SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

                                       OR

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

For the Quarterly Period                                        Commission File
Ended March 31, 2000                                           Number 001-05083

                              KANEB SERVICES, INC.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                              74-1191271
(State or other jurisdiction of                               (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

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

                                 (972) 699-4000
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

         Yes    X                                             No

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

Class of Common Stock                              Outstanding at April 30, 2000
     No par value                                         31,158,052 shares



<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES


FORM 10-Q
QUARTER ENDED MARCH 31, 2000
--------------------------------------------------------------------------------

                                                                        Page No.
                           Part I. Financial Information

Item 1.  Financial Statements (Unaudited)

         Consolidated Statements of Income - Three Months Ended
            March 31, 2000 and 1999                                        1

         Condensed Consolidated Balance Sheets - March 31, 2000
            and December 31, 1999                                          2

         Condensed Consolidated Statements of Cash Flows - Three
            Months Ended March 31, 2000 and 1999                           3

         Notes to Consolidated Financial Statements                        4

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

                           Part II. Other Information

Item 6.  Exhibits and Reports on Form 8-K                                 16

<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(In Thousands -- Except Per Share Amounts)
(Unaudited)
--------------------------------------------------------------------------------

                                                           Three Months Ended
                                                                March 31,
                                                         ----------------------
                                                            2000         1999
                                                         ---------    ---------

Revenues:
     Services                                            $  63,686    $  63,238
     Products                                               84,677       36,118
                                                         ---------    ---------
           Total revenues                                  148,363       99,356
                                                         ---------    ---------

Costs and expenses:
     Operating costs                                        44,182       43,842
     Cost of sales                                          82,934       34,676
     Depreciation and amortization                           4,806        4,502
     General and administrative                              1,355        1,124
                                                         ---------    ---------
           Total costs and expenses                        133,277       84,144
                                                         ---------    ---------

Operating income                                            15,086       15,212

Other income                                                   196          284
Interest expense                                            (4,183)      (4,535)
Amortization of excess of cost over fair
     value of net assets of acquired businesses               (546)        (511)
                                                         ---------    ---------

Income before income taxes and interest of outside
     non-controlling partners in KPP's net income           10,553       10,450
Income tax expense                                          (1,668)        (777)
Interest of outside non-controlling partners in KPP's
     net income                                             (6,834)      (7,364)
                                                         ---------    ---------
Net income                                                   2,051        2,309
Dividends applicable to preferred stock                        130          114
                                                         ---------    ---------
Net income applicable to common stock                    $   1,921    $   2,195
                                                         =========    =========
Earnings per common share - Basic and Diluted            $     .06    $     .07
                                                         =========    =========


                 See notes to consolidated financial statements.
                                        1



<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                    March 31,   December 31,
                                                                      2000         1999
                                                                   ---------    ---------
                                                                           (Unaudited)
                   ASSETS
<S>                                                                <C>          <C>
Current assets:
     Cash and cash equivalents                                     $  23,668    $  20,766
     Accounts receivable, trade                                       67,140       66,991
     Inventories                                                      14,255       18,063
     Prepaid expenses and other current assets                        13,402       14,957
                                                                   ---------    ---------
        Total current assets                                         118,465      120,777
                                                                   ---------    ---------

Property and equipment                                               471,984      470,351
Less accumulated depreciation and amortization                       145,744      142,207
                                                                   ---------    ---------
     Net property and equipment                                      326,240      328,144
                                                                   ---------    ---------

Investment in affiliate                                               20,571       21,978

Excess of cost over fair value of net assets
     of acquired businesses                                           62,110       62,657

Deferred tax assets                                                   21,418       22,754

Other assets                                                           3,940        4,005
                                                                   ---------    ---------
                                                                   $ 552,744    $ 560,315
                                                                   =========    =========
     LIABILITIES AND EQUITY
Current liabilities:
     Current portion of long-term debt                             $   4,447    $   2,471
     Accounts payable                                                 18,853       20,146
     Accrued expenses                                                 40,598       41,170
                                                                   ---------    ---------
         Total current liabilities                                    63,898       63,787
                                                                   ---------    ---------

