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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

For the fiscal year ended December 31, 1997    Commission File Number:  1-12872
                                       OR

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

                           EOTT ENERGY PARTNERS, L.P.
             (Exact name of registrant as specified in its charter)

                Delaware                                 76-0424520
----------------------------------------             -------------------
    (State or Other Jurisdiction of                   (I.R.S. Employer
     Incorporation or Organization)                  Identification No.)

         1330 Post Oak Boulevard
               Suite 2700
             Houston, Texas                                 77056
----------------------------------------             -------------------
(Address of principal executive offices)                  (Zip Code)

                                 (713) 993-5200
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 Title of each class                 Name of each exchange on which registered
----------------------              -------------------------------------------
   Common Units                              New York Stock Exchange


           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      None

     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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     Aggregate market value of the Common Units held by non-affiliates of the
registrant, based on closing prices in the daily composite list for transactions
on the New York Stock Exchange on March 2, 1998, was approximately $182,204,150.

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                           EOTT ENERGY PARTNERS, L.P.
                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
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<S>       <C>                                                                                      <C>
                                  PART I

Item 1.   Business                                                                                    3
Item 2.   Properties                                                                                 11
Item 3.   Legal Proceedings                                                                          12
Item 4.   Submission of Matters to a Vote of Security Holders                                        13

                                  PART II

Item 5.   Market for Registrant's Common Units and Related Security
              Holder Matters                                                                         14
Item 6.   Selected Financial Data                                                                    16
Item 7.   Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                                              17
Item 8.   Financial Statements and Supplementary Data                                                25
Item 9.   Disagreements on Accounting and Financial Disclosure                                       25

                                  PART III

Item 10.  Directors and Executive Officers of the Registrant                                         26
Item 11.  Executive Compensation                                                                     29
Item 12.  Security Ownership of Certain Beneficial Owners
              and Management                                                                         35
Item 13.  Certain Relationships and Related Transactions                                             36

                                  PART IV

Item 14.  Exhibits, Financial Statement Schedule and Reports on Form 8-K                             37

</TABLE>





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                                     PART I

ITEM 1. BUSINESS

GENERAL

     EOTT Energy Partners, L.P., a Delaware limited partnership, through its
affiliated limited partnerships, EOTT Energy Operating Limited Partnership, EOTT
Energy Canada Limited Partnership, and EOTT Energy Pipeline Limited Partnership,
is engaged in the purchasing, gathering, transporting, trading, storage and
resale of crude oil and refined petroleum products and related activities. EOTT
Energy Partners, L.P.'s principal business segments are its North American crude
oil gathering and marketing operations, and its Refined Products marketing
business (see Note 20 to the Consolidated Financial Statements for certain
financial information by business segment). In late 1997, EOTT decided to exit
the East of Rockies refined products business. See further discussion in
"Business - Refined Products Marketing". Unless the context otherwise requires,
the terms "EOTT" and the "Partnership" herein refer to EOTT Energy Partners,
L.P., its affiliated limited partnerships, and for periods prior to the
Partnership's initial public offering in March 1994, EOTT Energy Corp., its
wholly-owned subsidiary, EOTT Energy Ltd., and its affiliated company Enron
Products Marketing Company (collectively referred to as the "Predecessor").

     EOTT Energy Corp. (the "General Partner"), a Delaware corporation and an
indirect wholly-owned subsidiary of Enron Corp. ("Enron"), serves as the sole
general partner of the Partnership and its affiliated operating limited
partnerships. In addition to its aggregate approximate 2% general partner
interest in the Partnership, the General Partner owns an approximate 37% limited
partner interest in the Partnership in the form of subordinated units. Enron,
through its purchase of EOTT Common and Special Units, more fully described in
Note 13 to the Consolidated Financial Statements, holds an approximate 11%
interest in the Partnership.

     Through its North American crude oil gathering and marketing operations,
which accounted for substantially its entire gross margin during 1997, EOTT
purchases crude oil produced from approximately 25,000 leases in 17 states. In
addition, EOTT is a major purchaser of lease crude oil in Canada. As an
intermediary, EOTT seeks to earn profits by buying crude oil at competitive
prices, efficiently transporting and handling the purchased crude oil and
marketing the crude oil to refinery customers or other trade partners who can
most benefit from the particular crude type. Pipeline systems and EOTT's
trucking operations provide the vital link between EOTT's crude oil purchasing
and marketing activities. Within the United States, EOTT transports most of the
lease crude oil it purchases by means of a fleet of 275 owned or leased trucks,
and by pipeline, including approximately 2,285 miles of intrastate and
interstate pipeline and gathering systems owned by EOTT as well as common
carrier pipeline systems owned by third parties. In addition, EOTT provides
transportation and trading services for third party purchasers of crude oil.
These pipeline systems and trucking operations cover 15 states: Alabama,
Arkansas, California, Colorado, Florida, Kansas, Louisiana, Mississippi,
Missouri, Nebraska, New Mexico, Oklahoma, Texas, Utah and Wyoming.

     EOTT purchases crude oil from many of the largest integrated and
independent producers in the United States and Canada. Approximately 87% of
EOTT's lease crude oil is purchased from independent oil producers, and
approximately 13% is purchased from major integrated oil companies. EOTT markets
the crude oil to major integrated oil companies and independent refiners
throughout the United States and Canada. In its North American crude oil
gathering and marketing operations, EOTT purchased approximately 305,000 barrels
per day ("bpd") of lease crude oil during 1997.

     EOTT purchases lease barrels at prevailing market prices. Generally, as
EOTT purchases lease barrels, it simultaneously enters into a corresponding sale
transaction involving physical deliveries of crude oil to third party users,
such as refiners or other trade partners, or a sale of futures contracts on the
New York Mercantile



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Exchange ("NYMEX"). This process gives EOTT the opportunity to secure a profit
on the transaction at the time of purchase and to effect a substantially
balanced position until it makes physical delivery of the crude oil, thereby
minimizing or eliminating exposure to price fluctuations occurring after the
initial purchase. Following the purchase of a lease barrel, EOTT may effect
trades both in the futures and physical markets in order to deliver the crude
oil to its highest value location or otherwise to maximize the value of the
crude oil controlled by EOTT. Throughout the process, EOTT seeks to maintain a
substantially balanced position at all times. However, EOTT has certain basis
risks (the risk that price relationships between delivery points, classes of
products or delivery periods will change) which cannot be completely hedged. It
is EOTT's policy not to acquire and hold crude oil, other petroleum products,
futures contracts or other derivative products for the purpose of speculating on
price changes.

NORTH AMERICAN CRUDE OIL GATHERING AND MARKETING OPERATIONS

     The marketing of crude oil is complex and requires detailed current
knowledge of crude oil sources and outlets and a familiarity with a number of
factors including: types of crude oil, individual refinery demand for specific
grades of crude oil, area market price structures for the different grades of
crude oil, location of customers, availability of transportation facilities and
timing and costs (including storage) involved in delivering crude oil to the
appropriate customer. EOTT engages in marketing transactions that have the
potential to enhance the value of the crude oil EOTT purchases.

     While EOTT engages in several types of purchases, sales and exchanges of
crude oil, most transactions entered into by EOTT are at market responsive
prices for a term or duration of 90 days or less, and a large number of EOTT's
transactions are done on a 30-day evergreen basis. These purchases are
automatically renewable on a month-to-month basis until terminated by either
party. The purchases are based on market related indices, which change
frequently in response to market changes. Conducting business on this basis
helps EOTT reduce the risk in its North American crude oil gathering and
marketing business.

     The purchase and resale of crude oil is a highly competitive activity with
very thin and volatile profit margins. Purchasers of crude oil at the lease
compete on the basis of being able to provide competitive prices and highly
responsive customer service. EOTT believes its ability to offer quality service
to producers is a key factor in maintaining lease purchase volumes and in
obtaining new volumes. Quality services include gathering capabilities, the
availability of trucks, willingness to construct gathering pipelines where
economically justified, timely pickup of crude oil from tank batteries at the
lease or production point, accurate measurement of crude oil volumes delivered,
avoidance of spills, effective management of pipeline deliveries and certain
accounting and administrative services. Accounting and administrative services
include securing division orders (statements affirming the division of ownership
in lease crude purchased by EOTT), providing statements of the oil purchased
each month, disbursing production proceeds to interest owners and calculation
and payment of severance and production taxes on behalf of interest owners. In
order to compete effectively, EOTT must deal with title and division order
issues in a professional and timely manner, thereby ensuring the prompt and
correct handling or payment of crude oil production proceeds, together with the
correct handling or payment of all severance and production taxes associated
with such proceeds.

REFINED PRODUCTS MARKETING

     During 1997, 1996 and 1995, EOTT made use of third party common carrier
pipeline systems for the distribution of refined products (e.g., No. 2 fuel oil,
jet fuel and unleaded gasoline) to the ultimate customer. All products inventory
was hedged on the NYMEX and sold to customers when the premium on hedged
inventory exceeded the replacement cost of the inventory. At times when the
prompt premium was not available, EOTT liquidated its inventory against the
hedge in the NYMEX-deliverable locations. In late 1997, EOTT made the decision
to exit the East of Rockies refined products business and refocus on the core
crude oil business. After the exit of the East of Rockies refined products
business, EOTT will market refined gasoline in 4 states in connection





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with its West Coast operations. See further discussion in "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Recent Developments."

RISK MANAGEMENT SERVICES / DERIVATIVES

     Sophisticated price risk management strategies, including those involving
price hedges using NYMEX futures contracts, are becoming increasingly important
in creating and maintaining intermediary margins. Such hedging techniques
require significant resources dedicated to the management of futures positions -
a capability that many smaller purchasers do not have. EOTT's risk management
personnel coordinate all of EOTT's NYMEX trading activities and other hedging
techniques to ensure that EOTT's hedging activities are meeting EOTT's
objectives. At the same time, this enables EOTT to net positions internally and
reduces overall trading volumes and associated commissions. The consolidation of
price risk management activities not only allows for more efficient hedging and
futures trading, but also provides traders of physical volumes the freedom to
focus on their markets. In addition to hedging its lease barrel purchases, EOTT
provided price risk management products to its energy customer base during the
years ended December 31, 1997, 1996 and 1995. However, in late 1997, EOTT made
the decision to streamline business processes throughout the organization and as
a result will no longer provide price risk management products to its customers.

CREDIT

     Credit review and analysis are integral to EOTT's overall business. When
EOTT purchases crude oil at the lease, EOTT often makes payment for all or
substantially all of the leasehold production to one party (usually the operator
of the lease). The operator, in turn, is responsible for the correct payment and
distribution of such production proceeds to all parties who own an interest in
such funds. In these situations, EOTT must make sure that the operator is
creditworthy and able to indemnify and defend EOTT in the event any third party
should bring a protest, action or complaint in connection with the ultimate
distribution of production proceeds by the operator. In addition, when EOTT
markets crude oil or refined petroleum products, EOTT must determine the amount,
if any, of the line of credit to be extended to any given customer. Since
typical EOTT sales transactions can involve several thousand barrels of crude
oil or product, the risk of non-payment and non-performance by customers is a
major consideration in EOTT's business. Likewise, EOTT's credit standing is a
major consideration for parties with whom EOTT does business. At times, EOTT may
furnish and receive letters of credit to and from its business counterparties.
The cost of furnishing letters of credit and/or guarantees can be substantial.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -Working Capital and Credit Resources."

COMPETITION

     In the various business, marketing and trading activities described above,
EOTT is in competition with major oil companies and a larger number of smaller
entities. The number and location of EOTT's pipeline systems and trucking
facilities give EOTT access to a substantial volume of domestic crude oil
production throughout the crude oil producing areas of the United States. EOTT
also has considerable flexibility in disposing of the volumes of crude oil that
it purchases, without dependence on any single customer or transportation or
storage facility. EOTT's principal competitors in the purchase of leasehold
crude oil production are Scurlock Permian Oil Corporation, Koch Oil Company and
Texaco Trading & Transportation Co., Inc. Competitive factors include price,
quality of service, transportation facilities, financial strength, and knowledge
of products and markets.

     There are a number of major structural and economic changes impacting all
of EOTT's market segments that are driving new customer needs, changing
competitor dynamics and, consequently, creating new challenges



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and opportunities for responsive market participants. The crude oil gathering
and marketing business is characterized by thin, volatile margins and intense
competition for supplies of lease crude oil. The decline in domestic crude oil
production has made competition among gatherers and marketers even more intense.

     Within the past few years, the number of companies involved in the
gathering of crude oil in the United States has decreased as a result of
business failures and consolidations. Nevertheless, the market continues to be
characterized by a large number of participants. Although EOTT is one of the
largest independent gatherers and marketers in the United States, management
estimates that EOTT accounts for approximately 5% of the volume of lease crude
oil gathered in North America and that EOTT and its three principal competitors
combined account for approximately one-fifth of the volume of lease crude oil
gathered in the United States. EOTT estimates that major oil companies account
for approximately 40% to 45% of the total volume of lease crude oil gathered in
the United States with the balance accounted for by numerous smaller companies.

     EOTT views itself as a value-added intermediary that seeks to create its
profit margin from the services it provides to its customers. These customer
services include traditional trading, marketing and transportation activities.

ENVIRONMENTAL MATTERS

     EOTT is subject to federal, state and local laws and regulations relating
to the protection of the environment. At the federal level, such laws include,
among others, the Clean Air Act, the Clean Water Act, the Oil Pollution Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, and the National Environmental Policy
Act, as each maybe amended from time to time. Compliance with such laws and
regulations in the future could prove to be costly, and there can be no
assurance that EOTT will not incur such costs in material amounts.

     The Clean Air Act controls, among other things, the emission of volatile
organic compounds, nitrogen oxides, and all other ozone-producing compounds in
order to protect national ambient air quality in accordance with standards
established for ozone and other pollutants. Such emissions may occur from the
handling or storage of petroleum or natural gas. The sources of emissions that
are subject to control and the types of controls required are a matter of
individual state air quality control implementation plans that set forth
emission limitations. Both federal and state laws impose substantial civil and
even criminal penalties for violation of applicable requirements.

     The Clean Water Act, as amended by the Oil Pollution Act of 1990 ("OPA"),
controls, among other things, the discharge of oil and other petroleum products
into waters of the United States. The Clean Water Act provides penalties for any
unauthorized discharges of pollutants (including petroleum products) into waters
of the United States and imposes substantial potential liability for the costs
of responding to an unauthorized discharge of pollutants, such as an oil spill.
State laws for the control of water pollution also provide varying civil and
criminal penalties and liabilities in the case of a release of petroleum or
other petroleum products in surface waters or into the ground. Federal and state
permits for water discharges may be required.

     OPA also imposes a variety of requirements on "responsible parties" for oil
and gas facilities related to the prevention of oil spills and liability for
damages resulting from such spills in waters of the United States. The term
"responsible party" includes the owner or operator of an oil or gas facility
that could be the source of an oil spill affecting jurisdictional waters of the
United States. OPA assigns liability to each responsible party for oil spill
removal costs and a variety of public and private damages from oil spills. OPA
establishes a liability limit for onshore facilities of up to $350 million while
the limit for offshore facilities is all removal costs plus up to $75 million in
other damages. A party cannot take advantage of liability limits, however, if
the spill is caused by gross negligence or willful misconduct; if the spill
resulted from violation of a federal safety, construction or




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operating regulation or if a party fails to report a spill or to cooperate fully
in the cleanup. Few defenses exist to the liability for oil spills imposed by
OPA. OPA also imposes other requirements on facility operators, such as the
preparation of an oil spill response plan, and a demonstration of the operator's
ability to pay for environmental cleanup and restoration costs likely to be
incurred in connection with an oil spill. For onshore facilities that have the
ability to affect waters of the United States, OPA requires an operator to
demonstrate $10 million in financial responsibility, and for offshore facilities
the financial responsibility is $35 million, unless a formal risk assessment
indicates that a greater amount, up to $150 million, is required. On March 25,
1997, the U.S. Minerals Management Service ("MMS") proposed regulations
implementing these financial responsibility requirements. The General Partner
fully anticipates that EOTT will be able to satisfy the MMS's requirements for
financial responsibility under OPA and the proposed regulations. Failure to
comply with these OPA requirements or inadequate cooperation in a spill event
may subject a responsible party to civil or criminal actions.

     EOTT generates wastes, including hazardous wastes, that are subject to the
federal Resources Conservation and Recovery Act ("RCRA") and comparable state
statutes. The U.S. Environmental Protection Agency ("EPA") and various state
agencies have limited the approved methods of disposal for certain hazardous and
nonhazardous wastes. Furthermore, certain wastes generated by EOTT that are
currently exempt from treatment as "hazardous wastes" may in the future be
designated as "hazardous wastes" and therefore be subject to more rigorous and
costly operating and disposal requirements.

     The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons
that are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances that have been
released at the site. Persons who are or were responsible for releases of
hazardous substances under CERCLA may be subject to joint and several liability
for the costs of cleaning up the hazardous substances that have been released
into the environment and for damages to natural resources, and it is not
uncommon for neighboring landowners and other third parties to file claims for
personal injury and property damage allegedly caused by the hazardous substances
released into the environment. In the ordinary course of EOTT's operations,
substances may be generated that fall within the definition of "hazardous
substances."

     EOTT potentially may have liability under CERCLA and similar state laws at
three known sites. In 1991, EOTT took a deed of trust on the Rattlesnake
refinery in Wickett, Texas, to secure delinquent accounts payable by the owner
of the refinery. The refinery had numerous operational problems and ceased
operating in 1992. Environmental contamination is known to exist at the
refinery, but EOTT cannot estimate the extent of the contamination and the
potential costs of remediation. EOTT's management believes that EOTT would not
be considered an owner or operator of the refinery and that EOTT does not have
any responsibility with respect to the environmental conditions at the
Rattlesnake refinery. Nevertheless, the potential liability, if any, of EOTT
with respect to this site cannot be predicted at this time.

     In 1987, EOTT purchased a crude oil terminal and transportation facility
from Fairway Crude, Inc. This facility is adjacent to the Mid-America Refining
Company site in Chanute, Kansas. The Mid-America refinery ceased operations in
1981, and environmental contamination is known to exist at the refinery site.
EOTT cannot estimate the extent of contamination or the potential costs of
remediation associated with the Mid-America refinery. In 1993, EOTT received a
request for information from the EPA that suggests the EPA believes EOTT may be
potentially responsible for the costs of remediating some contamination at the
Mid-America refinery site. Since EOTT did not purchase the adjacent facility
until 1987 and EOTT has been careful to avoid contamination of its property, the
General Partner believes that EOTT should not be responsible for remediating
environmental




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conditions at the Mid-America refinery site. Nevertheless, the potential
liability, if any, of EOTT with respect to this site cannot be predicted at this
time.

     In early 1991, EOTT entered into a crude oil processing agreement with a
California refiner pursuant to which EOTT's crude oil was processed into refined
petroleum products during 1991 and 1992. On December 31, 1992, EOTT entered into
a new, long-term processing agreement that replaced the agreement in effect
during 1991 and 1992. This latter agreement was terminated in September 1995 in
connection with the termination of EOTT's West Coast processing and asphalt
marketing business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations - Discontinued
Operations." The General Partner has been advised by the refiner that
environmental conditions exist in the area of the refinery, including soil and
groundwater contamination, that are the subject of ongoing, long-term
remediation. Conditions of this nature are frequently associated with petroleum
refineries. These conditions existed prior to EOTT's original processing
agreement and prior to the acquisition of the refinery by the current owners.
The General Partner has been advised that the refiner is implementing
groundwater and soil remediation that includes retrieval and treatment of the
contaminated groundwater and is preparing a long-term groundwater and soil
remedial action plan. The General Partner understands that the refiner is
working with the regulatory agencies in effecting this remediation.

     It is possible that EOTT could be named as a defendant in any legal action
that might be filed as a consequence of environmental conditions associated with
the California refinery, although the General Partner believes that valid
defenses exist to any claim that may be filed with respect to existing
environmental conditions. The General Partner cannot predict the nature or size
of future claims that might be filed as a consequence of environmental
conditions in the area of the refinery. The likelihood of such a claim against
EOTT could be increased if the refiner is unable to complete its environmental
cleanup and compliance program. In addition, because land surrounding the
refinery is devoted to residential, commercial and industrial uses, there may be
increased sensitivity within the local community to environmental issues
concerning the operations of the refinery. The General Partner can give no
assurances as to how courts or regulatory authorities will, in the future,
interpret or apply the liability provisions of applicable law, including federal
or state environmental laws and regulations.

     The National Environmental Policy Act ("NEPA") may apply to certain
extensions or additions to a pipeline system. Under NEPA, if any project is to
be undertaken which would significantly affect the quality of the environment
and require a permit or approval from a federal agency, the federal agency may
require preparation of a detailed environmental impact study. The issuance by a
federal agency of a permit or approval to construct or extend a pipeline system
may constitute such a major federal action. The effect of NEPA may be to delay
or prevent construction of new facilities or to alter their location, design or
method of construction. Similar state laws may also be applicable.

     In addition to the foregoing, EOTT is subject to state environmental laws
and regulations that address environmental considerations that may be of
particular concern to a state.

     The management of EOTT believes that there are no outstanding potential
liabilities or claims relating to safety and environmental matters the
resolution of which, individually or in the aggregate, would have a materially
adverse effect on EOTT's financial position or results of operations and that
EOTT has used reasonably diligent efforts to comply, in all material respects,
with all applicable environmental laws and regulations. No assurance can be
given, however, as to the amount or timing of future expenditures for
environmental remediation or compliance, and actual future expenditures may be
different from the amounts currently anticipated. In the event of future
increases in costs, EOTT may be unable to pass on those increases to its
customers.



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REGULATION

     EOTT is subject to a variety of federal and state regulations relating to
its interstate and intrastate pipeline transportation and safety activities,
motor carrier activities, and commodities trading business, the most significant
of which are discussed below.

Pipeline FERC Regulation

     Interstate Regulation Generally. EOTT's interstate common carrier pipeline
operations are subject to rate regulation by the Federal Energy Regulatory
Commission ("FERC") under the provisions of the Interstate Commerce Act ("ICA").
These operations include the Hobbs pipeline in New Mexico and Texas, the crude
oil system in Mississippi and Alabama ("the Mississippi-Alabama Pipeline") and
the crude oil systems acquired from CITGO Pipeline Company ("CITGO Pipelines").
The ICA requires, among other things, that petroleum pipeline rates be just and
reasonable and non-discriminatory. The ICA permits interested parties to
challenge proposed new or changed rates and authorizes the FERC to suspend the
effectiveness of such rates for a period of up to seven months and to
investigate such rates. If, upon the completion of an investigation, the FERC
finds that the new or changed rate is unlawful, it is authorized to require the
carrier to refund the revenues collected during the pendency of the
investigation in excess of those that would have been collected under the prior
tariff. In addition, the FERC, upon complaint or on its own motion and after
investigation, may order a carrier to change its rate prospectively. Upon an
appropriate showing, a shipper may obtain reparations for damages sustained for
a period of up to two years prior to the filing of a complaint.

     On August 31, 1994, EOTT filed with the FERC for a rate increase on the
Hobbs Pipeline. The new rates went into effect unchallenged on October 1, 1994.
Since that time, EOTT has annually amended it tariffs on all of its regulated
pipelines as provided by FERC regulations effective July 1, 1995, 1996 and 1997.
Although no assurance can be given that the tariffs charged by EOTT will
ultimately be upheld if challenged, EOTT believes that the tariffs now in effect
for the Hobbs, Mississippi - Alabama and CITGO pipelines are within the maximum
rates allowed under the current FERC guidelines.

     Energy Policy Act of 1992 and Subsequent Developments. In October 1992,
Congress passed the Energy Policy Act of 1992, which, among other things,
required the FERC to issue rules establishing a simplified and generally
applicable ratemaking methodology for petroleum pipelines and to streamline
procedures in petroleum pipeline proceedings. The FERC responded to this mandate
by issuing several orders, including Order No. 561. Beginning January 1, 1995,
Order No. 561 enables petroleum pipelines to change their rates within
prescribed ceiling levels that are tied to an inflation index. Rate increases
made pursuant to the indexing methodology are subject to protest, but such
protests must show that the portion of the rate increase resulting from
application of the index is substantially in excess of the pipeline's increase
in costs. If the indexing methodology results in a reduced ceiling level that is
lower than a pipeline's filed rate, Order No. 561 requires the pipeline to
reduce its rate to comply with the lower ceiling. A pipeline must as a general
rule utilize the indexing methodology to change its rates. The FERC, however,
retained cost-of-service ratemaking, market-based rates, and settlement as
alternatives to the indexing approach, which alternatives may be used in certain
specified circumstances.

