<PAGE>

                      UNITED STATES SECURITIES AND EXCHANGE
                                   COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

      [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934
            For the quarterly period ended JUNE 30, 2004

      [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934
            For the transition period from _______ to ________.

                         Commission File Number 1-12202
                         NORTHERN BORDER PARTNERS, L.P.
             (Exact name of registrant as specified in its charter)

            Delaware                                    93-1120873
 ----------------------------------         ----------------------------------
 (State or other jurisdiction of            (I.R.S. Employer Identification
 incorporation or organization)                         Number)

       13710 FNB Parkway
        Omaha, Nebraska                               68154-5200
------------------------------------        ----------------------------------
(Address of principal executive                      (Zip code)
           offices)

                                 (402) 492-7300
               --------------------------------------------------
              (Registrant's telephone number, including area code)

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

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

      The number of common units outstanding as of August 1, 2004 was
46,397,214.

                                     1 OF 35

<PAGE>

                NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                    Page No.
                                                                                    --------
<S>                                                                                 <C>
PART I.  FINANCIAL INFORMATION

    ITEM 1. Financial Statements

         Consolidated Statement of Income -
            Three Months Ended June 30, 2004 and 2003
            and Six Months Ended June 30, 2004 and 2003                                 3
         Consolidated Statement of Comprehensive Income -
            Three Months Ended June 30, 2004 and 2003
            and Six Months Ended June 30, 2004 and 2003                                 4
         Consolidated Balance Sheet -
            June 30, 2004 and December 31, 2003                                         5
         Consolidated Statement of Cash Flows -
            Six Months Ended June 30, 2004 and 2003                                     6
         Consolidated Statement of Changes in Partners'
            Equity - Six Months Ended June 30, 2004                                     7
         Notes to Consolidated Financial Statements                                     8

    ITEM 2. Management's Discussion and Analysis of
            Financial Condition and Results of Operations                              14

    ITEM 3. Quantitative and Qualitative Disclosures About
            Market Risk                                                                31

    ITEM 4. Controls and Procedures                                                    32

PART II. OTHER INFORMATION

    ITEM 1. Legal Proceedings                                                          33

    ITEM 5. Other Information                                                          33

    ITEM 6. Exhibits and Reports on Form 8-K                                           33
</TABLE>

                                                  2
<PAGE>

                          PART I. FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENT OF INCOME
                     (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED        SIX MONTHS ENDED
                                                     JUNE 30,                 JUNE 30,
                                              ----------------------    ----------------------
                                                2004         2003         2004         2003
                                              --------     ---------    ---------    ---------
<S>                                           <C>          <C>          <C>          <C>
OPERATING REVENUES                            $ 143,210    $ 134,362    $ 288,351    $ 272,537
                                              ---------    ---------    ---------    ---------
OPERATING EXPENSES
  Product purchases                              23,468       19,211       44,881       40,331
  Operations and maintenance                     29,370       29,966       58,894       58,433
  Depreciation and amortization                  21,423       19,551       43,036       39,537
  Taxes other than income                         8,099        8,730       17,796       18,295
                                              ---------    ---------    ---------    ---------
    Operating expenses                           82,360       77,458      164,607      156,596
                                              ---------    ---------    ---------    ---------
OPERATING INCOME                                 60,850       56,904      123,744      115,941
                                              ---------    ---------    ---------    ---------
INTEREST EXPENSE                                 18,534       20,498       37,102       41,008
                                              ---------    ---------    ---------    ---------
OTHER INCOME (EXPENSE)
  Equity earnings in
    unconsolidated affiliates                     3,602        4,296        9,965       11,923
  Other income                                    1,577          692        2,102        1,395
  Other expense                                    (475)        (263)        (611)      (1,003)
                                              ---------    ---------    ---------    ---------
    Other income, net                             4,704        4,725       11,456       12,315
                                              ---------    ---------    ---------    ---------
MINORITY INTERESTS IN NET INCOME                 12,389       11,285       24,916       22,305
                                              ---------    ---------    ---------    ---------
INCOME FROM CONTINUING OPERATIONS
  BEFORE INCOME TAXES                            34,631       29,846       73,182       64,943

INCOME TAXES                                      1,366        2,178        3,302        4,031
                                              ---------    ---------    ---------    ---------
INCOME FROM CONTINUING OPERATIONS                33,265       27,668       69,880       60,912

DISCONTINUED OPERATIONS, NET OF TAX                  --        4,445           --        4,476

CUMULATIVE EFFECT OF CHANGE IN
  ACCOUNTING PRINCIPLE, NET OF TAX                   --           --           --         (643)
                                              ---------    ---------    ---------    ---------

NET INCOME TO PARTNERS                        $  33,265    $  32,113    $  69,880    $  64,745
                                              =========    =========    =========    =========
CALCULATION OF LIMITED PARTNERS'
  INTEREST IN NET INCOME:
    Net income to partners                    $  33,265    $  32,113    $  69,880    $  64,745
    Less: general partners' interest
      in net income                               2,655        2,522        5,377        5,053
                                              ---------    ---------    ---------    ---------
    Limited partners' interest in
      net income                              $  30,610    $  29,591    $  64,503    $  59,692
                                              =========    =========    =========    =========

LIMITED PARTNERS' PER UNIT NET INCOME:
    Income from continuing operations         $    0.66    $    0.56    $    1.39    $    1.26
    Discontinued operations, net of tax              --         0.10           --         0.10
    Cumulative effect of change in
      accounting principle, net of tax               --           --           --        (0.01)
                                              ---------    ---------    ---------    ---------

NET INCOME PER UNIT                           $    0.66    $    0.66    $    1.39    $    1.35
                                              =========    =========    =========    =========

NUMBER OF UNITS USED IN COMPUTATION              46,397       44,875       46,397       44,342
                                              =========    =========    =========    =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                        3
<PAGE>

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED          SIX MONTHS ENDED
                                                JUNE 30,                    JUNE 30,
                                         ----------------------      ----------------------
                                          2004           2003          2004          2003
                                         --------      --------      --------      --------
<S>                                      <C>           <C>           <C>           <C>
Net income to partners                   $ 33,265      $ 32,113      $ 69,880      $ 64,745
Other comprehensive income:
      Change associated with current
        period hedging transactions           711        (2,841)        1,190        (5,225)
      Change associated with
           current period foreign
           currency translation              (433)       (1,671)         (733)        1,800
                                         --------      --------      --------      --------

Total comprehensive income               $ 33,543      $ 27,601      $ 70,337      $ 61,320
                                         ========      ========      ========      ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                        4
<PAGE>

                    PART I. FINANCIAL INFORMATION (CONTINUED)

                    ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                       JUNE 30,     DECEMBER 31,
                                                         2004           2003
                                                      ----------    -----------
<S>                                                   <C>           <C>
ASSETS
CURRENT ASSETS
      Cash and cash equivalents                       $   39,719     $   35,895
      Accounts receivable                                 67,461         61,503
      Materials and supplies, at cost                      6,813          7,826
      Prepaid expenses                                     3,875          6,726
      Other                                                1,858          2,245
                                                      ----------     ----------

           Total current assets                          119,726        114,195
                                                      ----------     ----------

PROPERTY, PLANT AND EQUIPMENT
      Property, plant and equipment                    2,923,783      2,912,055
      Less: Accumulated provision for
           depreciation and amortization                 961,106        919,951
                                                      ----------     ----------

           Property, plant and equipment, net          1,962,677      1,992,104
                                                      ----------     ----------

INVESTMENTS AND OTHER ASSETS
      Investment in unconsolidated affiliates            269,754        268,166
      Goodwill                                           152,782        152,782
      Derivative financial instruments                    11,030         19,553
      Other                                               23,656         23,783
                                                      ----------     ----------
           Total investments and other assets            457,222        464,284
                                                      ----------     ----------
           Total assets                               $2,539,625     $2,570,583
                                                      ==========     ==========

LIABILITIES AND PARTNERS' EQUITY

CURRENT LIABILITIES
      Current maturities of long-term debt            $    7,848     $    7,740
      Accounts payable                                    55,750         46,532
      Accrued taxes other than income                     28,558         33,708
      Accrued interest                                    13,034         13,206
      Derivative financial instruments                     4,224          5,736
                                                      ----------     ----------

           Total current liabilities                     109,414        106,922
                                                      ----------     ----------

LONG-TERM DEBT, NET OF CURRENT MATURITIES              1,351,608      1,408,246
                                                      ----------     ----------

MINORITY INTERESTS IN PARTNERS' EQUITY                   273,088        240,731
                                                      ----------     ----------

RESERVES AND DEFERRED CREDITS
      Deferred income taxes                                4,892          2,898
      Derivative financial instruments                     1,379             --
      Other                                                8,146         11,213
                                                      ----------     ----------

           Total reserves and deferred credits            14,417         14,111
                                                      ----------     ----------

COMMITMENTS AND CONTINGENCIES (Note 5)

PARTNERS' EQUITY
      General partners                                    15,703         15,902
      Common units (46,397,214 units issued and
           outstanding at June 30, 2004
           and December 31, 2003)                        769,462        779,195
      Accumulated other comprehensive income               5,933          5,476
                                                      ----------     ----------

           Total partners' equity                        791,098        800,573
                                                      ----------     ----------

           Total liabilities and partners' equity     $2,539,625     $2,570,583
                                                      ==========     ==========
</TABLE>

      The accompanying notes are an integral part of these consolidated
financial statements.