Long-term debt, less current portion:
     Pipeline and terminaling services                               154,005      155,987
     Product marketing services                                        7,688       11,041
     Industrial services                                              19,862       20,557
     Parent company                                                   23,666       23,666
                                                                   ---------    ---------
         Total long-term debt, less current portion                  205,221      211,251
                                                                   ---------    ---------

Deferred income taxes and other liabilities                           10,511       10,791

Interest of outside non-controlling partners in KPP                  122,515      124,820

Commitments and contingencies

Stockholders' equity:
     Preferred stock, without par value                                5,792        5,792
     Common stock, without par value                                   4,247        4,249
     Additional paid-in-capital                                      197,242      197,454
     Treasury stock, at cost                                         (31,017)     (30,278)
     Other                                                              (133)        (141)
     Accumulated deficit                                             (23,217)     (25,138)
     Accumulated other comprehensive income (loss) -
         foreign currency translation adjustment                      (2,315)      (2,272)
                                                                   ---------    ---------
         Total stockholders' equity                                  150,599      149,666
                                                                   ---------    ---------
                                                                   $ 552,744    $ 560,315
                                                                   =========    =========
</TABLE>
                 See notes to consolidated financial statements
                                        2


<PAGE>


KANEB SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                               Three Months Ended
                                                                     March 31,
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Operating activities:
   Net income                                                 $  2,051    $  2,309
   Adjustments to reconcile net income to net
       cash provided by operating activities:
        Depreciation and amortization                            4,806       4,502
        Interest of outside non-controlling partners in KPP      6,834       7,364
        Amortization of excess of cost over fair value
          of net assets of acquired businesses                     546         511
        Deferred income taxes                                    1,370         404
       Equity earnings of affiliate, net of distributions        1,175        --
        Changes in current assets and liabilities                3,349         169
                                                              --------    --------
         Net cash provided by operating activities              20,131      15,259
                                                              --------    --------

Investing activities:
   Capital expenditures                                         (2,990)     (2,651)
   Acquisitions, net of cash acquired                             --       (41,807)
   Change in other assets, net                                     148          68
                                                              --------    --------

       Net cash used in investing activities                    (2,842)    (44,390)
                                                              --------    --------

Financing activities:
   Issuance of debt                                              2,158      51,450
   Payments on debt and capital leases                          (6,212)       (953)
   Distributions to outside non-controlling partners in KPP     (9,250)     (7,675)
   Preferred stock dividends paid                                 (130)       (114)
   Common stock issued                                             139          39
   Purchase of treasury stock                                   (1,092)       --
                                                              --------    --------
       Net cash provided by (used in) financing activities     (14,387)     42,747
                                                              --------    --------

Increase in cash and cash equivalents                            2,902      13,616
Cash and cash equivalents at beginning of period                20,766       9,134
                                                              --------    --------

Cash and cash equivalents at end of period                    $ 23,668    $ 22,750
                                                              ========    ========

Supplemental cash flow information:
   Cash paid for interest                                     $  3,716    $  2,934
                                                              ========    ========

   Cash paid for income taxes                                 $    393    $    204
                                                              ========    ========
</TABLE>

                 See notes to consolidated financial statements.
                                        3


<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES

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

     The  unaudited  condensed   consolidated   financial  statements  of  Kaneb
     Services,  Inc. and its  subsidiaries  (the  "Company") for the three month
     periods  ended March 31, 2000 and 1999,  have been  prepared in  accordance
     with  generally  accepted  accounting  principles  applied on a  consistent
     basis.  Significant  accounting  policies  followed  by the Company and its
     subsidiaries  are  disclosed  in the  notes to the  consolidated  financial
     statements  included in the  Company's  Annual  Report on Form 10-K for the
     year ended  December 31, 1999. In the opinion of the Company's  management,
     the accompanying  condensed  consolidated  financial statements contain the
     adjustments,  consisting of normal recurring accruals, necessary to present
     fairly  the  consolidated   financial  position  of  the  Company  and  its
     consolidated subsidiaries at March 31, 2000 and the consolidated results of
     their  operations  and cash flows for the periods  ended March 31, 2000 and
     1999.  Operating  results for the three months ended March 31, 2000 are not
     necessarily  indicative  of the results  that may be expected  for the year
     ending December 31, 2000.


