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<DESCRIPTION>WILLIAMS ENERGY PARTNERS L P - APRIL 11, 2002
<TEXT>
<PAGE>
================================================================================



                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 8-K

                                 CURRENT REPORT

                       Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

        Date of Report (Date of earliest event reported) - April 11, 2002


                          WILLIAMS ENERGY PARTNERS L.P.
                (Name of Registrant as specified in its charter)



         DELAWARE                         1-16335                73-1599053
(State or other jurisdiction       (Commission File Number)   (I.R.S. Employer
of incorporation or organization)                            Identification No.)



                               ONE WILLIAMS CENTER
                              TULSA, OKLAHOMA 74172
                                 (918) 573-2000
               (Address, including zip code, and telephone number,
        including area code, of Registrant's principal executive offices)


                                       N/A
         (Former name or former address, if changed since last report.)

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

<PAGE>





ITEM 5.    OTHER EVENTS.

         On April 11, 2002, Williams Energy Partners L.P. (the "Partnership")
acquired for approximately $1 billion all of the membership interests of
Williams Pipe Line Company, LLC, which owns and operates the Williams Pipe Line
system. Williams Pipe Line Company, LLC is an affiliate of the Partnership and
is a subsidiary of The Williams Companies, Inc. Because of the Partnership's
affiliate relationship with Williams Pipe Line Company, LLC, the transaction was
between entities under common control and, as such, was accounted for similarly
to a pooling of interests. Accordingly, the consolidated financial statements
and notes have been restated to reflect the results of operations, financial
position and cash flows as if the companies had been combined throughout the
periods presented. Williams Pipe Line system's operations will be reported as a
separate operating segment.



<PAGE>

         The Partnership's Management's Discussion and Analysis of Financial
Condition and Results of Operations, restated to reflect the acquisition of
Williams Pipe Line Company, LLC, follows herein.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


INTRODUCTION

         Williams Energy Partners L.P. is a publicly traded limited partnership
formed by The Williams Companies, Inc. in August 2000 to own, operate and
acquire a diversified portfolio of complementary energy assets. We are
principally engaged in the transportation, storage and distribution of refined
petroleum products and ammonia. We intend to pursue an asset acquisition
strategy, and our asset portfolio currently consists of:

     o   the Williams Pipe Line system;

     o   five marine terminal facilities;

     o   25 inland terminals; and

     o   an ammonia pipeline system.

         On April 11, 2002, we acquired for approximately $1.0 billion all of
the membership interests of Williams Pipe Line Company, LLC, which owns and
operates the Williams Pipe Line system. Because Williams Pipe Line Company, LLC
was an affiliate of ours at the time of the acquisition, the transaction was
between entities under common control and, as such, was accounted for similarly
to a pooling of interest. Accordingly, our consolidated financial statements and
notes have been restated to reflect the historical results of operations,
financial position and cash flows of Williams Energy Partners and Williams Pipe
Line Company, LLC throughout the periods presented. We will report the Williams
Pipe Line system's operations as a separate operating segment of ours.

OVERVIEW

         The Williams Pipe Line System. The Williams Pipe Line system is a
common carrier transportation pipeline and terminals network. The system
generates approximately 80% of its revenues net of product purchases through
transportation tariffs for volumes of petroleum products it ships. These tariffs
vary depending upon where the product originates, where ultimate delivery occurs
and any applicable discounts. All transportation rates and discounts are in
published tariffs filed with the FERC. The Williams Pipe Line system also earns
revenues from non-tariff based activities, including leasing pipeline and
storage tank capacity to shippers on a long-term basis, providing data services
and providing product services such as ethanol unloading and loading, additive
injection, custom blending and laboratory testing.

         The Williams Pipe Line system generally does not produce or trade
refined petroleum products or LPGs or take title to the products it transports.
The system generates small volumes of product by blending natural gas liquids
with gasoline and by fractionating transmix, which is a mixture of products
resulting from the intermingling of different product grades during normal
operation of a pipeline. The Williams Pipe Line system has historically
purchased and taken title to the inventories associated with blending and
fractionation until the processed product has been sold. In connection with the
acquisition of Williams Pipe Line Company, we and Williams Energy Services, an
affiliate of The Williams Companies, agreed that the Williams Pipe Line system
will no longer take title to the natural gas liquids it blends with gasoline or
the resulting product. Consequently, both product sales and product purchases
will decline by approximately 40-45% in future periods. We will continue to
perform these blending services for Williams Energy Services under a ten-year
agreement for a fixed annual fee of $3.0 million. Through the Williams Pipe Line
system, we will continue to purchase and fractionate transmix and to sell the
resulting separated products.