                                        5
<PAGE>

                    PART I. FINANCIAL INFORMATION (CONTINUED)

                    ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         SIX MONTHS ENDED
                                                                             JUNE 30,
                                                                     ------------------------
                                                                       2004           2003
                                                                     ---------      ---------
<S>                                                                  <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income to partners                                         $  69,880      $  64,745
                                                                     ---------      ---------
      Adjustments to reconcile net income to partners
       to net cash provided by operating activities:
           Depreciation and amortization                                43,219         40,391
           Minority interests in net income                             24,916         22,305
           Provision for regulatory refunds                                 --            261
           Regulatory refunds paid                                          --        (10,261)
           Other reserves and deferred credits                          (3,067)         2,089
           Cumulative effect of change in accounting principle              --            643
           Equity earnings in unconsolidated affiliates                 (9,965)       (12,032)
           Distributions received from unconsolidated affiliates         8,929         12,303
           Changes in components of working capital,
                 net of the effect of the acquired businesses             (608)       (20,774)
           Non-cash losses (gains) from
                 risk management activities                                256           (103)
           Gain on sale of gathering and processing assets                  --         (4,872)
           Other                                                        (3,746)           483
                                                                     ---------      ---------

                      Total adjustments                                 59,934         30,433
                                                                     ---------      ---------

           Net cash provided by operating activities                   129,814         95,178
                                                                     ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Investment in unconsolidated affiliates                               --         (3,068)
      Acquisitions of businesses                                            --       (119,137)
      Sale of gathering and processing assets                              512         40,250
      Capital expenditures for property, plant
           and equipment                                                (9,531)        (9,502)
                                                                     ---------      ---------

           Net cash used in investing activities                        (9,019)       (91,457)
                                                                     ---------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Cash distributions to Unitholders and
           General Partners                                            (79,812)       (75,361)
      Distributions to Minority Interests                              (31,318)       (22,262)
      Contributions from Minority Interests                             39,000             --
      Issuance of partnership interests, net                                --        102,407
      Issuance of long-term debt                                        90,000        183,000
      Retirement of long-term debt                                    (134,841)      (194,341)
      Proceeds upon termination of derivatives                              --         12,250
                                                                     ---------      ---------

           Net cash provided by (used in)
                 financing activities                                 (116,971)         5,693
                                                                     ---------      ---------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                  3,824          9,414

Cash and cash equivalents-beginning of period                           35,895         34,689
                                                                     ---------      ---------
Cash and cash equivalents-end of period                              $  39,719      $  44,103
                                                                     =========      =========

Supplemental Disclosures of Cash Flow Information:
      Cash paid for:
           Interest (net of amount capitalized)                      $  39,642      $  44,195
                                                                     =========      =========

      Changes in components of working capital:
           Accounts receivable                                       $  (1,065)     $  (3,293)
           Materials and supplies, prepaid expenses and other            3,539          1,473
           Accounts payable                                              2,240        (13,724)
           Accrued taxes other than income                              (5,150)        (4,059)
           Accrued interest                                               (172)        (1,171)
                                                                     ---------      ---------

                      Total                                          $    (608)     $ (20,774)
                                                                     =========      =========
</TABLE>

      The accompanying notes are an integral part of these consolidated
financial statements.

                                        6
<PAGE>

                    PART I. FINANCIAL INFORMATION (CONTINUED)

                    ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
              CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                           ACCUMULATED
                                                                              OTHER           TOTAL
                                          GENERAL           COMMON        COMPREHENSIVE      PARTNERS'
                                          PARTNERS           UNITS           INCOME           EQUITY
                                          --------         ---------      -------------      ---------
<S>                                       <C>              <C>            <C>                <C>
Balance at December 31, 2003              $ 15,902         $ 779,195         $ 5,476         $ 800,573

Net income to partners                       5,377            64,503              --            69,880

Change associated with current
  period hedging transactions                   --                --           1,190             1,190

Change associated with current
  period foreign currency translation           --                --            (733)             (733)

Distributions to partners                   (5,576)          (74,236)             --           (79,812)
                                          --------         ---------         -------         ---------

Balance at June 30, 2004                  $ 15,703         $ 769,462         $ 5,933         $ 791,098
                                          ========         =========         =======         =========
</TABLE>

      The accompanying notes are an integral part of these consolidated
financial statements.

                                        7
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

      The consolidated financial statements included herein have been prepared
by Northern Border Partners, L.P. (the "Partnership") without audit pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, they reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial results for the
interim periods. Certain information and notes normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America ("GAAP") have been condensed or omitted pursuant
to such rules and regulations. However, the Partnership believes that the
disclosures are adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 2003.

      The preparation of financial statements in conformity with GAAP requires
management to make assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

      The Partnership owns a 70% general partner interest in Northern Border
Pipeline Company. Crestone Energy Ventures, L.L.C.; Bear Paw Energy, L.L.C.;
Border Midstream Services, Ltd.; Midwestern Gas Transmission Company; Viking Gas
Transmission Company; and Black Mesa Pipeline, Inc. are wholly owned
subsidiaries of the Partnership. The Partnership also owns a 49% common
membership interest and a 100% preferred A share interest in Bighorn Gas
Gathering, L.L.C.; a 33% interest in Fort Union Gas Gathering, L.L.C.; a 35%
interest in Lost Creek Gathering, L.L.C.; a 36% interest in the Gregg Lake/Obed
Pipeline; and a 33% interest in Guardian Pipeline L.L.C.

2. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

      The Partnership uses financial instruments in the management of its
interest rate and commodity price exposure. A control environment has been
established which includes policies and procedures for risk assessment and the
approval, reporting and monitoring of financial instrument activities.

      The Partnership records in accumulated other comprehensive income amounts
related to terminated interest rate swap agreements for cash flow hedges with
such amounts amortized to interest expense over the term of the hedged debt.
During the three months and six months ended June 30, 2004, the Partnership
amortized approximately $0.6 million and $1.1 million, respectively, related to
the terminated interest rate swap agreements, as a reduction to interest expense
from accumulated other comprehensive income and expects to amortize comparable
amounts in each of the remaining quarters of 2004.

                                       8
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Northern Border Pipeline has outstanding interest rate swap agreements
with notional amounts totaling $225 million that expire in May 2007. Under the
interest rate swap agreements, Northern Border Pipeline makes payments to
counterparties at variable rates based on the London Interbank Offered Rate and
in return receives payments based on a 6.25% fixed rate. At June 30, 2004, the
average effective interest rate on Northern Border Pipeline's interest rate swap
agreements was 2.46%.

      The Partnership has outstanding interest rate swap agreements with
notional amounts totaling $150 million that expire in March 2011. Under the
interest rate swap agreements, the Partnership makes payments to counterparties
at variable rates based on the London Interbank Offered Rate and in return
receives payments based on a 7.10% fixed rate. At June 30, 2004, the average
effective interest rate on the Partnership's interest rate swap agreements was
3.70%.

      Both the Partnership's and Northern Border Pipeline's interest rate swap
agreements have been designated as fair value hedges as they were entered into
to hedge the fluctuations in the market value of the senior notes issued by the
Partnership in 2001 and by Northern Border Pipeline in 2002. The accompanying
consolidated balance sheet at June 30, 2004, reflects derivative financial
instrument assets of approximately $11.0 million and derivative financial
instrument liabilities of $1.4 million with a corresponding $9.6 million
increase in long-term debt related to the Partnership's and Northern Border
Pipeline's fair value hedges.

      The Partnership records in long-term debt amounts received or paid related
to terminated or amended interest rate swap agreements for fair value hedges
with such amounts amortized to interest expense over the remaining life of the
interest rate swap agreement. The Partnership amortized approximately $0.8
million and $1.7 million as a reduction to interest expense in the three months
and six months ended June 30, 2004, respectively, and expects to amortize
comparable amounts in each of the remaining quarters of 2004.

      Bear Paw Energy periodically enters into commodity derivatives contracts
and fixed-price physical contracts. Bear Paw Energy primarily utilizes price
swaps and collars, which have been designated as cash flow hedges, to hedge its
exposure to gas and natural gas liquid price volatility. During the three months
and six months ended June 30, 2004, Bear Paw Energy recognized losses of $2.1
million and $3.4 million, respectively, from the settlement of derivative
contracts. Bear Paw Energy also recognized a loss of $0.4 million for
ineffective hedges during the three and six months ended June 30, 2004, which is
included in operating revenues. At June 30, 2004, Bear Paw Energy reflected a
non-cash loss of approximately $4.2 million in derivative financial instruments
with a corresponding reduction of $3.6 million in accumulated other
comprehensive income. For the remaining quarters in 2004, if prices remain at
current levels, Bear Paw Energy expects to reclassify approximately $3.6 million
from accumulated other comprehensive income as a reduction to operating
revenues. However, this reduction would be offset with increased operating
revenues due to the higher prices assumed.

                                        9
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. BUSINESS SEGMENT INFORMATION

      The Partnership's business is divided into three reportable segments,
defined as components of the enterprise about which financial information is
available and evaluated regularly by the Partnership's executive management and
the Partnership Policy Committee in deciding how to allocate resources to an
individual segment and in assessing performance of the segment.

      The Partnership's reportable segments are strategic business units that
offer different services. Each are managed separately because each business
requires different marketing strategies. The Partnership evaluates performance
based on EBITDA, earnings before interest, taxes, depreciation and amortization
less the allowance for equity funds used during construction ("AFUDC").
Management uses EBITDA to compare the financial performance of its segments and
to internally manage those business segments and believes that EBITDA is a good
indicator of each segment's performance. EBITDA should not be considered an
alternative to, or more meaningful than, net income or cash flow as determined
in accordance with GAAP. EBITDA calculations may vary from company to company,
so the Partnership's computation of EBITDA may not be comparable to a similarly
titled measure of another company. The following table shows how EBITDA is
calculated:

      RECONCILIATION OF NET INCOME (LOSS) TO EBITDA
<TABLE>
<CAPTION>
                                             Natural
                             Interstate       Gas
                              Natural       Gathering
                                Gas            and           Coal
 (In thousands)              Pipelines      Processing      Slurry        Other(a)       Total
                             -----------    ----------      ------        --------      -------
<S>                          <C>            <C>             <C>           <C>           <C>
 THREE MONTHS ENDED
   JUNE 30, 2004

 Net income (loss)            $33,195        $ 8,242        $  865        ($9,037)      $33,265
 Minority interest             12,389             --            --             --        12,389
 Interest expense, net         10,562            108             2          7,862        18,534
 Depreciation and
  amortization                 16,807          3,850           858             --        21,515
 Income tax                     1,090            113           163             --         1,366
 AFUDC                            (13)            --            --             --           (13)
                              -------        -------        ------        -------       -------

 EBITDA                       $74,030        $12,313        $1,888        ($1,175)      $87,056
                              =======        =======        ======        =======       =======

 THREE MONTHS ENDED
   JUNE 30, 2003

 Net income (loss)            $29,504        $ 6,936        $  761        ($5,088)      $32,113
 Minority interest             11,285             --            --             --        11,285
 Interest expense, net         12,368            155             8          7,967        20,498
 Depreciation and
  amortization                 16,106          3,125           411            361        20,003
 Income tax                     1,910             --           267           (661)        1,516
 AFUDC                            (55)            --            --             --           (55)
                              -------        -------        ------         ------       -------

 EBITDA                       $71,118        $10,216        $1,447         $2,579       $85,360
                              =======        =======        ======         ======       =======
</TABLE>

                                       10
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RECONCILIATION OF NET INCOME (LOSS) TO EBITDA

<TABLE>
<CAPTION>
                                                Natural
                                Interstate        Gas
                                 Natural       Gathering
                                   Gas            and             Coal
(In thousands)                  Pipelines      Processing        Slurry          Other(a)          Total
                                --------       ----------        -------         --------         --------
<S>                             <C>            <C>               <C>             <C>              <C>
SIX MONTHS ENDED
   JUNE 30, 2004