     Because of the novelty and uncertainty surrounding the indexing
methodology, the General Partner is unable to predict whether, how, or the
extent to which the methodology may apply to EOTT's common carrier pipeline
operations, and what effect, if any, it may have on the rates the Partnership
charges for service. In addition to the regulatory considerations noted above,
it is expected that the Hobbs, Mississippi-Alabama and CITGO pipeline tariff
rates will continue to be constrained by competitive and other market factors.

     State Regulation. EOTT's intrastate pipeline transportation activities are
subject to various state laws and regulations, as well as orders of regulatory
bodies pursuant thereto.



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     Petroleum Pipeline Safety Regulation. EOTT's petroleum pipelines are
subject to regulation by the Department of Transportation with respect to the
design, installation, testing, construction, operation, replacement, and
management of pipeline facilities. In addition, EOTT must permit access to and
copying of records, and to make certain reports and provide information as
required by the Secretary of Transportation. Comparable regulation exists in
some states in which EOTT conducts intrastate common carrier or private pipeline
operations.

     Pipeline safety issues are currently receiving significant attention in
various political and administrative arenas at both the state and federal
levels. Significant expenses could be incurred if additional safety requirements
are imposed that exceed the current pipeline control system capabilities.

Trucking Regulation

     EOTT operates its fleet of trucks as a private carrier. Additionally, in
Louisiana and California it is engaged in contract carrier hauling of crude oil
and natural gas liquids for third parties, and in Oklahoma it hauls salt water
and other fluids for others. Although a private carrier that transports property
in interstate commerce is not required to obtain operating authority from the
Interstate Commerce Commission, the carrier is subject to certain motor carrier
safety regulations issued by the Department of Transportation. The trucking
regulations extend to driver operations, keeping of log books, truck manifest
preparations, safety placards on the trucks and trailer vehicles, drug and
alcohol testing, safety of operation and equipment, and many other aspects of
truck operations. EOTT is also subject to OSHA with respect to its trucking
operations.

     EOTT provides contract carrier service in Louisiana pursuant to a permit
issued by the Louisiana Public Service Commission. Louisiana contract carriers
are also subject to certain safety regulations related to service and
operations.

Commodities Regulation

     EOTT's price risk management operations are subject to constraints imposed
under the Commodity Exchange Act (the "CEA"). The futures and options contracts
that are traded on the NYMEX are subject to strict regulation by the Commodity
Futures Trading Commission (the "CFTC"). Although NYMEX futures contracts
include contracts on sweet crude oil, No. 2 heating oil and other refined
petroleum products, there are many products that EOTT will purchase and sell for
which no futures contracts are available, due in part to the strict regulatory
scheme for futures contracts. In addition, the trading volumes and pricing bases
of futures contracts on some products are such that the ability to use them to
hedge EOTT's price risks may be limited.

Other Regulation

     After exiting the East of Rockies refined products business, EOTT will
market refined gasoline at the wholesale level in approximately 4 states. EOTT
markets both reformulated and conventional gasoline in ozone nonattainment areas
during control periods. EOTT is subject to extensive federal and state laws and
regulations governing product specifications, transfer documentation, record
keeping and sampling. Many of these laws and regulations impose significant
financial penalties for non-compliance.







                                       10
<PAGE>   11

INFORMATION REGARDING FORWARD-LOOKING INFORMATION

     The statements in this Annual Report on Form 10-K 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. Such forward-looking statements include the discussion under "Business -
Environmental Matters," the discussion under "Legal Proceedings," the discussion
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and the discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Other Matters and Outlook." Any forward-looking statements are not
guarantees of future performance, involve significant risks and uncertainties
and actual results may vary materially from those in the forward-looking
statements as a result of various factors. Important factors that could cause
actual results to differ materially from those in the forward-looking statements
herein include the Partnership's success in obtaining additional lease barrels,
demand for various grades of crude oil and the resulting changes in pricing
relationships, developments relating to possible acquisitions or business
combination opportunities, industry conditions, the success of the Partnership's
risk management activities and conditions of the capital markets and equity
markets during the periods covered by the forward-looking statements. Although
the Partnership believes that its expectations regarding future events are based
on reasonable assumptions, it can give no assurance that these are all the
factors that could cause actual results to vary materially from the forward-
looking statements or that its expectations regarding future developments will
prove to be correct.

ITEM 2.  PROPERTIES

PIPELINE AND TRANSPORTATION ASSETS AND PROPERTIES

     EOTT owned and operated in 1997 2,285 miles of crude oil gathering and
transmission pipelines, including the assets acquired from CITGO Pipeline
Company discussed below, covering eight states (Alabama, Arkansas, California,
Louisiana, Mississippi, New Mexico, Oklahoma, and Texas), including 1,573 miles
of intrastate and interstate common carrier pipeline systems located in Alabama,
Louisiana, Mississippi, Texas and New Mexico. There are approximately 5.7
million barrels of storage capacity associated with these pipelines. EOTT has
operated the pipeline systems with regular and continuous maintenance.
Inspections and tests have been performed at prescribed intervals in an effort
to ensure the integrity of the systems.

     On February 1, 1997, the Partnership acquired over 400 miles of intrastate
and interstate common carrier pipelines in Louisiana and Texas from CITGO
Pipeline Company. Shipped volumes associated with these assets amount to
approximately 48,000 barrels per day from leases in certain regions of Arkansas,
Louisiana and Texas. Storage associated with the pipeline systems totals
approximately 0.5 million barrels.

     EOTT operates four common carrier barge facilities in Louisiana, one in
Alabama, and one in Texas. Approximately 2.2 million barrels of storage capacity
are associated with these barge facilities. For the storage and terminalling of
bulk petroleum products, EOTT owns three terminal facilities in Ohio, which are
currently held for sale, and one in Alabama. Approximately 431,000 barrels of
storage capacity are associated with these bulk petroleum product facilities.

     In addition to transporting crude oil by pipeline, EOTT transports crude
oil through a fleet of 275 owned or leased tractor-trailer trucks. EOTT operates
its fleet of trucks as a private carrier. Additionally, in Louisiana and
California it is also engaged in contract carrier hauling of crude and natural
gas liquids for third parties, and in Oklahoma it hauls salt water and other
fluids for others. EOTT services the truck fleet at 12 maintenance shops
operated by EOTT in eight states (Louisiana, Oklahoma, New Mexico, California,
Kansas, Mississippi, Texas and Wyoming). EOTT owns five of the maintenance shops
and leases seven others. The tractor-trailer trucks are also used to transport
oil field-related fluids such as frac oil, wash oil, fresh water and brine
water. The storage capacity of the approximately 314 owned or leased field tanks
associated with the trucking business totals approximately 524,000 barrels.



                                       11
<PAGE>   12

ITEM 3.  LEGAL PROCEEDINGS

     EOTT is, in the ordinary course of business, a defendant in various
lawsuits, some of which are covered in whole or in part by insurance. Although
no assurance can be given, the General Partner believes that the ultimate
resolution of litigation, individually and in the aggregate, will not have a
materially adverse impact on the Partnership's financial position or results of
operations. Various legal actions have arisen in the ordinary course of
business, the significant of which are discussed below:

     Wyoming Refining Company Matter. EOTT has a possible loss exposure of
approximately $1.47 million as a result of a current dispute between Wyoming
Refining Company ("WRC") and the U.S. Minerals Management Service ("MMS"). MMS
is claiming that it was underpaid by WRC for certain Montana crude oil which was
delivered to WRC over a several-year period prior to 1993. Pursuant to a
now-expired crude oil exchange agreement between WRC and EOTT, WRC has indicated
that it will expect reimbursement from EOTT for any payment, if any, which WRC
ultimately makes to MMS in connection with the MMS claim. The General Partner
believes that WRC has valid defenses to the MMS claim and that the Partnership
would have valid defenses to any reimbursement claim by WRC.

     State of Texas Royalty Suit. EOTT was served on November 9, 1995 with a
petition styled The State of Texas, et al. vs. Amerada Hess Corporation, et al.
The matter was filed in District Court in Lee County, Texas and involves several
major and independent oil companies and marketers as defendants. The plaintiffs
are attempting to put together a class action lawsuit alleging that the
defendants acted in concert to buy oil owned by members of the plaintiff class
in Lee County, Texas, and elsewhere in Texas, at "posted" prices, which the
plaintiffs allege were lower than true market prices. There is not sufficient
information in the petition to fully quantify the allegations set forth in the
petition, but the General Partner believes that any such claims against the
Partnership will prove to be without merit.

     The State of Texas, et al. vs. Amerada Hess Corporation, et al., Cause No.
97-12040; In the 53rd Judicial District Court of Travis County, Texas. This case
was filed on October 23, 1997 in Austin by the Texas Attorney General's office
and involves several major and independent oil companies and marketers as
defendants. EOTT was served on November 18, 1997. The petition states that the
State of Texas brought this action in its sovereign capacity to collect
statutory penalties recoverable under the Texas Common Purchaser Act, arising
from Defendants' alleged willful breach of statutory duties owed to royalty,
overriding royalty and working interest owners of crude oil sold to Defendants,
as well as alleged breach of Defendants' common law and contractual duties. The
Plaintiffs also allege that the Defendants have engaged in discriminatory
pricing of crude oil. This case appears to be similar to the Lee County, Texas
case filed by the State of Texas on November 9, 1995 and disclosed previously.
There is not sufficient information in the petition to fully quantify the
allegations set forth in the petition, but the General Partner believes any such
claims against it or the Partnership will prove to be without merit.

     McMahon Foundation and J. Tom Poyner vs. Amerada Hess Corporation, et al.
(Including EOTT Energy Operating Limited Partnership), Civil Action No.
H-96-1155; United States District Court, Southern District of Texas, Houston
Division (Texas Federal Anti-Trust Suit). This suit was filed on April 10, 1996
as a class action complaint for violation of the federal antitrust laws and
involves several major and independent oil companies and marketers as
defendants. The relevant area is the entire continental United States, except
for Alaska, New York, Ohio, Pennsylvania, West Virginia and the Wilmington Field
at Long Beach, California. The plaintiffs claim that there is a combination and
conspiracy among the defendant oil companies to fix, depress, stabilize and
maintain at artificially low levels the price paid for the first purchase of
lease production oil sold from leases in which the class members own interests.
This was allegedly accomplished by agreement of the



                                       12
<PAGE>   13

defendants to routinely pay for first purchases at posted prices rather than
competitive market prices and maintain them in a range below competitive market
prices through an undisclosed scheme of using posted prices in buy/sell
transactions among themselves to create the illusion that posted prices are
genuine market prices. The plaintiffs allege violations from October of 1986
forward. No money amounts were claimed, and it is not possible to determine any
potential exposure until further discovery has been done. While the petition is
vague and discovery has not yet begun, the General Partner believes the
Partnership should be without liability in this or related matters.

     Randolph Energy, Inc., et al. vs. Amerada Hess Corporation, et al., Civil
Action No. 2:97CV273PG; In the United States District Court for the Southern
District of Mississippi, Jackson Division (Mississippi Federal Anti-Trust Suit).
EOTT received the summons in this matter on August 18, 1997. The case was filed
on August 5, 1997 and is a class action complaint for alleged violation of the
federal antitrust laws which involves several major and independent oil
companies and marketers as defendants. The plaintiffs claim that this litigation
arises out of a combination and conspiracy of the defendant oil companies to
fix, depress, stabilize and maintain at artificially low levels the prices paid
for the first purchase of lease production oil sold from leases in which the
class members own interests. The issues appear to be a duplication of the issues
in the Texas Federal Anti-Trust Suit referenced above. No money amounts were
claimed, and it is not possible to determine any potential exposure until
further discovery is done. Though still in its early stages, the General Partner
believes the Partnership should be without liability in this or related matters.

     The Texas Federal Anti-Trust Suit and the Mississippi Federal Anti-Trust
Suit, along with several other suits to which EOTT is not a party, were
consolidated and transferred to the Southern District of Texas by Transfer Order
dated January 14, 1998. The Judicial Panel on Multidistrict Litigation made this
recommendation due to similarity of issues in the cases.

     The Partnership believes that it has obtained or has applied for all of the
necessary permits required by federal, state, and local environmental agencies
for the operation of its business. Further, the Partnership believes that there
are no outstanding liabilities or claims relating to environmental matters
individually and in the aggregate, which would have a material adverse impact on
the Partnership's financial position or results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters submitted to a vote of security holders during the
fourth quarter of 1997.





                                       13
<PAGE>   14



                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON UNITS AND RELATED SECURITY HOLDER
        MATTERS.

     The following table sets forth, for the periods indicated, the high and low
sale prices per Common Unit, as reported on the New York Stock Exchange
Composite Tape, and the amount of cash distributions paid per Common Unit.

<TABLE>
<CAPTION>
                                                                        Price Range
                                                                  ---------     --------        Cash
                                                                    High          Low       Distributions
                                                                  ---------     --------    -------------
<S>                                                               <C>           <C>          <C>
1997
     First Quarter..............................................  $  22.375     $ 19.750     $   .475
     Second Quarter.............................................     21.625       18.375         .475
     Third Quarter..............................................     20.000       17.125         .475
     Fourth Quarter.............................................     20.625       14.750         .475


1996
     First Quarter..............................................  $  19.875     $ 16.375     $   .475
     Second Quarter.............................................     19.000       16.125         .475
     Third Quarter..............................................     20.250       18.250         .475
     Fourth Quarter.............................................     22.000       19.750         .475

</TABLE>
-----------
     Distributions are shown in the quarter paid to Common Unitholders


     As of February 15, 1998, there were approximately 405 record holders of the
Partnership's Common Units and there were an estimated 18,000 beneficial owners
of the Common Units held in a street name. There is no established public
trading market for the Partnership's Subordinated Units. Generally, the
Partnership will distribute 100% of its Available Cash as defined in the
Partnership Agreement within 45 days after the end of each quarter to
Unitholders of record and to the General Partner. Available Cash consists
generally of all of the cash receipts of the Partnership adjusted for its cash
distributions and net changes to reserves. The full definition of Available Cash
is set forth in the Partnership Agreement and amendments thereto, a form of
which is filed as an exhibit hereto. Distributions of Available Cash to the
Subordinated Unitholders will be subject to the prior rights of the Common and
Special Unitholders to receive the Minimum Quarterly Distribution ("MQD") for
each quarter during the Subordination Period and to receive any arrearages in
the distribution of the MQD on the Common Units for prior quarters during the
Subordination Period.

     In connection with the Partnership's initial public offering of Common
Units in March 1994, Enron and the Partnership entered into an Ancillary
Agreement pursuant to which, among other things, Enron agreed that it would
contribute up to $19 million to the Partnership in exchange for Additional
Partnership Interests ("APIs") if necessary to support the Partnership's ability
to pay the MQD on Common Units with respect to quarters ending on or prior to
March 31, 1997. As a result of cash operating losses from the Partnership's West
Coast processing and asphalt marketing business during the first and second
quarters of 1995, Enron purchased $9.1 million of APIs. At the beginning of the
third quarter of 1995, in connection with the decision of the Partnership to
exit its West Coast processing and asphalt marketing business, Enron committed
to increase its distribution support obligation by $10 million to $29 million
and to extend the support period for one year through March 31, 1998. To
implement this arrangement, the Partnership and Enron entered into an Agreement
to Increase and Extend Distribution Support, which provided for an amendment to
the Ancillary Agreement to increase and extend





                                       14
<PAGE>   15

Enron's support obligation and an amendment to the Partnership Agreement to
provide that Available Cash from Operations will be calculated on a cumulative
basis beginning with the third quarter of 1995. The purpose and effect of these
agreements was to restore the distribution support protection afforded to the
Common Unitholders to a level comparable to that afforded to the purchasers of
Common Units at the time of the initial public offering. In the fourth quarter
of 1997, Enron committed to extend the cash distribution support from March 31,
1998 to March 31, 1999 and due to the losses incurred by the Partnership in
1997, Enron purchased an additional $3.7 million of API's in connection with the
distribution for the third quarter of 1997 and $3.8 million of API's in
connection with the distribution for the fourth quarter of 1997.

     The Partnership Agreement provides that, with respect to any calendar
quarter, Available Cash in excess of the amount necessary to distribute the MQD
on all outstanding Units will be used to redeem outstanding APIs, of which $16.6
million are outstanding at February 13, 1998. In February 1997, the General
Partner amended the Partnership Agreement to provide that a holder of APIs may,
at its option, waive its right to receive distributions of Available Cash to
which it would otherwise be entitled and to provide that in such case the
Partnership may retain such cash for later distribution to partners or for use
in the Partnership's business in subsequent periods. The amendment also
contained provisions designed to ensure that any such waiver will have no impact
on the determination of whether the Partnership's Available Cash constituting
Cash from Operations has been sufficient to cause the Subordination Period to
end. The amendment creates an exception to the requirement that the Partnership
distribute 100% of Available Cash each quarter. The Partnership's Available Cash
for the fourth quarter of 1996 was substantially in excess of the amount
necessary to permit the Partnership to distribute MQD on all outstanding Units,
and upon adoption of the amendment, Enron, the holder of APIs, waived its right
to receive such excess cash in redemption of APIs. Enron has made no commitment
to furnish similar waivers with respect to quarters subsequent to the fourth
quarter of 1996, although under the amendment it has the right to grant such
waivers with respect to future periods. The February 1997 amendments to the
Partnership Agreement also provided that after the end of the Subordination
Period a holder of Subordinated Units may convert such Units into Common Units
either in whole or in part from time to time. The amendments also provided that
any unconverted Units will be renamed "Class B Units" after the end of the
Subordination Period. Prior to the amendments, the Partnership Agreement
provided that the General Partner (whether or not it held the Subordinated
Units) would determine when conversion occurred and that conversion would occur
on an all or none basis.



                                       15
<PAGE>   16

ITEM 6.  SELECTED FINANCIAL DATA (UNAUDITED)
         (In Thousands, Except Per Unit and Operating Data)


<TABLE>
<CAPTION>


                                                                      Year December 31,
                                                 -----------------------------------------------------------
                                                     1997            1996           1995            1994
                                                 -----------     -----------     -----------     -----------
                                                                                                 (Pro forma)
<S>                                              <C>             <C>             <C>             <C>
INCOME DATA:
Revenue .....................................    $ 7,646,099     $ 7,469,730     $ 5,088,240     $ 5,260,204
Cost of sales ...............................      7,533,054       7,320,203       4,996,439       5,164,447
                                                 -----------     -----------     -----------     -----------
Gross margin ................................        113,045         149,527          91,801          95,757
Operating expenses ..........................         96,158         101,945          72,951          70,079
Depreciation and amortization ...............         16,518          15,720          10,512          11,781
Impairment of assets ........................          7,961              --              --              --
                                                 -----------     -----------     -----------     -----------
Operating income (loss) .....................         (7,592)         31,862           8,338          13,897
Interest and related charges ................         (6,661)         (3,659)         (3,930)         (4,176)
Other income (expense), net .................           (146)            606           1,312           5,158
                                                 -----------     -----------     -----------     -----------
Income (loss) from
   continuing operations (1)(5) .............    $   (14,399)    $    28,809     $     5,720     $    14,879
                                                 ===========     ===========     ===========     ===========
Basic income (loss) from
   continuing operations per Unit:(6)
     o Common ...............................    $     (0.75)    $      1.50     $      0.33     $      0.86
                                                 ===========     ===========     ===========     ===========
     o Subordinated .........................    $     (0.75)    $      1.50     $      0.33     $      0.86
                                                 ===========     ===========     ===========     ===========
Diluted income (loss) from
   continuing operations per Unit (6) .......    $     (0.75)    $      1.50     $      0.33     $      0.86
                                                 ===========     ===========     ===========     ===========
Cash distributions per Common Unit ..........    $      1.90     $      1.90     $      1.80     $      0.88
                                                 ===========     ===========     ===========     ===========

BALANCE SHEET DATA (AT END OF PERIOD):
Total assets ................................    $   782,921     $ 1,026,197     $   696,127     $   708,997
Long-term liabilities .......................            281             931           1,546          12,922
Equity of parent ............................             --              --              --              --
Partners' capital (2) (5) ...................         62,093         106,173          75,819         158,561
Additional Partnership Interests (7) ........         12,775           9,091           9,091              --
Capital expenditures (3) ....................         22,837           6,723          67,022          15,947
Cash distributions ..........................         29,681          28,831          12,218          15,314

OPERATING DATA:
North American crude oil:
Gross margin per total barrel ...............    $      0.32     $      0.45     $      0.35     $      0.29
Gross margin per lease barrel ...............    $      0.98     $      1.30     $      0.99     $      0.94
Total gross margin (000) ....................    $   109,249     $   144,802     $    90,775     $    88,013
Total volumes (thousand bpd) (4) ............          933.7           875.0           718.5           822.5
Total lease volumes (thousand bpd) ..........          305.0           303.4           250.9           255.7

<CAPTION>

                                                 Nine Months    Three Months
                                                    Ended          Ended        Year Ended
                                                 December 31,     March 31,     December 31,
                                                    1994            1994            1993
                                                 -----------     -----------     -----------
                                                                       (Predecessor)
<S>                                              <C>             <C>             <C>
INCOME DATA:
Revenue .....................................    $ 4,027,630     $ 1,232,576     $ 5,761,120
Cost of sales ...............................      3,955,030       1,209,419       5,662,025
                                                 -----------     -----------     -----------
Gross margin ................................         72,600          23,157          99,095
Operating expenses ..........................         50,076          19,853          84,790
Depreciation and amortization ...............          8,974           2,805          11,410
Impairment of assets ........................             --              --              --
                                                 -----------     -----------     -----------
Operating income (loss) .....................         13,550             499           2,895
Interest and related charges ................         (3,162)            (75)             --
Other income (expense), net .................          1,331           3,827           1,190
                                                 -----------     -----------     -----------
Income (loss) from
   continuing operations (1)(5) .............    $    11,719     $     4,251     $     4,085
                                                 ===========     ===========     ===========
Basic income (loss) from
   continuing operations per Unit:(6)
     o Common ...............................    $      0.67             N/A             N/A
                                                 ===========
     o Subordinated .........................    $      0.67             N/A             N/A
                                                 ===========
Diluted income (loss) from
   continuing operations per Unit (6) .......    $      0.67             N/A             N/A
                                                 ===========
Cash distributions per Common Unit ..........    $      0.88             N/A             N/A
                                                 ===========

BALANCE SHEET DATA (AT END OF PERIOD):
Total assets ................................    $   708,997             N/A     $   629,341
Long-term liabilities .......................         12,922             N/A          10,305
Equity of parent ............................             --             N/A         153,659
Partners' capital (2) (5) ...................        158,561             N/A              --
Additional Partnership Interests (7) ........             --              --              --
Capital expenditures (3) ....................         12,358           3,589          20,708
Cash distributions ..........................         15,314             N/A             N/A

OPERATING DATA:
North American crude oil:
Gross margin per total barrel ...............    $      0.30     $      0.27     $      0.31
Gross margin per lease barrel ...............    $      0.96     $      0.88     $      0.87
Total gross margin (000) ....................    $    66,510     $    21,504     $    92,585
Total volumes (thousand bpd) (4) ............          803.0           882.2           830.2
Total lease volumes (thousand bpd) ..........          250.8           270.7           292.3
</TABLE>

(1)  Income (loss) from continuing operations excludes the effect of income
     taxes.

(2)  The decrease in Partners' capital in 1995 is due primarily to the 1995
     losses incurred in connection with EOTT's decision to exit its West Coast
     processing and asphalt marketing business. See additional discussion in
     Note 4 to the Consolidated Financial Statements.

(3)  The General Partner estimates that capital expenditures necessary to
     maintain the existing asset base at current operating levels will be $5-6
     million each year. 1993 includes $11 million for the purchase of pipeline
     assets in New Mexico and West Texas. 1995 includes $52.6 million for the
     purchase of crude gathering and pipeline assets in Mississippi and Alabama.
     1997 includes $12 million for the purchase of crude gathering and pipeline
     assets in Arkansas, Louisiana and Texas.

(4)  Includes lease volumes and trade volumes. Trade volumes vary depending upon
     market opportunities.