         Longhorn Partners Pipeline is a 700-mile pipeline developed to
transport refined petroleum products from Gulf Coast refineries west to Odessa
and El Paso, Texas. Williams Pipe Line Company



<PAGE>

formerly owned a 0.3% partnership interest in Longhorn Partners Pipeline and
managed the project's construction and operation in exchange for a management
fee. Williams Pipe Line Company's historical financial statements include this
partnership interest and management function. Prior to our acquisition of the
Williams Pipe Line system, Williams Pipe Line Company's interest in and
management of Longhorn Partners Pipeline was transferred to an affiliate of The
Williams Companies. As a result, Longhorn Partners Pipeline will not be included
in our subsequent consolidated financial statements and will have no effect on
our future results of operations, financial condition or cash flows.

         Operating costs and expenses incurred by the Williams Pipe Line system
are principally fixed costs related to routine maintenance and system integrity
as well as field and support personnel. Other costs, including fuel and power,
fluctuate with volumes transported and stored on the system. Expenses resulting
from environmental remediation projects are also included in operating expenses
and have historically included costs from projects relating both to current and
past events. In connection with our acquisition of Williams Pipe Line Company,
Williams Energy Services agreed to indemnify us for costs and expenses relating
to environmental remediation for events that occurred before April 11, 2002 and
are discovered within six years from that date.

         Petroleum Products Terminals. Within our terminal network, we operate
two types of terminals: marine terminal facilities and inland terminals. The
marine terminal facilities are large product storage facilities which generate
revenues primarily from fees that we charge customers for storage and throughput
services. The inland terminals earn revenues primarily from fees that we charge
based on the volumes of refined petroleum products distributed from these
terminals. The inland terminals also earn ancillary revenues from injecting
additives into gasoline and jet fuel, from filtering jet fuel and from rental
income. Also included in ancillary revenues is the gain or loss resulting from
differences in metered-versus-physical volumes of refined petroleum products
received at our terminals.

         Operating costs and expenses that we incur in our marine and inland
terminals are principally fixed costs related to routine maintenance as well as
field and support personnel. Other costs, including fuel and power, fluctuate
with storage capacity or throughput levels.

         Ammonia Pipeline System. The ammonia pipeline system earns the majority
of its revenue from transportation tariffs that we charge for transporting
ammonia through the ammonia pipeline. Generally, most of the operating costs for
the ammonia pipeline system fluctuate with the volume of ammonia transported.

         General and Administrative Expenses. The Williams Companies allocates
both direct and indirect general and administrative expenses to its
subsidiaries. Direct expenses allocated by The Williams Companies are primarily
salaries and benefits of employees and officers associated with the business
activities of the subsidiary. Indirect expenses include legal, accounting,
treasury, engineering, information technology and other corporate services. The
Williams Companies allocates indirect expenses to its subsidiaries, including to
our general partner, based on a three-factor formula that considers operating
margins, payroll costs and property, plant and equipment. We reimburse our
general partner and its affiliates for direct and indirect expenses incurred by
or allocated to them on our behalf.

         In connection with our initial public offering, and with respect solely
to the petroleum products terminal and ammonia pipeline assets we owned at the
time of that offering, we and our general partner agreed with The Williams
Companies that the general and administrative expenses to be reimbursed to our
general partner by us would not exceed $6.0 million for 2001, excluding expenses
associated with our long-term incentive plans, regardless of the amount of the
direct and indirect general and administrative expenses actually incurred by or
allocated to our general partner. The reimbursement limitation will remain in
place through 2011 and may increase by no more than the greater of 7.0% per year
or the percentage increase in the Consumer Price Index for that year. If we make
an acquisition, general and administrative expenses may also increase by the
amount of these expenses included in the valuation of the business acquired. As
a result of the acquisitions made during 2001, the annual amount of general and
administrative expense reimbursement limitation increased to $6.3 million,
excluding expenses associated with our long-term incentive plans. Based on the
7.0% escalation, our maximum reimbursement obligation for general and
administrative expenses in 2002 is $6.7 million before long-term incentive plans
and adjustments for acquisitions.


