement.

On April 6, 2001, we entered into a 364-day, $200.0 million revolving
credit agreement (Short-term Revolver). The interest rate was based, at our
option, on either the lenders base rate plus a spread, or LIBOR plus a spread
in effect at the time of the borrowings. The credit agreement contained certain
restrictive financial covenant ratios. On March 28, 2002, the Short-term
Revolver was extended for an additional period of 364 days, ending in March
2003. During 2002, borrowings under the Short-term Revolver were used to
finance the acquisition of the Val Verde assets and for other purposes. During
2002, we repaid the existing amounts outstanding under the Short-term Revolver
with proceeds we received from the issuance of Units in 2002. The Short-term
Revolver expired on March 27, 2003.

On February 20, 2002, we completed the issuance of $500.0 million
principal amount of 7.625% Senior Notes due 2012. The 7.625% Senior Notes were
issued at a discount of $2.2 million and are being accreted to their face value
over the term of the notes. We used the proceeds from the offering to reduce a
portion of the outstanding balances of our credit facilities, including those
issued in connection with the acquisition of Jonah. The Senior Notes may be
redeemed at any time at our option with the payment of accrued interest and a
make-whole premium determined by discounting remaining interest and principal
payments using a discount rate equal to the rate of the United States Treasury
securities of comparable remaining maturity plus 35 basis points. The
indenture governing the 7.625% Senior Notes contains covenants, including, but
not limited to, covenants limiting the creation of liens securing indebtedness
and sale and leaseback transactions. However, the indenture does not limit our
ability to incur additional indebtedness. As of June 30, 2003, we were in
compliance with the covenants of these Senior Notes.

On June 27, 2002, we entered into a $200.0 million six-month term loan
with SunTrust Bank (Six-Month Term Loan) payable in December 2002. We
borrowed $200.0 million under the Six-Month Term Loan to acquire the Val Verde
assets (see Note 5. Acquisitions and Dispositions). The interest rate was
based, at our option, on either the lenders base rate plus a spread, or LIBOR
plus a spread in effect at the time of the borrowings. The credit agreement
contained certain restrictive financial covenant ratios. On July 11, 2002, we
repaid $90.0 million of the outstanding principal from proceeds primarily
received from the issuance of Units in July 2002. On September 10, 2002, we
repaid the remaining outstanding balance of $110.0 million with proceeds
received from the issuance of Units in September 2002, and canceled the
facility.

On January 30, 2003, we completed the issuance of $200.0 million principal
amount of 6.125% Senior Notes due 2013. The 6.125% Senior Notes were issued at
a discount of $1.4 million and are being accreted to their face value over the
term of the notes. We used $182.0 million of the proceeds from the offering to
reduce the outstanding principal on the Three Year Facility to $250.0 million.
The balance of the net proceeds received was used for general purposes. The
Senior Notes may be redeemed at any time at our option with the payment of
accrued interest and a make-whole premium determined by discounting remaining
interest and principal payments using a discount rate equal to the rate of the
United States Treasury securities of comparable remaining maturity plus 35
basis points. The indenture governing our 6.125% Senior Notes contains
covenants, including, but not limited to, covenants limiting the creation of
liens securing indebtedness and sale and leaseback transactions. However, the
indenture does not limit our ability to incur additional indebtedness. As of
June 30, 2003, we were in compliance with the covenants of these Senior Notes.

We have entered into interest rate swap agreements to hedge our exposure
to cash flows and fair value changes. These agreements are more fully
described in Item 3. Quantitative and Qualitative Disclosures About Market
Risk.

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The following table summarizes our credit facilities as of June 30, 2003
(in millions):

|                          |  |                     |         |           |  |           |       |  |  |               |  | 
|------------------------- |  | ------------------- | ------- | --------- |  | --------- | ----- |  |  | ------------- |  | 
|                          |  | As of June 30, 2003
|                          |  |                    
|                          |  |                     |         |           |  | Available |       |  |  |              
|                          |  | Outstanding         |         | Borrowing |  | Maturity 
|Description:              |  | Principal           |         | Capacity  |  | Date     
|                          |  |                     |         |           |  |          
|Revolving Credit Facility |  | $                   | 263.0   |           |  | $         | 287.0 |  |  | June 2006    
|6.45% Senior Notes (1)    |  |                     | 180.0   |           |  |           |      |  |  | January 2008 
|7.625% Senior Notes (1)   |  |                     | 500.0   |           |  |           |      |  |  | February 2012
|6.125% Senior Notes (1)   |  |                     | 200.0   |           |  |           |      |  |  | February 2013
|7.51% Senior Notes (1)    |  |                     | 210.0   |           |  |           |      |  |  | January 2028 
|                          |  |                     |         |           |  |           |       |  |  |               |  | 
|Total                     |  | $                   | 1,353.0 |           |  | $         | 287.0 |  |  |               |  | 
|                          |  |                     |         |           |  |           |       |  |  |               |  | 



---



|(1) |  | Our TE Products subsidiary entered into an interest rate swap
agreement to hedge its exposure to changes in the fair value of its
7.51% Senior Notes due 2028. At June 30, 2003, the 15.1% Senior Notes
include an adjustment to increase the fair value of the debt by $15.1
million related to this interest rate swap agreement. We also entered
into interest rate swap agreements to hedge our exposure to changes in
the fair value of our 7.625% Senior Notes due 2012. At June 30, 2003,
the 7.625% Senior Notes include a deferred gain, net of amortization,
from previous interest rate swap terminations of $42.4 million. At
June 30, 2003, our 6.45% Senior Notes, our 7.625% Senior Notes and our
6.125% Senior Notes include $3.4 million of unamortized debt discounts.
The fair value adjustments, the deferred gain adjustment and the
unamortized debt discounts are excluded from this table.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Distributions and Issuance of Additional Limited Partner Units

We paid cash distributions of $96.0 million ($1.225 per Unit) and $68.6
million ($1.15 per Unit) for each of the six months ended June 30, 2003 and
2002, respectively. Additionally, we declared a cash distribution of $0.625
per Unit for the quarter ended June 30, 2003. We will pay the distribution of
$49.4 million on August 8, 2003, to unitholders of record on July 31, 2003.

On March 22, 2002, we sold in an underwritten public offering 1.92 million
Units at $31.18 per Unit. The proceeds from the offering, net of underwriting
discount, totaled approximately $57.3 million and were used to repay $50.0
million of the outstanding balance on the Three Year Facility, with the
remaining amount being used for general purposes.

On July 11, 2002, we sold in an underwritten public offering 3.0 million
Units at $30.15 per Unit. The proceeds from the offering, net of underwriting
discount, totaled approximately $86.6 million and were used to reduce
borrowings under our Six-Month Term Loan. On August 14, 2002, 175,000 Units
were sold upon exercise of the underwriters over-allotment option granted in
connection with the offering on July 11, 2002. Proceeds from that sale totaled
$5.1 million and were used for general purposes.

On September 5, 2002, we sold in an underwritten public offering 3.8
million Units at $29.72 per Unit. The proceeds from the offering, net of
underwriting discount, totaled approximately $108.1 million and were used to
reduce borrowings under our Six-Month Term Loan. On September 19, 2002,
570,000 Units were sold upon exercise of the underwriters over-allotment
option granted in connection with the offering on September 5, 2002. Proceeds
from that sale totaled $16.2 million and were used to reduce borrowings under
our Short-term Revolver.

On November 7, 2002, we sold in an underwritten public offering 3.3
million Units at $26.83 per Unit. The proceeds from the offering, net of
underwriting discount, totaled approximately $84.8 million and were used to
reduce borrowings under our Short-term Revolver and Three Year Facility. On
December 4, 2002, 495,000 Units were sold upon exercise of the underwriters
over-allotment option granted in connection with the offering on

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November 7,
2002. Proceeds from that sale totaled $12.7 million and were used to reduce
borrowings under our Short-term Revolver and Three Year Facility.

On April 2, 2003, we sold in an underwritten public offering 3.9 million
Units at $30.35 per Unit. The proceeds from the offering, net of underwriting
discount, totaled approximately $114.5 million, of which approximately $113.8
million was used to repurchase and retire all of the 3,916,547 previously
outstanding Class B Units held by Duke Energy Transport and Trading Company,
LLC (DETTCO), an affiliate of Duke Energy. We received approximately $0.7
million in proceeds from the offering in excess of the amount needed to
repurchase and retire the Class B Units.