(5)  1997 includes non-recurring charges of (i) $6.5 million impairment of an
     information system development project, (ii) $1.5 million impairment of
     three Ohio products terminals held for sale and (iii) $2.0 million of
     severance costs related to the exit of the East of Rockies refined products
     business and corporate realignment. See additional discussion in Notes 7
     and 8 to the Consolidated Financial Statements.

(6)  Income (loss) per Unit has been restated for all periods to conform with
     Statement of Financial Accounting Standards No. 128. See additional
     discussion in Note 6 to the Consolidated Financial Statements.

(7)  In February 1998, the fourth quarter distribution for 1997 was paid in part
     utilizing $3.8 million in cash provided by Enron in exchange for Additional
     Partnership Interests. See additional discussion in Note 19 to the
     Consolidated Financial Statements.



                                       16
<PAGE>   17



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

INFORMATION REGARDING FORWARD-LOOKING INFORMATION

     The statements in this Annual Report on Form 10-K 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. Such forward-looking statements include the discussions in "Management's
Discussion and Analysis of Financial Condition and Results of Operations." Any
forward-looking statements are not guarantees of future performance, involve
significant risks and uncertainties and actual results may vary materially from
those in the forward-looking statements as a result of various factors.
Important factors that could cause actual results to differ materially from
those in the forward-looking statements herein include the Partnership's success
in obtaining additional lease barrels, demand for various grades of crude oil
and the resulting changes in pricing relationships, developments relating to
possible acquisitions or business combination opportunities, industry
conditions, the success of the Partnership's risk management activities and
conditions of the capital markets and equity markets during the periods covered
by the forward-looking statements. Although the Partnership believes that its
expectations regarding future events are based on reasonable assumptions, it can
give no assurance that these are all the factors that could cause actual results
to vary materially from the forward-looking statements or that its expectations
regarding future developments will prove to be correct.

OVERVIEW

     Through its affiliated limited partnerships, EOTT Energy Operating Limited
Partnership, EOTT Energy Canada Limited Partnership, and EOTT Energy Pipeline
Limited Partnership, EOTT is engaged in the purchasing, gathering, transporting,
trading, storage and resale of crude oil and refined petroleum products and
related activities. EOTT's business segments are its North American Crude Oil
gathering and marketing operations, and its Refined Products Marketing business
(see Note 20 to the Consolidated Financial Statements for certain financial
information by business segment). In late 1997, EOTT made the decision to exit
the East of Rockies refined products business. See further discussion in "Recent
Developments."

     The purchase and resale of crude is a highly competitive activity with very
thin and volatile profit margins. EOTT's operating results are sensitive to a
number of factors including: types of crude oil, individual refinery demand for
specific grades of crude oil, area market price structures for the different
grades of crude oil, location of customers, availability of transportation
facilities and timing and costs (including storage) involved in delivering crude
oil to the appropriate customer. EOTT purchases lease barrels at prevailing
market prices. Generally, as EOTT purchases lease barrels, it simultaneously
enters into a corresponding sale transaction to secure a profit, thereby
minimizing or eliminating exposure to price fluctuations. In addition, EOTT's
marketing strategies also provide the potential to enhance the value of the
crude oil EOTT purchases.

RECENT DEVELOPMENTS

     In late 1997, EOTT decided to refocus on the core crude business, which
provides substantially all of the gross margin for the Partnership, as well as
improve overall operating efficiencies. As a result, EOTT announced the
following two initiatives. The decision was made to exit the marginal East of
Rockies refined products business in order to focus on business development
opportunities in the crude business, where management believes there is more
potential for growth. The Partnership will re-deploy the working capital
associated with the East of Rockies refined products business and plans to sell
its three products terminals in Ohio. In connection with this decision,
non-recurring charges were recorded at December 31, 1997, which included
severance costs of $0.9 million and a $1.5 million impairment of the Ohio
products terminals.



                                       17
<PAGE>   18

     In addition, EOTT streamlined business processes throughout the
organization and realigned reporting responsibilities to improve the
Partnership's overall cost structure. As a result, marketing and administrative
personnel were reduced by approximately 20 percent and an additional
non-recurring severance charge of $1.1 million was recorded at December 31, 1997
pursuant to the existing EOTT Energy Corp. Severance Plan.

     During the fourth quarter of 1997, EOTT terminated an information system
development project due to the lack of third party vendor support and
foreseeable operating platform obsolescence. As a result, the Partnership
recorded a $6.5 million non-recurring impairment charge.

     The following review of the results of operations and financial condition
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto. The results of operations for the twelve months ended December
31, 1997, 1996, and 1995 and the financial condition at December 31, 1997 and
1996 reflect the activities of EOTT Energy Partners, L.P. and its subsidiary
partnerships (the "Partnership"). Unless the context otherwise requires, the
term "EOTT" hereafter refers to the Partnership and its affiliated limited
partnerships.

RESULTS OF OPERATIONS

     EOTT reported a loss from continuing operations of $14.4 million or $0.75
per diluted Unit for 1997, and income of $28.8 million or $1.50 per diluted Unit
for 1996, and $5.7 million or $.33 per diluted Unit for 1995. Excluding
non-recurring charges of $10.0 million or $0.52 per diluted Unit discussed
previously in "Recent Developments", EOTT reported a net loss of $4.4 million or
$0.23 per diluted Unit in 1997. Including the 1997 non-recurring charges, EOTT
showed a net loss of $14.4 million for 1997 compared to net income of $28.8
million for 1996, and a net loss of $61.4 million for 1995, which includes
losses on discontinued operations of $65.8 million.

     Selected financial data for EOTT's business segments are summarized below,
in millions:

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                       ----------------------------------------------
                                                            1997              1996           1995
                                                       -------------     -------------   ------------
<S>                                                    <C>               <C>             <C>
Revenues:
     North American Crude Oil........................  $     6,792.3     $     6,758.7   $    4,704.2
     Refined Products Marketing......................          853.8             711.9          385.0
     Intersegment eliminations.......................            -                (0.9)          (1.0)
                                                       -------------     -------------   ------------
       Total.........................................  $     7,646.1     $     7,469.7   $    5,088.2
                                                       =============     =============   ============

Gross margin:
     North American Crude Oil........................  $       109.2     $       144.8   $       90.8
     Refined Products Marketing......................            3.8               4.7            1.0
                                                       -------------     -------------   ------------
       Total.........................................  $       113.0     $       149.5   $       91.8
                                                       =============     =============   ============

Operating Income (Loss):
     North American Crude Oil........................  $        19.9     $        54.6   $       29.3
     Refined Products Marketing......................           (0.8)              1.5           (1.3)
     Corporate.......................................          (26.7)            (24.2)         (19.7)
                                                       -------------     -------------   ------------
       Total.........................................  $        (7.6)    $        31.9   $        8.3
                                                       =============     =============   ============
</TABLE>

     Gross margin is the difference between the sales price of crude oil or
other petroleum products and the cost of crude and products purchased, including
costs paid to third parties for transportation and handling charges. Both of
EOTT's business segments are characterized by large volumes and generally very
thin and volatile profit margins on purchase and sale transactions, and the
absolute price levels for crude oil and refined products do not necessarily bear
a direct relationship to margins per barrel, although such price levels
significantly impact




                                       18
<PAGE>   19

revenues and cost of sales. As a result, period-to-period variations in revenues
and cost of sales are not meaningful, and therefore are not discussed.

TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH TWELVE MONTHS ENDED
DECEMBER 31, 1996

     North American Crude Oil. Operating income for the North American Crude Oil
segment was $19.9 million in 1997 compared to $54.6 million in 1996. Gross
margin decreased $35.6 million to $109.2 million due primarily to the
deterioration in grade and basis differentials in the North American crude
gathering business. North American crude lease purchases were up slightly from
303,400 barrels per day ("bpd") for 1996 to 305,000 bpd in 1997. Operating
expenses of $89.3 million for 1997 were $0.9 million lower than 1996 due to
lower benefits and other employee related costs, partially offset by increased
operating costs associated with the CITGO acquisition of pipeline and related
assets and severance costs associated with the realignment initiatives discussed
in "Recent Developments."

     Refined Products Marketing. Refined Products Marketing had an operating
loss of $0.8 million in 1997 compared to operating income of $1.5 million in
1996. The 1997 operating loss was a result of the non-recurring charges recorded
of $0.9 million for severance costs and the $1.5 million impairment of the Ohio
terminals due to the exit of the East of Rockies refined products business.
Trade volumes were 92,300 bpd in 1997 compared to 73,100 bpd in 1996. Gross
margin decreased $0.9 million to $3.8 million in 1997 due primarily to a lack of
seasonal demand for refined products. Operating expenses of $3.1 million in 1997
were relatively flat compared to 1996 due primarily to $0.9 million recorded for
severance costs partially offset by lower benefits and other employee related
costs.

     Corporate and Other. Corporate and other costs of $26.7 million for 1997
were $2.5 million higher compared to 1996 due primarily to a $6.5 million
non-cash impairment associated with the termination of an information system
development project partially offset by lower benefits and other employee
related costs, lower liability and casualty insurance costs and lower systems
operating costs. Interest and related charges for 1997 were $6.7 million
compared to $3.7 million in 1996. The increase is due primarily to higher
average short-term debt required to meet working capital needs, primarily
related to higher crude inventories and debt used to finance the acquisition of
crude oil pipeline assets in the first quarter of 1997. Other income (expense),
net, consisting primarily of gains (losses) on transactions denominated in
foreign currency; gains (losses) on the sale of property, plant and equipment;
and litigation settlements decreased $0.9 million to a loss of $0.8 million in
1997.

TWELVE MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH TWELVE MONTHS ENDED
DECEMBER 31, 1995.

     North American Crude Oil. Operating income for the North American Crude Oil
segment was $54.6 million for 1996 compared to $29.3 million in 1995. Gross
margin increased $54.0 million to $144.8 million due primarily to unusually
strong crude oil market conditions and higher volumes related to the acquisition
of pipeline and related assets in Mississippi and Alabama (see Note 5 to the
Consolidated Financial Statements). North American crude lease purchases were up
21% from 250,900 barrels bpd for 1995 to 303,400 bpd in 1996 due primarily to
the acquisition of pipeline and related assets in Mississippi and Alabama.
Operating expenses of $90.2 million for 1996 were $28.7 million higher than 1995
due again primarily to higher operating costs associated with the expanded
activities in Mississippi, Alabama and California along with higher benefits and
other employee related costs.

     Refined Products Marketing. Operating income for Refined Products Marketing
was $1.5 million in 1996 compared to a loss of $1.3 million in 1995. Trade
volumes were 73,100 bpd in 1996 compared to 47,800 bpd in 1995. Gross margin
increased $3.7 million to $4.7 million in 1996 due primarily to the expansion of
products trading in states west of the Rockies, primarily California and Oregon.
The increase also includes the impact of a non-cash inventory write down
totaling $1.9 million at year-end 1995 to reflect current refined product
prices.




                                       19
<PAGE>   20

Operating expenses of $3.2 million in 1996 were $0.9 million higher than in 1995
due primarily to higher benefit and other employee related costs.

     Corporate and Other. Corporate and other costs of $24.2 million for 1996
were $4.5 million higher compared to 1995 due primarily to higher systems
operating costs, benefits, and other employee related costs. Interest and
related charges for 1996 were $3.7 million compared to $3.9 million in 1995. The
decrease is due primarily to lower interest expense on lower short-term
borrowings partially offset by interest expense on the promissory note to Enron
of $24.2 million related to the acquisition of assets from Amerada Hess
Corporation which included the Mississippi-Alabama pipeline. Other income
(expense), net, consisting primarily of gains (losses) on transactions
denominated in foreign currency; gains (losses) on the sale of property, plant
and equipment; and litigation settlements decreased $0.7 million to $0.2 million
in 1996.

DISCONTINUED OPERATIONS

      On September 29, 1995, EOTT transferred to Paramount Petroleum Corporation
("PPC") EOTT's West Coast processing and asphalt marketing business (other than
its Arizona asphalt terminals and its asphalt marketing business based out of
those terminals, as discussed below) pursuant to an agreement dated August 15,
1995 between EOTT and certain of its affiliates and PPC and certain of its
affiliates. EOTT's decision to exit the West Coast business segment was made
primarily due to persistently low crack spreads in 1995 and EOTT's inability to
effectively protect itself against potential future losses due to the volatility
in the crack spread. The crack spread is the difference between the sales price
of refined products and the cost of feedstocks, principally crude oil.

      In August 1995, EOTT's Board of Directors approved a formal plan to
dispose of the West Coast business segment. The results of discontinued
operations included a charge of $46.8 million, or $2.70 per diluted Unit, in the
second quarter of 1995. This charge included the repayment of the PPC bank debt
at June 30, 1995 ($9.4 million), write-off of leasehold improvements at the
refinery ($7.4 million), estimated third quarter operating losses ($6.0
million), additional expenses ($10.0 million) including transaction fees, lease
cancellation costs and working capital reserves, and a lump-sum settlement
($14.0 million) related to taxes on the debt repayment and for the assumption of
other contractual obligations, none of which was environmentally related. During
the second half of 1995, EOTT recorded a $1.0 million benefit which reflects a
settlement at an amount less than estimated on the PPC bank obligation assumed
by EOTT as part of the agreement with PPC, and an additional charge of $3.8
million associated with the final liquidation of the processing inventories.

      Effective December 1, 1996, the Partnership sold its Arizona asphalt
terminals for approximately $3.2 million. The sale of these assets did not have
a material impact on the Partnership's results of operations.

      Amounts related to the West Coast Operations discontinued in 1995 are
summarized as follows: (1) revenues were $315.8 million (2) gross margin was
$(5.6) million (3) loss from discontinued operations was $16.2 million or $0.93
per diluted Unit and loss on disposal of discontinued operations was $49.6
million or $2.86 per diluted Unit. These operating results include an allocation
of interest expense based on the ratio of net assets of the discontinued
operations to the sum of consolidated net assets plus consolidated debt.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows From Operating Activities

      Net cash from operating activities was breakeven in 1997 compared to $39.3
million of cash provided by operating activities in 1996. The decrease in
operating cash flow is primarily due to a significant decline in gross margin
resulting from deterioration in grade and basis differentials in the North
American crude gathering business.



                                       20
<PAGE>   21

Cash Flows From Investing Activities

      Net cash used in investing activities totaled $21.5 million in 1997
compared to $7.8 million in 1996, primarily due to the pipeline acquisition from
CITGO Pipeline Company. Additions to property, plant, and equipment (capital
expenditures) of $22.8 million in 1997 include $12.0 million for the pipeline
acquisition from CITGO Pipeline Company ("CITGO"), $4.8 million for pipeline
connections and improvements, and $4.2 million for information systems
development.

      The General Partner estimates that capital expenditures necessary to
maintain the existing asset base at current operating levels will be
approximately $5 - $6 million each year. The level of capital expenditures by
the Partnership will vary depending upon prevailing energy markets, general
economic conditions and the current regulatory environment.

      The Partnership generally expects to fund short-term liquidity as well as
sustaining capital expenditures primarily from operating activities in addition
to lines of credit provided by Enron, more fully described in Note 9 to the
Consolidated Financial Statements. The Partnership may also issue additional
limited partner interests and other equity securities, the proceeds from which
could be used to provide additional funds for acquisitions or other Partnership
needs.

Cash Flows From Financing Activities

     Net cash provided by financing activities totaled $20.0 million in 1997
compared to net cash used of $28.5 million in 1996. The 1997 amount primarily
represents short-term borrowings to fund working capital needs and finance the
CITGO pipeline acquisition reduced by distributions paid to Unitholders of
record for the period October 1, 1996 through September 30, 1997.

     During the first half of 1996, EOTT issued approximately 1.8 million Common
Units in exchange for $29.8 million in a private placement with Enron and
received $24.2 million for a promissory note issued to Enron. These proceeds,
together with other short-term borrowings from Enron, were used by EOTT to repay
$85 million in bridge financing related in part to the acquisition of pipeline
assets from Amerada Hess on December 29, 1995. See additional discussion under
Note 5 to the Consolidated Financial Statements. On July 16, 1996, Enron and
EOTT exchanged the Common Units for Special Units, more fully described in Note
13 to the Consolidated Financial Statements.

     Cash distributions paid to Unitholders were $29.7 million and $28.8 million
for 1997 and 1996, respectively. In 1995, the Partnership issued Additional
Partnership Interests ("APIs") to Enron in exchange for $9.1 million in support
of the distributions paid to the General Partner and Common Unitholders during
the second and third quarters of 1995. Due to the losses incurred during 1997,
the third quarter distribution to all Common and Special Unitholders was paid
utilizing $2.0 million from the Partnership's Available Cash and the Partnership
issued API's in exchange for $3.7 million in cash support from Enron. As
discussed further in Note 19 to the Consolidated Financial Statements, the 1997
fourth quarter distribution was paid in February 1998 using $1.9 million of
Available Cash from the Partnership and the issuance of API's in exchange for
$3.8 million in cash support from Enron.

Acquisition of Pipeline Assets

     On February 1, 1997, the Partnership acquired over 400 miles of intrastate
and interstate common carrier pipelines in Louisiana and Texas from CITGO
Pipeline Company. Shipped volumes associated with these assets amount to
approximately 48,000 barrels per day from leases in certain regions of Arkansas,
Louisiana and Texas. Storage associated with the pipeline systems totals
approximately 0.5 million barrels. The purchase price was approximately $12
million and was financed with term debt from Enron.




                                       21
<PAGE>   22

Working Capital and Credit Resources

     Prior to June 30, 1995, EOTT had a credit facility with a third party. In
connection with the termination of this facility, an extraordinary one-time
charge of $1.3 million was recorded in 1995. On June 30, 1995, Enron Corp.
agreed to provide credit support (the "Enron Facility") to the Partnership in
the form of guarantees, letters of credit, loans and letters of indemnity. The
total amount of the Enron Facility was $600 million, as amended December 19,
1996, and the facility, as amended February 10, 1998, has a maturity of March
31, 1999. As amended, the agreement contains sublimits on the availability of
the Enron Facility of $100 million for working capital loans and $200 million
for letters of credit. Letter of credit fees are based on actual charges by the
banks which range from .20% - .375% per annum. Interest on outstanding loans is
charged at the London Interbank Offering Rate ("LIBOR") plus .25% per annum.

     The Enron Facility is subject to defined borrowing base limitations
relating to the Partnership's activities and to the maintenance and protection
of the collateral. The Enron Facility permits distributions to Unitholders
subject to certain limitations based on the Partnership's earnings and other
factors. These covenants and restrictions are not expected to materially affect
EOTT's ability to operate the ongoing Partnership business.

     At December 31, 1996, EOTT had an additional $24.2 million of term debt
outstanding with Enron under a financing arrangement dated January 3, 1996 for
acquisitions and other capital projects (the "Term Loan"). This financing was
initially provided at a rate of LIBOR plus 1% per annum until March 31, 1996, a
rate of LIBOR plus 1.5% through June 30, 1996 and a rate of LIBOR plus .3%
effective September 15, 1996. On February 25, 1997, with an effective date of
February 11, 1997, this note was extended in maturity to March 31, 1998 from its
original March 31, 1997 maturity date and the amount available was increased to
$39.3 million. In early 1997, an additional $15 million of term debt was
borrowed primarily to finance the CITGO Pipeline Acquisition. On February 10,
1998, the maturity date of the Term Loan was extended to March 31, 1999.

      The Enron Facility and Term Loan are secured by a first priority lien on
and security interest in all receivables and inventory of the Partnership. The
borrowing base is the sum of cash and cash equivalents, specified percentages of
eligible receivables, inventory, and products contracted for or delivered but
not billed. The Enron Facility and Term Loan are non-recourse to the General
Partner and the General Partner's assets. The Partnership is restricted from
entering into additional financing arrangements without the prior approval of
Enron.

     At December 31, 1997, EOTT had $92.5 million in letters of credit and $70.0
million in loans outstanding under the Enron Facility at an average annual
interest rate of approximately 5.8%. The amount outstanding under the Term Loan
at December 31, 1997 was $39.3 million with an average annual interest rate of
6.0%. The actual interest rate may vary based on the length of the borrowings.
In addition, guarantees outstanding totaled $402.5 million of which $292.3
million were utilized.

     At December 31, 1996, EOTT had $180.1 million in letters of credit and
$38.5 million in loans outstanding under the Enron Facility at an average annual
interest rate of approximately 5.8%. The amount outstanding under the Term Loan
at December 31, 1996 was $24.2 million with an average annual interest rate of
6.5%. The actual interest rate may vary based on the length of the borrowings.
In addition, guarantees outstanding totaled $425.7 million of which $334.3
million were utilized.

     At December 31, 1997, EOTT was in technical violation of the negative
covenants relating to the Tangible Net Worth, Leverage Ratio and Working Capital
Ratio in the Enron Facility and Term Loan due principally to the operating loss
associated with the deterioration of grade and basis differentials in the crude
oil markets. EOTT received a waiver for these violations from Enron.



                                       22
<PAGE>   23

     At December 31, 1996, EOTT was in technical violation of the negative
covenant relating to the Leverage Ratio in the Enron Facility and Term Loan due
principally to increased volumes of business and increases in the price of
crude. EOTT received a waiver for this violation from Enron.

     The General Partner believes that the Enron Facility will be sufficient to
support the Partnership's crude oil purchasing activities and working capital
requirements. No assurance, however, can be given that the General Partner will
not be required to reduce or restrict the Partnership's gathering and marketing
activities because of limitations on its ability to obtain credit support and
financing for its working capital needs.

     The Partnership's ability to obtain letters of credit to support its
purchases of crude oil or refined petroleum products is fundamental to the
Partnership's gathering and marketing activities. Additionally, EOTT has a
significant need for working capital due to the large dollar volume of trading
and marketing transactions in which it engages. Any significant decrease in the
Partnership's financial strength, regardless of the reason for such decrease,
may increase the number of transactions requiring letters of credit or other
financial support, make it more difficult for the Partnership to obtain such
letters of credit, and/or may increase the cost of obtaining them. This could in
turn adversely affect the Partnership's ability to maintain or increase the
level of its purchasing and marketing activities or otherwise adversely affect
the Partnership's profitability and Available Cash as defined in the Partnership
Agreement and amendments thereto.

      Generally, the Partnership will distribute 100% of its Available Cash
within 45 days after the end of each quarter to Unitholders of record and to the
General Partner. Available Cash consists generally of all of the cash receipts
of the Partnership adjusted for its cash distributions and net changes to
reserves. The full definition of Available Cash is set forth in the Partnership
Agreement and amendments thereto, a form which is filed as an exhibit to this
Annual Report on Form 10-K. Distributions of Available Cash to the Subordinated
Unitholders are subject to the prior rights of the Common and Special
Unitholders to receive the Minimum Quarterly Distribution ("MQD") for each
quarter during the Subordination Period, and to receive any arrearages in the
distribution of the MQD on the Common Units for prior quarters during the
Subordination Period.

      MQD is $0.475 per Unit. Enron has committed to provide total cash
distribution support in an amount necessary to pay MQDs, with respect to
quarters ending on or before March 31, 1999, in an amount up to an aggregate of
$29 million (of which $16.6 million had been advanced through February 13, 1998)
in exchange for additional partnership interests ("APIs").

     The APIs purchased by Enron are not entitled to cash distributions or
voting rights. Originally, the APIs were required to be redeemed if and to the
extent that Available Cash for any quarter exceeded an amount necessary to
distribute the MQD on all Common and Subordinated Units and to eliminate
arrearages, if any, in the MQD on Common Units for prior periods. In February
1997, the General Partner amended the Partnership Agreement to provide that a
holder of APIs may, at its option, waive its right to receive distributions of
Available Cash to which it would otherwise be entitled to and to provide that in
such case the Partnership may retain such cash for later distribution to
partners or for use in the Partnership's business in subsequent periods. The
Partnership's Available Cash for the fourth quarter of 1996 was substantially in
excess of the amount necessary to distribute the MQD on all outstanding Units,
and upon adoption of the amendment, Enron, the holder of APIs, waived its right
to receive such excess cash in redemption of APIs. The February 1997 amendments
to the Partnership Agreement also provided that after the end of the
Subordination Period a holder of Subordinated Units may convert such Units into
Common Units either in whole or in part from time to time. The amendments also
provided that any unconverted Units will be renamed "Class B Units" after the
end of the Subordination Period. Prior to the amendments, the Partnership
Agreement provided that the General Partner (whether or not it held the
Subordinated Units) would determine when conversion occurred and that conversion
would occur on an all or none basis. See Part II, Item 5, "Market for
Registrant's Common Units and Related Security Holder Matters."