<PAGE>


         As a result of our acquisition of the Williams Pipe Line system,
general and administrative expenses that had previously been incurred by or
allocated to Williams Pipe Line Company will be charged to our general partner.
In connection with the acquisition, we and our general partner agreed that the
general and administrative expenses to be reimbursed to our general partner by
us for charges related to the Williams Pipe Line system would be $30.0 million
for 2002, pro rated for the actual period that we own the Williams Pipe Line
system. In each year after 2002, these expenses may increase by the lesser of
2.5% per year or the percentage increase in the Consumer Price Index for that
year.


ACQUISITION HISTORY

         We have materially increased our operations through a series of
transactions since our initial public offering in February 2001 including:

     o   in April 2002, the acquisition of the Williams Pipe Line system from an
         affiliate of The Williams Companies;

     o   in December 2001, the acquisition of a natural gas liquids pipeline in
         Illinois from Aux Sable Liquid Products L.P.;

     o   in October 2001, the acquisition of a marine crude oil terminal
         facility located in Gibson, Louisiana from Geonet Gathering, Inc.;

     o   in June 2001, the acquisition of two inland refined petroleum products
         terminals in Little Rock, Arkansas from TransMontaigne, Inc.; and

     o   in April 2001, the acquisition of a refined petroleum products pipeline
         located in Dallas, Texas from Equilon Pipeline Company LLC.



<PAGE>
RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

<Table>
<Caption>
                                                                                                      YEAR ENDED
                                                                                                      DECEMBER 31,
                                                                                                 -----------------------
                                                                                                  2001             2000
                                                                                                 ------           ------
                                                                                                     ($ IN MILLIONS)
<S>                                                                                              <C>              <C>
FINANCIAL HIGHLIGHTS
Revenues:
     Williams Pipe Line system transportation and related activities ........................    $254.9           $245.6
     Petroleum products terminals ...........................................................      71.5             60.8
     Ammonia pipeline system ................................................................      14.5             11.7
     Williams Pipe Line system product and construction revenues ............................     107.7            108.7
                                                                                                 ------           ------
          Total revenues ....................................................................    $448.6           $426.8

Operating expenses:
     Williams Pipe Line system transportation and related activities ........................    $123.6           $111.4
     Petroleum products terminals ...........................................................      33.3             29.5
     Ammonia pipeline system ................................................................       4.0              4.0
     Williams Pipe Line system product and construction expenses ............................      95.3             95.2
                                                                                                 ------           ------
          Total operating expenses ..........................................................    $256.2           $240.1
                                                                                                 ------           ------
          Total operating margin ............................................................    $192.4           $186.7
                                                                                                 ======           ======

OPERATING STATISTICS
Williams Pipe Line system:
     Transportation revenue per barrel shipped (cents per barrel) ...........................      90.8             89.1
     Net transportation and capacity lease barrels shipped (million barrels) ................     259.8            253.9
     Transportation barrels shipped (million barrels) .......................................     236.1            229.1
     Average haul (miles) ...................................................................     298.5            297.7
     Barrel miles (billion miles) ...........................................................      70.5             68.2
Petroleum products terminals:
     Marine terminal facilities:
          Average storage capacity utilized per month (barrels in millions)(a) ..............      15.7             14.7
          Throughput (barrels in millions)(b) ...............................................      11.5              3.7
     Inland terminals:
          Throughput (barrels in millions) ..................................................      56.7             56.1
Ammonia pipeline system:
     Volume shipped (tons in thousands) .....................................................       763              713

  </Table>
----------------
(a)   For the year ended December 31, 2001, represents the average monthly
      storage capacity utilized for the Gulf Coast marine terminal facilities
      (12.7 million barrels), excluding the Gibson, Louisiana facility, and
      the New Haven, Connecticut marine terminal facility (3.0 million
      barrels).  For the year ended December 31, 2000, represents the average
      monthly storage capacity utilized for the Gulf Coast marine terminals
      facilities (11.8 million barrels), excluding the Gibson, Louisiana
      facility, and the average monthly storage capacity utilized for the
      four months that we owned the New Haven, Connecticut marine terminal
      facility (2.9 million barrels), which was acquired in September 2000.

(b)   For the year ended December 31, 2001, represents a full year of activity
      at the New Haven, Connecticut marine terminal facility (9.3 million
      barrels) , and two months of activity at the Gibson, Louisiana marine
      terminal facility (2.2 million barrels), which was acquired on October 31,
      2001. For the year ended December 31, 2000, represents four months of
      activity at the New Haven marine terminal facility, which was acquired in
      September 2000.