2.   ACQUISITION BY KPP

     On February 1, 1999,  Kaneb Pipe Line Partners,  L.P.  ("KPP") acquired six
     terminals in the United Kingdom from GATX Terminals Limited for (pound)22.6
     million  (approximately  $37.2  million)  plus  transaction  costs  and the
     assumption of certain  liabilities.  The  acquisition,  which was initially
     financed  by term  loans  from a bank,  has been  accounted  for  using the
     purchase method of accounting.  $13.3 million of the term loans were repaid
     in July 1999 with the  proceeds  from a public  offering  of KPP units (see
     Note 3). The remaining portion ($25.9 million) is due in January 2002.


3.   PUBLIC OFFERING OF KPP UNITS

     In July 1999, KPP issued 2.25 million limited partnership units in a public
     offering at $30.75 per unit, generating  approximately $65.6 million in net
     proceeds.  A portion of the  proceeds was used to repay in full KPP's $15.0
     million  promissory note, KPP's $25.0 million revolving credit facility and
     $18.3  million of KPP's term loans  (including  $13.3 million in term loans
     resulting from the United Kingdom terminal  acquisition referred to in Note
     2). As a result of KPP issuing additional units to unrelated  parties,  the
     Company's  pro-rata  share  of the net  assets  of KPP  increased  by $16.8
     million.  Accordingly, in the third quarter of 1999, the Company recognized
     a $16.8  million gain before  deferred  income taxes of $6.4  million.  The
     transaction  reduced the Company's limited partner interest in KPP from 31%
     to 28%.


4.   COMPREHENSIVE INCOME

     Comprehensive  income for the three months ended March 31, 2000 and 1999 is
     as follows:

                                                   Three Months Ended
                                                         March 31,
                                                   ------------------
                                                     2000       1999
                                                   -------    -------
                                                     (in thousands)

     Net income                                    $ 2,051    $ 2,309
     Other comprehensive income (loss) - foreign
        currency translation adjustment                (43)      (560)
                                                   -------    -------
     Comprehensive income                          $ 2,008    $ 1,749
                                                   =======    =======


<PAGE>
5.   EARNINGS PER SHARE

     The following is a  reconciliation  of Basic and Diluted earnings per share
     (in thousands, except for per share amounts):
<TABLE>
<CAPTION>

                                                                           Weighted
                                                                            Average
                                                           Net              Common          Per-Share
                                                         Income             Shares           Amount
                                                     -------------       ------------      -----------
       <S>                                           <C>                 <C>               <C>
       Three Months Ended March 31, 2000
           Net income                                $       2,051
           Dividends applicable to preferred stock            (130)
                                                     -------------

           Basic earnings per share -
              Net income applicable to common stock          1,921           31,261        $      .06
                                                                                           ==========

           Effect of dilutive securities -
              Common stock options and DSUs                   --              1,214
                                                     -------------      -----------
           Diluted earnings per share -
              Net income applicable to common stock,
              DSUs and assumed options exercised     $       1,921           32,475        $      .06
                                                     =============       ==========        ==========

       Three Months Ended March 31, 1999
           Net income                                $       2,309
           Dividends applicable to preferred stock            (114)
                                                     -------------

           Basic earnings per share -
              Net income applicable to common stock          2,195           31,414        $       .07
                                                                                           ===========

           Effect of dilutive securities -
              Common stock options and DSUs                   --              1,011
                                                     -------------      -----------
           Diluted earnings per share -
              Net income applicable to common stock,
              DSUs and assumed options exercised     $       2,195           32,425        $       .07
                                                     =============       ==========        ===========
</TABLE>

     Options to purchase  158,897 and 106,232 shares of common stock at weighted
     average prices of $5.43 and $4.26,  were  outstanding at March 31, 2000 and
     1999,  respectively,  but were not included in the  computation  of diluted
     earnings per share because the options' exercise price was greater than the
     average market price of the common stock. Additionally, the Company's 8.75%
     convertible  subordinated  debentures were excluded from the computation of
     diluted  earnings  per share  because the effect of assumed  conversion  is
     anti-dilutive.