                                       23
<PAGE>   24

     The Partnership Agreement authorizes EOTT to cause the Partnership to issue
additional limited partner interests and other equity securities, the proceeds
from which could be used to provide additional funds for acquisitions or other
Partnership needs.


Summarized Financial Information of the General Partner

      EOTT Energy Corp., an indirect wholly owned subsidiary of Enron Corp.,
serves as the General Partner of the Partnership. Summary financial information
for 1997 and 1996 is shown below, in thousands:

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                          1997              1996
                                                       -----------       -----------
<S>                                                    <C>               <C>
Balance Sheet Data (at end of period)
     Total assets ...................................  $    47,181       $    50,413
     Total liabilities...............................  $     1,290       $        97
     Shareholder's equity............................  $    45,891       $    50,316

Income Statement Data:
     Net income (loss)...............................  $       138       $     5,524
</TABLE>

     Enron Corp. is a publicly traded company listed on the New York Stock
Exchange. Financial information about Enron Corp. can be obtained from its
filings with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934.

OTHER MATTERS

Year 2000

      EOTT utilizes software and related technologies throughout its business
that will be affected by the date change in the year 2000. An evaluation of
EOTT's systems and its third party vendors is currently being performed to
determine the scope of change and related costs to insure that EOTT's systems
continue to function adequately to meet its internal needs and those of its
customers and a detailed implementation plan is being developed based on these
findings. In addition, EOTT will be contacting significant business associates
to determine their plans to address year 2000 issues. Preliminary estimates of
the total costs, which will be expensed as incurred, range from $2 million to $3
million. These projects, which began in 1997, will likely continue through 1999.

Recent Accounting Pronouncements

      During June 1997, two new accounting standards were issued that affect
financial reporting. Statement of Financial Accounting Standards ("SFAS") No.
130, "Comprehensive Income" requires the presentation of comprehensive income
which is traditional net income (loss) adjusted for certain items that
previously were only reflected as direct charges for equity. SFAS No. 130 does
not have a material effect on EOTT. SFAS No. 131, "Reporting Disaggregated
Information About a Business Enterprise" requires that segment reporting for
public companies be measured the same way management identifies and evaluates
information internally. SFAS No. 131 requires adoption of this standard for year
end 1998 reporting and also requires presentation of certain segment information
on a quarterly basis starting in 1999. EOTT is currently evaluating the impact
of this standard.





                                       24
<PAGE>   25

OUTLOOK

      Management expects onshore North American crude oil production to continue
to decline at 3% to 5% annually. EOTT plans to continue aggressively pursuing
strategies that management anticipates would result in increased market share of
domestic lease barrel production. By offering an attractive combination of
integrated producer support such as field level service and division order
services, EOTT plans to increase its producer base by maintaining its reputation
for high-quality, responsive customer service. By leveraging and enhancing its
multi-region presence, EOTT plans to increase marketing and trading
opportunities both domestically and in Canada.

      EOTT engages and will continue to engage in transactions principally for
the purpose of hedging or enhancing the value of the Partnership's physical
business. Based on EOTT's internal trading controls, which require daily
balancing, management believes that the hedging program is effective and does
not have a material impact on the Partnership's results of operations except for
the effect which might have occurred if the Partnership had not hedged its
physical lease purchases as it has historically done.

      EOTT will continue to pursue attractive acquisition or business
combination opportunities to increase its scale of business, add cash flow, and
reduce earnings volatility. Acquisitions that result in increased lease purchase
volumes should help to enhance EOTT's marketing and trading opportunities. EOTT
management is committed to continue improving internal business processes in all
operational, marketing, and administrative areas and thereby achieve
improvements in productivity.

      Total capitalization at December 31, 1997 was $74.9 million consisting of
$62.1 million of Partners' Capital and $12.8 million of APIs. Management
anticipates the Partnership will be able to pay all interest costs related to
short-term borrowings out of cash flow from continuing operations.

      Historically, this business has been very competitive with thin and
volatile profit margins. Due to the volatility of crude oil prices in 1997,
crude oil gathering margins suffered industry wide. Although there has been
improvement in crude margins since the second quarter of 1997, margins have not
returned to historical levels. EOTT anticipates that crude margins will return
to average levels of profitability as the market stabilizes in 1998; however,
the volatility of the market cannot be projected with any certainty. The
Partnership intends to continue to pay MQDs to all its Common and Special
Unitholders; however, due to the volatility of the market and other factors
which can affect operating results, distribution support from Enron will be
necessary to pay MQDs for the first quarter of 1998 and distribution support
from Enron may be necessary to pay MQDs during the remainder of 1998. Enron has
committed to provide total cash distribution support in an amount necessary to
pay MQDs, with respect to quarters ending on or before March 31, 1999, in an
amount up to an aggregate of $29 million (of which $16.6 million has been
advanced through February 1998).

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required hereunder is included in this report as set forth
in the "Index to Financial Statements" on page F-1.

ITEM 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

     None




                                       25
<PAGE>   26


                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The Partnership does not directly employ any persons responsible for
managing or operating the Partnership or for providing services relating to
day-to-day business affairs. The General Partner provides such services and is
reimbursed for substantially all of its direct and indirect costs and expenses
including compensation and benefit costs.

     The Board of Directors of the General Partner has established a committee
(the "Audit Committee") consisting of three individuals who are neither officers
nor employees of the General Partner or any affiliate of the General Partner.
The committee has the authority to review, at the request of General Partner,
specific matters as to which the General Partner believes there may be a
conflict of interest in order to determine if the resolution of such conflict is
fair and reasonable to the Partnership. In addition, the committee has the
authority and responsibility for selecting the Partnership's independent public
accountants, reviewing the Partnership's annual audit and resolving accounting
policy questions.

DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER

     Set forth below is certain information concerning the directors and
executive officers of the General Partner. All directors of the General Partner
are elected annually by and may be removed by Enron Liquids Holding Corp., a
wholly owned subsidiary of Enron Corp., as the sole shareholder of the General
Partner. All executive officers serve at the discretion of the Board of
Directors of the General Partner.

<TABLE>
<CAPTION>
                                              Years Employed
                                              by Enron or its
              Name                     Age   its Subsidiaries              Position
              ----                     ---   ----------------              --------
<S>                                    <C>           <C>          <C>
Edward O. Gaylord...................   66                         Director and Chairman of the Board
Philip J. Hawk .....................   44            5            Director, Chief Executive Officer and
                                                                       President
John H. Duncan .....................   69                         Director
Dee S. Osborne .....................   67                         Director
Daniel P. Whitty ...................   66                         Director
Kenneth L. Lay .....................   55           19            Director
Thomas E. White, Jr.................   54            7            Director
Mary Ellen Coombe ..................   47           17            Vice President, Human Resources and
                                                                       Administration
Stephen W. Duffy ...................   44            9            Vice President and General Counsel
Douglas P. Huth ....................   51            6            Vice President, Operations
Gary W. Luce........................   38            4            Senior Vice President, Commercial
Lori L. Maddox......................   33            1            Controller
</TABLE>


     Edward O. Gaylord has served as a member of the Board of Directors since
January 1993. Mr. Gaylord was elected Chairman of the Board of EOTT Energy Corp.
in February 1993. He was elected in December 1995 as a member of the Audit
Committee. Prior to joining EOTT Energy Corp., Mr. Gaylord owned and managed
Gaylord & Company, a private venture capital firm, and he has owned interests in
and managed various trucking, storage and manufacturing entities in his career
of more than 30 years. Mr. Gaylord serves on the Board of Directors of Imperial
Holly Corporation, Seneca Foods Corporation, ESSEX International Inc., Federal
Reserve Bank of Dallas - Houston Branch, and the General Partner of Kinder
Morgan Energy Partners, L.P.



                                       26
<PAGE>   27

     Philip J. Hawk serves as President and became Chief Executive Officer in
December 1994, of EOTT Energy Corp. and was elected to the Board of Directors in
October 1993. Mr. Hawk joined EOTT Energy Corp. in January 1993 as Executive
Vice President of Marketing. Prior to joining EOTT Energy Corp., Mr. Hawk served
as Chief Operating Officer of Goodman Manufacturing Co., L.P. Mr. Hawk was
previously associated with McKinsey and Company for 14 years where he became a
partner. Mr. Hawk is also a director of Highlands Insurance Group.

     John H. Duncan was elected to the EOTT Energy Corp. Board of Directors in
January 1993 and appointed to the Compensation Committee in February 1993. Since
1990, Mr. Duncan's principal occupation has been investments. Mr. Duncan is also
a director of Enron Corp. and Chase of Texas, N. A.

     Dee S. Osborne was elected to the EOTT Energy Corp. Board of Directors and
appointed to the Audit Committee and Compensation Committee in February 1993.
Mr. Osborne serves as President of Finial Investment Corporation, Chairman of
Digital and Wireless Communications, L.L.C. and Vice Chairman of Jacintoport
Terminal Company. He is a director of Seagull Energy Corporation, Bogan
Aerotech, Inc., and Trustee of Scott & White Memorial Hospital.

     Daniel P. Whitty was elected to the EOTT Energy Corp. Board of Directors in
January 1993 and appointed to the Audit Committee and the Compensation Committee
in February 1993. Mr. Whitty is an independent financial consultant and serves
as the Chairman of the Audit Committee of Northern Border Partners, L.P. and as
a director of Enron Equity Corp. He has also served as a director of Methodist
Retirement Communities, Inc. and a Trustee of the Methodist Retirement Trust.
Mr. Whitty served 35 years with Arthur Andersen LLP and was elected to its
worldwide partnership in 1962.

     Kenneth L. Lay was elected to the EOTT Energy Corp. Board of Directors in
January 1993 and for over five years has served as Chairman of the Board and
Chief Executive Officer of Enron Corp. Mr. Lay is also a director of Enron
Corp., Trust Company of the West, Eli Lilly and Company, Compaq Computer
Corporation and Enron Oil & Gas Company.

     Thomas E. White, Jr. was elected to the EOTT Energy Corp. Board of
Directors in February 1997. Mr. White is Chairman of the Board and Chief
Executive Officer of Enron Ventures Corp. and Enron Renewable Energy Corp. From
1993 to 1997, Mr. White served as Chairman of the Board and Chief Executive
Officer of Enron Operations Corp. He served as Chairman of the Board and Chief
Executive Officer of Enron Power Corp. from 1991 to 1993. Prior to joining
Enron, Mr. White retired as a Brigadier General from the United States Army.

     Mary Ellen Coombe has served as Vice President, Human Resources and
Administration since December 1992. She served as Senior Vice President, Human
Resources and Administration for Enron Liquid Fuels (including EOTT Energy
Corp.) from January 1992 until December 1992. From September 1987 to December
1991, she served as Vice President, Human Resources and Administration for Enron
Liquid Fuels.

     Stephen W. Duffy has served as Vice President and General Counsel since
December 1992. He served as Assistant General Counsel for EOTT Energy Corp.
since December 1990 and as Senior Counsel from October 1988 to December 1990.

     Douglas P. Huth has served as Vice President, Operations of EOTT Energy
Corp. since December 1992. From July 1992 to December 1992, Mr. Huth served as
Senior Vice President and General Manager of Enron Gas Processing Company's
Western/Bushton Business Development and Operations Region. From January 1992 to
July 1992, he served as Vice President and General Manager of Enron Americas,
Inc. with manufacturing and propane companies in Venezuela, Puerto Rico and
Jamaica. From August 1991 to January




                                       27
<PAGE>   28

1992, he served as Director of Operations, Enron Americas, Inc. Prior to joining
Enron, he served in the United States Navy for 23 years.

     Gary W. Luce has served as Senior Vice President, Commercial of EOTT Energy
Corp. since February 1996. Mr. Luce joined EOTT Energy Corp. as Vice President,
Strategic Planning and Trading Controls in December 1993. Before joining EOTT
Energy Corp., he served as Senior Manager with McKinsey and Company, Inc. where
he worked five years in performing planning and analysis on projects involving
petroleum refining and petrochemical industries.

     Lori L. Maddox has served as Controller since October 1996. Prior to
joining EOTT Energy Corp., Ms. Maddox was associated with Arthur Andersen LLP
where she became a Senior Manager and served in the Energy Group for ten years.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934 requires the officers
and directors of the General Partner and persons who own more than ten percent
of a registered class of the equity securities of the Partnership, to file
reports of ownership and changes in ownership with the SEC and the New York
Stock Exchange. Based solely on its review of the copies of such reports
received by it, or written representations from certain reporting persons that
no Form 5's were required for those persons, the General Partner believes that
during 1997, its reporting persons complied with all applicable filing
requirements in a timely manner except that Thomas E. White, Jr. filed a Form 3
after it was due.

     Officers of EOTT Energy Corp. will not receive any additional compensation
for serving EOTT Energy Corp. as members of the Board of Directors or any of its
committees. Each director who is not an employee of EOTT Energy Corp. or Enron
Corp. will receive an annual fee of $15,000 for serving as a director. In
addition, non-employee directors will be paid a fee of $1,000 for each
director's meeting attended and $1,000 for each committee meeting attended. The
Chairman of the Board receives an additional annual fee of $5,000 for serving as
Chairman in addition to the other fees described in this paragraph.



                                       28
<PAGE>   29

ITEM 11.  EXECUTIVE COMPENSATION

     The following table summarizes certain information regarding compensation
paid or accrued by EOTT during each of the last three fiscal years to the Chief
Executive Officer and each of EOTT's four other most highly compensated
executive officers (the "Named Officers"):

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                     Annual Compensation        Long-Term Compensation
                                             --------------------------------  -------------------------
                                                                                             Securities
                                                                 Other Annual   Restricted   Underlying   All Other
                                             Salary      Bonus   Compensation  Stock Awards Options/SARs Compensation
Name and Principal Position         Year       ($)        ($)       ($) (1)        ($) (2)     (#'s)        ($) (3)
---------------------------         ----     -------     ------- ------------  ------------ ------------ ------------
<S>                                 <C>      <C>         <C>      <C>          <C>           <C>          <C>
Philip J. Hawk                      1997     330,000          --          -             -      50,000          --
Chief Executive Officer             1996     300,000     315,000          -             -          --       1,102
and President                       1995     300,000          --          -             -          --         793

Gary W. Luce                        1997     200,000          --          -             -      26,000          --
Sr. Vice President, Commercial      1996     180,250     250,000          -             -      40,000         992
                                    1995     141,000          --          -             -          --         714

Steven A. Appelt (4)                1997     185,000          --          -             -      16,000          --
Vice President and Chief            1996     145,038     160,000          -             -      60,000          --
Financial Officer

Douglas P. Huth                     1997     165,000          --          -             -      16,000          --
Vice President, Operations          1996     145,008     145,000          -             -          --       1,065
                                    1995     145,000          --          -             -          --         767

Mary Ellen Coombe                   1997     160,000          --          -             -      16,000          --
Vice President, Human Resources     1996     140,000     146,000          -             -          --       1,029
and Administration                  1995     140,002          --          -             -          --         741
</TABLE>

---------------
(1)  No Named Officer had "Perquisites and Other Personal Benefits" with a value
     greater than the lesser of $50,000 or 10% of reported salary and bonus.

(2)  The Named Officers had no unreleased restricted stock holdings as of
     December 31, 1997.

(3)  The amounts shown include the value as of year-end 1995 and 1996 of Enron
     Common Stock allocated during those years to employees' special subaccounts
     under Enron's Employee Stock Ownership Plan ("E.S.O.P"). Included in 1995
     and 1996 is a special allocation made in December of 1995 and 1996 to a
     special allocation subaccount.

(4)  Mr. Appelt resigned February 12, 1998.




                                       29
<PAGE>   30


STOCK OPTION GRANTS DURING 1997

     The following table sets forth information with respect to grants of
options pursuant to the Named Officers reflected in the Summary Compensation
Table and all employee optionees as a group. No unit options were granted during
1997 under the EOTT Energy Corp. Unit Option Plan. Stock options were granted
during 1997 under Enron's 1994 Stock Plan ("1994 Plan"). No SAR units were
granted during 1997, and none are outstanding.

<TABLE>
<CAPTION>
                                                         INDIVIDUAL GRANTS(1)
                                       ------------------------------------------------------
                                                       % OF TOTAL                            
                                         OPTIONS/     OPTIONS/SARS      EXERCISE             
                                          SARS         GRANTED TO       OR BASE              
                                         GRANTED      EMPLOYEES IN       PRICE     EXPIRATION
NAME                                       (2)        FISCAL YEAR        ($/SH)       DATE   
----                                   -----------    -----------      ---------   ----------
<S>                                    <C>            <C>             <C>          <C>       
Philip J. Hawk           EOTT                   --           --              --          --  
                         Enron Corp.        50,000         0.30%       $  40.75     2/11/02  
                                                                                             
Gary W. Luce             EOTT                   --           --              --          --  
                         Enron Corp.        26,000         0.15%       $  40.75     2/11/02  
                                                                                             
Steven A. Appelt         EOTT                   --           --              --          --  
                         Enron Corp.        16,000         0.09%       $  40.75     2/11/02  
                                                                                             
Douglas P. Huth          EOTT                   --           --              --          --  
                         Enron Corp.        16,000         0.09%       $  40.75     2/11/02  
                                                                                             
Mary Ellen Coombe        EOTT                   --           --              --          --  
                         Enron Corp.        16,000         0.09%       $  40.75     2/11/02  
                                                                                             
All Employee and         EOTT                   --           --              --          --  
  Director Optionees     Enron Corp.    16,929,185          100%       $40.4740         N/A  
                                                                                             
All Stock/Unit Holders   EOTT                   --           --              --          --  
                         Enron Corp.           N/A          N/A             N/A         N/A  
                                                                                             
Optionee Gain as % of    EOTT                  N/A           --              --          --  
  all Unit Holders Gain  Enron Corp.           N/A          N/A             N/A         N/A  
<CAPTION>
                                       
                                                POTENTIAL REALIZABLE VALUE AT
                                                   ASSUMED ANNUAL RATES OF
                                                   STOCK PRICE APPRECIATION
                                                      FOR OPTION TERM (4)
                                       -------------------------------------------------------
NAME                                     0%(3)                 5%                     10%
----                                   ---------        ---------------        ---------------    
<S>                                    <C>              <C>                    <C> 
Philip J. Hawk           EOTT          $      --        $            --        $            --    
                         Enron Corp.   $      --        $       562,924        $     1,243,914    
                                                                                                  
Gary W. Luce             EOTT          $      --        $            --        $            --    
                         Enron Corp.   $      --        $       292,720        $       646,835    
                                                                                                  
Steven A. Appelt         EOTT          $      --        $            --        $            --    
                         Enron Corp.   $      --        $       180,136        $       398,053    
                                                                                                  
Douglas P. Huth          EOTT          $      --        $            --        $            --    
                         Enron Corp.   $      --        $       180,136        $       398,053    
                                                                                                  
Mary Ellen Coombe        EOTT          $      --        $            --        $            --    
                         Enron Corp.   $      --        $       180,136        $       398,053    
                                                                                                  
All Employee and         EOTT          $      --        $            --        $            --    
  Director Optionees     Enron Corp.   $      --        $   430,913,782(5)     $ 1,092,020,126(5) 
                                                                                                  
All Stock/Unit Holders   EOTT          $      --        $            --        $            --    
                         Enron Corp.   $      --        $ 7,821,684,107(5)     $19,821,683,169(5) 
                                                                                                  
Optionee Gain as % of    EOTT          $      --                     --                     --    
  all Unit Holders Gain  Enron Corp.   $      --                   5.51%                  5.51%   
                                                                          
</TABLE>
(1)  If a "change of control" (as defined in the 1994 Plan) occurs before the
     options become exercisable and are exercised, the vesting described below
     will be accelerated and all such outstanding options shall be surrendered
     and the optionee shall receive a cash payment by Enron in an amount equal
     to the value of the surrendered options (as defined in the 1994 Plan).

(2)  Stock options granted under Enron's 1994 Stock Plan. Grants are five-year
     grants and became 25% vested on the date of grant with an additional 25%
     vested on the anniversary of the date of grant until February 10, 2000.

(3)  An appreciation in stock price, which will benefit all stockholders, is
     required for optionees to receive any gain. A stock price appreciation of
     zero percent would render the option without value to the optionees.

(4)  The dollar amounts under these columns represent the potential realizable
     value of each grant of options assuming that the market price of Enron
     Common Stock appreciates in value from the date of grant at the 5% and 10%
     annual rates prescribed by the SEC and therefore are not intended to
     forecast possible future appreciation, if any, of the price of Enron Common
     Stock.

(5)  Appreciation for all stockholders is calculated using an assumed ten year
     option term, even though in some cases the actual option term is less than
     ten years, the weighted average exercise price for All Employee and
     Director Optionees ($40.4740) and the number of shares of Enron Common
     Stock issued and outstanding on December 31, 1997 excluding 3,958,072
     shares held by the Enron Flexible Equity Trust.

                                       30
<PAGE>   31


AGGREGATED OPTIONS/SAR EXERCISES DURING 1997 AND OPTION/SAR
     VALUES AT DECEMBER 31, 1997

     The following table sets forth information with respect to the Named
Officers concerning the exercise of options under EOTT Energy and Enron's option
plans during the last fiscal year and unexercised options and SARs held as of
the end of the fiscal year:


<TABLE>
<CAPTION>
                                                                                      Value of Unexercised 
                                                                                          In-the-Money     
                                                          Number of Unexercised         Options/SARs at    
                               Shares                       Options/SARs at             December 31, 1997  
                              Acquired        Value        December 31, 1997               ($) (1)(2)      
                                on          Realized  --------------------------   -------------------------
       Name                   Exercise         ($)    Exercisable  Unexercisable   Exercisable Unexercisable
--------------------         ---------     ---------- -----------  -------------   ----------- -------------
<S>                           <C>          <C>           <C>         <C>            <C>           <C>       
P. Hawk           EOTT              --     $     --           --      400,000        $     --     $850,000  
                  Enron Corp.       --           --       13,502       38,168          21,241       37,859  
                                                                                                  --------
                  Subtotal          --           --           --           --              --     $887,859  
                                                                                                            
                                                                                                            
G. Luce           EOTT              --     $     --           --      100,000        $     --     $212,500  
                  Enron Corp.       --           --        6,500       19,500           5,281       15,844  
                                                                                                  --------
                  Subtotal          --           --           --           --              --     $228,344  
                                                                                                            
                                                                                                            
S. Appelt         EOTT              --     $     --           --       60,000        $     --     $127,500  
                  Enron Corp.       --           --        4,000       12,000           3,250        9,750  
                                                                                                  --------
                  Subtotal          --           --           --           --              --     $137,250  
                                                                                                            
                                                                                                            
D. Huth           EOTT              --     $     --           --       60,000        $     --     $127,500  
                  Enron  Corp.      --           --        9,000       12,000         119,500        9,750  
                                                                                                  --------
                  Subtotal          --           --           --           --              --     $137,250  
                                                                                                            
                                                                                                            
M.E. Coombe       EOTT              --     $     --           --       60,000        $     --     $127,500  
                  Enron Corp.       --           --       23,600       12,000         535,825        9,750  
                                                                                                  --------
                  Subtotal          --           --           --           --              --     $137,250  
</TABLE>                 


(1)  The dollar value in this column for Enron options was calculated by
     determining the difference between the fair market value underlying the
     option and the exercise value at the end of the fiscal year. The value of
     Enron Corp. shares at year end 1997 was $41.5625.

(2)  The dollar value in this column for EOTT options was calculated by assuming
     the Subordinate Unit option converts to a Common Unit option and
     determining the difference between the fair market value of the Common
     Units and the exercise value of the option at the end of the fiscal year.
     The value of EOTT Energy Common Units at year end 1997 was $17.1250 and the
     Subordinated Unit strike price is $15.00.



                                       31
<PAGE>   32

LONG TERM INCENTIVE PLAN AWARDS IN 1997

     In October 1997, the Board of Directors adopted the EOTT Energy Corp. Long
Term Incentive Plan (Plan). The Plan is intended to provide key employees with
Phantom Appreciation Rights ("PAR"), which is a right to receive cash based on
the performance of the Partnership prior to the time the PAR is redeemed. The
Plan has a five year term beginning January 1, 1997 and PAR awards vest in 25%
increments over a four year period following the grant year. The following table
provides information concerning awards of PAR's under the Plan during 1997
pursuant to the Named Officers reflected in the Summary Compensation Table.