Future Capital Needs and Commitments

We estimate that capital expenditures, excluding acquisitions, for 2003
will be approximately $150.4 million (which includes $4.1 million of
capitalized interest). Of this amount, we expect to spend approximately $104.7
million for revenue generating projects. Capital spending on Downstream
Segment revenue generating projects will total approximately $16.8 million,
including $7.5 million for the expansion of our pumping capacity of LPGs into
the Northeast markets, $6.0 million for the expansion of our Bossier City,
Louisiana facilities and $3.3 million for expansion of delivery capacity at
various locations. For the Midstream Segment, revenue generating capital
expenditures will total approximately $74.9 million, principally for the
upgrade of the Jonah system, and for additional well connections on both the
Jonah and Val Verde systems. Upstream Segment revenue generating expenditures
will be approximately $13.0 million, including $7.0 million for the expansion
of our South Texas system and $6.0 million for connections to various other
production facilities and pipelines. We expect to spend approximately $29.9
million to sustain existing operations, of which $23.2 million will be for
various Downstream Segment pipeline projects, $4.8 million for Upstream Segment
facilities and $1.9 million for the Midstream Segment. An additional $15.8
million will be expended on system upgrade projects among all of our business
segments. We continually review and evaluate potential capital improvements
and expansions that would be complementary to our present business segments.
These expenditures can vary greatly depending on the magnitude of our
transactions. We may finance capital expenditures through internally generated
funds, debt or the issuance of additional equity.

As of June 30, 2003, we had a working capital deficit of $25.3 million.
In the event of any working capital shortfalls, we have approximately $287.0
million in available borrowing capacity under our Revolving Credit Facility to
cover these items.

Our debt repayment obligations consist of payments for principal and
interest on (i) outstanding principal amounts under the Revolving Credit
Facility due in June 2006 ($263.0 million outstanding at June 30, 2003), (ii)
the TE Products $180.0 million 6.45% Senior Notes due January 15, 2008, (iii)
our $500.0 million 7.625% Senior Notes due February 15, 2012, (iv) our $200.0
million 6.125% Senior Notes due February 1, 2013, and (v) the TE Products
$210.0 million 7.51% Senior Notes due January 15, 2028.

TE Products is contingently liable as guarantor for the lesser of one-half
or $75.0 million principal amount (plus interest) of the borrowings of
Centennial. We expect to contribute an additional $5.0 million to Centennial
in 2003 to provide for its working capital needs. In January 2003, TE Products
entered into a pipeline capacity lease agreement with Centennial for a period
of five years that contains a minimum capacity requirement. On February 10,
2003, TE Products acquired an additional 16.7% ownership interest in
Centennial, bringing its ownership percentage to 50%.

In May 2003, we entered into an agreement with Williams Gas Processing
Company (Williams) that requires Williams to build, own, and operate a
central dehydration facility to be used as a bulk water removal plant for gas
gathered on the Jonah system. The cost of building this facility was estimated
at $4.5 million. Under the agreement, Williams will supply the land for the
facility, and we are required to deposit $4.5 million into an escrow account to
be used by Williams to cover costs of construction of the facility. Williams
will retain ultimate title to the facility, and we will be reimbursed for the
escrowed amounts used by Williams through surcharges paid to us by the
producers on the Jonah system. In accordance with the agreement, we funded
$1.0 million of the $4.5 million

43



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##### 



required escrow amount in the second quarter
of 2003, and we are obligated to fund the remaining $3.5 million by August 31,
2003.

We do not rely on off-balance sheet borrowings to fund our acquisitions.
We have no off-balance sheet commitments for indebtedness other than the
limited guaranty of Centennial debt, the remaining escrow commitment to
Williams and leases covering assets utilized in several areas of our
operations.

The following table summarizes our debt repayment obligations and material
contractual commitments as of June 30, 2003 (in millions):

|                                        |                                  |   |                                            |         |        |   |           |      |           |   |       |       |  |   |       |       |         |   |       |       | 
|--------------------------------------- | -------------------------------- | - | ------------------------------------------ | ------- | ------ | - | --------- | ---- | --------- | - | ----- | ----- |  | - | ----- | ----- | ------- | - | ----- | ----- | 
|                                        |                                  |   | Amount of Commitment Expiration Per Period
|                                        |                                  |   |                                           
|                                        |                                  |   |                                            |         |        |   | Less than |      |           |   |       |       |  |   |       |       | After 5
|                                        |                                  |   | Total                                      |         | 1 Year |   | 1-3 Years |      | 4-5 Years |   | Years
|                                        |                                  |   |                                            |         |        |   |           |      |           |   |      
|Revolving Credit Facility               |                                  | $ | 263.0                                      |         |        | $ |          |      |           | $ | 263.0 |       |  | $ |      |       |         | $ |      |      
|6.45% Senior Notes due 2008 (1) (2)     |                                  |   | 180.0                                      |         |        |   |          |      |           |   |      |       |  |   | 180.0 |       |         |   |      |      
|7.625% Senior Notes due 2012 (2)        |                                  |   | 500.0                                      |         |        |   |          |      |           |   |      |       |  |   |      |       |         |   | 500.0 |      
|7.51% Senior Notes due 2028 (1) (2)     |                                  |   | 210.0                                      |         |        |   |          |      |           |   |      |       |  |   |      |       |         |   | 210.0 |      
|6.125% Senior Notes due 2013 (2)        |                                  |   | 200.0                                      |         |        |   |          |      |           |   |      |       |  |   |      |       |         |   | 200.0 |      
|                                        |                                  |   |                                            |         |        |   |           |      |           |   |       |       |  |   |       |       |         |   |       |      
|                                        | Debt subtotal                    |   |                                            | 1,353.0 |        |   |           |     |           |   |       | 263.0 |  |   |       | 180.0 |         |   |       | 910.0 | 
|Estimated Centennial cash
contributions |                                  |   | 5.0                                        |         |        |   | 5.0       |      |           |   |      |       |  |   |      |       |         |   |      |      
|Williams escrow commitments             |                                  |   | 3.5                                        |         |        |   | 3.5       |      |           |   |      |       |  |   |      |       |         |   |      |      
|Operating leases                        |                                  |   | 58.0                                       |         |        |   | 15.4      |      |           |   | 27.8  |       |  |   | 14.2  |       |         |   | 0.6   |      
|                                        |                                  |   |                                            |         |        |   |           |      |           |   |       |       |  |   |       |       |         |   |       |      
|                                        | Contractual commitments subtotal |   |                                            | 66.5    |        |   |           | 23.9 |           |   |       | 27.8  |  |   |       | 14.2  |         |   |       | 0.6   | 
|                                        |                                  |   |                                            |         |        |   |           |      |           |   |       |       |  |   |       |       |         |   |       |      
|                                        | Total                            |   | $                                          | 1,419.5 |        |   | $         | 23.9 |           |   | $     | 290.8 |  |   | $     | 194.2 |         |   | $     | 910.6 | 
|                                        |                                  |   |                                            |         |        |   |           |      |           |   |       |       |  |   |       |       |         |   |       |      



---



|(1) |  | Obligations of TE Products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Our TE Products subsidiary entered into an interest rate swap agreement
to hedge its exposure to changes in the fair value of its 7.51% Senior
Notes due 2028. At June 30, 2003, the 7.51% Senior Notes include an
adjustment to increase the fair value of the debt by $15.1 million related
to this interest rate swap agreement. We also entered into interest rate
swap agreements to hedge our exposure to changes in the fair value of our
7.625% Senior Notes due 2012. At June 30, 2003, the 7.625% Senior Notes
include a deferred gain, net of amortization, from previous interest rate
swap terminations of $42.4 million. At June 30, 2003, our 6.45% Senior
Notes, our 7.625% Senior Notes and our 6.125% Senior Notes include
$3.4
million of unamortized debt discounts. The fair value adjustments, the
deferred gain adjustments and the unamortized debt discounts are excluded
from this table.

We expect to repay the long-term, senior unsecured obligations and bank
debt through the issuance of additional long-term senior unsecured debt at the
time the 2008, 2012, 2013 and 2028 debt matures, issuance of additional equity,
proceeds from dispositions of assets, cash flow from operations or any
combination of the above items.

Sources of Future Capital

Historically, we have funded our capital commitments from operating cash
flow and borrowings under bank credit facilities or bridge loans. We repaid
these loans in part by the issuance of long term debt in capital markets and
the public offering of Units. We expect future capital needs would be
similarly funded to the extent not otherwise available from cash flow from
operations.

44



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As of June 30, 2003, we had approximately $287.0 million in available
borrowing capacity under the Revolving Credit Facility.