 Net income (loss)              $ 67,445         $19,631          $1,539         ($18,735)        $ 69,880
 Minority interest                24,916              --              --               --           24,916
 Interest expense, net            21,444             214              11           15,433           37,102
 Depreciation and
  amortization                    33,484           7,599           2,136               --           43,219
 Income tax                        2,637             493             172               --            3,302
 AFUDC                               (57)             --              --               --              (57)
                                --------         -------          ------         --------         --------

 EBITDA                         $149,869         $27,937          $3,858         ($ 3,302)        $178,362
                                ========         =======          ======         ========         ========

 SIX MONTHS ENDED
   JUNE 30, 2003

 Net income (loss)              $ 59,429         $19,131          $1,283         ($15,098)        $ 64,745
 Cumulative effect of
  change in accounting
  principle, net of tax               --              --             434              209              643
 Minority interest                22,305              --              --               --           22,305
 Interest expense, net            24,796             343              16           15,853           41,008
 Depreciation and
  amortization                    32,685           6,233             801              672           40,391
 Income tax                        3,513              --             517             (655)           3,375
 AFUDC                              (150)             --              --               --             (150)
                                --------         -------          ------         --------         --------

 EBITDA                         $142,578         $25,707          $3,051          $   981         $172,317
                                ========         =======          ======         ========         ========
</TABLE>

BUSINESS SEGMENT DATA

<TABLE>
<CAPTION>
                                               Natural
                               Interstate        Gas
                                Natural       Gathering
                                 Gas             and             Coal
(In thousands)                 Pipelines      Processing        Slurry          Other (a)         Total
--------------                 ---------      ----------        ------          ---------         -----
<S>                            <C>            <C>               <C>             <C>              <C>
THREE MONTHS ENDED
  JUNE 30, 2004

Revenues from
  external customers           $ 94,517         $43,319          $5,374         $     --         $143,210
Operating income (loss)          56,667           4,606           1,022           (1,445)          60,850

THREE MONTHS ENDED
  JUNE 30, 2003

Revenues from
  external customers           $ 93,055         $36,175          $5,132         $     --         $134,362
Operating income (loss)          54,353           3,274           1,040           (1,763)          56,904
</TABLE>

                                       11
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BUSINESS SEGMENT DATA

<TABLE>
<CAPTION>
                                                    Natural
                              Interstate              Gas
                                Natural            Gathering
                                  Gas                 and               Coal
 (In thousands)               Pipelines            Processing          Slurry       Other (a)        Total
 --------------               ---------            ----------          ------       ---------        -----
<S>                           <C>                  <C>                 <C>          <C>             <C>
 SIX MONTHS ENDED
   JUNE 30, 2004

 Revenues from
   external customers          $192,143             $85,428            $10,780       $    --        $288,351
 Operating income (loss)        115,241              10,549              1,716        (3,762)        123,744

 SIX MONTHS ENDED
  JUNE 30, 2003

 Revenues from
   external customers          $185,608             $76,409            $10,520       $    --        $272,537
 Operating income (loss)        108,693               8,423              2,266        (3,441)        115,941
</TABLE>

Total assets by segment are as follows:

<TABLE>
<CAPTION>
                                                      June 30,          December 31,
(In thousands)                                          2004               2003
--------------                                       ----------         ------------
<S>                                                  <C>                <C>
Interstate Natural Gas Pipelines                     $1,939,446          $1,970,807
Natural Gas Gathering and Processing                    564,298             565,465
Coal Slurry                                              20,524              21,319
Other (a)                                                15,357              12,992
                                                     ----------         -----------

Total Assets                                         $2,539,625          $2,570,583
                                                     ==========         ===========
</TABLE>

(a) Includes other items not allocable to segments.

4. NET INCOME PER UNIT

      Net income per unit is computed by dividing net income, after deduction of
the general partners' allocation, by the weighted average number of outstanding
common units. The general partners' allocation is equal to an amount based upon
their collective 2% general partner interest adjusted for incentive
distributions. The distribution to partners amount shown on the accompanying
consolidated statement of changes in partners' equity includes incentive
distributions to the general partners of approximately $4.0 million.

      On July 20, 2004, the Partnership declared a cash distribution of $0.80
per unit ($3.20 per unit on an annualized basis) for the quarter ended June 30,
2004. The distribution is payable on August 13, 2004, to unitholders of record
at July 30, 2004.

                                       12
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                   ITEM 1. FINANCIAL STATEMENTS - (CONCLUDED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. COMMITMENTS AND CONTINGENCIES

      On July 31, 2001, the Assiniboine and Sioux Tribes of the Fort Peck Indian
Reservation ("Tribes") filed a lawsuit in Tribal Court against Northern Border
Pipeline to collect more than $3 million in back taxes, together with interest
and penalties. The lawsuit relates to a utilities tax on certain of Northern
Border Pipeline's properties within the Fort Peck Indian Reservation. Since the
filing of the lawsuit, the Tribes have continued to assess annual utilities
taxes of approximately $1.8 million per year, which remain unpaid. Based upon
federal court decisions and other defenses, Northern Border Pipeline believes
that the Tribes do not have the authority to impose these taxes. The Tribes and
Northern Border Pipeline, through a mediation process, have held settlement
discussions and have reached a settlement in principle on pipeline right-of-way
lease and taxation issues, subject to final documentation and necessary
government approvals. This settlement grants to Northern Border Pipeline, among
other things: (i) an option to renew the pipeline right-of-way lease upon agreed
terms and conditions on or before April 1, 2011 for a term of 25 years with a
renewal right for an additional 25 years; (ii) a right to use additional tribal
lands for expanded facilities; and (iii) release and satisfaction of all tribal
taxes against Northern Border Pipeline. Upon execution by the parties and
approval by the Bureau of Indian Affairs, in consideration of this option and
other benefits, Northern Border Pipeline will pay a lump sum amount of $5.9
million and an annual amount of approximately $1.5 million effective April 2004
until April 2011. Northern Border Pipeline intends to seek regulatory recovery
of the costs resulting from the settlement. The Partnership believes that the
settlement should be executed in the very near future and will be presented to
the Bureau of Indian Affairs for approval. The Partnership is unable to predict
at this time if or when such approval will be obtained. The Partnership believes
that the outcome of this settlement will not have a material adverse impact on
the Partnership's results of operations for 2004 or financial position.

      Various legal actions that have arisen in the ordinary course of business
are pending. The Partnership believes that the resolution of these issues will
not have a material adverse impact on the Partnership's results of operations or
financial position.

6. ACCOUNTING PRONOUNCEMENTS

      In December 2003, the Financial Accounting Standards Board issued
Interpretation No. ("FIN") 46 (revised December 2003), "Consolidation of
Variable Interest Entities," which addresses how a business enterprise should
evaluate whether it has a controlling financial interest in an entity through
means other than voting rights and accordingly should consolidate the entity;
such entities are known as variable interest entities. The Partnership adopted
FIN 46 as of January 1, 2004. In connection with the adoption of FIN 46, the
Partnership evaluated its investments in Bighorn Gas Gathering, Fort Union Gas
Gathering, Lost Creek Gathering and Guardian Pipeline and determined that these
entities are appropriately accounted for as equity method investments. The
adoption of FIN 46 did not have an effect on the Partnership's financial
position, results of operations or cash flows.

                                       13
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

      Management's discussion and analysis of financial condition and results of
operations is based on the Consolidated Financial Statements of Northern Border
Partners, L.P. (the "Partnership"). The Consolidated Financial Statements are
prepared in accordance with accounting principles generally accepted in the
United States of America. You should read the following discussion and analysis
in conjunction with the Consolidated Financial Statements included elsewhere in
this report.

OVERVIEW

The Partnership's businesses fall into three major business segments:

      -     the interstate natural gas pipeline segment, which comprises
            approximately 77% of the Partnership's assets;

      -     the natural gas gathering and processing segment, which comprises
            approximately 22% of the Partnership's assets; and

      -     the coal slurry pipeline, which comprises approximately 1% of the
            Partnership's assets.

      There are several major business drivers that have an impact on the
Partnership's business. These factors are discussed in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Overview" in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 2003.

Interstate Natural Gas Pipelines

      The interstate natural gas pipelines segment includes the operations of
Northern Border Pipeline Company, Midwestern Gas Transmission Company, Viking
Gas Transmission Company and a one-third interest in Guardian Pipeline, L.L.C.

      Firm transportation contracts representing approximately 30% of Northern
Border Pipeline's contracted capacity, or 778 million cubic feet per day
("MMcf/d"), expire late in 2004. By the end of the second quarter, Northern
Border Pipeline successfully extended contracts for approximately 18% of that
capacity with existing shippers at maximum transportation rates for terms of at
least one year. The remaining 637 MMcf/d of the 2004 expiring capacity is
currently available for recontracting. Also, there will be an additional 126
MMcf/d available for recontracting in April 2005.

      Northern Border Pipeline's objective is to recontract the remaining
pipeline capacity at maximum transportation rates. Because the current forward
basis differentials are currently less than its maximum transportation rate,
Northern Border Pipeline may be selling a significant portion of this capacity
on a short-term basis. Also, Northern Border Pipeline may be awarding contracts
to shippers who bid at maximum transportation rates but for distances less than
the full transportation path.

      On July 14, 2004, Northern Border Pipeline announced an open season for a
proposed expansion from various receipt points along the pipeline system for
deliveries into the Chicago area. The project, with an estimated 130 MMcf/d of
capacity, would involve construction of a new compressor station and minor

                                       14
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

modifications to other compressor stations, and is estimated to cost
approximately $20 million. The projected in-service date would be April 1, 2006.
Northern Border Pipeline is presently evaluating the bids received.

      On Midwestern Gas Transmission, the Partnership is completing plans for
the Eastern Extension Project, which involves the construction of approximately
28 to 30 miles of pipeline, with a capacity of approximately 120 MMcf/d, in a
southeasterly direction from Portland, Tennessee with planned interconnects with
Columbia Gulf Transmission Company and East Tennessee Pipeline Company. The
project is supported by a precedent agreement with an investment grade local
distribution company for approximately 120 MMcf/d for a term of 15 years.
Pending the receipt of regulatory and other required approvals, the proposed
in-service date for the project is November 2006 and project costs are estimated
at approximately $22 million to $25 million.