<TABLE>
<CAPTION>
                                          Performance               Future Estimated
                             Number of   or Other Period             Payments Under
                           Shares, Units      Until             Non-Stock Based Plans (1)
                                or         Maturation      ------------------------------------
       Name                    Rights         Payout       Threshold $   Target $     Maximum $
-----------------          ------------- ---------------   -----------   --------    ----------
<S>                            <C>        <C>              <C>           <C>          <C>      
P. Hawk           EOTT         54,000        5 Years       $      -      $ 75,060     $ 256,500
                                                                   
                                                                   
G. Luce           EOTT         25,000        5 Years       $      -      $ 34,750     $ 118,750
                                                                   
                                                                   
S. Appelt (2)     EOTT         20,000        5 Years       $      -      $      -     $       -
                                                                   
                                                                   
D. Huth           EOTT         13,000        5 Years       $      -      $ 18,070     $  61,750
                                                                   
                                                                   
M.E. Coombe       EOTT         13,000        5 Years       $      -      $ 18,070     $  61,750
</TABLE>                                                          


(1)  Future estimated payments were based on a 10% targeted growth for each year
     of the 5 year performance period. Maximum payments were estimated at a 20%
     growth rate for the 5 year performance period.

(2)  Effective with his termination of employment on February 12, 1998, Mr.
     Appelt forfeited 20,000 units he was awarded in 1997.


ENRON BENEFIT AND COMPENSATION PLANS

     EOTT Energy Corp. employees continue benefit accrual under the Enron Corp.
Retirement Plan. EOTT Energy Corp. employees continue to be eligible for
participation in the Enron Corp. Savings Plan.




                                       32
<PAGE>   33


RETIREMENT PLANS AND SUPPLEMENTAL BENEFIT PLANS

     Enron maintains the Enron Corp. Cash Balance Plan ("Cash Balance Plan")
which is a noncontributory defined benefit plan to provide retirement income for
employees of Enron and its subsidiaries. Through December 31, 1994, participants
in the Cash Balance Plan with five years or more of service were entitled to
retirement benefits in the form of an annuity based on a formula that uses a
percentage of final average pay and years of service. In 1995, Enron's Board of
Directors adopted an amendment to and restatement of the Cash Balance Plan
changing the plan's name from the Enron Corp. Retirement Plan to the Enron Corp.
Cash Balance Plan. In connection with a change to the retirement benefit
formula, all employees became fully vested in retirement benefits earned through
December 31, 1994. The formula in place prior to January 1, 1995 was suspended
and replaced with a benefit accrual in the form of a cash balance of 5% of
annual base pay beginning January 1, 1996. Under the Cash Balance Plan, each
employee's accrued benefit will be credited with interest based on 10-year
Treasury Bond yields.

     Enron also maintains a noncontributory employee stock ownership plan (ESOP)
which covers all eligible employees. Allocations to individual employees'
retirement accounts within the ESOP offset a portion of benefits earned under
the Cash Balance Plan. December 31, 1993 was the final date on which ESOP
allocations were made to employees' retirement accounts.

     Directors who are not employees are not eligible to participate in the Cash
Balance Plan.

     In addition, Enron has a Supplemental Retirement Plan that is designed to
assure payments to certain employees of that retirement income that would be
provided under the Cash Balance Plan except for the dollar limitation on accrued
benefits imposed by the Internal Revenue Code of 1986, as amended.

     The following table sets forth the estimated annual benefits payable under
normal retirement at age 65, assuming current remuneration levels without any
salary projection, and participation until normal retirement at age 65, with
respect to the Named Officers under the provisions of the foregoing retirement
plans:

<TABLE>
<CAPTION>
                                                      Estimated         Current
                                 Current Credited  Credited Years     Compensation      Estimated Annual
                                     Years of       of Service at        Covered        Benefit Payable
                                    of Service        at Age 65          by Plans       Upon Retirement
                                    -----------    -------------      -------------     ----------------
<S>                                 <C>             <C>              <C>                <C>           
P. Hawk  .......................       4.9             25.9           $     330,000      $      118,471
G. Luce  .......................       4.1             31.1           $     200,000      $      103,932
S. Appelt.......................       1.8             28.2           $     184,999      $       85,715
D. Huth.........................       6.4             19.4           $     165,000      $       36,890
M.E. Coombe.....................      17.3             35.2           $     160,000      $       75,177

</TABLE>
----------------

          Note: The estimated annual benefits payable are based on the straight
     life annuity form without adjustment for any offset applicable to a
     participant's retirement subaccount in Enron's Employee Stock Ownership
     Plan.



                                       33
<PAGE>   34


EOTT ENERGY CORP. SEVERANCE PLAN

     The EOTT Energy Corp. Severance Pay Plan as amended provides for the
payment of benefits to employees who are terminated for failing to meet
performance objectives or standards, or who are terminated due to reorganization
or economic factors. The amount of benefits payable for performance related
terminations is based on length of service and may not exceed six weeks' pay in
the event such employee signs a Waiver and Release of Claims Agreement. For
those terminated as the result of reorganization or economic circumstances, the
benefit is based on length of service with one week's pay per year of service up
to an amount of a maximum payment of 26 weeks of base pay. If the employee signs
a Waiver and Release of Claims Agreement, the severance pay benefits are
doubled. The plan provides a grandfather provision for those employees whose
employment date is prior to January 1, 1993. This provision provides a severance
benefit equal to two weeks of base pay multiplied by the number of full or
partial years of service, plus two weeks of base pay for each $10,000 (or
portion of $10,000) included in the employee's annual base pay, provided the
employee signs a Waiver and Release of Claims Agreement. In the event of an
unapproved change of control of the Company, any employee who is involuntarily
terminated within two years following the change of control will be eligible for
severance benefits equal to two weeks of base pay multiplied by the number of
full or partial years of service, plus two weeks of base pay for each $10,000
(or portion of $10,000) included in the employee's annual base pay. Under no
circumstances will the total severance pay benefit exceed 52 weeks of pay.

     Severance arrangements for Mr. Hawk, Mr. Luce, Mr. Huth, and Ms. Coombe
include an involuntary termination provision pursuant to which the executive
officer will receive severance pay equal to up to two years base salary. An
involuntary termination includes (a) termination without cause, (b) a
termination within 90 days after the happening of one of the following events
without the approval of the executive officer: (x) a substantial and/or material
reduction in the nature or scope of the executive officer's duties and/or
responsibilities, which results in the executive officer no longer having an
officer status and results in an overall material and substantial reduction from
the duties and stature of the officer position he presently holds, which
reduction remains in place and uncorrected for 30 days following written notice
of such breach to the General Partner by the executive officer, (y) a reduction
in the executive officer's base pay or an exclusion from a benefit plan or
program (except the executive officer may be subject to exclusion from a benefit
plan or program as part of a general cutback for all employees or officers) or
(z) a change in the location for the primary performance of the executive
officer's services under the agreement to a city which is more than 100 miles
away from such location and (c) a termination by the executive officer within
one year after a change of control of the General Partner if one of the events
described in (b) has occurred. The severance agreement, the confidential
information and noncompete provisions will continue for one year.





                                       34
<PAGE>   35


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The General Partner knows of no one who beneficially owns in excess of five
percent of the Common Units of the Partnership except as set forth in the table
below.

<TABLE>
<CAPTION>
                                                          Amount and Nature
                                  Name and Address     of Beneficial Ownership          Percent
         Title of Class          of Beneficial Owner   as of February 15, 1998          of Class
     ----------------------    ---------------------   -----------------------          --------
<S>                            <C>                     <C>                              <C> 
     Common Units              Enron Corp.                        296,800                  2.97
     Special Units             1400 Smith Street                1,830,011                100.00
     Subordinated Units        Houston, Texas  77002            7,000,000  (1)           100.00
     General Partner Interest                                           1  (1)  (2)      100.00

</TABLE>

(1)  Held by the General Partner, an indirect subsidiary of Enron Corp..

(2)  The reporting of the General Partner interest shall not be deemed to be a
     concession that such interest represents a security.

     The following table sets forth certain information as of February 15, 1998,
regarding the beneficial ownership of (i) the Common Units and (ii) the common
stock of Enron Corp., the parent company of the General Partner, by all
directors of the General Partner, each of the named executive officers and all
directors and executive officers as a group.

<TABLE>
<CAPTION>
                                                                AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
                                                      -----------------------------------------------------------
                                                        SOLE VOTING   SHARED VOTING      SOLE VOTING
                                                      AND INVESTMENT  AND INVESTMENT    LIMITED OR NO    PERCENT
      TITLE OF CLASS               NAME                   POWER            POWER       INVESTMENT POWER  OF CLASS
--------------------------   --------------------     --------------  --------------   ----------------  --------
<S>                          <C>                     <C>              <C>              <C>               <C> 
EOTT Energy Partners, L.P.   John H. Duncan                  8,500           -                 -               *
Common Units                 Edward O. Gaylord              24,000           -                 -               *
                             Philip J. Hawk                332,500           -                 -            3.22
                             Kenneth L. Lay                  5,000           -                 -               *
                             Thomas E. White, Jr.              -             -                 -               *
                             Dee S. Osborne                    -             -                 -               *
                             Daniel P. Whitty                  -             -                 -               *
                             Steven A. Appelt               12,000           -                 -               *
                             Mary Ellen Coombe              48,000           -                 -               *
                             Stephen W. Duffy               48,000           -                 -               *
                             Douglas P. Huth                48,000           -                 -               *
                             Gary Luce                      93,610           -                 -               *

                             All directors and 
                             executive officers 
                             as a group
                             (12 in number)                619,610           -                 -            5.86

</TABLE>



                                             (Table continued on following page)



                                       35
<PAGE>   36


<TABLE>
<CAPTION>
                                                                AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
                                                      -----------------------------------------------------------
                                                        SOLE VOTING   SHARED VOTING      SOLE VOTING
                                                      AND INVESTMENT  AND INVESTMENT    LIMITED OR NO    PERCENT
      TITLE OF CLASS               NAME                   POWER            POWER       INVESTMENT POWER  OF CLASS
--------------------------   --------------------     --------------  --------------   ----------------  --------
<S>                          <C>                     <C>              <C>              <C>               <C> 
Enron Corp.                  John H. Duncan                 81,541        26,304              1,456            *
Common Stock                 Edward O. Gaylord                 -             -                   21            *
                             Philip J. Hawk                 26,506           -                3,359            *
                             Kenneth L. Lay              2,911,452       959,798             48,768         1.25
                             Thomas E. White, Jr.          526,609           -               16,505            *
                             Dee S. Osborne                    -             -                  -              *
                             Daniel P. Whitty                  -             -                  -              *
                             Steven A. Appelt                  -             -                  880            *
                             Mary Ellen Coombe              28,058           -               13,254            *
                             Stephen W. Duffy               10,596           -                  818            *
                             Douglas P. Huth                13,203           -                4,138            *
                             Gary Luce                      13,235           -                  -              *

                             All directors and executive
                             officers as a group
                             (12 in number)              3,611,200       986,102             89,199         1.49

</TABLE>
------------
* Less than 1 percent

     The above table includes Subordinated Units of the Partnership which are
     subject to conversion into Common Units and which are subject to unit
     options exercisable within 60 days as follows: Mr. Hawk, 320,000 units; Mr.
     Appelt, 12,000 units; Ms. Coombe, 48,000 units; Mr. Huth, 48,000 units; Mr.
     Luce, 92,000 units and all directors and executive officers as a group,
     568,000 units. The above table also includes shares of common stock of
     Enron Corp. which are subject to stock options exercisable within 60 days
     as follows: Mr. Duncan, 26,304 shares; Mr. Hawk, 26,002 shares; Mr. Lay,
     2,828,186 shares; Mr. White, 389,881 shares; Ms. Coombe, 27,600 shares; Mr.
     Huth, 13,000 shares and all directors and executive officers as a group,
     3,334,373 shares.

     The table also includes shares owned by certain members of the families (or
     family or charitable trusts or foundations) of the directors or executive
     officers, including shares in which pecuniary interest may be disclaimed.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     See Note 13 to the Consolidated Financial Statements for information
regarding certain transactions between EOTT and Enron and its affiliates.



                                       36
<PAGE>   37


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

 (a)(1) AND (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

    See "Index to Financial Statements" set forth on page F-1.

 (a)(3) EXHIBITS

<TABLE>
<S>    <C>                                                             
 3.1   -- Form of Partnership Agreement of EOTT Energy Partners, L.P.
          (incorporated by reference to Exhibit 3.1 to Registration Statement,
          File No. 33-73984)

 3.2   -- Amendment No. 1 dated as of August 8, 1995, to the Amended and
          Restated Agreement of Limited Partnership of EOTT Energy Partners,
          L.P. (incorporated by reference to Exhibit 3.2 to Annual Report on
          Form 10-K for the Year Ended December 31, 1995)

 3.3   -- Amendment No. 2 dated as of July 16, 1996, to the Amended and
          Restated Agreement of Limited Partnership of EOTT Energy Partners,
          L.P. (incorporated by reference to Exhibit 3.3 to Quarterly Report on
          Form 10-Q for the Quarter Ended June 30, 1996)

 3.4   -- Amendment No. 3 dated as of February 13, 1997, to the Amended and
          Restated Agreement of Limited Partnership of EOTT Energy Partners,
          L.P.

 10.02 -- Form of Employment Agreement between EOTT Energy Corp. and Steven
          A. Appelt

 10.03 -- Form of Employment Agreement between EOTT Energy Corp. and Philip
          J. Hawk (incorporated by reference to Exhibit 10.07 to Registration
          Statement, File No. 33-73984)

 10.04 -- Form of Corporate Services Agreement between Enron Corp. and EOTT
          Energy Corp. (incorporated by reference to Exhibit 10.08 to
          Registration Statement, File No. 33-73984)

 10.05 -- Form of Contribution and Closing Agreement between EOTT Energy
          Corp. and EOTT Energy Partners, L.P. (incorporated by reference to
          Exhibit 10.09 to Registration Statement, File No. 33-73984)

 10.06 -- Form of Ancillary Agreement by and among Enron Corp., EOTT Energy
          Partners, L.P., EOTT Energy Operating Limited Partnership, EOTT Energy
          Pipeline Limited Partnership, EOTT Energy Canada Limited Partnership,
          and EOTT Energy Corp. (incorporated by reference to Exhibit 10.10 to
          Registration Statement, File No. 33-73984)

 10.07 -- Agreement to Increase and Extend Distribution Support dated August
          8, 1995, amending the Ancillary Agreement referenced in 10.06
          (incorporated by reference to Exhibit 10.07 to Annual Report on Form
          10-K for the Year Ended December 31, 1995)

 10.08 -- Form of Amended and Restated Agreement of Limited Partnership of
          EOTT Energy Operating Limited Partnership (incorporated by reference
          to Exhibit 10.11 to Registration Statement, File No. 33-73984)

 10.09 -- EOTT Energy Corp. Annual Incentive Plan (incorporated by reference
          to Exhibit 10.14 to Registration Statement, File No. 33-73984)

</TABLE>


                                       37
<PAGE>   38

<TABLE>
<S>    <C>                                                             
 10.10 -- EOTT Energy Corp. 1994 Unit Option Plan and the related Option
          Agreement (incorporated by reference to Exhibit 10.15 to Registration
          Statement, File No. 33-73984)

 10.11 -- EOTT Energy Corp. Severance Pay Plan (incorporated by reference to
          Exhibit 10.16 to Registration Statement, File No. 33-73984)

 10.12 -- Executive Employment Agreement effective March 24, 1994 between
          EOTT Energy Corp. and executive officers with employment agreements.
          (incorporated by reference to Exhibit 10.05 to Registration Statement,
          File No. 33-73984)

 10.13 -- Credit Agreement dated as of June 30, 1995 between EOTT Energy
          Operating Limited Partnership, as Borrower, and Enron Corp., as Lender
          (incorporated by reference to Exhibit 10.13 to Annual Report on Form
          10-K for the Year Ended December 31, 1995)

 10.14 -- Credit Agreement dated as of January 3, 1996 between EOTT Energy
          Operating Limited Partnership, as Borrower, and Enron Corp., as Lender
          (incorporated by reference to Exhibit 10.14 to Annual Report on Form
          10-K for the Year Ended December 31, 1995)

 10.15 -- Amendment dated December 19, 1996 to the Credit Agreement dated as
          of June 30, 1995 between EOTT Energy Operating Limited Partnership as
          Borrower, and Enron Corp., as Lender

 10.16 -- Amendment dated February 25, 1997 to the Credit Agreement dated as
          of June 30, 1995 between EOTT Energy Operating Limited Partnership as
          Borrower, and Enron Corp., as Lender

 10.17 -- Amendment dated February 25, 1997 to the Credit Agreement dated as
          of January 3, 1996 between EOTT Energy Operating Limited Partnership
          as Borrower, and Enron Corp., as Lender

 10.18 -- Amendment dated as of February 13, 1997, to the EOTT Energy Corp.
          1994 Unit Option Plan

 10.19 -- EOTT Energy Corp. Long Term Incentive Plan (incorporated by
          reference to Exhibit 10.19 to Quarterly Report on Form 10-Q for the
          Quarter Ended September 30, 1997)

*10.20 -- Agreement to Extend Distribution Support dated
          November 5, 1997, amending the Agreement referenced in 10.07

 21.1  -- Subsidiaries of the Registrant (incorporated by reference to
          Exhibit 21.1 to Annual Report on Form 10-K for the Year Ended December
          31, 1994)

*23.1  -- Consent of Arthur Andersen LLP

*27.1  -- Financial Data Schedule
</TABLE>

----------
*  Filed herewith


 (b)   REPORTS ON FORM 8-K

       None





                                       38
<PAGE>   39

SIGNATURES

     PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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 ON THE 26TH DAY OF
MARCH, 1998.

                                                  EOTT ENERGY PARTNERS, L.P.
                                               (A Delaware Limited Partnership)

                                     By:             EOTT ENERGY CORP. as
                                                        General Partner



                                     By:     /s/        PHILIP J. HAWK
                                         ---------------------------------------
                                                        Philip J. Hawk
                                          Chief Executive Officer and President



     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED.

<TABLE>
<CAPTION>
                  Signature                                 Title                              Date
                  ---------                                 -----                              ----
<S>                                              <C>                                       <C> 
     /s/       PHILIP J. HAWK                    Director, Chief Executive                   March 26, 1998
--------------------------------------------     Officer and President        
               Philip J. Hawk                    (Principal Executive Officer)
                                                 

     /s/       LORI L. MADDOX                    Controller                                  March 26, 1998
--------------------------------------------     (Principal Accounting Officer)
               Lori L. Maddox                    


     /s/      EDWARD O. GAYLORD                  Chairman of the Board and                   March 26, 1998
--------------------------------------------     Director
              Edward O. Gaylord                  


     /s/       DEE S. OSBORNE                    Director                                    March 26, 1998
--------------------------------------------
               Dee S. Osborne


     /s/      DANIEL P. WHITTY                   Director                                    March 26, 1998
--------------------------------------------
              Daniel P. Whitty


     /s/       JOHN H. DUNCAN                    Director                                    March 26, 1998
--------------------------------------------
               John H. Duncan


     /s/       THOMAS E. WHITE                   Director                                    March 26, 1998
--------------------------------------------
               Thomas E. White


     /s/       KENNETH L. LAY                    Director                                    March 26, 1998
--------------------------------------------
               Kenneth L. Lay


</TABLE>




                                       39
<PAGE>   40

                           EOTT ENERGY PARTNERS, L.P.
                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                               Page
                                                                                               ----
<S>                                                                                           <C>
Financial Statements
     Report of Independent Public Accountants.................................................  F-2
     Consolidated Statements of Operations -
         Years Ended December 31, 1997, 1996 and 1995.........................................  F-3
     Consolidated Balance Sheets - December 31, 1997 and 1996.................................  F-4
     Consolidated Statements of Cash Flows -
         Years Ended December 31, 1997, 1996 and 1995.........................................  F-5
     Consolidated Statements of Partners' Capital -
         Years Ended December 31, 1997, 1996 and 1995.........................................  F-6
     Notes to Consolidated Financial Statements...............................................  F-7

Supplemental Schedule

     Schedule II - Valuation and Qualifying Accounts and Reserves.............................  S-1

</TABLE>



                                      F-1
<PAGE>   41


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To EOTT Energy Partners, L.P.:

We have audited the accompanying consolidated balance sheets of EOTT Energy
Partners, L.P. (a Delaware limited partnership) as of December 31, 1997 and
1996, and the related consolidated statements of operations, cash flows and
partners' capital for each of the three years in the period ended December 31,
1997. These financial statements and the schedule referred to below are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EOTT Energy Partners, L.P. as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule listed
in the index to financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.



                                                  ARTHUR ANDERSEN LLP
Houston, Texas
February 13, 1998



                                      F-2
<PAGE>   42


                           EOTT ENERGY PARTNERS, L.P.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In Thousands, Except Per Unit Amounts)

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                               ---------------------------------------------
                                                                  1997             1996             1995
                                                               -----------      -----------      -----------
<S>                                                            <C>              <C>              <C>        
Revenue ..................................................     $ 7,646,099      $ 7,469,730      $ 5,088,240

Cost of Sales ............................................       7,533,054        7,320,203        4,996,439
                                                               -----------      -----------      -----------

Gross Margin .............................................         113,045          149,527           91,801

Expenses
   Operating expenses ....................................          96,158          101,945           72,951
   Depreciation and amortization .........................          16,518           15,720           10,512
   Impairment of assets ..................................           7,961               --               --
                                                               -----------      -----------      -----------
                                                                   120,637          117,665           83,463
                                                               -----------      -----------      -----------

Operating Income (Loss) ..................................          (7,592)          31,862            8,338

Other Income (Expense)
   Interest income .......................................             620              448              461
   Interest and related charges ..........................          (6,661)          (3,659)          (3,930)
   Other, net ............................................            (766)             158              851
                                                               -----------      -----------      -----------
                                                                    (6,807)          (3,053)          (2,618)
                                                               -----------      -----------      -----------

Income (Loss) from Continuing Operations .................         (14,399)          28,809            5,720

Loss from Discontinued
   Operations (Note 4) ...................................              --               --          (65,838)
                                                               -----------      -----------      -----------

Income (Loss) Before Extraordinary Item ..................         (14,399)          28,809          (60,118)

Extraordinary Item (Note 9) ..............................              --               --           (1,315)
                                                               -----------      -----------      -----------

Net Income (Loss) ........................................     $   (14,399)     $    28,809      $   (61,433)
                                                               ===========      ===========      ===========

Basic Net Income (Loss) Per Unit (Note 6)
   Common:
     Continuing Operations ...............................     $     (0.75)     $      1.50      $      0.33
     Discontinued Operations .............................              --               --            (3.79)
     Extraordinary Item ..................................              --               --            (0.08)
                                                               -----------      -----------      -----------
   Total .................................................     $     (0.75)     $      1.50      $     (3.54)
                                                               ===========      ===========      ===========
   Subordinated:
     Continuing Operations ...............................     $     (0.75)     $      1.50      $      0.33
     Discontinued Operations .............................              --               --            (3.79)
     Extraordinary Item ..................................              --               --            (0.08)
                                                               -----------      -----------      -----------
   Total .................................................     $     (0.75)     $      1.50      $     (3.54)
                                                               ===========      ===========      ===========

Diluted Net Income (Loss) Per Unit (Note 6) ..............     $     (0.75)     $      1.50      $     (3.54)
                                                               ===========      ===========      ===========

Distributions Per Common Unit ............................     $      1.90      $      1.90      $      1.80
                                                               ===========      ===========      ===========

Number of Units Outstanding for Diluted Computation ......          18,830           18,830           17,000
                                                               ===========      ===========      ===========
</TABLE>


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


                                      F-3
<PAGE>   43


                           EOTT ENERGY PARTNERS, L.P.
                           CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,      DECEMBER 31,
                                                                                      1997              1996
                                                                                  -------------    -------------
<S>                                                                               <C>              <C>          
                        ASSETS

Current Assets
   Cash and cash equivalents.................................................     $       3,737    $       5,261
   Trade and other receivables, net of allowance for doubtful
     accounts of $1,660 and $2,266, respectively.............................           463,983          704,784
   Inventories...............................................................           173,637          169,298
   Other.....................................................................             7,603            9,496
                                                                                  -------------    -------------
     Total current assets....................................................           648,960          888,839
                                                                                  -------------    -------------

Property, Plant and Equipment, at cost.......................................           224,528          213,449
   Less: Accumulated depreciation............................................            97,224           85,667
                                                                                  -------------    -------------
     Net property, plant and equipment.......................................           127,304          127,782
                                                                                  -------------    -------------