We expect that cash flows from operating activities will be adequate to
fund cash distributions and capital additions necessary to sustain existing
operations. However, future expansionary capital projects and acquisitions may
require funding through proceeds from the sale of additional debt or equity
capital markets offerings.

On May 29, 2002, Moodys Investors Service downgraded our senior unsecured
debt rating to Baa3 from Baa2. Our subsidiary, TE Products was also included
in this downgrade. These ratings were given with stable outlooks and followed
our announcement of the acquisition of Val Verde. The downgrades reflect
Moodys concern that we have a high level of debt relative to many of our peers
and that our debt may be continually higher than our long-term targets if we
continue to make a series of acquisitions of increasingly larger size. Because
of our high distribution rate, we are particularly reliant on external
financing to finance our acquisitions. Moodys indicated that our cash flows
are becoming less predictable as a result of our acquisitions and expansion
into the crude oil and natural gas gathering businesses. Further reductions in
our credit ratings could increase the debt financing costs or possibly reduce
the availability of financing. A rating reflects only the view of a rating
agency and is not a recommendation to buy, sell or hold any indebtedness. Any
rating can be revised upward or downward or withdrawn at any time by a rating
agency if it determines that the circumstances warrant such a change. In May
2003, Moodys reaffirmed the Baa3 ratings for us and our subsidiary, TE
Products.

Other Considerations

Our operations are subject to federal, state and local laws and
regulations governing the discharge of materials into the environment. Failure
to comply with these laws and regulations may result in the assessment of
administrative, civil and criminal penalties, imposition of injunctions
delaying or prohibiting certain activities and the need to perform
investigatory and remedial activities. Although we believe our operations are
in material compliance with applicable environmental laws and regulations,
risks of significant costs and liabilities are inherent in pipeline operations,
and we cannot assure you that significant costs and liabilities will not be
incurred. Moreover, it is possible that other developments, such as
increasingly strict environmental laws and regulations and enforcement policies
thereunder, and claims for damages to property or persons resulting from our
operations, could result in substantial costs and liabilities to us. We
believe that changes in environmental laws and regulations will not have a
material adverse effect on our financial position, results of operations or
cash flows in the near term.

In 1994, the Louisiana Department of Environmental Quality (LDEQ) issued
a compliance order for environmental contamination at our Arcadia, Louisiana,
facility. This contamination may be attributable to our operations, as well as
adjacent petroleum terminals operated by other companies. In 1999, our Arcadia
facility and adjacent terminals were directed by the Remediation Services
Division of the LDEQ to pursue remediation of this containment phase. At June
30, 2003, we have an accrued liability of $0.1 million for remediation costs at
our Arcadia facility. We do not expect that the completion of the remediation
program that we have proposed will have a future material adverse effect on our
financial position, results of operations or cash flows.

On March 17, 2003, we experienced a release of 511 barrels of jet fuel
from a tank at our Blue Island terminal located in Cook County, Illinois. As a
result of the release, we have entered into an Agreed Preliminary Injunction
and Order (Agreed Order) with the State of Illinois. The Agreed Order
requires us, in part, to complete a site investigation plan to delineate the
scope of any potential contamination resulting from the release and to
remediate any contamination. The Agreed Order does not contain any provision
for any fines or penalties; however, it does not preclude the State of Illinois
from assessing these at a later date. We do not expect that the completion of
the remediation program will have a future material adverse effect on our
financial position, results of operations or cash flows.

At June 30, 2003, we have an accrued liability of $6.6 million related to
various TCTM sites requiring environmental remediation activities. We have a
contractual indemnity obligation from DETTCO, an affiliate of Duke Energy, that
we received in connection with our acquisition of assets from DETTCO in
November 1998. The

45



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indemnity relates to future environmental remediation
activities attributable to operations of these assets prior to our acquisition.
Under this indemnity obligation, we are responsible for the first $3.0 million
in specified environmental liabilities, and DETTCO is responsible for those
environmental liabilities in excess of $3.0 million, up to a maximum
amount of $25.0 million. At December 31, 2002, we had a receivable balance from
DETTCO of $4.2 million, the majority of which related to
remediation activities at the Velma crude oil site in Stephens County,
Oklahoma. On March 31, 2003, we received $2.4 million under
the indemnity obligation with DETTCO. The remaining $1.8 million
due was subsequently written off as a result of final settlement
discussions with DETTCO on this matter. The accrued liability balance at June 30, 2003, also includes an
accrual of $2.3 million related to a crude oil site. We are currently in
discussions with DETTCO regarding various matters relative to DETTCOs
indemnifications. We do not expect that the completion of remediation programs
associated with TCTM activities will have a future material adverse effect on
our financial position, results of operations or cash flows.

Recent Accounting Pronouncements

See discussion of new accounting pronouncements in Note 1. Organization
and Basis of Presentation  New Accounting Pronouncements in the accompanying
consolidated financial statements.




Forward-Looking Statements

The matters discussed in this Report include forward-looking statements
within the meaning of various provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934. All statements, other than statements of
historical facts, included in this document that address activities, events or
developments that we expect or anticipate will or may occur in the future,
including such things as estimated future capital expenditures (including the
amount and nature thereof), business strategy and measures to implement
strategy, competitive strengths, goals, expansion and growth of our business
and operations, plans, references to future success, references to intentions
as to future matters and other such matters are forward-looking statements.
These statements are based on certain assumptions and analyses made by us in
light of our experience and our perception of historical trends, current
conditions and expected future developments as well as other factors we believe
are appropriate under the circumstances. However, whether actual results and
developments will conform with our expectations and predictions is subject to a
number of risks and uncertainties, including general economic, market or
business conditions, the opportunities (or lack thereof) that may be presented
to and pursued by us, competitive actions by other pipeline companies, changes
in laws or regulations and other factors, many of which are beyond our control.
Consequently, all of the forward-looking statements made in this document are
qualified by these cautionary statements and we cannot assure you that actual
results or developments that we anticipate will be realized or, even if
substantially realized, will have the expected consequences to or effect on us
or our business or operations. For additional discussion of such risks and
uncertainties, see our Annual Report on Form 10-K, for the year ended December
31, 2002, and other filings we have made with the Securities and Exchange
Commission.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

We may be exposed to market risk through changes in commodity prices and
interest rates. We do not have foreign exchange risks. Our Risk Management
Committee has established policies to monitor and control these market risks.
The Risk Management Committee is comprised, in part, of senior executives of
the Company.

At June 30, 2003, we had $263.0 million outstanding under our variable
interest rate revolving credit agreement. The interest rate is based, at our
option, on either the lenders base rate plus a spread or LIBOR plus a spread
in effect at the time of the borrowings and is adjusted monthly, bimonthly,
quarterly or semiannually. Utilizing the balances of variable interest rate
debt outstanding at June 30, 2003, including the effects of hedging activities
discussed below, and assuming market interest rates increase 100 basis points,
the potential annual increase in interest expense is $0.1 million.

46



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We have utilized and expect to continue to utilize interest rate swap
agreements to hedge a portion of our cash flow and fair value risks. Interest
rate swap agreements are used to manage the fixed and floating interest rate
mix of our total debt portfolio and overall cost of borrowing. The
interest rate swap related to our cash flow risk is intended to reduce our
exposure to increases in the benchmark interest rates underlying our variable
rate revolving credit facility. The interest rate swaps related to our fair
value risks are intended to reduce our exposure to changes in the fair value of
the fixed rate Senior Notes. The interest rate swap agreements involve the
periodic exchange of payments without the exchange of the notional amount upon
which the payments are based. The related amount payable to or receivable from
counterparties is included as an adjustment to accrued interest.

At June 30, 2003, TE Products had outstanding $180.0 million principal
amount of 6.45% Senior Notes due 2008, and $210.0 million principal amount of
7.51% Senior Notes due 2028 (collectively the TE Products Senior Notes). At
June 30, 2003, the estimated fair value of the TE Products Senior Notes was
approximately $427.1 million. At June 30, 2003, we had outstanding $500.0
million principal amount of 7.625% Senior Notes due 2012 and $200.0 million
principal amount of 6.125% Senior Notes due 2013. At June 30, 2003, the
estimated fair value of the $500.0 million 7.625% Senior Notes and the $200.0
million 6.125% Senior Notes was approximately $604.0 million and $212.5
million, respectively.