6.   CONTINGENCIES

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


     Certain  subsidiaries  of KPP are  defendants in a lawsuit filed in a Texas
     state court in 1997 by Grace Energy Corporation ("Grace"),  the entity from
     which KPP acquired ST Services in 1993. The lawsuit involves  environmental
     response and  remediation  allegedly  resulting  from jet fuel leaks in the
     early 1970's from a pipeline. The pipeline,  which connected a former Grace
     terminal  with  Otis  Air  Force  Base,  was  abandoned  in  1973,  and the
     connecting  terminal was sold to an unrelated entity in 1976. Grace alleges
     that it has incurred  since 1996 expenses of  approximately  $3 million for
     response and remediation required by the State of Massachusetts and that it
     expects to incur  additional  expenses in the future.  On January 20, 2000,
     the  Massachusetts  Department of Environmental  Protection  notified KPP's
     subsidiary  that it had reason to believe  that the  subsidiary  was also a
     Potentially  Responsible  Party.  The  subsidiary  replied  to that  letter
     denying  any   responsibility   for  the   Massachusetts   response  and/or
     remediation. Future expenses could potentially include claims by the United
     States  Government,  as described below. Grace alleges that subsidiaries of
     KPP acquired  the  abandoned  pipeline,  as part of the  acquisition  of ST
     Services in 1993,  and assumed  responsibility  for  environmental  damages
     caused by the jet fuel leaks from the  pipeline.  Grace is seeking a ruling
     that  these  subsidiaries  are  responsible  for  all  present  and  future
     remediation  expenses for these leaks and that Grace has no  obligation  to
     indemnify these subsidiaries for these expenses.  The case is set for trial
     in May 2000.

     The consistent  position of KPP's subsidiaries is that they did not acquire
     the  abandoned  pipeline  as part of the  1993 ST  transaction  and did not
     assume  any  responsibility  for  the  environmental  damage.  In an  order
     granting  partial  summary  judgment,  the trial  judge has ruled  that the
     pipeline  was an asset  of the  company  acquired  by the  subsidiary.  The
     subsidiaries  are continuing  with their defense that the pipeline had been
     abandoned  prior to the  acquisition of ST Services and could not have been
     included  in  the  assets  they   acquired.   The   defendants   have  also
     counter-claimed  against  Grace for fraud and mutual  mistake,  among other
     defenses.  If they are  successful  at trial  with  their  defenses  and/or
     counterclaims, the judge's partial summary judgment order will be moot. The
     defendants  also believe they have certain rights to  indemnification  from
     Grace under the  acquisition  agreement  with Grace.  These rights  include
     claims  against  Grace for  breaches  of  numerous  representations  in the
     agreement  including the  environmental  representations.  The  acquisition
     agreement includes Grace's agreement to indemnify the subsidiaries  against
     60% of post-closing  environmental  remediation costs, subject to a maximum
     indemnity payment of $10 million.