      During the second quarter, Viking Gas Transmission extended contracts with
existing shippers for terms ranging from 3 to 5 years. These contracts account
for 49 MMcf/d of capacity on Viking and results in Viking being 100% contracted
until November 2005. Viking's challenge is the continued recontracting after
October 2005 at existing contract levels and transportation rates at the
Marshfield delivery point as a result of the Federal Energy Regulatory
Commission's ("FERC") approval of ANR Pipeline Company's North Leg Project,
which is expected to lessen ANR's pipeline system dependence on Marshfield. This
project could cause greater price competition between Canadian gas transported
on Viking to ANR versus other supply sources. ANR's project is scheduled to go
into service in 2005. Additionally, the Partnership expects other projects may
be proposed to further compete for these markets.

Natural Gas Gathering and Processing

      The natural gas gathering and processing segment includes the operations
of Bear Paw Energy, L.L.C. and Crestone Energy Ventures, L.L.C. in the United
States, as well as the operations of Border Midstream Services, Ltd., the
Partnership's Canadian company that owns an interest in a gathering business in
Alberta, Canada. In addition, the Partnership's equity interests in Bighorn Gas
Gathering, L.L.C., Fort Union Gas Gathering, L.L.C. and Lost Creek Gathering,
L.L.C. are included in this segment.

      In the Partnership's wholly-owned gathering assets in the Powder River
Basin, gathering volumes in the second quarter of 2004 have increased 5% over
volumes gathered in the first quarter 2004. For 2004, with the modest growth in
drilling activity and with the smaller declines in well production than
anticipated, the Partnership now expects the level of volumes gathered on its
wholly-owned assets for 2004 to remain flat or slightly lower than last year.
Efforts continue in the renegotiations of certain contracts to mitigate
volumetric risk and to reduce operation and maintenance expenses.
Redeployment of unused compression is continuing to be pursued but to date has
had minimal impact on financial results.

                                       15
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

      Crestone Energy Ventures holds a 49% common membership interest and a 100%
preferred "A" share interest in Bighorn Gas Gathering. Crestone Energy Ventures
is engaged in arbitration regarding the determination of 2001 system well
connections and corresponding Preferred "A" payments. The arbitration hearing
has been completed, with a decision expected in September 2004. The Partnership
does not expect the outcome of the arbitration to have a material adverse affect
on its 2004 financial results.

      As a result of strong drilling and development by Bear Paw Energy's
customers in the Williston Basin, Bear Paw Energy has selectively expanded its
facilities and expects moderate growth in this area. The 5 MMcf/d expansion of
the Marmarth plant has now been in full operation for this quarter. The project
enables the plant to produce a higher grade of product by controlling the
maximum ethane-propane mixture. Also, Bear Paw Energy has begun construction
activities to expand the northwest portion of its system to accommodate
additional volumes in the Bakken Oil Play. It is anticipated that an additional
3.5 MMcf/d will be processed by the Grasslands plant in the first quarter of
2005.

      Border Midstream Services owns an undivided minority interest in the Gregg
Lake/Obed Pipeline located in Alberta, Canada. Central Alberta Midstream is the
holder of the remaining undivided interest and the operator of the pipeline. In
July 2004, Border Midstream Services was informed by Central Alberta Midstream
that the payout based upon the original construction costs of the Gregg Lake
portion of the pipeline had occurred. As a result, Border Midstream Services now
receives 36% of the distributions, which is equal to its ownership interest in
the entire Gregg Lake/Obed Pipeline. Border Midstream Services had previously
received 63% of the cash distributions. This reduction in distributions is
approximately $0.5 million per quarter.

Coal Slurry Pipeline

      This segment includes Black Mesa Pipeline Company. As previously reported,
a new water source is one of several issues that must be resolved regarding the
future of the Mohave Generating Station and the Black Mesa pipeline. A
memorandum of understanding regarding the evaluation of a new water source has
been negotiated by the parties. A new water source has been identified and work
is underway to complete the necessary environmental and technical studies. The
California Public Utility Commission recently held hearings to discuss the
issues surrounding the future of the Mohave Generating Station and the Black
Mesa pipeline. Should the hearings result in a decision to move forward, it
appears likely that there will be a temporary shutdown of the Mohave Generating
Station and the Black Mesa pipeline from 2006-2009. The Partnership anticipates
that the capital expenditures for the Black Mesa refurbishment project will be
in the range of $175 million to $200 million. The Partnership expects that this
expenditure will be supported by revenues from a new transportation contract. If
efforts to resolve these issues are not successful and the Mohave Generating
Station is permanently closed, it would be necessary to shut down Black Mesa
Pipeline in 2006.

                                       16
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

      Certain amounts included in or affecting the Partnership's Consolidated
Financial Statements and related disclosures must be estimated, requiring it to
make certain assumptions with respect to values or conditions that cannot be
known with certainty at the time the financial statements are prepared. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Key estimates used by the Partnership's management include the economic useful
lives of its assets used to determine depreciation and amortization, the fair
values used to determine possible asset impairment charges, the fair values used
to record derivative assets and liabilities, expense accruals, and the fair
values of assets acquired. Any effects on the Partnership's business, financial
position or results of operations resulting from revisions to these estimates
are recorded in the period in which the facts that give rise to the revision
become known.

      The Partnership's significant accounting policies are summarized in Note 2
- Notes to Consolidated Financial Statements included in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 2003. Certain of the
Partnership's accounting policies are of more significance in its financial
statement preparation process than others.

      The interstate natural gas pipelines' accounting policies conform to
Statement of Financial Accounting Standards ("SFAS") No. 71, "Accounting for the
Effects of Certain Types of Regulation." Accordingly, certain assets that result
from the regulated ratemaking process are recorded that would not be recorded
under accounting principles generally accepted in the United States of America
for nonregulated entities. The Partnership continually assesses whether the
future recovery of the regulatory assets is probable by considering such factors
as regulatory changes and the impact of competition. If future recovery ceases
to be probable, the Partnership would be required to write-off the regulatory
assets at that time. At June 30, 2004, the Partnership has recorded regulatory
assets of $8.3 million, which are being recovered from the pipelines' shippers
over varying periods of time.

      The Partnership's long-lived assets are stated at original cost. The
Partnership must use estimates in determining the economic useful lives of those
assets. Useful lives are based on historical experience and are adjusted when
changes in planned use, technological advances or other factors show that a
different life would be more appropriate. The depreciation rate used for utility
property is an integral part of the interstate pipelines' FERC tariffs. Any
revisions to the estimated economic useful lives of the Partnership's assets
will change its depreciation and amortization expense prospectively. For utility
property, no retirement gain or loss is included in income except in the case of
retirements or sales of entire operating units. The original cost of utility
property retired is charged to accumulated depreciation and amortization, net of
salvage and cost of removal.

                                       17
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

      The Partnership reviews long-lived assets for impairment in accordance
with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of the carrying amount of assets is measured by a
comparison of the carrying amount of the asset to future net cash flows expected
to be generated by the asset. Estimates of future net cash flows include
anticipated future revenues, expected future operating costs and other
estimates. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets.

      The Partnership accounts for its goodwill in accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets." The Partnership has selected the fourth
quarter for the performance of its annual impairment testing.

      The Partnership's accounting for financial instruments is in accordance
with SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which requires that every derivative instrument be recorded on the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement. At June 30,
2004, the consolidated balance sheet included assets from derivative financial
instruments of $11.0 million and liabilities from derivative financial
instruments of $5.6 million.

      For the interstate natural gas pipelines, operating revenues are derived
from agreements for the receipt and delivery of gas at points along the pipeline
system as specified in each shipper's individual transportation contract.
Revenues are recognized based upon contracted capacity and actual volumes
transported under transportation service agreements. For the gas gathering and
processing businesses, operating revenue is recorded when gas is processed in or
transported through company facilities. For the coal slurry pipeline, operating
revenue is derived from a pipeline transportation agreement. Under the terms of
the agreement, the Partnership receives a monthly demand payment, a per ton
commodity payment and a reimbursement for certain other expenses.

RESULTS OF OPERATIONS

      The Partnership's income from continuing operations was $33.3 million in
the second quarter of 2004 or $0.66 per unit as compared to $27.7 million in
2003 or $0.56 per unit. The $5.6 million increase in 2004 over 2003 is primarily
due to a $3.7 million increase in income from the interstate natural gas
pipelines segment and a $1.3 million increase in income from the natural gas
gathering and processing segment. In June 2003, the Partnership sold its Gladys
and Mazeppa processing plants located in Alberta, Canada. The operating results
for these plants and their sale are classified as discontinued operations. The
Partnership's consolidated income statement reflects discontinued operations of
$4.4 million in the second quarter of 2003, which

                                       18
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

include an after-tax gain of $4.9 million on the sale of the Gladys and Mazeppa
processing plants.

      The Partnership's income from continuing operations was $69.9 million in
the six months ended June 30, 2004, or $1.39 per unit as compared to $60.9
million in 2003 or $1.26 per unit. The $9.0 million increase in 2004 over 2003
is primarily due to a $8.0 million increase in income from the interstate
natural gas pipelines segment. The Partnership's consolidated income statement
reflects discontinued operations of $4.5 million in the six months ended June
30, 2003, which include an after-tax gain of $4.9 million on the sale of the
Gladys and Mazeppa processing plants. The Partnership's consolidated income
statement also reflects a reduction to net income of $0.6 million for the six
months ended June 30, 2003, due to a cumulative effect of change in accounting
principle, which resulted from adopting SFAS No. 143, "Accounting for Asset
Retirement Obligations."