      Our revenues excluding product and construction revenues for the year
ended December 31, 2001 were $340.9 million, compared to $318.1 million for the
year ended December 31, 2000, an increase of $22.8 million, or 7%. This increase
was primarily a result of:
<PAGE>
      o     Williams Pipe Line system's transportation and other related
            revenues increasing by $9.2 million, or 4%, from $245.6 million for
            the year ended December 31, 2000 to $254.8 million for the year
            ended December 31, 2001. The increase was due primarily to higher
            transportation revenues, offset by a decrease in revenues from
            product services. The increase in transportation revenues resulted
            from a 3% increase in volumes shipped and a 3% increase in tariff
            rates in July 2001. Transportation volumes increased in part due to
            system expansions made to secure new volumes from customers. Volumes
            also increased as a result of additional volume incentive agreements
            and general demand increases for gasoline and distillate, slightly
            offset by a decrease in demand for aviation fuel resulting from the
            recession and consumer reaction to the terrorist attacks of
            September 11, 2001. Product services decreased primarily due to a
            reduction in revenues from additive injection, due to lower prices
            for those services under with new agreements;

      o     an increase in the petroleum products terminal revenues of $10.7
            million, or 18%, from $60.8 million for the year ended December 31,
            2000 to $71.5 million for the year ended December 31, 2001. The
            increase was primarily a result of the acquisitions of the New
            Haven, Connecticut marine terminal facility in September 2000, the
            Little Rock, Arkansas inland terminals in June 2001 and the Gibson,
            Louisiana marine terminal facility in October 2001, as well as an
            improved Gulf Coast marketing environment which resulted in a 0.9
            million barrel per month higher utilization at the Gulf Coast marine
            terminal facilities. These increases were slightly offset by a
            decrease in inland terminals revenues, primarily due to the December
            2000 expiration of a customer's contractual commitment to utilize a
            specified amount of throughput capacity; and

      o     an increase in ammonia pipeline system revenues of $2.8 million, or
            24%, from $11.7 million for the year ended December 31, 2000 to
            $14.5 million for the year ended December 31, 2001, partly due to a
            $1.3 million throughput deficiency billing resulting from a shipper
            not meeting its minimum annual throughput commitment for the
            contract year ended June 2001. In addition, warm fall weather and a
            return to historically average prices for natural gas, which is the
            primary component for the production of ammonia, combined to create
            favorable conditions for the application of ammonia during the
            fourth quarter of 2001, resulting in a 50,000 ton, or 7%, increase
            in volume shipped on the pipeline compared to 2000.

      Operating expenses excluding product purchases and construction expenses
for the year ended December 31, 2001 were $160.9 million compared to $144.9
million for the year ended December 31, 2000, an increase of $16.0 million, or
11%. This increase was a result of:

      o     an increase in Williams Pipe Line system's operating expenses of
            $12.2 million, or 11%, from $111.4 million for the year ended
            December 31, 2000 to $123.6 million for the year ended December 31,
            2001. The increase was primarily caused by a $14.4 million increase
            in Williams Pipe Line system's field operating expenses and $3.0
            million higher power and utilities expenses, partially offset by
            $2.5 million lower environmental remediation expenses and $3.3
            million lower casualty losses. Field operating costs increased as a
            result of higher pipeline integrity costs due to new regulations,
            increased tank maintenance and coating costs related to the System
            Integrity Program, the Department of Transportation's adoption of
            the API 653 tank inspection requirements and mainline pump
            overhauls/repairs. Power and utilities expenses increased $3.0
            million, with 30% of the increase related to increased shipments and
            70% related to the rising cost of electricity and natural gas used
            to power the pumps and terminals along the system. Remediation
            expenses declined after increased costs were recognized in 2000
            related to a discontinued refining site, which was not included in
            the assets and liabilities transferred to us in connection with the
            acquisition of Williams Pipe Line Company. Casualty losses decreased
            compared to higher losses incurred in 2000 as a result of a $2.4
            million expense accrual associated with a groundwater contamination
            lawsuit that was settled in 2001; and
<PAGE>
      o     an increase in petroleum products terminals expenses of $3.8
            million, or 13%, from $29.5 million for the year ended December 31,
            2000 to $33.3 million for the year ended December 31, 2001, due
            primarily to the acquisitions of the New Haven, Connecticut marine
            terminal facility in September 2000, the Little Rock, Arkansas
            inland terminals in June 2001 and the Gibson, Louisiana marine
            terminal facility in October 2001. Expenses at the Gulf Coast marine
            terminal facilities increased slightly due to higher utility costs,
            partially offset by lower environmental and maintenance expenses,
            while property taxes at some inland terminals increased.