As of June 30, 2003, TE Products had an interest rate swap agreement in
place to hedge its exposure to changes in the fair value of its fixed rate
7.51% TE Products Senior Notes due 2028. We designated this swap agreement as
a fair value hedge. The swap agreement has a notional amount of $210.0 million
and matures in January 2028 to match the principal and maturity of the TE
Products Senior Notes. Under the swap agreement, TE Products pays a floating
rate based on a three-month U.S. Dollar LIBOR rate, plus a spread, and receives
a fixed rate of interest of 7.51%. During the six months ended June 30, 2003,
and 2002, we recognized reductions in interest expense of $4.9 million and $3.6
million, respectively, related to the difference between the fixed rate and the
floating rate of interest on the interest rate swap. During the quarter ended
June 30, 2003, we measured the hedge effectiveness of this interest rate swap
and noted that no gain or loss from ineffectiveness was required to be
recognized. The fair value of this interest rate swap was a gain of
approximately $15.1 million and $13.6 million at June 30, 2003, and December
31, 2002, respectively. Utilizing the balance of the 7.51% TE Products Senior
Notes outstanding at June 30, 2003, and including the effects of hedging
activities, assuming market interest rates increase 100 basis points, the
potential annual increase in interest expense is $2.1 million.

As of June 30, 2003, we had an interest rate swap agreement in place to
hedge our exposure to increases in the benchmark interest rate underlying our
variable rate revolving credit facility. This interest rate swap matures on
April 6, 2004. We designated this swap agreement, which hedges exposure to
variability in expected future cash flows attributed to changes in interest
rates, as a cash flow hedge. The swap agreement is based on a notional amount
of $250.0 million. Under the swap agreement, we pay a fixed rate of interest
of 6.955% and receive a floating rate based on a three-month U.S. Dollar LIBOR
rate. Since this swap is designated as a cash flow hedge, the changes in fair
value, to the extent the swap is effective, are recognized in other
comprehensive income until the hedged interest costs are recognized in
earnings. During the six months ended June 30, 2003, and 2002, we recognized
increases in interest expense of $7.0 million and $6.3 million, respectively,
related to the difference between the fixed rate and the floating rate of
interest on the interest rate swap. During the quarter ended June 30, 2003, we
measured the hedge effectiveness of this interest rate swap and noted that no
gain or loss from ineffectiveness was required to be recognized. On June 27,
2003, we repaid the amounts outstanding under the revolving credit facility
with borrowings under a new three year revolving credit facility and canceled
the old facility (see Note 9. Debt). We redesignated the interest rate swap
as a hedge of our exposure to increases in the benchmark interest rate
underlying the new variable rate revolving credit facility. The fair value of
the interest rate swap was a loss of approximately $11.4 million and $20.1
million at June 30, 2003, and December 31, 2002, respectively. The remaining
fair value of the interest rate swap will be transferred into earnings over the
remaining term of the interest rate swap.

On February 20, 2002, we entered into interest rate swap agreements,
designated as fair value hedges, to hedge our exposure to changes in the fair
value of our fixed rate 7.625% Senior Notes due 2012. The swap agreements had
a combined notional amount of $500.0 million and matured in 2012 to match the
principal and maturity of the Senior Notes. Under the swap agreements, we paid
a floating rate of interest based on a U.S. Dollar

47



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LIBOR rate, plus a spread,
and received a fixed rate of interest of 7.625%. On July 16, 2002, the swap
agreements were terminated resulting in a gain of approximately $18.0 million.
Concurrent with the swap terminations, we
entered into new interest rate swap agreements, with identical terms as
the previous swap agreements; however, the floating rate was based upon a
spread of an additional 50 basis points. In December 2002, the swap agreements
entered into on July 16, 2002, were terminated, resulting in a gain of
approximately $26.9 million. The gains realized from the July 2002 and
December 2002 swap terminations have been deferred as adjustments to the
carrying value of the Senior Notes and are being amortized using the effective
interest method as reductions to future interest expense over the remaining
term of the Senior Notes. At June 30, 2003, the unamortized balance of the
deferred gains was $42.4 million. In the event of early extinguishment of the
Senior Notes, any remaining unamortized gains would be recognized in the
consolidated statement of income at the time of extinguishment.




Item 4. Controls and Procedures

Included in its recent Release No. 34-46427, effective August 29, 2002,
the Securities and Exchange Commission adopted rules requiring reporting
companies to maintain disclosure controls and procedures to provide reasonable
assurance that a registrant is able to record, process, summarize and report
the information required in the registrants quarterly and annual reports under
the Securities Exchange Act of 1934 (the Exchange Act).

The principal executive officer and principal financial officer of our
general partner, after evaluating the effectiveness of our disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14(c) and Rule 15d-14(c))
as of a date within 90 days before the filing date of this Report, have
concluded that, as of such date, our disclosure controls and procedures are
adequate and effective to ensure that material information relating to us and
our consolidated subsidiaries would be made known to them by others within
those entities.

There have been no changes in our internal controls or in other factors
known to us that could significantly affect those internal controls subsequent
to the date of the evaluation, nor were there any significant deficiencies or
material weaknesses in our internal controls. As a result, no corrective
actions were required or undertaken.




PART II. OTHER INFORMATION




Item 1. Legal Proceedings

We have been, in the ordinary course of business, a defendant in various
lawsuits and a party to various other legal proceedings, some of which are
covered in whole or in part by insurance. We believe that the outcome of these
lawsuits and other proceedings will not individually or in the aggregate have a
material adverse effect on our consolidated financial position, results of
operations or cash flows. See discussion of legal proceedings in Note 12.
Commitments and Contingencies in the accompanying consolidated financial
statements.




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

(a) Exhibits:

|        |  |                                                                                                                                                                                                               
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                               
|Number  |  | Description                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                               
|3.1     |  | Certificate of Limited Partnership of TEPPCO Partners, L.P.
(Filed as Exhibit 3.2 to the Registration Statement of TEPPCO
Partners, L.P. (Commission File No. 33-32203) and incorporated
herein by reference).

48



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3.2     |  | Third Amended and Restated Agreement of Limited Partnership
of TEPPCO Partners, L.P., dated September 21, 2001 (Filed as Exhibit
3.7 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 2001 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.1     |  | Form of Certificate representing Limited Partner Units (Filed
as Exhibit 4.1 to the Registration Statement of TEPPCO Partners,
L.P. (Commission File No. 33-32203) and incorporated herein by
reference).                                                                                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.2     |  | Form of Indenture between TE Products Pipeline Company,
Limited Partnership and The Bank of New York, as Trustee, dated as
of January 27, 1998 (Filed as Exhibit 4.3 to TE Products Pipeline
Company, Limited Partnerships Registration Statement on Form S-3
(Commission File No. 333-38473) and incorporated herein by
reference).                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.3     |  | Form of Certificate representing Class B Units (Filed as
Exhibit 4.3 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 1998 and incorporated
herein by reference).                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.4     |  | Form of Indenture between TEPPCO Partners, L.P., as issuer,
TE Products Pipeline Company, Limited Partnership, TCTM, L.P.,
TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering Company, as
subsidiary guarantors, and First Union National Bank, NA, as
trustee, dated as of February 20, 2002 (Filed as Exhibit 99.2 to
Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of February 20, 2002 and incorporated herein by reference).                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.5     |  | First Supplemental Indenture between TEPPCO Partners, L.P.,
as issuer, TE Products Pipeline Company, Limited Partnership, TCTM,
L.P., TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering
Company, as subsidiary guarantors, and First Union National Bank,
NA, as trustee, dated as of February 20, 2002 (Filed as Exhibit 99.3
to Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of February 20, 2002 and incorporated herein by reference).                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.6     |  | Second Supplemental Indenture, dated as of June 27, 2002,
among TEPPCO Partners, L.P., as issuer, TE Products Pipeline
Company, Limited Partnership, TCTM, L.P., TEPPCO Midstream
Companies, L.P., and Jonah Gas Gathering Company, as Initial
Subsidiary Guarantors, and Val Verde Gas Gathering Company, L.P., as
New Subsidiary Guarantor, and Wachovia Bank, National Association,
formerly known as First Union National Bank, as trustee (Filed as
Exhibit 4.6 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended June 30, 2002 and incorporated
herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.7     |  | Third Supplemental Indenture among TEPPCO Partners, L.P. as
issuer, TE Products Pipeline Company, Limited Partnership, TCTM,
L.P., TEPPCO Midstream Companies, L.P., Jonah Gas Gathering Company
and Val Verde Gas Gathering Company, L.P. as Subsidiary Guarantors,
and Wachovia Bank, National Association, as trustee, dated as of
January 30, 2003 (Filed as Exhibit 4.7 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the year ended
December 31, 2002 and incorporated herein by reference).                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.1+   |  | Duke Energy Corporation Executive Savings Plan (Filed as
Exhibit 10.7 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 1999 and incorporated
herein by reference).                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.2+   |  | Duke Energy Corporation Executive Cash Balance Plan (Filed
as Exhibit 10.8 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 1999 and
incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.3+   |  | Duke Energy Corporation Retirement Benefit Equalization Plan
(Filed as Exhibit 10.9 to Form 10-K for TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 1999
and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.4+   |  | Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan executed on March 8, 1994 (Filed as Exhibit 10.1 to
Form 10-Q of TEPPCO Partners, L.P.                                                                                                                                                                                                                                                                                                                                                                                                                                                       