      The following table summarizes financial and other information by business
segment for the three and six months ended June 30, 2004 and 2003 (in
thousands):

<TABLE>
<CAPTION>
                                              Three Months Ended     Six Months Ended
                                                    June 30,             June 30,
                                              ------------------    -----------------
                                                2004       2003       2004      2003
                                              --------   --------   --------   -------
<S>                                           <C>        <C>        <C>        <C>
Operating revenues:
 Interstate Natural Gas Pipelines             $ 94,517   $ 93,055   $192,143   $185,608
 Natural Gas Gathering and Processing           43,319     36,175     85,428     76,409
 Coal Slurry                                     5,374      5,132     10,780     10,520
                                              --------   --------   --------   --------
   Total operating revenues                    143,210    134,362    288,351    272,537
                                              --------   --------   --------   --------
Operating income (loss):
 Interstate Natural Gas Pipelines               56,667     54,353    115,241    108,693
 Natural Gas Gathering and Processing            4,606      3,274     10,549      8,423
 Coal Slurry                                     1,022      1,040      1,716      2,266
 Other                                          (1,445)    (1,763)    (3,762)    (3,441)
                                              --------   --------   --------   --------
   Total operating income                       60,850     56,904    123,744    115,941
                                              --------   --------   --------   --------

Income (loss) from continuing operations:
 Interstate Natural Gas Pipelines               33,195     29,504     67,445     59,429
 Natural Gas Gathering and Processing            8,242      6,936     19,631     19,131
 Coal Slurry                                       865        761      1,539      1,717
 Other                                          (9,037)    (9,533)   (18,735)   (19,365)
                                              --------  --------     --------  --------

   Total income from
     continuing operations                      33,265     27,668     69,880     60,912
                                              --------  --------    --------   --------

Discontinued operations, net of tax                 --      4,445         --     4,476
Cumulative effect of change in
 accounting principle, net of tax                   --         --         --       (643)
                                              --------  --------    --------   --------

Net income                                    $ 33,265  $ 32,113    $ 69,880   $ 64,745
                                              ========  ========    ========   ========
</TABLE>
                                       19
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                        Three Months Ended             Six Months Ended
                                                             June 30,                      June 30,
                                                      ----------------------        ----------------------
                                                       2004            2003          2004           2003
                                                      -------        -------        -------        -------
<S>                                                   <C>            <C>            <C>            <C>
Operating data (1):
 Interstate Natural Gas Pipelines:
   Million cubic feet of gas delivered                272,763        275,716        575,578        555,889
   Average daily throughput (MMcf/d)                    3,065          3,101          3,237          3,205
 Natural Gas Gathering and Processing:
   Gathering (MMcf/d)                                   1,178          1,111          1,134          1,132
   Processing (MMcf/d)                                     56             52             53             51
 Coal Slurry:
   Thousands of tons of coal shipped                      975            728          2,129          1,857
</TABLE>

(1) Operating data includes 100% of the volumes for joint venture and equity
investments as well as for wholly owned subsidiaries.

      Below is a detailed analysis of the results of operations for each of the
Partnership's operating segments.

SECOND QUARTER 2004 COMPARED WITH SECOND QUARTER 2003

INTERSTATE NATURAL GAS PIPELINES

      The interstate natural gas pipelines segment reported income of $33.2
million in the second quarter of 2004 as compared to $29.5 million in the second
quarter of 2003. Income for the interstate natural gas pipeline segment reflects
a $2.6 million increase in Northern Border Pipeline's income and a $0.8 million
increase in Midwestern Gas Transmission's income. The increase in Northern
Border Pipeline's income was primarily due to a $0.9 million increase in
operating revenues, a $0.6 million decrease in operations and maintenance
expense and a $1.7 million decrease in interest expense (a combined $2.2 million
impact on continuing operations after minority interest). The increase in
Midwestern Gas Transmission's income was primarily due to a $0.4 million
increase in operating revenues.

      Operating revenues were $94.5 million in the second quarter of 2004 as
compared to $93.1 million in 2003. The increase in operating revenues in 2004
over 2003 resulted from a $0.9 million increase in Northern Border Pipeline's
revenues and a $0.4 million increase in Midwestern Gas Transmission's revenues.
The increase in Northern Border Pipeline's revenues was due to a couple of
factors. Under a condition of Northern Border Pipeline's previous rate case
settlement, it was required to share interruptible transportation and new
services revenues with its shippers. This condition expired in October 2003 and
allowed Northern Border Pipeline to realize an additional $0.6 million of
revenue during the second quarter of 2004. During the quarter, Northern Border
Pipeline was able to generate and retain additional revenue from the sale of
short-term capacity, which represented approximately $0.3 million of the
increase. Midwestern Gas Transmission's revenue increased primarily due to
operational sales of gas.

      Operations and maintenance expense was $13.9 million in the second quarter
of 2004 as compared to $14.9 million in 2003. During the second quarter of 2004,
the interstate pipelines reduced their operations and maintenance expense by
approximately $1.3 million related to the settlement of previously accrued

                                       20
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

charges for administrative services provided by Northern Plains Natural Gas, the
pipelines' operator, and its affiliates. Partially offsetting this reduction was
$0.7 million of accrued expense for the option to renew a pipeline right-of-way
lease with the Fort Peck Indian Reservation (see Note 5 - Notes to Consolidated
Financial Statements).

      Interest expense was $10.6 million in the second quarter of 2004 as
compared to $12.3 million in 2003. The decrease in interest expense in 2004 from
2003 was primarily due to a decrease in average debt outstanding for Northern
Border Pipeline.

      Minority interests in net income, which represent the 30% minority
interest in Northern Border Pipeline, were $12.4 million in the second quarter
of 2004 as compared to $11.3 million in 2003. The increase in 2004 over 2003 was
due to increased net income for Northern Border Pipeline.

NATURAL GAS GATHERING AND PROCESSING

      The natural gas gathering and processing segment reported income of $8.2
million in the second quarter of 2004 as compared to $6.9 million in 2003. The
increase is primarily due to higher natural gas and natural gas liquids prices
and increased gathering and processing volumes in the Williston Basin partially
offset by lower gathering volumes in the Powder River Basin and higher
depreciation expense.

      Operating revenues were $43.3 million in the second quarter of 2004 as
compared to $36.2 million in 2003. The increase in revenues reflects an increase
in realized prices for natural gas and natural gas liquids and increased
gathering and processing volumes in the Williston Basin partially offset by
lower gathering volumes in the Powder River Basin.

      Product purchases were $23.5 million in the second quarter of 2004 as
compared to $19.2 million in 2003. Under certain gathering and processing
agreements in the Williston Basin, Bear Paw Energy purchases raw natural gas
from producers at a price tied to a percentage of the price for which it sells
extracted natural gas and natural gas liquids. Total revenues from the sale of
these products are included in operating revenues. Amounts paid to the producers
to purchase their raw natural gas are reflected in product purchases. The
increase in 2004 over 2003 is primarily due to an increase in natural gas and
natural gas liquid prices and increased volumes processed.

      Depreciation and amortization expense was $3.9 million in the second
quarter of 2004 as compared to $3.1 million in 2003. As discussed in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 2003,
the Partnership determined it was appropriate to shorten the useful life of its
low-pressure gas gathering assets in the Powder River Basin from 30 to 15 years,
which increased depreciation expense in the second quarter of 2004.

COAL SLURRY

      The coal slurry pipeline segment reported income from continuing
operations of $0.9 million in the second quarter of 2004 on revenues of $5.4
million. In the second quarter of 2003, the segment reported income from
continuing

                                       21
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

operations of $0.8 million on revenues of $5.1 million. The increase in income
in the second quarter of 2004 as compared to 2003 was primarily due to a $0.3
million increase in revenues combined with a $0.2 million decrease in operations
and maintenance expense partially offset by a $0.4 million increase in
depreciation and amortization expense. Depreciation and amortization expense for
the coal slurry pipeline was $0.8 million in the second quarter of 2004 as
compared to $0.4 million in 2003. The Partnership determined it was appropriate
to shorten the useful life of certain of its coal slurry assets to correspond
with the expiration of the existing coal slurry transportation agreement in
2005. The impact of the shorter life will increase annual depreciation in 2004
by approximately $1.8 million over 2003.

OTHER

      Items not attributable to any segment include certain of the Partnership's
general and administrative expenses, interest expense on the Partnership's debt
and other income and expense items. The general and administrative expenses not
allocated to any segment were $1.4 million in the second quarter of 2004 as
compared to $1.7 million in 2003. The decrease was primarily due to a $0.5
million reduction related to the settlement of previously accrued charges for
administrative services provided by Northern Plains Natural Gas and its
affiliates.

SIX MONTHS ENDED JUNE 30, 2004 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2003

INTERSTATE NATURAL GAS PIPELINES

      The interstate natural gas pipelines segment reported income of $67.4
million in the six months ended June 30, 2004, as compared to $59.4 million in
2003. Income for the interstate natural gas pipeline segment reflects a $6.1
million increase in Northern Border Pipeline's income and a $1.5 million
increase in Viking Gas Transmission's income. The increase in Northern Border
Pipeline's income was primarily due to a $4.3 million increase in operating
revenues and a $3.3 million decrease in interest expense (a combined $5.3
million impact on continuing operations after minority interest). As discussed
in the Partnership's Annual Report on Form 10-K for the year ended December 31,
2003, the Partnership acquired all of the common stock of Viking Gas
Transmission on January 17, 2003. The increase in Viking Gas Transmission's
income in 2004 was primarily due to 2003 including operating results starting
with the January 17 acquisition date.

      Operating revenues were $192.1 million in the six months ended June 30,
2004 as compared to $185.6 million in 2003. The increase in operating revenues
in 2004 over 2003 resulted from a $4.3 million increase in Northern Border
Pipeline's revenues and a $1.9 million increase in Viking Gas Transmission's
revenues. The increase in Northern Border Pipeline's revenues was due to several
factors. Northern Border Pipeline was able to generate and retain additional
revenue from the sale of short-term capacity, which represented approximately
$2.1 million of the increase. Under a condition of Northern Border Pipeline's
previous rate case settlement, it was required to share interruptible
transportation and new services revenues with its shippers. This

                                       22
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

condition expired in October 2003 and allowed Northern Border Pipeline to
realize an additional $1.3 million of revenue during the six months ended June
30, 2004. The leap year added an additional day of transportation, which
approximated $0.9 million of the revenue increase. Viking Gas Transmission's
revenue was higher in 2004 because 2003 does not reflect revenue prior to the
January 17 acquisition date.

      Interest expense was $21.4 million in the six months ended June 30, 2004
as compared to $24.8 million in 2003. The decrease in interest expense in 2004
from 2003 was primarily due to a decrease in average debt outstanding as well as
a decrease in average interest rates for Northern Border Pipeline.

      Minority interests in net income, which represent the 30% minority
interest in Northern Border Pipeline, were $24.9 million in the six months ended
June 30, 2004 as compared to $22.3 million in 2003. The increase in 2004 over
2003 was due to increased net income for Northern Border Pipeline.

NATURAL GAS GATHERING AND PROCESSING

      The natural gas gathering and processing segment reported income of $19.6
million in the six months ended June 30, 2004, as compared to $19.1 million in
2003. The increase is primarily due to higher natural gas and natural gas
liquids prices and increased gathering and processing volumes in the Williston
Basin partially offset by lower gathering volumes in the Powder River Basin and
higher depreciation expense.

      Operating revenues were $85.4 million in the six months ended June 30,
2004, as compared to $76.4 million in 2003. The increase in revenues reflects an
increase in realized prices for natural gas and natural gas liquids and
increased gathering and processing volumes in the Williston Basin partially
offset by lower gathering volumes in the Powder River Basin.