Other Assets, net of amortization............................................             6,657            9,576
                                                                                  -------------    -------------

Total Assets.................................................................     $     782,921    $   1,026,197
                                                                                  =============    =============

           LIABILITIES AND PARTNERS' CAPITAL

Current Liabilities
   Trade accounts payable ...................................................     $     586,897    $     818,673
   Accrued taxes payable.....................................................             5,462            8,465
   Note payable - affiliate..................................................            39,300           24,228
   Short-term borrowings - affiliate.........................................            70,000           38,500
   Short-term borrowings.....................................................               649              615
   Other.....................................................................             5,464           19,521
                                                                                  -------------    -------------
     Total current liabilities...............................................           707,772          910,002
                                                                                  -------------    -------------

Long-Term Liabilities .......................................................               281              931
                                                                                  -------------    -------------

Commitments and Contingencies (Notes 15 and 16)

Additional Partnership Interests (Note 13)...................................            12,775            9,091

Partners' Capital
   Common Unitholders........................................................             7,490           33,984
   Special Unitholders.......................................................            25,060           29,908
   Subordinated Unitholders..................................................            28,169           40,065
   General Partner...........................................................             1,374            2,216
                                                                                  -------------    -------------
Total Partners' Capital......................................................            62,093          106,173
                                                                                  -------------    -------------
Total Liabilities and Partners' Capital......................................     $     782,921    $   1,026,197
                                                                                  =============    =============
</TABLE>


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


                                      F-4
<PAGE>   44


                           EOTT ENERGY PARTNERS, L.P.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                                      ---------------------------------------
                                                                         1997           1996           1995
                                                                      ---------      ---------      --------- 
<S>                                                                   <C>            <C>            <C>       
Cash Flows From Operating Activities
   Reconciliation of net income (loss) to net
   cash provided by (used in) operating activities
     Net income (loss) ..........................................     $ (14,399)     $  28,809      $ (61,433)
     Depreciation ...............................................        14,487         13,690          8,632
     Impairment of assets .......................................         7,961             --             --
     Amortization of intangible assets ..........................         2,031          2,030          1,880
     (Gains) losses on disposal of assets .......................          (503)            80           (475)
     Changes in components of working capital -
       Receivables ..............................................       240,801       (265,165)        (6,316)
       Inventories ..............................................        (4,339)       (67,922)        (2,793)
       Other current assets .....................................         1,893         (5,619)         6,950
       Trade accounts payable ...................................      (231,776)       311,909         19,434
       Accrued taxes payable ....................................        (3,003)         3,170          1,407
       Other current liabilities ................................       (14,057)        14,668         (4,663)
     Discontinued operations ....................................            --          3,460         70,299
     Other assets and liabilities ...............................           886            195           (744)
                                                                      ---------      ---------      --------- 
   Net Cash Provided by (Used In) Operating Activities ..........           (18)        39,305         32,178
                                                                      ---------      ---------      --------- 

Cash Flows From Investing Activities
   Proceeds from sale of property, plant
     and equipment ..............................................         1,243            880          2,397
   Additions to property, plant and equipment ...................       (22,837)        (6,723)       (63,786)
   Other, net ...................................................           129         (1,991)           368
                                                                      ---------      ---------      --------- 
   Net Cash Used In Investing Activities ........................       (21,465)        (7,834)       (61,021)
                                                                      ---------      ---------      --------- 

Cash Flows From Financing Activities
   Increase (decrease) in note payable ..........................            --        (85,000)        85,000
   Increase in note payable - affiliate .........................        15,072         24,228             --
   Increase in short-term borrowings - affiliate ................        31,500         36,300          2,200
   Decrease in short-term borrowings ............................          (616)        (4,944)       (44,353)
   Distributions to unitholders .................................       (29,681)       (28,831)       (21,309)
   Principal payments - PPC bank debt /
     capital lease obligation ...................................            --             --        (10,290)
   Trade partner financing ......................................            --             --          8,760
   Issuance of Common Units .....................................            --         29,772             --
   Issuance of Additional Partnership Interests .................         3,684             --          9,091
   Contribution from General Partner ............................            --            604             --
   Other, net ...................................................            --           (615)            --
                                                                      ---------      ---------      --------- 
   Net Cash Provided by (Used In) Financing Activities ..........        19,959        (28,486)        29,099
                                                                      ---------      ---------      --------- 
Increase (Decrease) in Cash and Cash Equivalents ................        (1,524)         2,985            256
Cash and Cash Equivalents Beginning of Period ...................         5,261          2,276          2,020
                                                                      ---------      ---------      --------- 
Cash and Cash Equivalents End of Period .........................     $   3,737      $   5,261      $   2,276
                                                                      =========      =========      ========= 
</TABLE>

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



                                      F-5
<PAGE>   45

                           EOTT ENERGY PARTNERS, L.P.
                   CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
                                 (In Thousands)



<TABLE>
<CAPTION>
                                                   COMMON       SPECIAL      SUBORDINATED   GENERAL
                                                UNITHOLDERS   UNITHOLDERS    UNITHOLDERS    PARTNER
                                                -----------   -----------    ------------   --------
<S>                                               <C>           <C>           <C>           <C>     
Partners' Capital at December 31, 1994 ......     $ 91,406      $     --      $ 63,984      $  3,171

Net loss ....................................      (35,414)           --       (24,790)       (1,229)
Cash distributions ..........................      (18,000)           --        (2,975)         (334)
                                                  --------      --------      --------      --------

Partners' Capital at December 31, 1995 ......       37,992            --        36,219         1,608
                                                  ========      ========      ========      ========

Net income ..................................       16,353         1,382        10,496           578
Cash distributions ..........................      (20,738)         (869)       (6,650)         (574)
Issuance of Common Units ....................       29,772            --            --            --
Exchange of Common Units for
   Special Units (Note 13) ..................      (29,395)       29,395            --            --
Contribution from General Partner ...........           --            --            --           604
                                                  --------      --------      --------      --------

Partners' Capital at December 31, 1996 ......       33,984        29,908        40,065         2,216
                                                  ========      ========      ========      ========

Net loss ....................................       (7,494)       (1,371)       (5,246)         (288)
Cash distributions ..........................      (19,000)       (3,477)       (6,650)         (554)
                                                  --------      --------      --------      --------

Partners' Capital at December 31, 1997 ......     $  7,490      $ 25,060      $ 28,169      $  1,374
                                                  ========      ========      ========      ========
</TABLE>



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



                                      F-6
<PAGE>   46


                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION

     In connection with a reorganization of the business conducted by EOTT
Energy Corp., an indirect wholly-owned subsidiary of Enron Corp. (Enron or the
Parent), into limited partnership form and a concurrent initial public offering
of Common Units of EOTT Energy Partners, L.P. (EOTT or the Partnership)
effective March 24, 1994, the net assets of EOTT Energy Corp. and its
wholly-owned foreign subsidiary, EOTT Energy Ltd., and Enron Products Marketing
Company (EPMC) (collectively referred to as the Predecessor) were acquired by
several operating limited partnerships in which the Partnership is directly or
indirectly the 99% limited partner. EOTT Energy Corp. serves as the General
Partner of the Partnership and its related operating limited partnerships. The
accompanying consolidated financial statements and related notes present the
financial position as of December 31, 1997 and 1996 for the Partnership, and the
results of its operations, cash flows and changes in partners' capital for the
years ended December 31, 1997, 1996 and 1995.

     Certain reclassifications have been made to prior period amounts to conform
with the current period presentation.

     Unless the context otherwise requires, the term EOTT hereafter refers to
the Partnership and its affiliated limited partnerships.

2.  FORMATION AND OFFERING

     On March 24, 1994, the General Partner completed an initial public offering
of 10 million Common Units at $20.00 per Unit, representing limited partner
interests in the Partnership of approximately 58%. At December 31, 1997 the
General Partner owned an approximate 2% general partner interest in the
Partnership and an approximate 37% subordinated limited partner interest. Enron,
through its purchase of EOTT Common and Special Units, directly holds an
approximate 11% interest in the Partnership.

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation. The Partnership owns and operates its assets
through operating limited partnerships. The accompanying financial statements
reflect the combined accounts of the Partnership and the operating partnerships
after elimination of intercompany transactions.

     Nature of Operations. Through its affiliated limited partnerships, EOTT
Energy Operating Limited Partnership, EOTT Energy Canada Limited Partnership,
and EOTT Energy Pipeline Limited Partnership, EOTT is engaged in the purchasing,
gathering, transporting, trading, storage and resale of crude oil and refined
petroleum products and related activities. EOTT's business segments are its
North American Crude Oil gathering and marketing operations, and its Refined
Products Marketing business (see Note 20 for certain financial information by
business segment). In late 1997, EOTT made the decision to exit the East of
Rockies refined products business which is discussed further in Note 7.

     Cash Equivalents. EOTT records as cash equivalents all highly liquid
short-term investments having original maturities of three months or less.

     Inventories. In the second quarter of 1996, the Partnership changed its
method of accounting for inventories from the last-in, first-out ("LIFO") method
to the average cost method. The change did not have a significant effect on the
results of operations for 1996, and it is not expected to be material in future
periods based upon the manner in which the Partnership currently operates. Prior
to this change, the Partnership's inventory costs would 





                                      F-7
<PAGE>   47

                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


not have differed significantly under the two methods. The change was made to
conform the inventory costing method used for financial reporting purposes to
that used by the Partnership to manage its commercial operations.

     Depreciation and Amortization. Depreciation is provided by applying the
straight-line method to the cost basis of property, plant and equipment, less
estimated salvage value, over the estimated useful lives of the assets. Asset
lives are 15 to 20 years for pipeline and gathering facilities, 5 to 10 years
for transportation equipment, 15 to 20 years for barge and terminalling
facilities and 3 to 20 years for other facilities and equipment.

     Goodwill and non-compete agreements are amortized over a period of 3 to 15
years, and are recorded net of their accumulated amortization in Other Assets.
Accumulated amortization of goodwill and non-compete agreements at December 31,
1997 and 1996 was $25.7 million and $23.7 million, respectively.

     Foreign Currency Transactions. Canadian operations represent all of the
foreign activities of EOTT. The U.S. dollar is the functional currency. Foreign
currency transactions are initially translated into U.S. dollars. Gains and
losses resulting therefrom are included in the determination of net income
(loss) in the period in which the exchange rate changes.

     Hedging Activities/Revenue Recognition. EOTT enters primarily into futures
and over-the-counter transactions in an effort to minimize the impact of market
fluctuations on inventories and other contractual commitments. Realized and
unrealized changes in the market value of these transactions, which are entered
into and accordingly designated as hedges, are deferred until the gain or loss
on the hedged transaction is recognized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 80. Any cash flow recognition
resulting from hedging activities is treated in the same manner as the
underlying transaction. Based on the historical correlations between the New
York Mercantile Exchange ("NYMEX") price for West Texas Intermediate crude at
Cushing, Oklahoma and the various trading hubs at which EOTT trades, EOTT
management believes the hedging program has been effective in minimizing the
overall price risk. EOTT continuously monitors the basis differentials between
its various trading hubs and Cushing, Oklahoma to further manage its basis
exposure.

     It is EOTT's policy to seek to maintain at all times purchase and sale
positions that are substantially balanced in order to minimize exposure to price
fluctuations and to lock in margins, although certain risks cannot be fully
hedged. EOTT has certain basis risks (the risk that price relationships between
delivery points, classes of products or delivery periods will change) which
cannot be completely hedged.

     Periodically, EOTT enters into agreements to sell United States dollars for
Canadian dollars to hedge commitments to sell petroleum in the United States
that is purchased in Canada. Any gains or losses resulting from these
commitments are recorded with the purchase and sale of crude oil and are
included in the determination of net income (loss).

     EOTT recognizes revenue on the accrual method based on the right to receive
payment for goods and services delivered to third parties.

     Derivatives. In addition to hedging its lease barrel purchases, EOTT
provided price risk management products to its energy customer base. Activities
for trading purposes were accounted for using the mark-to-market method of
accounting and the gain or loss recorded to cost of sales in the period of
change in the market. Trading activities were immaterial to EOTT's financial
position and results of operations for 1997, 1996 and 1995. Activities for
non-trading purposes consist of transactions entered into to hedge the impact of
market 





                                      F-8
<PAGE>   48

                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

fluctuations on assets, liabilities, or contractual commitments. Changes in the
market value of these transactions are deferred until the gain or loss on the
hedged item is recognized. See Note 18 for further discussion of EOTT's price
risk management activities. In connection with the realignment initiatives
discussed in Note 7, EOTT is no longer providing price risk management products
to customers.

     Use of Estimates. The preparation of these financial statements required
the use of certain estimates by management in determining the entity's assets,
liabilities, revenue and expenses. Actual results may differ from these
estimates.

4.   DISCONTINUED OPERATIONS

      On September 29, 1995, EOTT transferred to Paramount Petroleum Corporation
("PPC") EOTT's West Coast processing and asphalt marketing business (other than
its Arizona asphalt terminals and its asphalt marketing business based out of
those terminals, as discussed below) pursuant to an agreement dated August 15,
1995 between EOTT and certain of its affiliates and PPC and certain of its
affiliates. EOTT's decision to exit the West Coast business segment was made
primarily due to persistently low crack spreads in 1995 and EOTT's inability to
effectively protect itself against potential future losses due to the volatility
in the crack spread. The crack spread is the difference between the sales price
of refined products and the cost of feedstocks, principally crude oil.

      In August 1995, EOTT's Board of Directors approved a formal plan to
dispose of the West Coast business segment. The results of discontinued
operations include a charge of $46.8 million, or $2.70 per diluted Unit, in the
second quarter of 1995. This charge included the repayment of the PPC bank debt
at June 30, 1995 ($9.4 million), write-off of leasehold improvements at the
refinery ($7.4 million), estimated third quarter operating losses ($6.0
million), additional expenses ($10.0 million) including transaction fees, lease
cancellation costs and working capital reserves, and a lump-sum settlement
($14.0 million) related to taxes on the debt repayment and for the assumption of
other contractual obligations, none of which was environmentally related. During
the second half of 1995, EOTT recorded a $1.0 million benefit which reflects a
settlement at an amount less than estimated on the PPC bank obligation assumed
by EOTT as part of the agreement with PPC, and an additional charge of $3.8
million associated with the final liquidation of the processing inventories.

      Effective December 1, 1996, the Partnership sold its Arizona asphalt
terminals for approximately $3.2 million. The sale of these assets did not have
a material impact on the Partnership's results of operations.

     Amounts related to the West Coast Operations discontinued in 1995 are
summarized as follows: (1) revenues were $315.8 million (2) gross margin was
$(5.6) million (3) loss from discontinued operations was $16.2 million or $0.93
per diluted Unit and loss on disposal of discontinued operations was $49.6
million or $2.86 per diluted Unit. These operating results also include an
allocation of interest expense based on the ratio of net assets of the
discontinued operations to the sum of consolidated net assets plus consolidated
debt.







                                      F-9
<PAGE>   49

                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.   ACQUISITION OF PIPELINE ASSETS

     On February 1, 1997, the Partnership acquired over 400 miles of intrastate
and interstate common carrier pipelines in Louisiana and Texas from CITGO
Pipeline Company ("CITGO Pipeline Acquisition"). Shipped volumes associated with
these assets amount to approximately 48,000 barrels per day from leases in
certain regions of Arkansas, Louisiana and Texas. Storage associated with the
pipeline systems totals approximately 0.5 million barrels. The purchase price
was approximately $12 million and was financed with term debt from Enron.

     On December 29, 1995, but effective January 1, 1996, the Partnership
acquired pipeline and related assets from Amerada Hess Corporation ("Amerada
Hess Acquisition"). The acquired assets include a 265 mile crude oil gathering
system and the Mississippi-Alabama pipeline, a 349 mile common carrier crude oil
pipeline extending from a terminal in Mobile, Alabama to Liberty Station in
Southwestern Mississippi, as well as certain associated crude inventories. Tank
storage associated with the acquired systems and the Mobile terminal is
approximately 5.1 million barrels. The purchase price was approximately $54.0
million and was accounted for as an asset purchase.

     At the time of the closing, Enron had assisted the Partnership in the
arrangement of bridge financing for the asset purchase with a commercial bank in
the form of a promissory note issued by the Partnership to the bank due January
3, 1996. On January 3, 1996, the Partnership and Enron completed transactions to
repay the bridge financing, which are more fully discussed in Note 13.

     Summarized unaudited pro forma results of operations (in thousands) for the
Partnership for the year ended December 31, 1995, as though the Amerada Hess
Acquisition had taken place at the beginning of the year, is as follows: (1)
revenues of $5,281,888 (2) gross margin of $115,174 (3) income from continuing
operations of $13,969 or $0.73 per diluted Unit and (4) net loss of $53,184 or
$2.77 per diluted Unit (18,830 Units outstanding). Pro forma adjustments include
additional depreciation expense, elimination of income taxes, and additional
interest expense related to the $24.2 million note issued to Enron related to
the financing of the acquisition more fully discussed in Note 13. The unaudited
pro forma results of operations are not intended to be indicative of actual
operating results had the transactions occurred when indicated, nor do they
purport to indicate operating results which may occur in the future.


6.    EARNINGS PER UNIT

     In the fourth quarter of 1997, EOTT adopted SFAS No. 128, "Earnings Per
Share". SFAS No. 128 requires the presentation of "Basic" and "Diluted" earnings
per unit in lieu of "Primary" and "Fully Diluted" earnings per unit and requires
restatement of prior years' net income (loss) per unit to conform to the new
computation and presentation guidelines. Basic earnings per unit differs from
primary earnings per unit in that it only includes the weighted average impact
of outstanding units of EOTT (i.e., it excludes unit equivalents). Diluted
earnings per unit considers the impact of all potentially dilutive securities.
The impact of the restatement for all years under SFAS No. 128 was to have two
classes of Units (Common Units, with Special Units considered Common Units, and
Subordinated Units) in the basic earnings per Unit calculation and diluted
earnings per Unit is calculated assuming the Subordinated Units converted into
Common Units.




                                      F-10
<PAGE>   50

                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Net income (loss) shown in the table below excludes the approximate two
percent interest of the General Partner. Earnings (loss) per unit are calculated
as follows (in millions, except per unit amounts):


<TABLE>
<CAPTION>
                                1997                            1996                              1995
                  -----------------------------    ------------------------------   -----------------------------
                     Net        Wtd.                  Net        Wtd.                 Net        Wtd. 
                   Income      Average    Per        Income     Average    Per       Income     Average     Per
                   (Loss)       Units     Unit       (Loss)      Units     Unit      (Loss)      Units      Unit
                  --------     ------   ------     ---------    -------  -------    --------    -------   -------
<S>               <C>          <C>      <C>        <C>           <C>     <C>        <C>          <C>         <C>
Basic: (1)
   Common         $ (8,865)    11,830   $(0.75)    $  17,735     11,830  $  1.50    $(35,414)    10,000   $(3.54)
   Subordinated   $ (5,246)     7,000   $(0.75)    $  10,496      7,000  $  1.50    $(24,790)     7,000   $(3.54)
Diluted (2)(3)    $(14,111)    18,830   $(0.75)    $  28,231     18,830  $  1.50    $(60,204)    17,000   $(3.54)
</TABLE>


(1)  Net income (loss), excluding the two percent General Partner interest, has
     been apportioned to each class of Unitholder based on the ownership of
     total Units outstanding, which is also reflected on the Statement of
     Partners' Capital, and Special Units are considered Common Units.

(2)  The diluted earnings per Unit calculation assumes the conversion of
     Subordinated Units into Common Units.

(3)  In 1995, income from continuing operations was $0.33 per diluted Unit, loss
     from discontinued operations was $(3.79) per diluted Unit and loss from
     extraordinary item was $(0.08) per diluted Unit.

7.   REALIGNMENT INITIATIVES

     In late 1997, EOTT decided to refocus on the core crude business, which
provides substantially all of the gross margin for the Partnership, as well as
improve overall operating efficiencies. As a result, EOTT announced the
following two initiatives. The decision was made to exit the marginal East of
Rockies refined products business in order to focus on business development
opportunities in the crude business, where management believes there is more
potential for growth. The Partnership will re-deploy the working capital
associated with the East of Rockies refined products business and plans to sell
its three products terminals in Ohio. In connection with this decision,
non-recurring charges were recorded at December 31, 1997, which included
severance costs of $0.9 million and a $1.5 million impairment of the Ohio
products terminals.

     In addition, EOTT streamlined business processes throughout the
organization and realigned reporting responsibilities to improve the
Partnership's overall cost structure. As a result, marketing and administrative
personnel were reduced by approximately 20 percent and an additional
non-recurring severance charge of $1.1 million was recorded at December 31, 1997
pursuant to the existing EOTT Energy Corp. Severance Plan.

8.   IMPAIRMENT OF ASSETS

     As a result of the decision to exit the East of Rockies refined products
business discussed in Note 7, the Partnership's three Ohio products terminals
are being held for sale. At December 31, 1997, a $1.5 million impairment charge
was recorded.

     During the fourth quarter of 1997, EOTT terminated an information system
development project due to the lack of third party vendor support and
foreseeable operating platform obsolescence. As a result, the Partnership
recorded a $6.5 million impairment charge.

9.   CREDIT RESOURCES AND LIQUIDITY

      Prior to June 30, 1995, EOTT had a credit facility with a third party. In
connection with the termination of this facility, an extraordinary one-time
charge of $1.3 million was recorded in 1995. On June 30, 1995, Enron Corp.
agreed to provide credit support (the "Enron Facility") to the Partnership in
the form of guarantees, letters of credit, loans and letters of indemnity. The
total amount of the Enron Facility is $600 million, as amended 



                                      F-11
<PAGE>   51

                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 19, 1996, and the facility, as amended February 10, 1998, has a
maturity of March 31, 1999. As amended, the agreement contains sublimits on the
availability of the Enron Facility of $100 million for working capital loans and
$200 million for letters of credit. Letter of credit fees are based on actual
charges by the banks which range from .20% - .375% per annum. Interest on
outstanding loans is charged at the London Interbank Offering Rate ("LIBOR")
plus .25% per annum.

      The Enron Facility is subject to defined borrowing base limitations
relating to the Partnership's activities and to the maintenance and protection
of the collateral. The Enron Facility permits distributions to Unitholders
subject to certain limitations based on the Partnership's earnings and other
factors. These covenants and restrictions are not expected to materially affect
EOTT's ability to operate the ongoing Partnership business.

      At December 31, 1996, EOTT had an additional $24.2 million of term debt
outstanding with Enron under a financing arrangement dated January 3, 1996 for
acquisitions and other capital projects (the "Term Loan"). This financing was
initially provided at a rate of LIBOR plus 1% per annum until March 31, 1996, a
rate of LIBOR plus 1.5% through June 30, 1996 and a rate of LIBOR plus .3%
effective September 15, 1996. On February 25, 1997, with an effective date of
February 11, 1997, this note was extended in maturity to March 31, 1998 from its
original March 31, 1997 maturity date and the amount available was increased to
$39.3 million. In early 1997, an additional $15 million of term debt was
borrowed primarily to finance the CITGO Pipeline Acquisition. On February 10,
1998, the maturity date of the Term Loan was extended to March 31, 1999.

      The Enron Facility and Term Loan are secured by a first priority lien on
and security interest in all receivables and inventory of the Partnership. The
borrowing base is the sum of cash and cash equivalents, specified percentages of
eligible receivables, inventory, and products contracted for or delivered but
not billed. The Enron Facility and Term Loan are non-recourse to the General
Partner and the General Partner's assets. The Partnership is restricted from
entering into additional financing arrangements without the prior approval of
Enron.

      At December 31, 1997, EOTT had $92.5 million in letters of credit and
$70.0 million in loans outstanding under the Enron Facility at an average annual
interest rate of approximately 5.8%. The amount outstanding under the Term Loan
at December 31, 1997 was $39.3 million with an average annual interest rate of
6.0%. The actual interest rate may vary based on the length of the borrowings.
In addition, guarantees outstanding totaled $402.5 million of which $292.3
million were utilized.

      At December 31, 1996, EOTT had $180.1 million in letters of credit and
$38.5 million in loans outstanding under the Enron Facility at an average annual
interest rate of approximately 5.8%. The amount outstanding under the Term Loan
at December 31, 1996 was $24.2 million with an average annual interest rate of
6.5%. The actual interest rate may vary based on the length of the borrowings.
In addition, guarantees outstanding totaled $425.7 million of which $334.3
million were utilized.