49



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | (Commission File No. 1-10403) for
the quarter ended March 31, 1994 and incorporated herein by
reference).                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.5+   |  | Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan, Amendment 1, effective January 16, 1995 (Filed as
Exhibit 10.12 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended June 30, 1999 and incorporated
herein by reference).                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.6    |  | Asset Purchase Agreement between Duke Energy Field Services,
Inc. and TEPPCO Colorado, LLC, dated March 31, 1998 (Filed as
Exhibit 10.14 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1998 and incorporated
herein by reference).                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.7    |  | Contribution Agreement between Duke Energy Transport and
Trading Company and TEPPCO Partners, L.P., dated October 15, 1998
(Filed as Exhibit 10.16 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 1998
and incorporated herein by reference).                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.8    |  | Guaranty Agreement by Duke Energy Natural Gas Corporation for
the benefit of TEPPCO Partners, L.P., dated November 30, 1998,
effective November 1, 1998 (Filed as Exhibit 10.17 to Form 10-K of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 1998 and incorporated herein by reference).                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.9+   |  | Form of Employment Agreement between the Company and Thomas
R. Harper, Charles H. Leonard, James C. Ruth, John N. Goodpasture,
Leonard W. Mallett, Stephen W. Russell, David E. Owen, and Barbara
A. Carroll (Filed as Exhibit 10.20 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December 31,
1998 and incorporated herein by reference).               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.10   |  | Services and Transportation Agreement between TE Products
Pipeline Company, Limited Partnership and Fina Oil and Chemical
Company, BASF Corporation and BASF Fina Petrochemical Limited
Partnership, dated February 9, 1999 (Filed as Exhibit 10.22 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1999 and incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.11   |  | Call Option Agreement, dated February 9, 1999 (Filed as
Exhibit 10.23 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1999 and incorporated
herein by reference).                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.12+  |  | Texas Eastern Products Pipeline Company Retention Incentive
Compensation Plan, effective January 1, 1999 (Filed as Exhibit 10.24
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 1999 and incorporated herein by
reference).                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.13+  |  | Form of Employment and Non-Compete Agreement between the Company
and J. Michael Cockrell effective January 1, 1999 (Filed as Exhibit
10.29 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and incorporated
herein by reference).                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.14+  |  | Texas Eastern Products Pipeline Company Non-employee Directors
Unit Accumulation Plan, effective April 1, 1999 (Filed as Exhibit
10.30 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and incorporated
herein by reference).                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.15+  |  | Texas Eastern Products Pipeline Company Non-employee Directors
Deferred Compensation Plan, effective November 1, 1999 (Filed as
Exhibit 10.31 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended September 30, 1999 and
incorporated herein by reference).                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.16+  |  | Texas Eastern Products Pipeline Company Phantom Unit Retention
Plan, effective August 25, 1999 (Filed as Exhibit 10.32 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 1999 and incorporated herein by
reference).                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.17   |  | Amended and Restated Purchase Agreement By and Between
Atlantic Richfield Company and Texas Eastern Products Pipeline
Company With Respect to the Sale of                                                                                                                                                                                                                                          

50



---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  | ARCO Pipe Line Company, dated as
of May 10, 2000. (Filed as Exhibit 2.1 to Form 10-
Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended March 31, 2000 and incorporated herein by
reference).                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.18+  |  | Texas Eastern Products Pipeline Company, LLC 2000 Long Term
Incentive Plan, Amendment and Restatement, effective January 1, 2000
(Filed as Exhibit 10.28 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 2000
and incorporated herein by reference).                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.19+  |  | TEPPCO Supplemental Benefit Plan, effective April 1, 2000 (Filed
as Exhibit 10.29 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 2000 and
incorporated herein by reference).                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.20+  |  | Employment Agreement with Barry R. Pearl (Filed as Exhibit 10.30
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 2001 and incorporated herein by
reference).                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.21   |  | Amended and Restated Credit Agreement among TEPPCO Partners,
L.P. as Borrower, SunTrust Bank as Administrative Agent and LC
Issuing Bank, and Certain Lenders, dated as of April 6, 2001
($500,000,000 Revolving Facility) (Filed as Exhibit 10.31 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 2001 and incorporated herein by reference).                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.22   |  | Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders, dated as
of April 6, 2001 ($200,000,000 Revolving Facility) (Filed as Exhibit
10.32 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended March 31, 2001 and incorporated
herein by reference).                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.23   |  | Purchase and Sale Agreement By and Among Green River
Pipeline, LLC and McMurry Oil Company, Sellers, and TEPPCO Partners,
L.P., Buyer, dated as of September 7, 2000. (Filed as Exhibit 10.31
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended September 30, 2001 and incorporated herein by
reference).                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.24   |  | Amendment 1, dated as of September 28, 2001, to the Amended
and Restated Credit Agreement among TEPPCO Partners, L.P. as
Borrower, SunTrust Bank as Administrative Agent and LC Issuing Bank,
and Certain Lenders, dated as of April 6, 2001 ($500,000,000
Revolving Facility) (Filed as Exhibit 10.33 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 2001 and incorporated herein by reference).                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.25   |  | Amendment 1, dated as of September 28, 2001, to the Credit
Agreement among TEPPCO Partners, L.P. as Borrower, SunTrust Bank as
Administrative Agent, and Certain Lenders, dated as of April 6, 2001
($200,000,000 Revolving Facility) (Filed as Exhibit 10.34 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.26   |  | Amendment and Restatement, dated as of November 13, 2001, to
the Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders, dated as
of April 6, 2001 ($200,000,000 Revolving Facility) (Filed as Exhibit
10.35 to Form 10-K of TEPPCO Partners, L.P (Commission File No.
1-10403) for the year ended December 31, 2001 and incorporated
herein by reference).                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.27   |  | Second Amendment and Restatement, dated as of November 13,
2001, to the Amended and Restated Credit Agreement amount TEPPCO
Partners, L.P. as Borrower, SunTrust Bank as Administrative Agent
and LC Issuing Bank, and Certain Lenders, dated as of April 6, 2001
($500,000,000 Revolving Facility) (Filed as Exhibit 10.36 to Form
10-K of TEPPCO Partners, L.P (Commission File No. 1-10403) for the
year ended December 31, 2001 and incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.28   |  | Second Amended and Restated Agreement of Limited Partnership
of TE Products Pipeline Company, Limited Partnership, dated
September 21, 2001 (Filed as Exhibit 3.8                                                                                                                                                                                                                                                                                                         