      Product purchases were $44.9 million in the six months ended June 30,
2004, as compared to $40.3 million in 2003. Under certain gathering and
processing agreements in the Williston Basin, Bear Paw Energy purchases raw
natural gas from producers at a price tied to a percentage of the price for
which it sells extracted natural gas and natural gas liquids. Total revenues
from the sale of these products are included in operating revenues. Amounts paid
to the producers to purchase their raw natural gas are reflected in product
purchases. The increase in 2004 over 2003 is primarily due to an increase in
natural gas and natural gas liquid prices and increased volumes processed.

      Depreciation and amortization expense was $7.6 million in the six months
ended June 30, 2004, as compared to $6.2 million in 2003. As discussed
previously, the Partnership determined it was appropriate to shorten the useful
life of its low-pressure gas gathering assets in the Powder River Basin from 30
to 15 years, which increased depreciation expense.

COAL SLURRY

      The coal slurry pipeline segment reported income from continuing
operations of $1.5 million in the six months ended June 30, 2004, on revenues of
$10.8 million. In the six months ended June 30, 2003, the segment reported
income

                                       23
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

from continuing operations of $1.7 million on revenues of $10.5 million. The
$0.2 million decrease in income from continuing operations was primarily due to
higher depreciation expense of $1.3 million partially offset by higher revenues
of $0.3 million and lower operations and maintenance expense of $0.5 million.
Depreciation and amortization expense for the coal slurry pipeline was $2.1
million in the six months ended June 30, 2004, as compared to $0.8 million in
2003. The Partnership determined it was appropriate to shorten the useful life
of certain of its coal slurry assets to correspond with the expiration of the
existing coal slurry transportation agreement in 2005. The impact of the shorter
life will increase annual depreciation in 2004 by approximately $1.8 million
over 2003.

OTHER

      Items not attributable to any segment include certain of the Partnership's
general and administrative expenses, interest expense on the Partnership's debt
and other income and expense items. The general and administrative expenses not
allocated to any segment were $3.7 million in the six months ended June 30,
2004, as compared to $3.4 million in 2003. The increase in expense between 2003
and 2004 was primarily related to increased insurance of $0.8 million partially
offset by a $0.5 million reduction related to the settlement of previously
accrued charges for administrative services provided by Northern Plains Natural
Gas and its affiliates.

LIQUIDITY AND CAPITAL RESOURCES

DEBT AND CREDIT FACILITIES

      The Partnership's debt and credit facilities outstanding at June 30, 2004,
are as follows:
<TABLE>
<CAPTION>
                                                              Payments Due by Period
                                                        -------------------------------
                                                        Current Portion
                                                           (Less Than        Long-Term
                                           Total             1 Year)          Portion
                                         ----------     ---------------      ----------
                                                        (In Thousands)
<S>                                      <C>            <C>                  <C>
Northern Border Pipeline
  $175 million Pipeline Credit
    Agreement, due 2005                  $       --        $       --        $       --
  6.25% Senior Notes due 2007               225,000                --           225,000
  7.75% Senior Notes due 2009               200,000                --           200,000
  7.50% Senior Notes due 2021               250,000                --           250,000
Viking Gas Transmission
  Series A, B, C and D Senior
    Notes, average 7.41%,
    due 2008 to 2014                         33,281             4,760            28,521
Northern Border Partners, L.P.
  $275 million Partnership Credit
    Agreement, average 2.27%,
    due 2007                                136,000                --           136,000
  8 7/8% Senior Notes due 2010              250,000                --           250,000
  7.10% Senior Notes due 2011               225,000                --           225,000
                                         ----------        ----------        ----------

Total                                    $1,319,281        $    4,760        $1,314,521
                                         ==========        ==========        ==========
</TABLE>

                                       24
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

      Northern Border Pipeline has outstanding interest rate swap agreements
with notional amounts totaling $225 million that expire in May 2007. Under the
interest rate swap agreements, Northern Border Pipeline makes payments to
counterparties at variable rates based on the London Interbank Offered Rate and
in return receives payments based on a 6.25% fixed rate. At June 30, 2004, the
average effective interest rate on Northern Border Pipeline's interest rate swap
agreements was 2.46%.

      The Partnership has outstanding interest rate swap agreements with
notional amounts totaling $150 million that expire in March 2011. Under the
interest rate swap agreements, the Partnership makes payments to counterparties
at variable rates based on the London Interbank Offered Rate and in return
receives payments based on a 7.10% fixed rate. At June 30, 2004, the average
effective interest rate on the Partnership's interest rate swap agreements was
3.70%.

      Short-term liquidity needs will be met by operating cash flows and through
the Partnership Credit Agreement and the Pipeline Credit Agreement. Long-term
capital needs may be met through the Partnership's ability to issue long-term
indebtedness as well as additional limited partner interests.

CASH FLOWS FROM OPERATING ACTIVITIES

      Cash flows provided by operating activities were $129.8 million in the six
months ended June 30, 2004, as compared to $95.2 million for the comparable
period in 2003. The increase in operating revenues and lower interest expense in
2004 as compared to 2003 contributed to the increase in operating cash flow.
These increases were partially offset by higher product purchases and a decrease
in distributions received from unconsolidated affiliates in 2004 as compared to
2003. Operating cash flows in 2003 reflect Northern Border Pipeline's refund to
its shippers for $10.3 million. In addition, operating cash flows in 2003 were
also decreased due to payments made to NBP Services Corp. for administrative
services provided prior to 2003 of approximately $5.6 million and had been
reduced approximately $9.5 million due to Northern Border Pipeline's
discontinuance of certain shipper transportation prepayments.

CASH FLOWS FROM INVESTING ACTIVITIES

      Cash used in investing activities was $9.0 million in the six months ended
June 30, 2004, as compared to $91.5 million in 2003. The results for 2003
included the acquisition of Viking Gas Transmission in January and the sale of
the Gladys and Mazeppa processing plants in June. Acquisitions of businesses
were $119.1 million in the six months ended June 30, 2003, which represents the
net cash paid to acquire Viking Gas Transmission. Sale of gathering and
processing assets were $40.3 million in the six months ended June 30, 2003, due
to the sale of the Gladys and Mazeppa processing plants.

                                       25
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

      The investment in unconsolidated affiliates was $3.1 million in the six
months ended June 30, 2003, which primarily represents capital contributions to
Guardian Pipeline. No capital contributions have been required in 2004.

      Capital expenditures were $9.5 million in the six months ended June 30,
2004, which included $5.6 million for the interstate natural gas pipelines
segment, $2.4 million for the natural gas gathering and processing segment and
$1.5 million for the coal slurry pipeline segment. For 2003, capital
expenditures were $9.5 million, which included $4.5 million for the interstate
natural gas pipelines segment, $3.6 million for the natural gas gathering and
processing segment and $1.4 million for the coal slurry pipeline segment.

      Total capital expenditures for 2004 are estimated to be $50 million.
Capital expenditures for the interstate pipelines are estimated to be $19
million, including approximately $14 million for Northern Border Pipeline.
Northern Border Pipeline currently anticipates funding its 2004 capital
expenditures primarily by borrowing on its credit facility and using operating
cash flows. Capital expenditures for natural gas gathering and processing
facilities are estimated to be $29 million for 2004. Funds required to meet the
capital requirements for 2004 are anticipated to be provided from the
Partnership's credit facility, issuance of additional limited partnership
interests and operating cash flows.

CASH FLOWS FROM FINANCING ACTIVITIES

      Cash flows used in financing activities were $117.0 million in the six
months ended June 30, 2004, as compared to cash provided by financing activities
of $5.7 million in 2003. Cash distributions to unitholders and general partners
in 2004 and 2003 were $79.8 million and $75.4 million, respectively. The
increase in 2004 over 2003 is due to an increase in the number of common units
outstanding.

      In the six months ended June 30, 2004, Northern Border Pipeline received
equity contributions from its general partners including $39.0 million from its
minority interest holder. Northern Border Pipeline's distributions to its
minority interest holder increased $9.1 million. Effective January 1, 2004,
Northern Border Pipeline changed its cash distribution policy. Cash
distributions will be equal to 100% of distributable cash flow as determined
from Northern Border Pipeline's financial statements based upon earnings before
interest, taxes, depreciation and amortization less interest expense and less
maintenance capital expenditures.

      During the six months ended June 30, 2003, the Partnership issued
additional partnership interests of $102.4 million, which were primarily used to
repay indebtedness outstanding.

      For the six months ended June 30, 2004, borrowings on long-term debt
totaled $90.0 million, which were primarily used for the Partnership's equity
contribution to Northern Border Pipeline. For 2003, borrowings on long-term debt
totaled $183.0 million, which were primarily used for the acquisition of Viking
Gas Transmission. Total repayments of debt in the six months ended June 30, 2004
and 2003, were $134.8 million and $194.3 million, respectively.

                                       26
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

      In March 2003, the Partnership received $12.3 million from the termination
of an interest rate swap agreement with a notional amount of $75 million. The
proceeds were primarily used to repay existing indebtedness.

THE IMPACT OF ENRON'S CHAPTER 11 FILING ON THE PARTNERSHIP'S BUSINESS

      As discussed in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 2003, on December 2, 2001, Enron Corp. and certain of its
wholly owned subsidiaries filed a voluntary petition for bankruptcy protection
under Chapter 11 of the United States Bankruptcy Code. Refer to the Form 10-K
for the year ended December 31, 2003 for the full discussion of impacts of
Enron's Chapter 11 Filing on the Partnership's business.

      On March 31, 2004, Enron transferred its ownership interest in Northern
Plains Natural Gas Company, Pan Border Gas Company and NBP Services Corporation
to CrossCountry Energy, LLC ("CrossCountry"). In addition, CrossCountry and
Enron entered into a transition services agreement pursuant to which Enron will
provide to CrossCountry, on an interim, transitional basis, various services,
including but not limited to (i) information technology services, (ii)
accounting system usage rights and administrative support and (iii) payroll,
employee benefits and administrative services. In turn, these services are
provided to the Partnership and its subsidiaries through Northern Plains and NBP
Services. The agreement terminates on the earlier of a sale of CrossCountry or
December 31, 2004. The agreement may be extended by mutual agreement of the
parties and approval of Enron's Official Committee of Unsecured Creditors.