      At December 31, 1997, EOTT was in technical violation of the negative
covenants relating to the Tangible Net Worth, Leverage Ratio and Working Capital
Ratio in the Enron Facility and Term Loan due principally to the operating loss
associated with the deterioration of grade and basis differentials in the crude
oil markets. EOTT received a waiver for these violations from Enron.

      At December 31, 1996, EOTT was in technical violation of the negative
covenant relating to the Leverage Ratio in the Enron Facility and Term Loan due
principally to increased volumes of business and increases in the price of
crude. EOTT received a waiver for this violation from Enron.

      The General Partner believes that the Enron Facility will be sufficient to
support the Partnership's crude oil purchasing activities and working capital
requirements. No assurance, however, can be given that the General 




                                      F-12
<PAGE>   52


                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Partner will not be required to reduce or restrict the Partnership's gathering
and marketing activities because of limitations on its ability to obtain credit
support and financing for its working capital needs.

      The Partnership's ability to obtain letters of credit to support its
purchases of crude oil or refined petroleum products is fundamental to the
Partnership's gathering and marketing activities. Additionally, EOTT has a
significant need for working capital due to the large dollar volume of trading
and marketing transactions in which it engages. Any significant decrease in the
Partnership's financial strength, regardless of the reason for such decrease,
may increase the number of transactions requiring letters of credit or other
financial support, make it more difficult for the Partnership to obtain such
letters of credit, and/or may increase the cost of obtaining them. This could in
turn adversely affect the Partnership's ability to maintain or increase the
level of its purchasing and marketing activities or otherwise adversely affect
the Partnership's profitability and Available Cash as defined in the Partnership
Agreement and amendments thereto.

      Generally, the Partnership will distribute 100% of its Available Cash
within 45 days after the end of each quarter to Unitholders of record and to the
General Partner. Available Cash consists generally of all of the cash receipts
of the Partnership adjusted for its cash distributions and net changes to
reserves. The full definition of Available Cash is set forth in the Partnership
Agreement and amendments thereto, a form which is filed as an exhibit to this
Annual Report on Form 10-K. Distributions of Available Cash to the Subordinated
Unitholders are subject to the prior rights of the Common and Special
Unitholders to receive the Minimum Quarterly Distribution ("MQD") for each
quarter during the Subordination Period, and to receive any arrearages in the
distribution of the MQD on the Common Units for prior quarters during the
Subordination Period.

      MQD is $0.475 per Unit. Enron has committed to provide total cash
distribution support in an amount necessary to pay MQDs, with respect to
quarters ending on or before March 31, 1999, in an amount up to an aggregate of
$29 million (of which $16.6 million had been advanced through February 13, 1998)
in exchange for Additional Partnership Interests ("APIs").

      The APIs purchased by Enron are not entitled to cash distributions or
voting rights. Originally, the APIs were required to be redeemed if and to the
extent that Available Cash for any future quarter exceeded an amount necessary
to distribute the MQD on all Common and Subordinated Units and to eliminate
arrearages, if any, in the MQD on Common Units for prior periods. In February
1997, the General Partner amended the Partnership Agreement to provide that a
holder of APIs may, at its option, waive its right to receive distributions of
Available Cash to which it would otherwise be entitled and to provide that in
such case the Partnership may retain such cash for later distribution to
partners or for use in the Partnership's business in subsequent periods. The
Partnership's Available Cash for the fourth quarter of 1996 was substantially in
excess of the amount necessary to distribute the MQD on all outstanding Units,
and upon adoption of the amendment, Enron, the holder of APIs, waived its right
to receive such excess cash in redemption of APIs. The February 1997 amendments
to the Partnership Agreement also provided that after the end of the
Subordination Period a holder of Subordinated Units may convert such Units into
Common Units either in whole or in part from time to time. The amendments also
provided that any unconverted Units will be renamed "Class B Units" after the
end of the Subordination Period. Prior to the amendments, the Partnership
Agreement provided that the General Partner (whether or not it held the
Subordinated Units) would determine when conversion occurred and that conversion
would occur on an all or none basis.

     The Partnership Agreement authorizes EOTT to cause the Partnership to issue
additional limited partner interests and other equity securities, the proceeds
from which could be used to provide additional funds for acquisitions or other
Partnership needs.





                                      F-13
<PAGE>   53



                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.  INVENTORIES

     Inventories are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                      December 31,
                                                              --------------------------
                                                                 1997            1996
                                                              -----------    -----------
<S>                                                           <C>            <C>        
        Crude oil...........................................  $   162,719    $   158,229
        Refined products....................................       10,918         11,069
                                                              -----------    -----------
           Total............................................  $   173,637    $   169,298
                                                              ===========    ===========
</TABLE>

     The Partnership maintains minimum safety levels of approximately 1.8
million barrels in pipelines and storage tanks at December 31, 1997 and 1996.

11.  PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                       ---------------------------------
     Property, Plant and Equipment ("PP&E"), at cost                       1997                1996
                                                                       -------------      --------------
 <S>                                                                   <C>                <C>           
     Land                                                              $       3,717      $        4,083
     Buildings                                                                 6,294               6,360
     Tractors and trailers                                                    15,285              17,114
     Office PP&E, including furniture and fixtures                            32,539              35,645
     Operating PP&E, including pipelines, storage tanks, etc.                166,693             150,247
                                                                       -------------      --------------
         Total Property, Plant and Equipment, at cost                  $     224,528      $      213,449
                                                                       =============      ==============
</TABLE>

     Certain assets included in PP&E, primarily pipelines, are affected by
factors, which could affect future cash flows, such as competition,
consolidation in the industry, refinery demand for specific grades of crude oil,
area market price structures and continued development drilling in certain areas
of the United States. EOTT continuously monitors these factors and pursues
alternative strategies to maintain or enhance cash flows associated with these
assets; however, no assurances can be given that EOTT can mitigate the effects,
if any, on future cash flows related to any changes in these factors.

12.  SUPPLEMENTAL CASH FLOW INFORMATION

     Cash paid for interest expense was $6.2 million, $3.4 million and $4.7
million for the years ended December 31, 1997, 1996 and 1995,respectively.

     Non-cash investing activities during 1995 include obligations incurred to
finance new information systems of approximately $3.3 million. On January 5,
1996, EOTT repaid the outstanding balance of the financing in connection with
the information systems development. As discussed further in Note 13, 1,830,011
Common Units issued to Enron in connection with the Amerada Hess Acquisition
were exchanged for Special Units.







                                      F-14
<PAGE>   54

                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.  TRANSACTIONS WITH ENRON AND RELATED PARTIES

     Revenue and Cost of Sales. A summary of revenue and cost of sales with
Enron and its affiliates follows (in thousands):


<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                ------------------------------------------
                                                                    1997           1996           1995
                                                                -----------     ----------     -----------
<S>                                                             <C>             <C>            <C>        
           Sales to affiliates............................      $    44,025     $   41,865     $     4,279
           Purchases from affiliates......................      $    71,895     $  100,143     $    93,921
</TABLE>

     Revenue in 1997, 1996 and 1995 consists primarily of sales of crude oil to
Enron Reserve Acquisition Corp. Cost of sales consists primarily of crude oil
and condensate purchases from Enron Oil & Gas Company and natural gas liquids
purchases from Enron Gas Liquids, Inc. These transactions in the opinion of
management are no more or less favorable than can be obtained from unaffiliated
third parties.

     Other related party balances related to purchases and sales of goods and
services have been classified as trade and other receivables or trade accounts
payable. Related party receivables at December 31, 1997 and 1996 were $ 2.8
million and $3.8 million, respectively. Related party payables at December 31,
1997 and 1996 were $3.6 million and $11.1 million, respectively. The payables
primarily represent amounts owed by EOTT on the purchase of crude oil and other
products from Enron affiliates.

     General and Administrative. As is commonly the case with publicly traded
partnerships, EOTT does not directly employ any persons responsible for managing
or operating the Partnership or for providing services relating to day-to-day
business affairs. The General Partner, under a corporate services agreement,
provides services to the Partnership including liability and casualty insurance
and certain data processing services. The General Partner is reimbursed by the
Partnership for these direct and indirect costs. Those costs were $3.6 million,
$5.0 million and $3.8 million for the years ended December 31, 1997, 1996 and
1995, respectively. Management believes that the charges were reasonable.

     Financing of Pipeline Acquisition. On January 3, 1996, EOTT and Enron
concluded financing arrangements related to the Amerada Hess Acquisition
discussed in Note 5 in which the Partnership (i) issued and sold to Enron
1,830,011 Common Units for $29.8 million in cash in a private placement, (ii)
issued a promissory note to Enron for $24.2 million due March 31, 1999, as
amended, which carries a per annum interest rate of LIBOR plus 1% through March
31, 1996, a rate of LIBOR plus 1.5% through June 30, 1996 and a rate of LIBOR
plus .3% effective September 15, 1996 and (iii) received a $.6 million capital
contribution related to the General Partner's approximate 2% interest in the
Partnership. The balance of the purchase price was financed through short-term
borrowings with Enron. Collectively, these proceeds, together with short-term
borrowings from Enron, were used by EOTT to repay the bridge financing discussed
in Note 5. In early 1997, an additional $15 million of term debt was borrowed
primarily to finance the CITGO Pipeline Acquisition.

     Special Units. Effective July 16, 1996, EOTT created a new class of limited
partner interest designated as Special Units and exchanged the Special Units on
a one-for-one basis for the 1,830,011 Common Units issued January 3, 1996 to
Enron in connection with the financing of the Amerada Hess Acquisition. The
Special Units rank pari passu with the Common Units in all distributions and
upon liquidation and will vote as a class with the Common Units. The exchange
permitted EOTT to avoid the cost of New York Stock Exchange listing of the
Common Units issued to Enron in connection with the financing of the
acquisition, including the cost associated with seeking Unitholder approval for
the listing. The Special Units may become convertible into Common Units 





                                      F-15
<PAGE>   55

                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

on a one-for-one basis in certain events. The Special Units are considered
Common Units for earnings per unit purposes, and the exchange had no adverse
impact on EOTT or on income or distributions per Common Unit.

     Purchase of Common Units. On March 10, 1995, Enron authorized the purchase
of up to $15 million of EOTT units on the open market. As of February 15, 1998,
Enron had purchased 296,800 EOTT Common Units under the purchase program,
excluding the 1.8 million units discussed above.

     Additional Partnership Interests. On May 15, 1995 and August 14, 1995,
Enron paid $4.3 million and $4.8 million, respectively in support of EOTT's
first and second quarter 1995 distributions to its Common Unitholders and the
General Partner. On November 14, 1997 and February 13, 1998, Enron paid $3.7
million and $3.8 million, respectively in support of EOTT's third quarter and
fourth quarter 1997 distributions to its Common and Special Unitholders and the
General Partner. In exchange for the distribution support, Enron received APIs
in the Partnership. APIs have no voting rights and are non-distribution bearing;
however, APIs will be entitled to be redeemed if, with respect to any quarter,
the MQD and any Common Unit Arrearages have been paid, but only to the extent
that Available Cash with respect to such quarter exceeds the amount necessary to
pay the MQD on all Units and any Common Unit Arrearages. The Partnership
Agreement has been amended to provide that a holder of APIs may waive the right
to receive distributions of such excess Available Cash.

14.  EMPLOYEE BENEFIT AND RETIREMENT PLANS

     Employees of the General Partner are covered by various retirement, stock
purchase and other benefit plans of Enron. In April 1993, the General Partner
adopted non-qualified benefit plans providing medical, dental, life, accidental
death and dismemberment and long-term disability coverage to employees, with all
related premiums and costs being incurred by the General Partner. Total benefit
costs for 1997 were $4.2 million, including $3.3 million in costs attributable
to health and welfare benefit plans. Total benefit costs for 1996 were $6.3
million including $3.1 million in costs attributable to health and welfare
benefit plans and $1.8 million in costs attributable to a profit sharing
contribution to the Enron Corp. Savings Plan based on 1996 financial results.
Total benefit costs for 1995 were $2.7 million including $1.3 million in costs
attributable to health and welfare benefit plans.

     Additionally, the General Partner maintains a variable pay plan based on
earnings before interest, income taxes, depreciation and amortization of which
none was recognized in 1997, $8.9 million in 1996 and none in 1995.

     The General Partner's employees continue benefit accrual under the Enron
Cash Balance Plan. All accrued benefits under the Enron Cash Balance Plan will
be preserved in the Enron Cash Balance Plan until the General Partner adopts
separate plans or participating employees are eligible for distribution under
the plan. The General Partner's employees continue to participate in the Enron
Employee Stock Ownership Plan and continue to be eligible for participation in
the Enron Corp. Savings Plan.

     As of September 30, 1997, the most recent valuation date, the plan net
assets of the Enron noncontributory defined benefit plan, in which the employees
of the General Partner participate, were less than the actuarial present value
of projected plan benefit obligations by approximately $6.5 million. As of
September 30, 1996, the plan net assets of the Enron noncontributory defined
benefit plan, in which the employees of the General Partner participate, were
greater than the actuarial present value of projected plan benefit obligations
by approximately $5.0 million. The assumed discount rate, rate of return on plan
assets and rate of increases in wages used in determining the actuarial present
value of projected plan benefits were 7.25%, 10.5% and 4.0% in 1997,
respectively, and 7.50%, 10.5% and 4.0% in 1996, respectively.



                                      F-16
<PAGE>   56

                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The General Partner provides certain medical, life insurance and dental
benefits under the Enron Cash Balance Plan, a contributory defined dollar
benefit plan, to eligible employees of the General Partner who retire after
January 1, 1994 and their eligible surviving spouses. EOTT accrues these
postretirement benefit costs over the service lives of employees expected to be
eligible to receive such benefits. Enron will retain liability for former
employees of the General Partner who retired prior to January 1, 1994 under the
Enron Retirement Plan. The accumulated postretirement benefit obligation
("APBO") existing at September 30, 1997 and 1996 totaled $0.7 million and $0.8
million, respectively, of which $0.1 million and $0.1 million, for 1997 and
1996, respectively, is applicable to current retirees and employees currently
eligible to retire. The measurement of the APBO assumes a 7.25% and 7.50%
discount rate in 1997 and 1996, respectively. EOTT does not currently intend to
prefund its obligations under the Enron postretirement benefit plan.

     The components of net periodic postretirement benefit cost for 1997 and
1996 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                     1997            1996
                                                                                  -----------    --------
<S>                                                                               <C>            <C>        
         Service cost...........................................................  $        76    $       107
         Interest cost..........................................................           51             55
         Return on plan assets..................................................           --             --
         Net amortization.......................................................           13             22
                                                                                  -----------    -----------
              Total net periodic postretirement benefit cost....................  $       140    $       184
                                                                                  ===========    ===========
</TABLE>

     The funded status as of September 30, 1997 and 1996 of the Enron
postretirement benefit plan (attributable to EOTT) reconciles with the amount on
the Consolidated Balance Sheet as of December 31, 1997 and 1996 as follows:

<TABLE>
<CAPTION>
                                                                                      1997           1996
                                                                                  -----------    -----------
<S>                                                                               <C>            <C>         
     Accumulated postretirement benefit obligation at September 30 (APBO):
         Current retirees.......................................................  $      (145)   $      (148)
         Active employees fully eligible for benefits...........................          (23)           (24)
         Other active employees.................................................         (577)          (604)
                                                                                  -----------    -----------
         Total..................................................................         (745)          (776)
     Fair value of plan assets at September 30..................................           --             --
                                                                                  -----------    -----------
     APBO (in excess of) less than fair value of plan assets at September 30....         (745)          (776)
     Claims paid during the fourth quarter......................................           --             --
     Unrecognized amounts:
         Transition obligation (asset)..........................................           --             --
         Prior service cost.....................................................          358            546
         Net gain...............................................................         (468)          (664)
                                                                                  -----------    -----------
     Accrued postretirement benefit cost at December 31.........................  $      (855)   $      (894)
                                                                                  ===========    ===========
</TABLE>

     The General Partner provides unemployment, severance and disability-related
benefits or continuation of benefits such as health care and life insurance and
other postemployment benefits. SFAS No. 112 requires the cost of those benefits
to be accrued over the service lives of the employees expected to receive such
benefits. At December 31, 1997 and 1996, the liability accrued was $0.5 million
and $0.4 million, respectively.








                                      F-17
<PAGE>   57


                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     EOTT Energy Corp. Unit Option Plan. In February 1994, the Board of
Directors of the General Partner adopted the 1994 EOTT Energy Corp. Unit Option
Plan (the "Unit Option Plan"), which is a variable compensatory plan. Under the
Unit Option Plan, selected employees of the General Partner may be granted
options to purchase Subordinated Units at a price of $15.00 per Unit as
determined by the Compensation Committee of the Board of Directors of the
General Partner. Options granted under the Unit Option Plan vest to the
employees over a five year service period and will expire on the tenth
anniversary of the date of grant. No options are vested or exercisable prior to
the third anniversary of the grant.

The following table sets forth the Unit Option Plan transactions for the years
ended December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                Number of Unit Options
                                                       -------------------------------------
                                                          1997          1996          1995
                                                       ---------     ---------     ---------
<S>                                                   <C>            <C>           <C>      
Outstanding at January 1 .........................     1,155,000     1,175,000     1,290,000
       Granted ...................................            --       160,000            --
       Exercised .................................            --            --            --
       Forfeited .................................            --       180,000       115,000
                                                       ---------     ---------     ---------

Outstanding at December 31 .......................     1,155,000     1,155,000     1,175,000
                                                       =========     =========     =========

Available for grant at December 31 ...............            --       395,000       375,000
                                                       =========     =========     =========
</TABLE>


     In February 1997, the Board of Directors of the General Partner decided
that it would not grant any additional options under the Unit Option Plan. In
addition, the Unit Option Plan was amended to provide that, if the General
Partner and the option holder agree, any option may be exercised on a "net"
basis with no cash payment (other than for withholding taxes), so that upon
exercise the holder will receive a number of Units with a fair market value
equal to the difference between the fair market value of the Units covered by
the option and the exercise price of the option. As a result, the General
Partner anticipates that the actual number of Units to be issued on exercise of
options will be substantially less than the number of Units covered by
outstanding options.

     EOTT Energy Corp. Long Term Incentive Plan. In October 1997, the Board of
Directors adopted the EOTT Energy Corp. Long Term Incentive Plan ("Plan"), which
is a variable compensatory plan. Under the Plan, selected key employees are
awarded Phantom Appreciation Rights ("PAR"). Each PAR is a right to receive cash
based on the performance of the Partnership prior to the time the PAR is
redeemed. Performance of the Partnership is measured primarily by calculating
the change in the average of Earnings Before Interest on Term Debt, related to
acquisitions, Depreciation and Amortization ("EBIDA"), for each of the three
consecutive fiscal years immediately preceding the grant date of the PAR and the
exercise date of the PAR. The Plan has a five-year term beginning January 1,
1997, and PAR awards vest in 25% increments in the four year period following
the grant year. In 1997, 376,600 PAR units were granted.

     In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." This standard establishes a fair
value based method of accounting for stock based compensation plans awarded
after December 31, 1995 and encourages companies to adopt the fair value based
method in SFAS No. 123 in place of the existing accounting method which requires
expense recognition only in situations where stock based compensation plans
award intrinsic value to recipients at the date of grant. Companies that do not
follow SFAS No. 123 for accounting purposes must make annual pro forma
disclosure of its effects. EOTT elected not to adopt the fair value method for
accounting purposes. If EOTT had elected to 




                                      F-18
<PAGE>   58

                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123, net income (loss) and net income
(loss) per diluted Unit would have been reduced to the following pro forma
amounts (in thousands):

<TABLE>
<CAPTION>
                                                                         1997           1996           1995
                                                                      -----------    -----------    -----------
<S>                                                                   <C>            <C>            <C>         
        Net Income (Loss) - as reported                               $   (14,399)   $    28,809    $   (61,433)
        Net Income (Loss) - pro forma                                 $   (14,491)   $    28,717    $   (61,433)

        Diluted Net Income (Loss) per Unit - as reported              $     (0.75)   $      1.50    $     (3.54)
        Diluted Net Income (Loss) per Unit - pro forma                $     (0.75)   $      1.50    $     (3.54)
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the Cox-Ross-Rubenstein binomial method with the following assumptions: (1)
dividend of $1.90 per Unit, (2) expected unit price volatility of 24.03%, (3)
risk-free interest rate of 6.40% and (4) expected life of option of 3 years. The
weighted average fair value of options granted during 1996 was $2.065 per unit.

15.  LITIGATION AND OTHER CONTINGENCIES

      EOTT is, in the ordinary course of business, a defendant in various
lawsuits, some of which are covered in whole or in part by insurance. The
Partnership is responsible for all litigation and other claims relating to the
business acquired from the Predecessor, although the Partnership will be
entitled to the benefit of certain insurance maintained by Enron covering
occurrences prior to the closing of the offering. The Partnership believes that
the ultimate resolution of litigation, individually and in the aggregate, will
not have a materially adverse impact on the Partnership's financial position or
results of operations. Various legal actions have arisen in the ordinary course
of business, the most significant of which are discussed below.

     Wyoming Refining Company Matter. EOTT has a possible loss exposure of
approximately $1.47 million as a result of a current dispute between Wyoming
Refining Company ("WRC") and the U.S. Minerals Management Service ("MMS"). MMS
is claiming that it was underpaid by WRC for certain Montana crude oil which was
delivered to WRC over a several-year period to 1993. Pursuant to a now-expired
crude oil exchange agreement between WRC and EOTT, WRC has indicated that it
will expect reimbursement from EOTT for any payment, if any, which WRC
ultimately makes to MMS in connection with the MMS claim. The General Partner
believes that WRC has valid defenses to the MMS claim, and that the Partnership
would have valid defenses to any reimbursement claim by WRC.

      State of Texas Royalty Suit. EOTT was served on November 9, 1995 with a
petition styled The State of Texas, et al. vs. Amerada Hess Corporation, et al.
The matter was filed in District Court in Lee County, Texas and involves several
major and independent oil companies and marketers as defendants. The plaintiffs
are attempting to put together a class action lawsuit alleging that the
defendants acted in concert to buy oil owned by members of the plaintiff class
in Lee County, Texas, and elsewhere in Texas, at "posted" prices, which were
lower than true market prices. There is not sufficient information in the
petition to fully quantify the allegations set forth in the petition, but the
General Partner believes that any such claims against the Partnership will prove
to be without merit.

     The State of Texas, et al. vs. Amerada Hess Corporation, et al., Cause No.
97-12040; In the 53rd Judicial District Court of Travis County, Texas. This case
was filed on October 23, 1997 in Austin by the Texas Attorney General's office
and involves several major and independent oil companies and marketers as
defendants. EOTT was served on November 18, 1997. The petition states that the
State of Texas brought this 




                                      F-19
<PAGE>   59

                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

action in its sovereign capacity to collect statutory penalties recoverable
under the Texas Common Purchaser Act, arising from Defendants' alleged willful
breach of statutory duties owed to royalty, overriding royalty and working
interest owners of crude oil sold to Defendants, as well as alleged breach of
Defendants' common law and contractual duties. The Plaintiffs also allege that
the Defendants have engaged in discriminatory pricing of crude oil. This case
appears to be similar to the Lee County, Texas case filed by the State of Texas
on November 9, 1995 and disclosed previously. There is not sufficient
information in the petition to fully quantify the allegations set forth in the
petition, but the General Partner believes any such claims against it or the
Partnership will prove to be without merit.

     McMahon Foundation and J. Tom Poyner vs. Amerada Hess Corporation, et al.
(Including EOTT Energy Operating Limited Partnership), Civil Action No.
H-96-1155; United States District Court, Southern District of Texas, Houston
Division (Texas Federal Anti-Trust Suit). This suit was filed on April 10, 1996
as a class action complaint for violation of the federal antitrust laws and
involves several major and independent oil companies and marketers as
defendants. The relevant area is the entire continental United States, except
for Alaska, New York, Ohio, Pennsylvania, West Virginia and the Wilmington Field
at Long Beach, California. The plaintiffs claim that there is a combination and
conspiracy among the defendant oil companies to fix, depress, stabilize and
maintain at artificially low levels the price paid for the first purchase of
lease production oil sold from leases in which the class members own interests.
This was allegedly accomplished by agreement of the defendants to routinely pay
for first purchases at posted prices rather than competitive market prices and
maintain them in a range below competitive market prices through an undisclosed
scheme of using posted prices in buy/sell transactions among themselves to
create the illusion that posted prices are genuine market prices. The plaintiffs
allege violations from October of 1986 forward. No money amounts were claimed,
and it is not possible to determine any potential exposure until further
discovery has been done. While the petition is vague and discovery has not yet
begun, the General Partner believes the Partnership should be without liability
in this or related matters.