     The Otis Air Force Base is a part of the Massachusetts Military Reservation
     ("MMR"),  which  has  been  declared  a  Superfund  Site  pursuant  to  the
     Comprehensive  Environmental Response,  Compensation and Liability Act. The
     MMR Site contains nine groundwater  contamination  plumes, two of which are
     allegedly associated with the pipeline,  and various other waste management
     areas of  concern,  such as  landfills.  The United  States  Department  of
     Defense and the United States Coast Guard, pursuant to a Federal Facilities
     Agreement,  has been  responding to the Government  remediation  demand for
     most of the  contamination  problems at the MMR Site. Grace and others have
     also  received and  responded to formal  inquiries  from the United  States
     Government in connection with the environmental damages allegedly resulting
     from the jet fuel leaks. KPP's  subsidiaries have voluntarily  responded to
     an invitation  from the Government to provide  information  indicating that
     they do not own the pipeline. In connection with a court-ordered  mediation
     between Grace and the subsidiaries,  the Government  advised the parties in
     April 1999 that it has  identified  the two spill areas that it believes to
     be related to the  pipeline  that is the  subject  of the Grace  suit.  The
     Government  advised the parties that it believes it has  incurred  costs of
     approximately  $34  million,  and  expects in the future to incur  costs of
     approximately $55 million,  for remediation of one of the spill areas. This
     amount was not intended to be a final accounting of costs or to include all
     categories of costs.  The Government also advised the parties that it could
     not at that time allocate its costs  attributable to the second spill area.
     KPP believes that the ultimate cost of the remediation,  while substantial,
     will be  considerably  less than the  Government  has  indicated.  KPP also
     believes that,  even if the lawsuit  determines  that the subsidiary is the
     owner of the  pipeline,  the  defendants  have defenses to any claim of the
     Government.  Any claims by the Government  could be material in amount and,
     if  made  and  ultimately  sustained  against  KPP's  subsidiaries,   could
     adversely   affect  KPP's  ability  to  pay  cash   distributions   to  its
     unitholders, including the Company.

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


7.   BUSINESS SEGMENT DATA

     The Pipeline and Terminaling  Segment includes the pipeline and terminaling
     operations of KPP which consist of the  transportation of refined petroleum
     products in the  Midwestern  states as a common  carrier and the storage of
     petroleum products,  specialty  chemicals and other liquids.  The Company's
     Product Marketing Segment provides  wholesale motor fuel marketing services
     throughout the Midwest and Rocky Mountain  regions,  as well as California.
     The Company's  Information  Technology Services Segment provides consulting
     services,  hardware  sales and other  related  information  management  and
     processing services to governmental,  insurance and financial institutions.
     Additionally,  the Company provides Industrial Services to an international
     client base that includes refineries,  chemical plants, pipelines, offshore
     drilling and production  platforms,  steel mills, food and drink processing
     facilities,  power  generation,  and  other  process  industries.   General
     Corporate includes compensation and benefits paid to officers and employees
     of the Parent  Company,  insurance  premiums,  general  and  administrative
     costs,  tax and  financial  reporting  costs,  legal  and  audit  fees  not
     reasonably allocable to specific business segments.

     The Company measures segment profit as operating  income.  Total assets are
     those controlled by each reportable segment.

                                                            Three Months Ended
                                                                 March 31,
                                                         ----------------------
                                                            2000         1999
                                                         ---------    ---------
                                                             (in thousands)
     Business segment revenues:
        Pipeline and terminaling services                $  36,680    $  36,845
        Product marketing services                          80,389       31,367
        Information technology services                      8,335        7,028
        Industrial services                                 22,959       24,116
                                                         ---------    ---------
                                                         $ 148,363    $  99,356
                                                         =========    =========
     Pipeline and terminaling services segment revenues:
        Pipeline operations                              $  15,248    $  15,164
        Terminaling operations                              21,432       21,681
                                                         ---------    ---------
                                                         $  36,680    $  36,845
                                                         =========    =========
     Industrial services segment revenues:
        Underpressure services                           $   9,374    $   9,725
        Turnaround services                                 10,868       10,616
        Other services                                       2,717        3,775
                                                         ---------    ---------
                                                         $  22,959    $  24,116
                                                         =========    =========
     Business segment profit:
        Pipeline and terminaling services                $  12,900    $  14,924
        Product marketing services                             968          365
        Information technology services                      1,154          924
        Industrial services                                  1,419          123
        General corporate                                   (1,355)      (1,124)
                                                         ---------    ---------
           Operating income                                 15,086       15,212
        Other income                                           196          284
        Interest expense                                    (4,183)      (4,535)
        Amortization of excess of cost
           over fair value of net assets
           of acquired businesses                             (546)        (511)
                                                         ---------    ---------
        Income before income taxes and
           interest of outside non-controlling
           partners of KPP's net income                  $  10,553    $  10,450
                                                         =========    =========