      Revenues from product sales were $106.7 million for the year ended
December 31, 2001, while product purchases were $95.3 million, resulting in a
net margin of $11.4 million in 2001. The 2001 net margin represents a decrease
of $1.4 million compared to a net margin in 2000 of $12.8 million resulting from
product sales in 2000 of $106.9 million and product purchases of $94.1 million.
This decrease was due primarily to lower blending and fractionation margins as a
result of lower price volatility during 2001, partially offset by an increase in
over/short margins, which result from management of the system's physical
inventory balances through the purchasing of physical shortages and selling of
physical overages.

      Affiliate construction and management fee revenues were $1.0 million for
the year ended December 31, 2001, while there were no affiliate construction
expenses for the year, resulting in a net margin of $1.0 million. The 2001 net
margin represents an increase of $0.1 million compared to a net margin in 2000
of $0.9 million resulting from affiliate construction and management fee
revenues in 2000 of $1.9 million and affiliate construction expenses of $1.0
million.

      Depreciation and amortization expense for the year ended December 31, 2001
was $35.8 million compared to $31.7 million for the year ended December 31,
2000, an increase of $4.1 million, or 13%. The increase was due primarily to the
acquisitions of the New Haven, Connecticut marine terminal facility in September
2001, the Little Rock, Arkansas inland terminals in June 2001, and the Gibson,
Louisiana marine terminal facility in October 2001, as well as maintenance
capital expenditures.

      General and administrative expenses for the year ended December 31, 2001
were $47.4 million compared to $51.2 million for the year ended December 31,
2000, a decrease of $3.8 million, or 7%. This decrease is primarily the result
of the general and administrative expense limit at the time of our initial
public offering. For 2001, general and administrative expenses related to the
petroleum products terminals and ammonia pipeline system include the established
limit of $6.0 million per year plus additional general and administrative costs
associated with businesses acquired during 2001 and $2.0 million of expenses
associated with our long-term incentive compensation plan. For 2000, general and
administrative costs related to the petroleum products terminals and ammonia
pipeline system were $12.0 million. The general and administrative expenses
incurred by or allocated to Williams Pipe Line Company in 2001 were $38.4
million compared to $39.2 million in 2000.

      Interest expense for the year ended December 31, 2001 was $14.9 million
compared to $27.0 million for the year ended December 31, 2000, a decrease of
$12.1 million or 45%. This decrease is primarily the result of a decline in
affiliate notes payable to The Williams Companies and lower interest rates. The
affiliate note payable associated with the Williams Pipe Line system declined by
$68.6 million as a result of a partial repayment using cash generated from
operations in excess of capital expenditures. At the end of 2001, the affiliate
note payable associated with the Williams Pipe Line system had a balance of
$138.2 million. The affiliate note payable associated with the petroleum
products terminals and ammonia pipeline system was partially repaid and the
balance was canceled and contributed to us as capital in connection our initial
public offering in February 2001. Concurrent with the closing of our initial
public offering, we borrowed $90.0 million under our term loan facility and $0.1
under our revolving credit facility. At the end of 2001, $90.0 million was
outstanding under the term loan facility and $49.5 million was outstanding under
the revolving credit facility due to the acquisition of the Little Rock,
Arkansas inland terminals and the Gibson, Louisiana marine terminal facility.

      Interest income for the year ended December 31, 2001 was $2.5 million
compared to $1.7 million for the year ended December 31, 2000, an increase of
$0.8 million due primarily to a larger average balance of an affiliate
receivable due from Longhorn Partners Pipeline.
<PAGE>
      We do not pay income taxes because we are a partnership. We primarily
based our income tax rate of 38.0% for our pre-initial public offering earnings
from our petroleum products terminals and ammonia pipeline businesses upon the
effective income tax rate for The Williams Companies. In addition, the Williams
Pipe Line Company was taxed as a corporation prior to its acquisition by us on
April 11, 2002. Williams Pipe Line Company's effective tax rates for the years
ended December 31, 2001 and 2000 were 38.9% and 38.4%, respectively, also based
primarily on the effective income tax rates for The Williams Companies for those
periods. The effective income tax rates exceeded the U.S. federal statutory
income tax rate for corporations primarily due to state income taxes.