      On June 24, 2004, Enron announced that it had reached an agreement with a
joint venture of Southern Union Company and GE Commercial Finance Energy
Financial Services ("Southern Union/GE Joint Venture") for the sale of
CrossCountry. The bid of Southern Union/GE Joint Venture will be the "stalking
horse" for an auction of CrossCountry. The Bankruptcy Court approved the bidding
procedures. Bids are due August 23, 2004 for the September 1, 2004 auction. The
Bankruptcy Court is scheduled to approve the winning bid on September 9, 2004.
The sale of CrossCountry, which is subject to certain regulatory and
governmental approvals, is expected to close by mid-December 2004. Enron has
agreed to provide certain transition services for a period of six months from
the closing date, consistent with terms of the agreement between Enron and
Southern Union/GE Joint Venture. Once the buyer has been approved and the terms
of that extended transition services agreement are known, Northern Plains and
NBP Services will advise the Partnership on any impacts to resources, systems
and timing of the services provided to the Partnership.

      As previously reported in the Partnership's Form 10-K for the year ended
December 31, 2003, on December 31, 2003, Enron filed a motion seeking approval
of the Bankruptcy Court to provide additional funding to, and for authority to
terminate, the Enron Corp. Cash Balance Plan ("Cash Balance Plan") and certain
other defined benefit plans of Enron's affiliates (collectively the "Plans") in
"standard terminations" within the meaning of Section 4041 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Such standard

                                       27
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

terminations would satisfy all of the obligations of Enron and its affiliates
with respect to funding liabilities under the Plans. In addition, a standard
termination would eliminate the contingent claims of the Pension Benefit
Guaranty Corporation ("PBGC") against Enron and its affiliates with respect to
funding liabilities under the Plans. On January 30, 2004, the Bankruptcy Court
entered an order authorizing the termination, additional funding and other
actions necessary to effect the relief requested. Pursuant to the Bankruptcy
Court order, any contributions to the Plans are subject to the prior receipt of
a favorable determination by the Internal Revenue Service that the Plans are
tax-qualified as of their respective dates of termination.

      On June 2, 2004, the PBGC issued a notice to Enron stating that it had
determined that the Plans will be unable to pay benefits when due and should be
terminated in order to protect the interests of the participants in the Plans,
and/or that the risk of loss to the PBGC would increase unreasonably if the
Plans were not so terminated. On June 3, 2004, the PBGC filed a complaint in the
District Court for the Southern District of Texas against Enron as the sponsor
and/or administrator of the Plans (the "Action") which complaint was served on
Enron on July 19, 2004. By filing the Action, the PBGC is seeking an order (i)
terminating the Plans; (ii) appointing the PBGC the statutory trustee of the
Plans; (iii) requiring transfer to the PBGC of all records, assets or other
property of the Plans required to determine the benefits payable to the Plans'
participants; and (iv) establishing June 2, 2004 as the termination date of the
Plans.

      Enron management previously informed Northern Plains Natural Gas Company
and NBP Services Corporation that Enron will seek funding contributions from
each member of its ERISA controlled group of corporations that employs, or
employed, individuals who are, or were, covered under the Cash Balance Plan.
Northern Plains and NBP Services are considered members of Enron's ERISA
controlled group of corporations. As of December 31, 2003, an amount of
approximately $6.2 million was estimated for Northern Plains' and NBP Services'
proportionate share of the up to $200 million estimated termination costs for
the Plans authorized by the Bankruptcy Court order. Under the operating
agreement with Northern Plains and the administrative agreement with NBP
Services, these costs may be the Partnership's responsibility. In December of
2003, the Partnership accrued $6.2 million to satisfy claims of reimbursement
for these termination costs. While the claims for reimbursement cannot be
determined at this time, they could be less than the amount accrued.

      The Action and the possible consequences of an adverse determination of
the Action have the potential to increase the costs of the termination of the
Plans and potentially the estimated share of Northern Plains' and NBP Services'
termination costs. Enron and its affiliates have taken certain steps to protect
non-debtor interests and the acquirers of such interests that should limit the
impact of the Action on Northern Plains and NBP Services. First, pursuant to the
modified Fifth Amended Joint Plan of Reorganization, filed with the Bankruptcy
Court on June 1, 2004, Enron and its affiliated debtors have agreed to escrow
$200 million for the costs associated with the termination of the Plans. Second,
pursuant to the Amended and Restated Contribution and Separation Agreement dated
as of March 31, 2004, which provided for the contribution of certain

                                       28
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

equity interests to CrossCountry, Enron and its affiliated debtors have agreed
to indemnify Northern Plains and NBP Services against claims of any joint and
several liability for the termination costs of the Cash Balance Plan.

      Under the agreement reached with Enron and Southern Union/GE Joint Venture
for the sale of CrossCountry, from June 24, 2004, neither Northern Plains, nor
NBP Services nor the Partnership will be required to contribute to, or otherwise
be liable for any contributions to Enron in connection with, the Cash Balance
Plan. The purchase price under the agreement shall be deemed to include all
contributions which otherwise would have been allocable from Enron to Northern
Plains and NBP Services.

      The Partnership does not believe at this time that it will be subject to
any increased liability as a result of the PBGC's filing of the Action; however,
the Partnership cannot now determine the effect, if any, on it if the PBGC
receives a favorable ruling on its Action. Furthermore, while the final amounts
chargeable to the Partnership under the operating and administrative services
agreements for the termination of the Cash Balance Plan cannot be determined at
this time, the Partnership believes the ultimate settlement of this matter will
not have a material adverse effect on its results of operations.

      On July 15, 2004, the Bankruptcy Court approved the amended joint Chapter
11 plan and related disclosure statement ("Chapter 11 Plan"). Under the approved
Chapter 11 Plan, assuming the previously announced sales of Portland General
Electric and CrossCountry are consummated, Enron creditors, which should include
subsidiaries of the Partnership, will receive a combination of cash and equity
of Prisma Energy International, Enron's international energy asset business. The
Partnership anticipates realizing income in 2004 or 2005 of $2 million to $4
million related to adjustments to reserves for certain claims filed in the Enron
bankruptcy proceedings. Currently, the Partnership has fully reserved these
claims. However, the Chapter 11 Plan has not yet become effective and a number
of parties have filed Notices of Appeal, which could delay the effective date
and/or change the terms of the Plan. There can be no assurances on the amounts
of the claims recovered or timing of distributions under the Chapter 11 Plan.

PUBLIC UTILITY HOLDING COMPANY ACT ("PUHCA") REGULATION

      As more fully discussed in the Partnership's Annual Report on Form 10-K
for the year ended December 31, 2003, on March 9, 2004, Enron registered as a
holding company under the Public Utility Holding Company Act of 1935 ("PUHCA").
Under PUHCA, the Partnership is a subsidiary of a registered holding company.
Immediately after Enron registered, the Securities and Exchange Commission
("SEC") issued an order granting Enron and its subsidiaries authority to
undertake certain transactions without further authorization from the SEC under
PUHCA ("Omnibus Order").

      Pursuant to the Omnibus Order, the Partnership declared on July 20, 2004
its distribution for the second quarter of 2004, payable on August 13, 2004 to
holders of record as of July 30, 2004.

                                       29
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONCLUDED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

      The statements in this Quarterly Report that are not historical
information are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These forward-looking statements are identified as any statement that does
not relate strictly to historical or current facts. Forward-looking statements
are not guarantees of performance. They involve risks, uncertainties and
assumptions. The future results of the Partnership's operations may differ
materially from those expressed in these forward-looking statements. Such
forward-looking statements include, among other things, the discussions in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" regarding the Partnership's
estimated capital expenditures in 2004. Although the Partnership believes that
its expectations regarding future events are based on reasonable assumptions
within the bounds of its knowledge of its business, it can give no assurance
that its goals will be achieved or that its expectations regarding future
developments will be realized. Important factors that could cause actual results
to differ materially from those in the forward-looking statements herein
include, among other things, developments in the December 2, 2001 filing by
Enron of a voluntary petition for bankruptcy, including Bankruptcy Court
approval of the sale of CrossCountry, and the outcome of Enron's Chapter 11
process; regulations under PUHCA; industry results; ability to recontract
available capacity at maximum transportation rates on Northern Border Pipeline;
future demand for natural gas; availability of supplies of Canadian natural gas;
the ability to settle with the Fort Peck Tribes on rights-of-way and tax issues
and to recover the associated costs in pipeline rates; the rate of development,
gas quality, and competitive conditions in gas fields near the Partnership's
natural gas gathering systems in the Powder River and Williston Basins and its
investments in the Powder River and Wind River Basins; regulatory actions and
receipt of expected regulatory clearances; renewal of the coal slurry
transportation contract under favorable terms; competitive conditions in the
overall natural gas and electricity markets; the ability to market pipeline
capacity on favorable terms; performance of contractual obligations by the
shippers; prices of natural gas and natural gas liquids; actions by rating
agencies; the ability to renegotiate gathering contracts with producers;
political and regulatory developments that impact FERC proceedings involving
interstate pipelines and the interstate pipelines' success in sustaining their
positions in such proceedings; timely receipt of FERC approval and other
regulatory approvals of the new projects on the interstate pipelines; the
ability to control operating costs; competitive developments by Canadian and
U.S. natural gas transmission peers; and conditions in the capital markets and
the ability to access the capital markets.

      These and other risks are described in greater detail in the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Risk Factors and Information Regarding Forward-Looking
Statements" included in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 2003. All forward-looking statements attributable to the
Partnership or persons acting on its behalf are expressly qualified in their
entirety by these factors. Other than as required under the securities laws, the
Partnership does not assume a duty to update these forward-looking statements,
whether as a result of new information, subsequent events or circumstances,
changes in expectations or otherwise.

                                       30
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONTINUED)

       ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

      The Partnership may be exposed to market risk through changes in commodity
prices, exchange rates and interest rates, as discussed below. A control
environment has been established which includes policies and procedures for risk
assessment and the approval, reporting and monitoring of financial instrument
activities.

      The Partnership has utilized and expects to continue to utilize derivative
financial instruments in the management of interest rate risks and natural gas
and natural gas liquids marketing activities to achieve a more predictable cash
flow by reducing its exposure to interest rate and commodity price fluctuations.
For more information on risk management activities, see Note 2 to the
Partnership's consolidated financial statements included elsewhere in this
report.

      INTEREST RATE RISK

      The Partnership's interest rate exposure results from variable rate
borrowings from commercial banks. To mitigate potential fluctuations in interest
rates, the Partnership attempts to maintain a significant portion of its
consolidated debt portfolio in fixed rate debt. It also uses interest rate swaps
as a means to manage interest expense by converting a portion of fixed rate debt
to variable rate debt to take advantage of declining interest rates. At June 30,
2004, the Partnership has $511.0 million of variable rate debt outstanding
(approximately 39% of its debt portfolio), $375.0 million of which is previously
fixed rate debt that has been converted to variable rate debt through the use of
interest rate swaps.