51



---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |  | to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 2001 and incorporated herein by reference).                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.29   |  | Amended and Restated Agreement of Limited Partnership of
TCTM, L.P., dated September 21, 2001 (Filed as Exhibit 3.9 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.30   |  | Contribution, Assignment and Amendment Agreement among
TEPPCO Partners, L.P., TE Products Pipeline Company, Limited
Partnership, TCTM, L.P., Texas Eastern Products Pipeline Company,
LLC, and TEPPCO GP, Inc., dated July 26, 2001 (Filed as Exhibit 3.6
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended June 30, 2001 and incorporated herein by
reference).              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.31   |  | Certificate of Formation of TEPPCO Colorado, LLC (Filed as
Exhibit 3.2 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1998 and incorporated
herein by reference).                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.32   |  | Agreement of Limited Partnership of TEPPCO Midstream
Companies, L.P., dated September 24, 2001 (Filed as Exhibit 3.10 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended September 30, 2001 and incorporated herein by
reference).                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.33   |  | Agreement of Partnership of Jonah Gas Gathering Company
dated June 20, 1996 as amended by that certain Assignment of
Partnership Interests dated September 28, 2001 (Filed as Exhibit
10.40 to Form 10-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the year ended December 31, 2001 and incorporated
herein by reference).                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.34   |  | Unanimous Written Consent of the Board of Directors of
TEPPCO GP, Inc. dated February 13, 2002 (Filed as Exhibit 10.41 to
Form 10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the year ended December 31, 2001 and incorporated herein by
reference).                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.35   |  | Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent and Certain Lenders, as
Lenders dated as of March 28, 2002 ($200,000,000 Revolving Credit
Facility) (Filed as Exhibit 10.44 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the three months ended March
31, 2002 and incorporated herein by reference).                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.36   |  | Amended and Restated Credit Agreement among TEPPCO Partners,
L.P. as Borrower, SunTrust Bank, as Administrative Agent and LC
Issuing Bank and Certain Lenders, as Lenders dated as of March 28,
2002 ($500,000,000 Revolving Facility) (Filed as Exhibit 10.45 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the three months ended March 31, 2002 and incorporated herein by
reference).   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.37   |  | Purchase and Sale Agreement between Burlington Resources
Gathering Inc. as Seller and TEPPCO Partners, L.P., as Buyer, dated
May 24, 2002 (Filed as Exhibit 99.1 to Form 8-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) dated as of July 2, 2002 and
incorporated herein by reference).                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.38   |  | Credit Agreement among TEPPCO Partners, L.P., as Borrower,
SunTrust Bank, as Administrative Agent and Certain Lenders, as
Lenders dated as of June 27, 2002 ($200,000,000 Term Facility)
(Filed as Exhibit 99.2 to Form 8-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) dated as of July 2, 2002 and
incorporated herein by reference).                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.39   |  | Amendment, dated as of June 27, 2002 to the Amended and
Restated Credit Agreement among TEPPCO Partners, L.P., as Borrower,
SunTrust Bank, as Administrative Agent, and Certain Lenders, dated
as of March 28, 2002 ($500,000,000 Revolving Credit Facility) (Filed
as Exhibit 99.3 to Form 8-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) dated as of July 2, 2002 and incorporated herein
by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.40   |  | Amendment 1, dated as of June 27, 2002 to the Credit
Agreement among TEPPCO Partners, L.P., as Borrower, SunTrust Bank,
as Administrative Agent and Certain Lenders, dated as of March 28,
2002 ($200,000,000 Revolving Credit Facility) (Filed as                                                                                                                                                                    

52



---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  | Exhibit 99.4
to Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of July 2, 2002 and incorporated herein by reference).                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.41   |  | Agreement of Limited Partnership of Val Verde Gas Gathering
Company, L.P., dated May 29, 2002 (Filed as Exhibit 10.48 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended June 30, 2002 and incorporated herein by reference).                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.42+  |  | Texas Eastern Products Pipeline Company, LLC 2002 Phantom Unit
Retention Plan, effective June 1, 2002 (Filed as Exhibit 10.43 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended June 30, 2002 and incorporated herein by
reference).                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.43+  |  | Amended and Restated TEPPCO Supplemental Benefit Plan, effective
November 1, 2002 (Filed as Exhibit 10.44 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the year ended
December 31, 2002 and incorporated herein by reference).                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.44+  |  | Texas Eastern Products Pipeline Company, LLC 2000 Long Term
Incentive Plan, Second Amendment and Restatement, effective January
1, 2003 (Filed as Exhibit 10.45 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December 31,
2002 and incorporated herein by reference).                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.45+  |  | Amended and Restated Texas Eastern Products Pipeline Company, LLC
Management Incentive Compensation Plan, effective January 1, 2003
(Filed as Exhibit 10.46 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 2002
and incorporated herein by reference).                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.46+  |  | Amended and Restated TEPPCO Retirement Cash Balance Plan,
effective January 1, 2002 (Filed as Exhibit 10.47 to Form 10-K of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 2002 and incorporated herein by reference).                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.47   |  | Formation Agreement between Panhandle Eastern Pipe Line
Company and Marathon Ashland Petroleum LLC and TE Products Pipeline
Company, Limited Partnership, dated as of August 10, 2000 (Filed as
Exhibit 10.48 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 2002 and incorporated
herein by reference).                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.48   |  | Amended and Restated Limited Liability Company Agreement of
Centennial Pipeline LLC dated as of August 10, 2000 (Filed as
Exhibit 10.49 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 2002 and incorporated
herein by reference).                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.49   |  | Guaranty Agreement, dated as of September 27, 2002, between
TE Products Pipeline Company, Limited Partnership and Marathon
Ashland Petroleum LLC for Note Agreements of Centennial Pipeline LLC
(Filed as Exhibit 10.50 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 2002
and incorporated herein by reference).                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.50   |  | LLC Membership Interest Purchase Agreement By and Between
CMS Panhandle Holdings, LLC, As Seller and Marathon Ashland
Petroleum LLC and TE Products Pipeline Company, Limited Partnership,
Severally as Buyers, dated February 10, 2003 (Filed as Exhibit 10.51
to Form 10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the year ended December 31, 2002 and incorporated herein by
reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.51   |  | Joint Development Agreement between TE Products Pipeline
Company, Limited Partnership and Louis Dreyfus Plastics Corporation
dated February 10, 2000 (Filed as Exhibit 10.52 to Form 10-Q of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the quarter
ended March 31, 2003 and incorporated herein by reference).                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.52*  |  | Credit Agreement among TEPPCO Partners, L.P. as Borrower, SunTrust
Bank as Administrative Agent and LC Issuing Bank and The Lenders
Party Hereto, as Lenders, dated as of June 27, 2003 ($550,000,000
Revolving Facility).                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|12.1*   |  | Statement of Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                                                                                

53



---



##### 



|        |  |                                                                                                                                                                                                    
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                    
|Number  |  | Description                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                    
|21      |  | Subsidiaries of the Partnership (Filed as Exhibit 21 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended June 30, 2002 and incorporated herein by reference).
|        |  |                                                                                                                                                                                                    
|31.1*   |  | Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.                                                                                                
|        |  |                                                                                                                                                                                                    
|31.2*   |  | Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.                                                                                                
|        |  |                                                                                                                                                                                                    
|32.1*   |  | Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.                                                                                                
|        |  |                                                                                                                                                                                                    
|32.2*   |  | Certification of Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.                                                                                                



---



|* |  | Filed herewith.                                           
|- |  | ----------------------------------------------------------
| 
|+ |  | A management contract or compensation plan or arrangement.

(b) Reports on Form 8-K filed with or furnished to the Securities
and Exchange Commission during the quarter ended June 30, 2003:



| |                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A current report on Form 8-K was filed on April 8, 2003,
including as an exhibit an underwriting agreement with
underwriters named therein in connection with respect to the
issue and sale of up to 3,938,750 units of the Partnership.



| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | A current report on Form 8-K was furnished on April 30, 2003,
in connection with disclosure of first quarter estimates and
earnings guidance.



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | A current report on Form 8-K was furnished on June 12, 2003,
in connection with a presentation to investors.




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on its behalf by the
undersigned duly authorized officer and principal financial officer.

| |  |                                  |  |                                      
| |  | -------------------------------- |  | -------------------------------------
| |  |                                  |  | TEPPCO Partners, L.P.                
| |  |                                  |  |                                      
| |  |                                  |  | (Registrant)                         
| |  |                                  |  | (A Delaware Limited Partnership)     
| |  |                                  |  |                                      
| |  | By:                              |  | Texas Eastern Products Pipeline      
| |  | Company, LLC, as General Partner
| |  |                                  |  |                                      
| |  | By:                              |  | /s/ BARRY R. PEARL                   
| |  |                                  |  |                                      
| |  |                                  |  | Barry R. Pearl,                      
| |  |                                  |  | President and Chief Executive Officer
| |  |                                  |  |                                      
| |  | By:                              |  | /s/ CHARLES H. LEONARD               
| |  |                                  |  |                                      
| |  |                                  |  | Charles H. Leonard,                  
| |  |                                  |  | Senior Vice President and Chief      
| |  |                                  |  | Financial Officer                    