      Net income for the year ended December 31, 2001 was $67.9 million compared
to $48.9 million for the year ended December 31, 2000, an increase of $19.0
million, or 39%. The operating margin increased by $5.7 million during the
period, primarily as a result of increased transportation revenues on the
Williams Pipe Line system and the New Haven, Little Rock and Gibson petroleum
products terminals acquisitions, offset by higher operating costs associated
with those acquisitions and higher system integrity costs on the Williams Pipe
Line system. While depreciation and amortization increased by $4.1 million and
other income fell by $0.4 million, general and administrative expenses and
interest expense declined by $15.9 million in the aggregate, interest income
increased by $0.8 million, and income taxes declined by $0.9 million.
<PAGE>
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

<Table>
<Caption>
                                                                                                 YEAR ENDED
                                                                                                DECEMBER 31,
                                                                                          -----------------------
                                                                                           2000             1999
                                                                                          ------           ------
                                                                                              ($ IN MILLIONS)
<S>                                                                                       <C>              <C>
FINANCIAL HIGHLIGHTS
Revenues:
     Williams Pipe Line system transportation and related activities .................    $245.6           $242.7
     Petroleum products terminals ....................................................      60.8             32.3
     Ammonia pipeline system .........................................................      11.7             12.1
     Williams Pipe Line system product and construction revenues .....................     108.7             88.6
                                                                                          ------           ------
          Total revenues .............................................................    $426.8           $375.7

Operating expenses:
     Williams Pipe Line system transportation and related activities .................    $111.4           $103.0
     Petroleum products terminals ....................................................      29.5             15.1
     Ammonia pipeline system .........................................................       4.0              3.5
     Williams Pipe Line system product and construction expenses .....................      95.2             74.7
                                                                                          ------           ------
          Total operating expenses ...................................................    $240.1           $196.3
                                                                                          ------           ------
          Total operating margin .....................................................    $186.7           $179.4
                                                                                          ======           ======

OPERATING STATISTICS
Williams Pipe Line system:
     Transportation revenue per barrel shipped (cents per barrel) ....................      89.1             91.4
     Net transportation and capacity lease barrels shipped (million barrels) .........     253.9            245.7
     Transportation barrels shipped (million barrels) ................................     229.1            222.5
     Average haul (miles) ............................................................     297.7            304.6
     Barrel miles (billion miles) ....................................................      68.2             67.8
Petroleum products terminals:
     Marine terminal facilities:
          Average storage capacity utilized per month (barrels in millions)(a) .......      14.7             10.1
          Throughput (barrels in millions)(b) ........................................       3.7              N/A
     Inland terminals:
          Throughput (barrels in millions) ...........................................      56.1             58.1
Ammonia pipeline system:
     Volume shipped (tons in thousands) ..............................................       713              795
  </Table>
----------------
(a)   For the year ended December 31, 2000, represents the average monthly
      storage capacity utilized for the Gulf Coast marine terminal facilities
      (11.8 million barrels), excluding the Gibson, Louisiana facility, and the
      average monthly storage capacity for the four months that we owned the New
      Haven, Connecticut marine terminal facility in 2000 (2.9 million barrels).
      For the year ended December 31, 1999, represents the average monthly
      storage capacity utilized for the Gulf Coast marine terminal facilities,
      excluding the Gibson, Louisiana facility, for the five months that we
      owned these assets in 1999.

(b)   For the year ended December 31, 2000, represents four months of activity
      at the New Haven, Connecticut marine terminal facility, which was acquired
      in September 2000.

      Our revenues excluding product and construction revenues for the year
ended December 31, 2000 were $318.1 million, compared to $287.1 million for the
year ended December 31, 1999, an increase of $31.0 million, or 11%. This
increase was primarily a result of:

      o     an increase in petroleum products terminals revenues of $28.6
            million, or 89%, due primarily to the acquisitions of three Gulf
            Coast marine terminal facilities in August 1999 and the New Haven
            marine terminal facility in September 2000, as well as a 1.7 million
            barrel per month increase in utilization of the Gulf Coast marine
            terminal facilities, slightly offset by a storage
<PAGE>
            rate decline on account of the expiration in July 2000 of a revenue
            deficiency billing associated with the purchase of the Gulf Coast
            marine terminal facilities;