      If average interest rates change by one percent compared to rates in
effect as of June 30, 2004, consolidated annual interest expense would change by
approximately $5.1 million. This amount has been determined by considering the
impact of the hypothetical interest rates on the Partnership's variable rate
borrowings outstanding as of June 30, 2004.

      COMMODITY PRICE RISK

      Bear Paw Energy is subject to certain contracts that give it quantities of
natural gas and natural gas liquids as partial consideration for processing
services. The income and cash flows from these contracts will be impacted by
changes in prices for these commodities. Prior to considering the effects of any
hedging, for each $0.10 per million British thermal unit change in natural gas
prices or for each $0.01 per gallon change in natural gas liquid prices, the
Partnership's annual net income would change by approximately $0.2 million. This
amount has been determined by considering the impact of the hypothetical
commodity prices on Bear Paw Energy's projected gathering and processing volumes
for 2004. The Partnership has hedged approximately 60% of its commodity price
risk for the remainder of 2004.

                                       31
<PAGE>

                   PART I. FINANCIAL INFORMATION - (CONCLUDED)

                         ITEM 4. CONTROLS AND PROCEDURES

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

      The Partnership's principal executive officer and principal financial
officer have evaluated the effectiveness of the Partnership's "disclosure
controls and procedures," as such term is defined in Rule 13a-15(e) and Rule
15d-15(e) of the Securities Exchange Act of 1934, as amended, as of the date of
the end of the period covered by this Quarterly Report on Form 10-Q. Based upon
their evaluation, the principal executive officer and principal financial
officer concluded that the Partnership's disclosure controls and procedures are
effective.

      There were no changes in the Partnership's internal control over financial
reporting that occurred during its last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, its internal control
over financial reporting.

      The Partnership is currently undergoing a comprehensive effort to ensure
compliance with Section 404 of the Sarbanes Oxley Act of 2002 for the year
ending December 31, 2004. This effort includes internal control documentation
and review under the direction of the Partnership's principal executive officer
and principal financial officer. During the course of these activities, certain
control issues were identified that the Partnership believes can be improved.
These control issues in large part are related to documentation of the operation
and execution of internal controls. The Partnership has implemented a number of
improvements in its internal controls over financial reporting as a result of
its review efforts.

      In addition, certain critical business systems, including information
technology applications, third party software licenses and computer and
communication hardware, supporting the Partnership's financial accounting and
reporting systems are owned by Enron and/or CrossCountry. The Partnership's
rights to utilize these systems may be impacted by the sale of CrossCountry. The
Partnership's access to these business systems is currently being provided
through services agreements, including a transition services agreement between
Enron and CrossCountry. Although that agreement terminates upon the sale of
CrossCountry, in the purchase and sale agreement with Southern Union/GE Joint
Venture, Enron has agreed to extend the terms of the transition services
agreement for certain services for a period of six months from the closing date,
which is expected to occur no later than mid-December 2004. Until the Bankruptcy
Court has approved the sale of CrossCountry, the Partnership is uncertain which
systems of Enron, CrossCountry or the buyer will be utilized for the
Partnership. Implementation of controls, as well as documentation and testing,
of any new systems that require conversion before year-end may not be possible.

      At this time the Partnership expects it will complete all internal
controls review, testing and documentation as required under Section 404 of the
Sarbanes-Oxley Act. However, the Partnership's ability to realize this
expectation is dependent upon the availability of resources to execute internal
controls, complete all of the testing and documentation required and on the
actions of Enron, CrossCountry and the buyer of CrossCountry, as the sale
process is consummated. See also Item 2. "Management's Discussion And Analysis
Of Financial Condition And Results Of Operations - The Impact of Enron's Chapter
11 Filing On the Partnership's Business."

                                       32
<PAGE>

                           PART II. OTHER INFORMATION

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

ITEM 1.  LEGAL PROCEEDINGS

      See Note 5 to the Consolidated Financial Statements for an update on
certain legal proceedings involving Northern Border Pipeline.

ITEM 5.  OTHER INFORMATION

      On July 20, 2004, Sundance Assets, L.P. informed Northern Border Partners,
L.P. that it completed the sale of all of its 2,710,000 common units of Northern
Border Partners. Northern Border Partners will not receive any proceeds from the
sale of these common units. Further, the Sundance sale of these previously
issued units will not dilute Northern Border Partners' other existing common
unitholders.

      In Northern Border Pipeline's pending proceeding before the FERC on
procedures for awarding capacity, an order was issued on April 15, 2004 in which
the FERC requested comments from interested parties on whether the Federal
Energy Regulatory Commission's ("FERC") current policy on awarding available
capacity to a short-haul shipper appropriately balances the risks to the
pipeline, bidding shippers and other shippers on the pipeline. Comments were
filed by June 15, 2004. The timing of the issuance of the FERC's order in this
proceeding is not known.

      On July 20, 2004, the D.C. Circuit Court of Appeals issued an opinion in
BP West Coast Products, LLC v. FERC that reversed the FERC decision that
provided for an income tax allowance in the rates for SFPP, LP, a limited
partnership. The D.C. Circuit remanded the case to FERC for the FERC's
determination regarding the proper tax allowance. We have not fully analyzed the
SFPP decision, and we do not know the scope, timing or outcome of any FERC
proceeding(s) related to the remand. However, we believe that Northern Border
Pipeline's specific circumstances are different from those of SFPP and many
other pipeline partnerships, given Northern Border Pipeline's particular
circumstances regarding its tariff, deferred income tax treatment, FERC orders
and underlying agreements with shippers.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits.

      10.1  First Amendment to the Revolving Credit Agreement dated as of April
            9, 2004 between Northern Border Partners, L.P., SunTrust Bank and
            the lenders named therein (incorporated by reference to Exhibit 10.1
            to the Partnership's quarterly report on Form 10-Q (File No. 1-2202)
            filed with the SEC on May 7, 2004.

      10.2  First Amendment to the Revolving Credit Agreement dated as of April
            9, 2004 between Northern Border Pipeline Company, Bank One, NA and
            the lenders named therein (incorporated by reference to Exhibit 10.1
            to Northern Border Pipeline Company's quarterly report on Form 10-Q
            (File No. 3333-88577) filed with the SEC on May 7, 2004.

      10.3  Agreement between Northern Plains and Northern Border Intermediate
            Limited Partnership regarding the costs, expenses and expenditures
            arising under the operating agreement between Northern Plains and
            Guardian Pipeline, LLC (incorporated by reference to Exhibit 10.3 to
            the Partnership's quarterly report on Form 10-Q (File No. 1-2202)
            filed with the SEC on May 7, 2004).

                                       33
<PAGE>

                     PART II. OTHER INFORMATION (CONCLUDED)

                 NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)

(a)   Exhibits (continued).

      10.4  Registration Rights Agreement, dated as of June 28, 2004, between
            Northern Border Partners, L.P. and Sundance Assets, L.P.
            (incorporated by reference to Exhibit 4.7 to the Partnership's
            registration statement on Form S-3 (File No. 333-116961) filed with
            the SEC on June 29, 2004).

      31.1  Certification of Chief Executive Officer pursuant to 18 U.S.C.
            Section 1350, as adopted pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002.

      31.2  Certification of Chief Financial and Accounting Officer pursuant to
            18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002.

      32.1  Certification of Chief Executive Officer pursuant to 18 U.S.C.
            Section 1350, as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.

      32.2  Certification of Chief Financial and Accounting Officer pursuant to
            18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.

(b)   Reports on Form 8-K.

      1) Northern Border Partners, L.P. furnished a Current Report on Form 8-K,
dated April 26, 2004, including a copy of a press release announcing Northern
Border Partners, L.P.'s financial results for the first quarter of 2004 and
reaffirming earnings guidance for 2004. The information was furnished under
Items 7, 9 and 12 of the Form.

      2) Northern Border Partners, L.P. filed a Current Report on Form 8-K,
dated May 21, 2004, including a copy of a press release announcing that Northern
Border Partners, L.P. had been advised that Enron Corp. reached an agreement to
sell CrossCountry Energy, LLC, which included general partner interests in
Northern Border Partners, to NuCoastal LLC. The information was filed under
Items 5 and 7 of the Form.

      3) Northern Border Partners, L.P. filed a Current Report on Form 8-K,
dated June 3, 2004, indicating that on June 2, 2004, the Pension Benefit
Guaranty Corporation ("PBGC") issued a notice to Enron stating that it had
determined that the Enron Corp. Cash Balance Plan ("Cash Balance Plan") and
certain other defined benefit plans of Enron's affiliates (collectively the
"Plans") will be unable to pay benefits when due and should be terminated in
order to protect the interests of the participants in the Plans, and/or that the
risk of loss to the PBGC would increase unreasonably if the Plans were not so
terminated. On June 3, 2004, the PBGC filed a complaint in the District Court
for the Southern District of Texas against Enron as the sponsor and/or
administrator of the Plans (the "Action"). By filing the Action, the PBGC is
seeking an order (i) terminating the Plans; (ii) appointing the PBGC the
statutory trustee of the Plans; (iii) requiring transfer to the PBGC of all
records, assets or other property of the Plans required to determine the
benefits payable to the Plans' participants; and (iv) establishing June 2, 2004
as the termination date of the Plans. The information was filed under Item 5 of
the Form.

                                       34
<PAGE>

                                   SIGNATURES

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

                                        NORTHERN BORDER PARTNERS, L.P.
                                        (A Delaware Limited Partnership)

Date: August 6, 2004                By: /s/ Jerry L. Peters
                                        ----------------------------------------
                                        Jerry L. Peters
                                        Chief Financial and Accounting
                                          Officer

                                       35

<PAGE>

                               Index to Exhibits

<TABLE>
<CAPTION>
Exhibit No                                 Description
----------                                 -----------
<S>              <C>
31.1             Certification of Chief Executive Officer pursuant to 18
                 U.S.C. Section 1350, as adopted pursuant to Section 302
                 of the Sarbanes-Oxley Act of 2002.

31.2             Certification of Chief Financial and Accounting Officer
                 pursuant to 18 U.S.C. Section 1350, as adopted pursuant
                 to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1             Certification of Chief Executive Officer pursuant to 18
                 U.S.C. Section 1350, as adopted pursuant to Section 906
                 of the Sarbanes-Oxley Act of 2002.

32.2             Certification of Chief Financial and Accounting Officer
                 pursuant to 18 U.S.C. Section 1350, as adopted pursuant
                 to Section 906 of the Sarbanes-Oxley Act of 2002.
</TABLE>