Date: July 30, 2003

54



---



##### 






INDEX TO EXHIBITS

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3.1     |  | Certificate of Limited Partnership of TEPPCO Partners, L.P.
(Filed as Exhibit 3.2 to the Registration Statement of TEPPCO
Partners, L.P. (Commission File No. 33-32203) and incorporated
herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3.2     |  | Third Amended and Restated Agreement of Limited Partnership
of TEPPCO Partners, L.P., dated September 21, 2001 (Filed as Exhibit
3.7 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 2001 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.1     |  | Form of Certificate representing Limited Partner Units (Filed
as Exhibit 4.1 to the Registration Statement of TEPPCO Partners,
L.P. (Commission File No. 33-32203) and incorporated herein by
reference).                                                                                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.2     |  | Form of Indenture between TE Products Pipeline Company,
Limited Partnership and The Bank of New York, as Trustee, dated as
of January 27, 1998 (Filed as Exhibit 4.3 to TE Products Pipeline
Company, Limited Partnerships Registration Statement on Form S-3
(Commission File No. 333-38473) and incorporated herein by
reference).                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.3     |  | Form of Certificate representing Class B Units (Filed as
Exhibit 4.3 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 1998 and incorporated
herein by reference).                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.4     |  | Form of Indenture between TEPPCO Partners, L.P., as issuer,
TE Products Pipeline Company, Limited Partnership, TCTM, L.P.,
TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering Company, as
subsidiary guarantors, and First Union National Bank, NA, as
trustee, dated as of February 20, 2002 (Filed as Exhibit 99.2 to
Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of February 20, 2002 and incorporated herein by reference).                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.5     |  | First Supplemental Indenture between TEPPCO Partners, L.P.,
as issuer, TE Products Pipeline Company, Limited Partnership, TCTM,
L.P., TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering
Company, as subsidiary guarantors, and First Union National Bank,
NA, as trustee, dated as of February 20, 2002 (Filed as Exhibit 99.3
to Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of February 20, 2002 and incorporated herein by reference).                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.6     |  | Second Supplemental Indenture, dated as of June 27, 2002,
among TEPPCO Partners, L.P., as issuer, TE Products Pipeline
Company, Limited Partnership, TCTM, L.P., TEPPCO Midstream
Companies, L.P., and Jonah Gas Gathering Company, as Initial
Subsidiary Guarantors, and Val Verde Gas Gathering Company, L.P., as
New Subsidiary Guarantor, and Wachovia Bank, National Association,
formerly known as First Union National Bank, as trustee (Filed as
Exhibit 4.6 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended June 30, 2002 and incorporated
herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.7     |  | Third Supplemental Indenture among TEPPCO Partners, L.P. as
issuer, TE Products Pipeline Company, Limited Partnership, TCTM,
L.P., TEPPCO Midstream Companies, L.P., Jonah Gas Gathering Company
and Val Verde Gas Gathering Company, L.P. as Subsidiary Guarantors,
and Wachovia Bank, National Association, as trustee, dated as of
January 30, 2003 (Filed as Exhibit 4.7 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the year ended
December 31, 2002 and incorporated herein by reference).                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.1+   |  | Duke Energy Corporation Executive Savings Plan (Filed as
Exhibit 10.7 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 1999 and incorporated
herein by reference).                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.2+   |  | Duke Energy Corporation Executive Cash Balance Plan (Filed
as Exhibit 10.8 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 1999 and
incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.3+   |  | Duke Energy Corporation Retirement Benefit Equalization Plan
(Filed as Exhibit 10.9 to Form 10-K for TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 1999
and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.4+   |  | Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan executed on March 8, 1994 (Filed as Exhibit 10.1 to
Form 10-Q of TEPPCO Partners, L.P.                                                                                                                                                                                                                                                                                                                                                                                                                                                       





---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | (Commission File No. 1-10403) for
the quarter ended March 31, 1994 and incorporated herein by
reference).                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.5+   |  | Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan, Amendment 1, effective January 16, 1995 (Filed as
Exhibit 10.12 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended June 30, 1999 and incorporated
herein by reference).                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.6    |  | Asset Purchase Agreement between Duke Energy Field Services,
Inc. and TEPPCO Colorado, LLC, dated March 31, 1998 (Filed as
Exhibit 10.14 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1998 and incorporated
herein by reference).                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.7    |  | Contribution Agreement between Duke Energy Transport and
Trading Company and TEPPCO Partners, L.P., dated October 15, 1998
(Filed as Exhibit 10.16 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 1998
and incorporated herein by reference).                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.8    |  | Guaranty Agreement by Duke Energy Natural Gas Corporation for
the benefit of TEPPCO Partners, L.P., dated November 30, 1998,
effective November 1, 1998 (Filed as Exhibit 10.17 to Form 10-K of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 1998 and incorporated herein by reference).                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.9+   |  | Form of Employment Agreement between the Company and Thomas
R. Harper, Charles H. Leonard, James C. Ruth, John N. Goodpasture,
Leonard W. Mallett, Stephen W. Russell, David E. Owen, and Barbara
A. Carroll (Filed as Exhibit 10.20 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December 31,
1998 and incorporated herein by reference).               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.10   |  | Services and Transportation Agreement between TE Products
Pipeline Company, Limited Partnership and Fina Oil and Chemical
Company, BASF Corporation and BASF Fina Petrochemical Limited
Partnership, dated February 9, 1999 (Filed as Exhibit 10.22 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1999 and incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.11   |  | Call Option Agreement, dated February 9, 1999 (Filed as
Exhibit 10.23 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1999 and incorporated
herein by reference).                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.12+  |  | Texas Eastern Products Pipeline Company Retention Incentive
Compensation Plan, effective January 1, 1999 (Filed as Exhibit 10.24
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 1999 and incorporated herein by
reference).                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.13+  |  | Form of Employment and Non-Compete Agreement between the Company
and J. Michael Cockrell effective January 1, 1999 (Filed as Exhibit
10.29 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and incorporated
herein by reference).                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.14+  |  | Texas Eastern Products Pipeline Company Non-employee Directors
Unit Accumulation Plan, effective April 1, 1999 (Filed as Exhibit
10.30 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and incorporated
herein by reference).                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.15+  |  | Texas Eastern Products Pipeline Company Non-employee Directors
Deferred Compensation Plan, effective November 1, 1999 (Filed as
Exhibit 10.31 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended September 30, 1999 and
incorporated herein by reference).                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.16+  |  | Texas Eastern Products Pipeline Company Phantom Unit Retention
Plan, effective August 25, 1999 (Filed as Exhibit 10.32 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 1999 and incorporated herein by
reference).                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.17   |  | Amended and Restated Purchase Agreement By and Between
Atlantic Richfield Company and Texas Eastern Products Pipeline
Company With Respect to the Sale of                                                                                                                                                                                                                                          





---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  | ARCO Pipe Line Company, dated as
of May 10, 2000. (Filed as Exhibit 2.1 to Form 10-
Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended March 31, 2000 and incorporated herein by
reference).                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.18+  |  | Texas Eastern Products Pipeline Company, LLC 2000 Long Term
Incentive Plan, Amendment and Restatement, effective January 1, 2000
(Filed as Exhibit 10.28 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 2000
and incorporated herein by reference).                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.19+  |  | TEPPCO Supplemental Benefit Plan, effective April 1, 2000 (Filed
as Exhibit 10.29 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 2000 and
incorporated herein by reference).                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.20+  |  | Employment Agreement with Barry R. Pearl (Filed as Exhibit 10.30
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 2001 and incorporated herein by
reference).                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.21   |  | Amended and Restated Credit Agreement among TEPPCO Partners,
L.P. as Borrower, SunTrust Bank as Administrative Agent and LC
Issuing Bank, and Certain Lenders, dated as of April 6, 2001
($500,000,000 Revolving Facility) (Filed as Exhibit 10.31 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 2001 and incorporated herein by reference).                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.22   |  | Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders, dated as
of April 6, 2001 ($200,000,000 Revolving Facility) (Filed as Exhibit
10.32 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended March 31, 2001 and incorporated
herein by reference).                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.23   |  | Purchase and Sale Agreement By and Among Green River
Pipeline, LLC and McMurry Oil Company, Sellers, and TEPPCO Partners,
L.P., Buyer, dated as of September 7, 2000. (Filed as Exhibit 10.31
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended September 30, 2001 and incorporated herein by
reference).                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.24   |  | Amendment 1, dated as of September 28, 2001, to the Amended
and Restated Credit Agreement among TEPPCO Partners, L.P. as
Borrower, SunTrust Bank as Administrative Agent and LC Issuing Bank,
and Certain Lenders, dated as of April 6, 2001 ($500,000,000
Revolving Facility) (Filed as Exhibit 10.33 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 2001 and incorporated herein by reference).                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.25   |  | Amendment 1, dated as of September 28, 2001, to the Credit
Agreement among TEPPCO Partners, L.P. as Borrower, SunTrust Bank as
Administrative Agent, and Certain Lenders, dated as of April 6, 2001
($200,000,000 Revolving Facility) (Filed as Exhibit 10.34 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.26   |  | Amendment and Restatement, dated as of November 13, 2001, to
the Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders, dated as
of April 6, 2001 ($200,000,000 Revolving Facility) (Filed as Exhibit
10.35 to Form 10-K of TEPPCO Partners, L.P (Commission File No.
1-10403) for the year ended December 31, 2001 and incorporated
herein by reference).                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.27   |  | Second Amendment and Restatement, dated as of November 13,
2001, to the Amended and Restated Credit Agreement amount TEPPCO
Partners, L.P. as Borrower, SunTrust Bank as Administrative Agent
and LC Issuing Bank, and Certain Lenders, dated as of April 6, 2001
($500,000,000 Revolving Facility) (Filed as Exhibit 10.36 to Form
10-K of TEPPCO Partners, L.P (Commission File No. 1-10403) for the
year ended December 31, 2001 and incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.28   |  | Second Amended and Restated Agreement of Limited Partnership
of TE Products Pipeline Company, Limited Partnership, dated
September 21, 2001 (Filed as Exhibit 3.8                                                                                                                                                                                                                                                                                                         