                                                         March 31,   December 31
                                                           2000         1999
                                                         ---------   -----------
     Total assets:
        Pipeline and terminaling services                $ 366,030    $ 366,935
        Product marketing services                          26,789       28,101
        Information technology services                     17,621       17,911
        Industrial services                                103,892      108,094
        General corporate                                   38,412       39,274
                                                         ---------    ---------
                                                         $ 552,744    $ 560,315
                                                         =========    =========
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES

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

     This  discussion  should  be  read in  conjunction  with  the  consolidated
     financial  statements of Kaneb  Services,  Inc. (the  "Company")  and notes
     thereto included elsewhere in this report.

     Operating Results:


     Pipeline and Terminaling Services

     This business  segment includes the operations of Kaneb Pipe Line Partners,
     L.P.  ("KPP").  KPP provides  transportation  services of refined petroleum
     products  through a pipeline  system that  extends  through the  Midwestern
     states as a common carrier and provides  terminaling  and storage  services
     for petroleum products,  specialty chemicals and other liquids. The Company
     operates,  manages and controls the pipeline and terminaling  operations of
     KPP  through  its 2% general  partner  interest  and a 28% (as of March 31,
     2000) limited partner interest in the partnership.

                                                         Three Months Ended
                                                               March 31,
                                                       ------------------------
                                                         2000           1999
                                                       ---------      ---------
                                                            (in thousands)

          Revenues                                     $  36,680      $  36,845
                                                       =========      =========
          Operating income                             $  12,900      $  14,924
                                                       =========      =========
          Capital expenditures,
               excluding acquisitions                  $   2,336      $   2,258
                                                       =========      =========


     On February 1, 1999,  KPP acquired six terminals in the United Kingdom from
     GATX Terminals  Limited for  approximately  $37.2 million plus  transaction
     costs and the assumption of certain liabilities. The acquisition of the six
     locations, which have an aggregate tankage capacity of 5.4 million barrels,
     was initially financed by term loans from a bank. $13.3 million of the term
     loans  were  repaid  in July  1999  with the  proceeds  from a public  unit
     offering.  (See Liquidity and Capital  Resources).  Three of the terminals,
     handling  petroleum  products,  chemicals and molten sulfur,  respectively,
     operate in England. The remaining three facilities, two in Scotland and one
     in Northern Ireland, are primarily petroleum  terminals.  All six terminals
     are served by deepwater marine docks.

     For the three months  ended March 31,  2000,  revenues for the Pipeline and
     Terminaling business were flat when compared to 1999, due to a $0.2 million
     decrease in revenues in the terminaling  business and $0.1 million increase
     in  pipeline  revenues.   For  the  three  months  ended  March  31,  2000,
     terminaling  revenue increases  resulting from the United Kingdom and other
     1999  terminal  acquisitions  were more than  offset by  decreases  in tank
     utilization  resulting from unfavorable market  conditions.  Average annual
     tankage  utilized for the three  months  ended March 31, 2000  decreased to
     21.0  million  barrels  from 21.9  barrels  for the  comparable  prior year
     period, primarily the result of unusually high utilization at KPP's largest
     petroleum  storage  facility in 1999.  For the three months ended March 31,
     2000, average annualized  revenues per barrel of tankage utilized increased
     to $4.09 per  barrel,  compared to $3.95 per barrel for the same prior year
     period,  the  result of the  storage  of a higher  proportionate  volume of
     specialty chemicals, which are historically at higher per barrel rates than
     petroleum  products.  Pipeline barrel miles shipped totaled 4.0 billion for
     each of the three month periods ended March 31, 2000 and 1999.

     The $2.0 million  decrease in operating  income for the quarter ended March
     31,  2000,  compared  to  1999,  is  due  to a  $1.9  million  decrease  in
     terminaling  operating  income  and a $0.1  million  decrease  in  pipeline
     operating income. The decrease in terminaling  operating income is a result
     of the decrease in tank utilization.