     Randolph Energy, Inc., et al. vs. Amerada Hess Corporation, et al., Civil
Action No. 2:97CV273PG; In the United States District Court for the Southern
District of Mississippi, Jackson Division (Mississippi Federal Anti-Trust Suit).
EOTT received the summons in this matter on August 18, 1997. The case was filed
on August 5, 1997 and is a class action complaint for alleged violation of the
federal antitrust laws which involves several major and independent oil
companies and marketers as defendants. The plaintiffs claim that this litigation
arises out of a combination and conspiracy of the defendant oil companies to
fix, depress, stabilize and maintain at artificially low levels the prices paid
for the first purchase of lease production oil sold from leases in which the
class members own interests. The issues appear to be a duplication of the issues
in the Texas Federal Anti-Trust Suit referenced above. No money amounts were
claimed, and it is not possible to determine any potential exposure until
further discovery is done. Though still in its early stages, the General Partner
believes the Partnership should be without liability in this or related matters.

     The Texas Federal Anti-Trust Suit and the Mississippi Federal Anti-Trust
Suit, along with several other suits to which EOTT is not a party, were
consolidated and transferred to the Southern District of Texas by Transfer Order
dated January 14, 1998. The Judicial Panel on Multidistrict Litigation made this
recommendation due to similarity of issues in the cases.

     Processing Agreement. In early 1991, EOTT entered into a crude oil
processing agreement with a California refiner pursuant to which EOTT's crude
oil was processed into refined petroleum products during 1991 and 1992. On
December 31, 1992, EOTT entered into a new, long-term processing agreement that
replaced the agreement in effect during 1991 and 1992. This agreement was
terminated in September 1995 in connection with the termination of EOTT's West
Coast processing and asphalt marketing business (See Note 4).




                                      F-20
<PAGE>   60

                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The General Partner has been advised by the refiner that environmental
conditions exist in the area of the refinery, including soil and groundwater
contamination, that are the subject of ongoing, long-term remediation.
Conditions of this nature are frequently associated with petroleum refineries.
These conditions existed prior to EOTT's original processing agreement and prior
to the acquisition of the refinery by the current owners. The General Partner
has been advised that the refiner is implementing groundwater and soil
remediation that includes retrieval and treatment of the contaminated
groundwater and is preparing a long-term groundwater and soil remedial action
plan. The General Partner understands that the refiner is working with the
regulatory agencies in effecting this remediation.

     It is possible that EOTT could be named as a defendant in any legal action
that might be filed as a consequence of environmental conditions associated with
the refinery, although the General Partner believes that valid defenses exist to
any claim that may be filed with respect to existing environmental conditions.
The General Partner cannot predict the nature or size of future claims that
might be filed as a consequence of environmental conditions in the area of the
refinery. The likelihood of such a claim against EOTT could be increased if the
refiner is unable to complete its environmental cleanup and compliance program.
In addition, because land surrounding the refinery is devoted to residential,
commercial and industrial uses, there may be increased sensitivity within the
local community to environmental issues concerning the operations of the
refinery. The General Partner can give no assurances as to how courts or
regulatory authorities will, in the future, interpret or apply the liability
provisions of applicable law, including federal or state environmental laws and
regulations.

      General Matters. EOTT believes that it has obtained or has applied for all
of the necessary permits required by federal, state, and local environmental
agencies for the operation of its business. Further, the Partnership believes
that there are no outstanding liabilities or claims relating to environmental
matters, individually and in the aggregate, which would have a material adverse
impact on the Partnership's financial position or results of operations.

16.  COMMITMENTS

     Operating Leases. EOTT leases certain real property, equipment, and
operating facilities under various operating leases. Future non-cancelable
commitments related to these items at December 31, 1997, are summarized below
(in thousands):

<TABLE>
<S>                                                                               <C>        
         1998...................................................................  $     4,791
         1999...................................................................        3,396
         2000...................................................................        1,891
         2001...................................................................          684
         2001...................................................................          201
           Later years..........................................................          452
</TABLE>

     Total lease expense incurred was $10.3 million, $10.3 million and $7.8
million for the years ended December 31, 1997, 1996 and 1995, respectively.



                                      F-21
<PAGE>   61

                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.  OTHER INCOME (EXPENSE), NET

     The components of other income (expense), net are as follows (in
thousands):


<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                              ------------------------------------------------
                                                                   1997             1996              1995
                                                              -------------     -------------    -------------
<S>                                                           <C>               <C>              <C>          
     Gain (loss) on foreign currency transactions.........    $      (1,488)    $         (83)   $         168
     Gain (loss) on disposal of fixed assets..............              503               (80)             475
     Rental income .......................................               90                69               74
     Litigation settlements and reserves..................              130               203               --
     Other................................................               (1)               49              134
                                                              -------------     -------------    -------------
        Total.............................................    $        (766)    $         158    $         851
                                                              =============     =============    =============
</TABLE>

18.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following disclosures on the estimated fair value of financial
instruments are presented in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments" and SFAS No. 119,
"Disclosures About Derivative Financial Instruments and Fair Value of Financial
Instruments." Fair value as defined in SFAS No. 107 represents the amount at
which the instrument could be exchanged in a current transaction between willing
parties. The estimated fair value amounts have been determined by EOTT using
available market data and valuation methodologies. Judgment is required in
interpreting market data and the use of different market assumptions or
estimation methodologies may affect the estimated fair value amounts.

     Credit Risk. In the normal course of business, EOTT extends credit to
various companies in the energy industry. Within this industry, certain elements
of credit risk exist and may, to varying degrees, exceed amounts recognized in
the accompanying consolidated financial statements, which may be affected by
changes in economic or other external conditions and may accordingly impact
EOTT's overall exposure to credit risk. EOTT's exposure to credit loss in the
event of nonperformance is limited to the book value of the trade commitments
included in the accompanying Consolidated Balance Sheets. EOTT manages its
exposure to credit risk through credit analysis, credit approvals, credit limits
and monitoring procedures. Further, the General Partner believes that its
portfolio of receivables is well diversified and that the allowance for doubtful
accounts is adequate to absorb any potential losses. EOTT requires collateral in
the form of letters of credit for certain of its receivables.

     Market Risk. EOTT trading and non-trading transactions give rise to market
risk, which represents the potential loss that can be caused by a change in the
market value of a particular commitment. EOTT closely monitors and manages its
exposure to market risk to ensure compliance with EOTT's stated risk management
policies which are regularly assessed to ensure their appropriateness given
EOTT's objectives, strategies and current market conditions.



                                      F-22
<PAGE>   62

                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following table presents the carrying amounts and estimated fair values
of the Partnership's financial instruments at December 31, 1997 and 1996 (in
millions):

<TABLE>
<CAPTION>
                                                        1997                 1996
                                                 ------------------  ------------------
                                                 Carrying    Fair    Carrying    Fair
                                                  Amount     Value    Amount     Value
                                                 --------   -------   -------   -------
<S>                                               <C>       <C>       <C>       <C>    
Financial assets
   Cash and cash equivalents ................     $   3.7   $   3.7   $   5.3   $   5.3
   Foreign currency contracts ...............          --      22.9        --      45.1

Financial liabilities
   Short-term borrowings ....................     $  70.6   $  70.6   $  39.1   $  39.1
   Note payable .............................        39.3      39.3      24.2      24.2
   Foreign currency contracts ...............          --      22.9        --      45.1
   Long-term liabilities ....................         0.3       0.3       0.9       0.9
</TABLE>

     The following methods and assumptions were used to estimate the fair value
of financial instruments:

     Cash and cash equivalents, short-term borrowings, and note payable. Fair
value for these current assets and liabilities was considered to be the same as
the carrying amounts because of their liquidity and market-based interest where
applicable.

     Foreign currency contracts. Quoted market prices are used in determining
the fair value of financial instruments held or issued. If quoted prices are not
available, fair values are estimated on the basis of pricing models or quoted
prices for financial instruments with similar characteristics.

     Long-term liabilities. These liabilities represent long-term borrowings on
which the carrying amounts approximate fair value because the effective annual
interest rates of these instruments reflect interest rates at December 31, 1997
and 1996.

OTHER THAN TRADING ACTIVITIES

     EOTT enters into forwards, futures and other contracts to hedge the impact
of market fluctuations on assets, lease purchases or other contractual
commitments. However, EOTT does not consider its commodity futures and forward
contracts to be financial instruments since these contracts require or permit
settlement by the delivery of the underlying commodity, and thus are not subject
to the provisions of SFAS No. 119. Changes in the market value of these
transactions are deferred until the gain or loss is recognized on the hedged
transaction at which time such gains and losses are recognized through cost of
sales.

     EOTT routinely enters into foreign currency futures contracts to hedge
foreign currency exposure from commercial transactions relating to current month
crude purchases and sales as well as fixed price swaps. These contracts
generally mature in one year or less. At December 31, 1997 and 1996, foreign
currency contracts with a notional principal amount of $22.9 million and $45.1
million, respectively, were outstanding, having exchange rates which
approximated current market exchange rates.

TRADING ACTIVITIES

     During 1997, 1996 and 1995, EOTT offered limited price risk management
products to the energy sector which were not material to EOTT's financial
position or results of operations. These products include swap agreements which
require payments to (or receipt of payments from) counterparties based on the
differential between a fixed and variable price for the commodities specified,
options and other contractual arrangements. 




                                      F-23
<PAGE>   63

                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EOTT accounts for these activities using the mark-to-market method of accounting
and records the gain or loss as a cost of sales in the period of the change in
the market with an offsetting entry to trade accounts receivable or payable as
appropriate. In connection with the realignment initiatives discussed in Note 7,
EOTT will no longer provide price risk management products to its customers.

19.  SUBSEQUENT EVENTS

     On January 16, 1998, the Board of Directors of EOTT Energy Corp., as
General Partner, declared the Partnership's regular quarterly cash distribution
of $.475 per Unit for the period October 1, 1997 through December 31, 1997. The
total distribution of approximately $5.7 million was paid on February 13, 1998
to the General Partner and all Common and Special Unitholders of record as of
the close of business on January 30, 1998. The fourth quarter distribution was
paid utilizing $1.9 million of Available Cash from the Partnership and $3.8
million cash provided by Enron pursuant to Enron's distribution support
obligation. After payment of the fourth quarter distribution in February 1998,
the cumulative amount paid from the Enron distribution support totaled $16.6
million.

20.  BUSINESS SEGMENT INFORMATION

     EOTT's operating activities are divided into two business segments:

     North American Crude Oil. EOTT gathers and transports crude oil from
producers east of the Rocky Mountains, in California, and in Canada via a fleet
of 275 owned or leased transport vehicles and through approximately 2,285 miles
of proprietary and common carrier pipelines operated in 15 states. It also
markets and trades crude oil utilizing various domestic and international
trading points.

     Refined Products Marketing. EOTT markets and trades a variety of wholesale
gasolines, fuel oils and distillates through a large number of rack and storage
locations along a strategic network of products pipelines. See further
discussion of EOTT's exit of the East of Rockies refined products business in
Note 7.



                                      F-24
<PAGE>   64

                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FINANCIAL INFORMATION BY BUSINESS SEGMENT
(In Thousands)


<TABLE>
<CAPTION>
                                                         NORTH          REFINED         CORPORATE
                                                        AMERICAN        PRODUCTS            AND
                                                        CRUDE OIL       MARKETING          OTHER        CONSOLIDATED
                                                       -----------     -----------      -----------     ------------
<S>                                                    <C>             <C>              <C>              <C>        
YEAR ENDED DECEMBER 31, 1997

Unaffiliated revenue .............................     $ 6,792,279     $   853,820      $        --      $ 7,646,099
Intersegment revenue (a) .........................              --              --               --               --
                                                       -----------     -----------      -----------      -----------
   Total revenue .................................       6,792,279         853,820               --        7,646,099
                                                       -----------     -----------      -----------      -----------
Operating income (loss) ..........................          19,904            (795)         (26,701)          (7,592)
Other expense ....................................              --              --           (6,807)          (6,807)
                                                       -----------     -----------      -----------      -----------
Net income (loss) ................................          19,904            (795)         (33,508)         (14,399)
                                                       -----------     -----------      -----------      -----------

Identifiable assets ..............................         742,054          25,926           14,941          782,921
                                                       -----------     -----------      -----------      -----------

Additions to property, plant and equipment .......          18,436              69            4,332           22,837
                                                       -----------     -----------      -----------      -----------

Depreciation and amortization ....................          14,322             123            2,073           16,518
                                                       -----------     -----------      -----------      -----------

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

YEAR ENDED DECEMBER 31, 1996

Unaffiliated revenue .............................     $ 6,758,273     $   711,457      $        --      $ 7,469,730
Intersegment revenue (a) .........................             448             478             (926)              --
                                                       -----------     -----------      -----------      -----------
   Total revenue .................................       6,758,721         711,935             (926)       7,469,730
                                                       -----------     -----------      -----------      -----------
Operating income (loss) ..........................          54,627           1,496          (24,261)          31,862
Other expense ....................................              --              --           (3,053)          (3,053)
                                                       -----------     -----------      -----------      -----------
Net income (loss) ................................          54,627           1,496          (27,314)          28,809
                                                       -----------     -----------      -----------      -----------

Identifiable assets ..............................         947,732          54,174           24,291        1,026,197
                                                       -----------     -----------      -----------      -----------

Additions to property, plant and equipment .......           4,484              --            2,239            6,723
                                                       -----------     -----------      -----------      -----------

Depreciation and amortization ....................          14,523             136            1,061           15,720
                                                       -----------     -----------      -----------      -----------

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


YEAR ENDED DECEMBER 31, 1995

Unaffiliated revenue .............................     $ 4,703,798     $   384,442      $        --      $ 5,088,240
Intersegment revenue (a) .........................             450             627           (1,077)              --
                                                       -----------     -----------      -----------      -----------
   Total revenue .................................       4,704,248         385,069           (1,077)       5,088,240
                                                       -----------     -----------      -----------      -----------
Operating income (loss) ..........................          29,273          (1,256)         (19,679)           8,338
Other expense ....................................              --              --           (2,618)          (2,618)
                                                       -----------     -----------      -----------      -----------
Income (loss) from continuing operations .........          29,273          (1,256)         (22,297)           5,720
                                                       -----------     -----------      -----------      -----------

Identifiable assets (b) ..........................         579,115          38,644           78,368          696,127
                                                       -----------     -----------      -----------      -----------

Additions to property, plant and equipment .......          64,583              74            2,365           67,022
                                                       -----------     -----------      -----------      -----------

Depreciation and amortization ....................           9,032             122            1,358           10,512
                                                       -----------     -----------      -----------      -----------

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

</TABLE>

(a)  Intersegment sales are made at prices comparable to those received from
     unaffiliated customers.

(b)  Corporate and other includes net assets of discontinued operations.



                                      F-25
<PAGE>   65


                           EOTT ENERGY PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21.  QUARTERLY FINANCIAL DATA (UNAUDITED)
     (In Thousands, Except Per Unit Amounts)

<TABLE>
<CAPTION>
                                                     FIRST           SECOND             THIRD            FOURTH
                                                    QUARTER          QUARTER           QUARTER           QUARTER         TOTAL
                                                  ------------     ------------      ------------      ------------    -----------
<S>                                               <C>              <C>               <C>               <C>             <C>        
1997
   Revenues ....................................  $  2,279,168     $  1,933,011      $  1,774,230      $  1,659,690    $ 7,646,099

   Gross margin ................................        34,918           23,236            26,788            28,103        113,045

   Operating income (loss) (1) .................         5,343           (4,681)             (370)           (7,884)        (7,592)

   Net income (loss) ...........................         3,914           (6,191)           (1,911)          (10,211)       (14,399)

   Basic net income (loss) per Unit (2)
     Common ....................................          0.20            (0.32)            (0.10)            (0.53)         (0.75)
     Subordinated ..............................          0.20            (0.32)            (0.10)            (0.53)         (0.75)

   Diluted net income (loss) per Unit (2) ......          0.20            (0.32)            (0.10)            (0.53)         (0.75)

   Cash distributions per Common Unit (3) ......         0.475            0.475             0.475             0.475           1.90

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

1996

   Revenues ....................................  $  1,552,220     $  1,692,296      $  1,822,369      $  2,402,845    $ 7,469,730

   Gross margin ................................        32,245           46,376            35,142            35,764        149,527

   Operating income ............................         5,127           10,627             7,468             8,640         31,862

   Net income ..................................         4,266           10,012             7,184             7,347         28,809

   Basic net income per Unit (2)
     Common ....................................          0.22             0.52              0.37              0.38           1.50
     Subordinated ..............................          0.22             0.52              0.37              0.38           1.50

   Diluted net income per Unit (2) .............          0.22             0.52              0.37              0.38           1.50

   Cash distributions per Common Unit (3) ......         0.475            0.475             0.475             0.475           1.90

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

</TABLE>


(1)  Fourth quarter 1997 operating income (loss) includes non-recurring charges
     of (i) $6.5 million for the impairment of an information system development
     project, (ii) $1.5 million impairment of three Ohio products terminals held
     for sale and (iii) $2.0 million of severance costs related to the exit of
     the East of Rockies refined products business and corporate realignment.
     See additional discussion in Notes 7 and 8 to the Consolidated Financial
     Statements.

(2)  Net income (loss) per Unit has been restated for all periods to conform
     with SFAS No. 128. See additional discussion in Note 6 to the Consolidated
     Financial Statements.

(3)  Cash distributions are shown in the quarter paid and are based on the prior
     quarter's earnings.





                                      F-26
<PAGE>   66


                                                                     SCHEDULE II

                           EOTT ENERGY PARTNERS, L.P.
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
                                 (In Thousands)


================================================================================

<TABLE>
<CAPTION>
                                                     Balance at      Charged to                         Balance
                                                      Beginning       Costs and      Deductions         at End
                                                      of Period       Expenses        and Other        of Period
                                                   -------------   --------------   -------------   --------------
<S>                                                <C>             <C>              <C>             <C>           
Year ended December 31, 1995
   Allowance for Doubtful Accounts..............   $       2,657   $          900   $      (1,160)  $        2,397
   Litigation and Other Reserves (a)............   $          16   $           --   $         (16)  $           --


Year ended December 31, 1996
   Allowance for Doubtful Accounts..............   $       2,397   $          700   $        (831)  $        2,266


Year ended December 31, 1997
   Allowance for Doubtful Accounts..............   $       2,266   $           --   $        (606)  $        1,660

</TABLE>

------------
(a)  Litigation and other reserves are included in other liabilities on the
     consolidated balance sheets.



                                      S-1
<PAGE>   67




                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
                                                                                    Page Number
Exhibit                                                                             in Sequential
Number                        Description                                           Number System
-------                       -----------                                           -------------
<S>       <C>                                                                      <C>
3.1   --  Form of Partnership Agreement of EOTT Energy Partners, L.P.
          (incorporated by reference to Exhibit 3.1 to Registration Statement,
          File No. 33-73984)

 3.2   -- Amendment No. 1 dated as of August 8, 1995, to the Amended and
          Restated Agreement of Limited Partnership of EOTT Energy Partners,
          L.P. (incorporated by reference to Exhibit 3.2 to Annual Report on
          Form 10-K for the Year Ended December 31, 1995)

 3.3   -- Amendment No. 2 dated as of July 16, 1996, to the Amended and
          Restated Agreement of Limited Partnership of EOTT Energy Partners,
          L.P. (incorporated by reference to Exhibit 3.3 to Quarterly Report on
          Form 10-Q for the Quarter Ended June 30, 1996)

 3.4   -- Amendment No. 3 dated as of February 13, 1997, to the Amended and
          Restated Agreement of Limited Partnership of EOTT Energy Partners,
          L.P.

 10.02 -- Form of Employment Agreement between EOTT Energy Corp. and Steven
          A. Appelt

 10.03 -- Form of Employment Agreement between EOTT Energy Corp. and Philip
          J. Hawk (incorporated by reference to Exhibit 10.07 to Registration
          Statement, File No. 33-73984)

 10.04 -- Form of Corporate Services Agreement between Enron Corp. and EOTT
          Energy Corp. (incorporated by reference to Exhibit 10.08 to
          Registration Statement, File No. 33-73984)

 10.05 -- Form of Contribution and Closing Agreement between EOTT Energy
          Corp. and EOTT Energy Partners, L.P. (incorporated by reference to
          Exhibit 10.09 to Registration Statement, File No. 33-73984)

 10.06 -- Form of Ancillary Agreement by and among Enron Corp., EOTT Energy
          Partners, L.P., EOTT Energy Operating Limited Partnership, EOTT Energy
          Pipeline Limited Partnership, EOTT Energy Canada Limited Partnership,
          and EOTT Energy Corp. (incorporated by reference to Exhibit 10.10 to
          Registration Statement, File No. 33-73984)

</TABLE>


<PAGE>   68


<TABLE>
<S>       <C>                                                             
 10.07 -- Agreement to Increase and Extend Distribution Support dated August
          8, 1995, amending the Ancillary Agreement referenced in 10.06
          (incorporated by reference to Exhibit 10.07 to Annual Report on Form
          10-K for the Year Ended December 31, 1995)

 10.08 -- Form of Amended and Restated Agreement of Limited Partnership of
          EOTT Energy Operating Limited Partnership (incorporated by reference
          to Exhibit 10.11 to Registration Statement, File No. 33-73984)

 10.09 -- EOTT Energy Corp. Annual Incentive Plan (incorporated by reference
          to Exhibit 10.14 to Registration Statement, File No. 33-73984)

 10.10 -- EOTT Energy Corp. 1994 Unit Option Plan and the related Option
          Agreement (incorporated by reference to Exhibit 10.15 to Registration
          Statement, File No. 33-73984)

 10.11 -- EOTT Energy Corp. Severance Pay Plan (incorporated by reference to
          Exhibit 10.16 to Registration Statement, File No. 33-73984)

 10.12 -- Executive Employment Agreement effective March 24, 1994 between
          EOTT Energy Corp. and executive officers with employment agreements.
          (incorporated by reference to Exhibit 10.05 to Registration Statement,
          File No. 33-73984)

 10.13 -- Credit Agreement dated as of June 30, 1995 between EOTT Energy
          Operating Limited Partnership, as Borrower, and Enron Corp., as Lender
          (incorporated by reference to Exhibit 10.13 to Annual Report on Form
          10-K for the Year Ended December 31, 1995)

 10.14 -- Credit Agreement dated as of January 3, 1996 between EOTT Energy
          Operating Limited Partnership, as Borrower, and Enron Corp., as Lender
          (incorporated by reference to Exhibit 10.14 to Annual Report on Form
          10-K for the Year Ended December 31, 1995)

 10.15 -- Amendment dated December 19, 1996 to the Credit Agreement dated as
          of June 30, 1995 between EOTT Energy Operating Limited Partnership as
          Borrower, and Enron Corp., as Lender

 10.16 -- Amendment dated February 25, 1997 to the Credit Agreement dated as
          of June 30, 1995 between EOTT Energy Operating Limited Partnership as
          Borrower, and Enron Corp., as Lender

 10.17 -- Amendment dated February 25, 1997 to the Credit Agreement dated as
          of January 3, 1996 between EOTT Energy Operating Limited Partnership
          as Borrower, and Enron Corp., as Lender

</TABLE>




<PAGE>   69


<TABLE>
<S>       <C>                                                             
 10.18 -- Amendment dated as of February 13, 1997, to the EOTT Energy Corp.
          1994 Unit Option Plan

 10.19 -- EOTT Energy Corp. Long Term Incentive Plan (incorporated by
          reference to Exhibit 10.19 to Quarterly Report on Form 10-Q for the
          Quarter Ended September 30, 1997)

*10.20 -- Agreement to Extend Distribution Support dated
          November 5, 1997, amending the Agreement referenced in 10.07

 21.1  -- Subsidiaries of the Registrant (incorporated by reference to
          Exhibit 21.1 to Annual Report on Form 10-K for the Year Ended December
          31, 1994)

*23.1  -- Consent of Arthur Andersen LLP 

*27.1  -- Financial Data Schedule
</TABLE>

----------
*  Filed herewith