---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |  | to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 2001 and incorporated herein by reference).                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.29   |  | Amended and Restated Agreement of Limited Partnership of
TCTM, L.P., dated September 21, 2001 (Filed as Exhibit 3.9 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.30   |  | Contribution, Assignment and Amendment Agreement among
TEPPCO Partners, L.P., TE Products Pipeline Company, Limited
Partnership, TCTM, L.P., Texas Eastern Products Pipeline Company,
LLC, and TEPPCO GP, Inc., dated July 26, 2001 (Filed as Exhibit 3.6
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended June 30, 2001 and incorporated herein by
reference).              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.31   |  | Certificate of Formation of TEPPCO Colorado, LLC (Filed as
Exhibit 3.2 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1998 and incorporated
herein by reference).                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.32   |  | Agreement of Limited Partnership of TEPPCO Midstream
Companies, L.P., dated September 24, 2001 (Filed as Exhibit 3.10 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended September 30, 2001 and incorporated herein by
reference).                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.33   |  | Agreement of Partnership of Jonah Gas Gathering Company
dated June 20, 1996 as amended by that certain Assignment of
Partnership Interests dated September 28, 2001 (Filed as Exhibit
10.40 to Form 10-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the year ended December 31, 2001 and incorporated
herein by reference).                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.34   |  | Unanimous Written Consent of the Board of Directors of
TEPPCO GP, Inc. dated February 13, 2002 (Filed as Exhibit 10.41 to
Form 10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the year ended December 31, 2001 and incorporated herein by
reference).                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.35   |  | Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent and Certain Lenders, as
Lenders dated as of March 28, 2002 ($200,000,000 Revolving Credit
Facility) (Filed as Exhibit 10.44 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the three months ended March
31, 2002 and incorporated herein by reference).                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.36   |  | Amended and Restated Credit Agreement among TEPPCO Partners,
L.P. as Borrower, SunTrust Bank, as Administrative Agent and LC
Issuing Bank and Certain Lenders, as Lenders dated as of March 28,
2002 ($500,000,000 Revolving Facility) (Filed as Exhibit 10.45 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the three months ended March 31, 2002 and incorporated herein by
reference).   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.37   |  | Purchase and Sale Agreement between Burlington Resources
Gathering Inc. as Seller and TEPPCO Partners, L.P., as Buyer, dated
May 24, 2002 (Filed as Exhibit 99.1 to Form 8-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) dated as of July 2, 2002 and
incorporated herein by reference).                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.38   |  | Credit Agreement among TEPPCO Partners, L.P., as Borrower,
SunTrust Bank, as Administrative Agent and Certain Lenders, as
Lenders dated as of June 27, 2002 ($200,000,000 Term Facility)
(Filed as Exhibit 99.2 to Form 8-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) dated as of July 2, 2002 and
incorporated herein by reference).                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.39   |  | Amendment, dated as of June 27, 2002 to the Amended and
Restated Credit Agreement among TEPPCO Partners, L.P., as Borrower,
SunTrust Bank, as Administrative Agent, and Certain Lenders, dated
as of March 28, 2002 ($500,000,000 Revolving Credit Facility) (Filed
as Exhibit 99.3 to Form 8-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) dated as of July 2, 2002 and incorporated herein
by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.40   |  | Amendment 1, dated as of June 27, 2002 to the Credit
Agreement among TEPPCO Partners, L.P., as Borrower, SunTrust Bank,
as Administrative Agent and Certain Lenders, dated as of March 28,
2002 ($200,000,000 Revolving Credit Facility) (Filed as                                                                                                                                                                    





---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  | Exhibit 99.4
to Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of July 2, 2002 and incorporated herein by reference).                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.41   |  | Agreement of Limited Partnership of Val Verde Gas Gathering
Company, L.P., dated May 29, 2002 (Filed as Exhibit 10.48 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended June 30, 2002 and incorporated herein by reference).                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.42+  |  | Texas Eastern Products Pipeline Company, LLC 2002 Phantom Unit
Retention Plan, effective June 1, 2002 (Filed as Exhibit 10.43 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended June 30, 2002 and incorporated herein by
reference).                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.43+  |  | Amended and Restated TEPPCO Supplemental Benefit Plan, effective
November 1, 2002 (Filed as Exhibit 10.44 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the year ended
December 31, 2002 and incorporated herein by reference).                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.44+  |  | Texas Eastern Products Pipeline Company, LLC 2000 Long Term
Incentive Plan, Second Amendment and Restatement, effective January
1, 2003 (Filed as Exhibit 10.45 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December 31,
2002 and incorporated herein by reference).                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.45+  |  | Amended and Restated Texas Eastern Products Pipeline Company, LLC
Management Incentive Compensation Plan, effective January 1, 2003
(Filed as Exhibit 10.46 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 2002
and incorporated herein by reference).                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.46+  |  | Amended and Restated TEPPCO Retirement Cash Balance Plan,
effective January 1, 2002 (Filed as Exhibit 10.47 to Form 10-K of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 2002 and incorporated herein by reference).                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.47   |  | Formation Agreement between Panhandle Eastern Pipe Line
Company and Marathon Ashland Petroleum LLC and TE Products Pipeline
Company, Limited Partnership, dated as of August 10, 2000 (Filed as
Exhibit 10.48 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 2002 and incorporated
herein by reference).                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.48   |  | Amended and Restated Limited Liability Company Agreement of
Centennial Pipeline LLC dated as of August 10, 2000 (Filed as
Exhibit 10.49 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 2002 and incorporated
herein by reference).                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.49   |  | Guaranty Agreement, dated as of September 27, 2002, between
TE Products Pipeline Company, Limited Partnership and Marathon
Ashland Petroleum LLC for Note Agreements of Centennial Pipeline LLC
(Filed as Exhibit 10.50 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 2002
and incorporated herein by reference).                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.50   |  | LLC Membership Interest Purchase Agreement By and Between
CMS Panhandle Holdings, LLC, As Seller and Marathon Ashland
Petroleum LLC and TE Products Pipeline Company, Limited Partnership,
Severally as Buyers, dated February 10, 2003 (Filed as Exhibit 10.51
to Form 10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the year ended December 31, 2002 and incorporated herein by
reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.51   |  | Joint Development Agreement between TE Products Pipeline
Company, Limited Partnership and Louis Dreyfus Plastics Corporation
dated February 10, 2000 (Filed as Exhibit 10.52 to Form 10-Q of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the quarter
ended March 31, 2003 and incorporated herein by reference).                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|10.52*  |  | Credit Agreement among TEPPCO Partners, L.P. as Borrower, SunTrust
Bank as Administrative Agent and LC Issuing Bank and The Lenders
Party Hereto, as Lenders, dated as of June 27, 2003 ($550,000,000
Revolving Facility).                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                
|12.1*   |  | Statement of Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                                                                                





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##### 



|        |  |                                                                                                                                                                                                    
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                    
|Number  |  | Description                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                    
|21      |  | Subsidiaries of the Partnership (Filed as Exhibit 21 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended June 30, 2002 and incorporated herein by reference).
|        |  |                                                                                                                                                                                                    
|31.1*   |  | Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.                                                                                                
|        |  |                                                                                                                                                                                                    
|31.2*   |  | Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.                                                                                                
|        |  |                                                                                                                                                                                                    
|32.1*   |  | Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.                                                                                                
|        |  |                                                                                                                                                                                                    
|32.2*   |  | Certification of Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.                                                                                                



---



|* |  | Filed herewith.                                           
|- |  | ----------------------------------------------------------
| 
|+ |  | A management contract or compensation plan or arrangement.