     The  interest of outside  non-controlling  partners in KPP's net income was
     $6.8 million and $7.4 million for the three months ended March 31, 2000 and
     1999,  respectively.  Distributions  paid  to the  outside  non-controlling
     unitholders of KPP aggregated  approximately  $9.3 million and $7.7 million
     for the three month periods ended March 31, 2000 and 1999, respectively.

     Capital  expenditures  of $2.3 million for each of the three month  periods
     ended  March  31,  2000 and 1999  relate  to the  maintenance  of  existing
     operations. Routine maintenance capital expenditures for 2000 are currently
     estimated to be between $12 million and $15 million.


     Product Marketing Services

     The Company's  petroleum  products  marketing  business provides  wholesale
     motor fuel marketing services throughout the Great Lakes and Rocky Mountain
     regions, as well as California.


                                                         Three Months Ended
                                                               March 31,
                                                       ------------------------
                                                         2000           1999
                                                       ---------      ---------
                                                            (in thousands)

          Revenues                                     $  80,389      $  31,367
                                                       =========      =========
          Operating income                             $     968      $     365
                                                       =========      =========

     For the three  months  ended March 31,  2000,  revenues  increased by $49.0
     million,  or 156%, and operating income increased by $0.6 million, or 165%,
     when compared to the same 1999 period, primarily a result of an increase in
     both sales  volumes and sales price.  Total  gallons  sold  increased to 95
     million in the first  quarter of 2000,  compared to 68 million in the first
     quarter of 1999, due to a combination of increasing the number of terminals
     through  which  products  are sold and  increasing  the volumes at existing
     locations.  The average price realized per gallon of product sold increased
     to $0.85 in the  first  quarter  of 2000,  compared  to $0.46  for the same
     period in 1999.


     Information Technology Services

     The Company's information technology services business is conducted through
     a variety of wholly-owned subsidiaries. The information technology services
     group  provides   network  design  and  installation   services,   database
     management  and  processing   services,   specialized   medical  technology
     services,  insurance  tracking  services,  hardware  distribution and other
     related  information  technology  services.  The medical services  division
     provides  system  integration  and  open  architecture  based  telemedicine
     solutions,  including  assessment  and planning,  installation  assistance,
     clinical systems  integration,  acceptance testing, and systems maintenance
     and management of telemedicine applications.

                                                         Three Months Ended
                                                               March 31,
                                                       ------------------------
                                                         2000           1999
                                                       ---------      ---------
                                                            (in thousands)

          Revenues                                     $   8,335      $   7,028
                                                       =========      =========
          Operating income                             $   1,154      $     924
                                                       =========      =========

     On March 23, 1999, the Company, through a wholly-owned subsidiary, acquired
     the capital stock of Ellsworth Associates,  Inc.  ("Ellsworth").  Ellsworth
     provides information technology services,  including network,  database and
     systems  design,  and  application  programming,  primarily  to  government
     agencies.

     For the three  months  ended March 31,  2000,  revenues  increased  by $1.3
     million,  or 19%, and operating income  increased by $0.2 million,  or 25%,
     when  compared  to the  same  1999  period,  primarily  the  result  of the
     Ellsworth  acquisition  and  increased  consulting  services  and  computer
     hardware sales  provided to various  national  government  agencies and the
     private sector.

<PAGE>
     Industrial Services


     This business segment provides specialized  industrial services,  including
     underpressure  leak  sealing,  on-site  machining,  safety and relief valve
     testing  and  repair,   passive  fire  protection  and  fugitive  emissions
     inspections to the process and power industry worldwide.

                                                         Three Months Ended
                                                               March 31,
                                                       ------------------------
                                                         2000           1999
                                                       ---------      ---------
                                                            (in thousands)
     Revenues:
         United States                                 $   7,844      $   7,469
         Europe                                           12,563         13,820
         Asia-Pacific                                      2,552          2,827
                                                       ---------      ---------
              Total Revenues                           $  22,959      $  24,116
                                                       =========      =========
     Operating income:
         United States                                 $     487      $      39
         Europe                                              950            110
         Asia-Pacific                                        263            319
         Headquarters                                       (281)          (345)
                                                       ---------      ---------
              Total operating income                   $   1,419      $     123
                                                       =========      =========
     Capital expenditures,
         excluding acquisitions                        $     407      $     357
                                                       =========      =========

     For the three ended March 31, 2000,  revenues for the  Industrial  Services
     segment  decreased by $1.2  million,  or 5%, when compared to the same 1999
     period,  due to overall  decreases  in  underpressure  and other  services,
     primarily in Continental  Europe. In the United States,  revenues increased
     by 5%,  compared to the same period in 1999, due to increases in turnaround
     services  resulting from improved market  conditions.  In Europe,  revenues
     decreased by 9%, due primarily to the decrease in  underpressure  and other
     services in Continental Europe.  Asia-Pacific  revenues decreased by 10% in
     the first  quarter of 2000,  compared to the same period in 1999,  due to a
     decline  in   turnaround   services  and  product  sales   throughout   the
     Asia-Pacific region.

     Overall, Industrial Services operating income increased by $1.3 million for
     the three  months  ended  March 31,  2000,  when  compared to the same 1999
     period,  due to improved market conditions in the United States and overall
     operating  efficiencies  realized as a result of streamlining the segment's
     workforce in 1999 to match the market  conditions  in each of the operating
     regions.


     Income Taxes

     In the fourth  quarter of 1999,  the Company  recognized  $37.1  million in
     expected  benefits  from  prior  years' tax  losses  (change  in  valuation
     allowance) that are available to offset future taxable income.  The Company
     reduced the  valuation  allowance  as a result of its  reevaluation  of the
     realizability  of income tax benefits from future  operations.  The Company
     considered  positive  evidence  supported  by recent  historical  levels of
     taxable income,  the scheduled  reversal of deferred tax  liabilities,  tax
     planning strategies, revised estimates of future taxable income growth, and
     expiration  periods of NOLs ($67.4  million  expires in 2002),  among other
     things,  in making this  evaluation and  concluding  that it is more likely
     than not that the Company  will realize the benefit of its net deferred tax
     assets.  Ultimate  realization of the deferred tax asset is dependent upon,
     among other factors,  the Company's ability to generate  sufficient taxable
     income  within the  carryforward  periods  (2000 to 2007) and is subject to
     change  depending  on the tax laws in  effect  in the  years  in which  the
     carryforwards  are used.  As a result of the 1999  recognition  of expected
     future income tax benefits, the results of operations for the first quarter
     of 2000 reflects (and subsequent periods will reflect) a full effective tax
     rate provision.


     Liquidity and Capital Resources

     During  the first  three  months of 2000,  the  Company's  working  capital
     requirements  for operations and capital  expenditures  were funded through
     the use of internally generated funds.

     Cash  provided by  operations  was $20.1  million and $15.3 million for the
     three  months  ended  March  31,  2000  and  1999,  respectively.   Capital
     expenditures  (excluding  acquisitions)  were  $3.0  million  for the three
     months  ended March 31,  2000,  compared to $2.7  million in 1999.  Routine
     maintenance  capital  expenditures  in 2000 have been funded by  internally
     generated funds.

     In July 1999, KPP issued 2.25 million limited partnership units in a public
     offering at $30.75 per unit, generating  approximately $65.6 million in net
     proceeds.  A portion of the  proceeds was used to repay in full KPP's $15.0
     million  promissory note, KPP's $25.0 million revolving credit facility and
     $18.3  million of KPP's term loans  (including  $13.3 million in term loans
     resulting from the United Kingdom terminal acquisition).

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

<PAGE>


                           PART II - Other Information

     Item 6.      Exhibits and Reports on Form 8-K

          (a)     Exhibits.

27.      Financial Data Schedule


(b)      Reports on Form 8-K

                      [None.]




                                    Signature


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



                                             KANEB SERVICES, INC.
                                             (Registrant)


Date:  May 5, 2000                                 //s//
                                             Michael R. Bakke
                                             Controller