      o     a $1.9 million increase in Williams Pipe Line system's non-tariff
            based revenues, consisting primarily of $0.7 million from new
            capacity lease agreements, $0.6 million in increased laboratory
            testing fees from the addition of a new laboratory in mid-1999, $0.5
            million in increased data service revenues largely due to an
            over-billing which was reversed in 2001, and $0.5 million from a new
            reclamation facility added to the system in 1999; and

      o     an increase of $0.7 million, or 0.3%, in transportation revenues on
            the Williams Pipe Line system, due to higher shipments of diesel and
            aviation fuel as a result of capital expenditures that were made to
            secure new volumes from several significant customers, partially
            offset by a 3% decrease in the rate per barrel shipped due to
            reduced average haul miles.

      Operating expenses for the year ended December 31, 2000 were $144.9
million compared to $121.6 million for the year ended December 31, 1999, an
increase of $23.3 million, or 19%. This increase was a result of:

      o     an increase in petroleum products terminals expenses of $14.4
            million, or 95%, due to a $15.2 million increase in marine terminal
            facilities expense as a result of the acquisition of three Gulf
            Coast marine terminal facilities in August 1999 and of the New Haven
            marine terminal facility in September 2000, offset by a decrease of
            $0.8 million in inland terminal expenses resulting from higher
            environmental expenses in 1999 associated with a system-wide
            environmental evaluation, higher employee relocation expenses in
            1999 related to the acquisition of 12 terminals and lower utility
            expenses due to lower throughput volumes;

      o     an increase in Williams Pipe Line system expenses of $8.4 million,
            or 8%, consisting primarily of a $2.8 million increase in casualty
            losses, $2.3 million higher environmental remediation expenses, $2.0
            million of higher power and utilities expenses and $1.9 million
            higher field operating expenses, offset by $0.5 lower product loss
            expenses. The casualty loss increase was largely due to a $2.4
            million expense accrual associated with a groundwater contamination
            lawsuit in 2000. Environmental remediation expenses increased
            primarily from accruals related to a discontinued refining site,
            which was not included in the assets and liabilities transferred to
            us in connection with the acquisition of the Williams Pipe Line
            Company. Power and utilities expenses increased primarily because of
            higher prices for electricity and natural gas. Field operating
            expenses increased from higher expenses related to a new laboratory
            and inflation; and

      o     an increase of ammonia pipeline system expenses of $0.5 million, or
            14%, primarily due to a one-time adjustment for lease expense and
            increased utility expenses as a result of higher natural gas prices.

      Revenues from product sales were $106.9 million for the year ended
December 31, 2000, while product purchases were $94.1 million, resulting in a
net margin of $12.8 million in 2000. The 2000 net margin represents an increase
of $1.3 million compared to a net margin in 1999 of $11.5 million resulting from
product sales in 1999 of $70.7 million and product purchases of $59.2 million.
This increase was due primarily to higher blending revenues due to greater
volatility in the blending and fractionation markets, offset by reduced
over/short settlement revenues, which result from management of the system's
physical inventory balances through the purchasing of physical shortages and
selling of physical overages.

      Affiliate construction and management fee revenues were $1.9 million for
the year ended December 31, 2000, while affiliate construction expenses were
$1.0 million, resulting in a net margin of $0.9 million. The 2000 net margin
represents a decrease of $1.5 million compared to a net margin in 1999 of $2.4
million resulting from affiliate construction and management fee revenues in
1999 of $17.9 million and affiliate construction expenses of $15.5 million. This
decrease was due primarily to a significant
<PAGE>
reduction during 2000 in construction activity on the Longhorn Partners
Pipeline, which was managed by Williams Pipe Line Company during those periods.

      Depreciation and amortization expense for the year ended December 31, 2000
was $31.7 million compared to $25.7 million for the year ended December 31,
1999, an increase of $6.0 million, or 23%. The increase was due primarily to the
acquisition of the New Haven, Connecticut marine terminal facility in September
2000 and a full year of depreciation related to the Gulf Coast marine terminal
facilities acquired in August 1999, as well as maintenance capital expenditures,
largely on the Williams Pipe Line system.

      General and administrative expenses for the year ended December 31, 2000
were $51.2 million compared to $47.1 million for the year ended December 31,
1999, an increase of $4.1 million, or 9%. This increase is primarily the result
of the acquisitions of three Gulf Coast marine terminal facilities in August
1999 and of the New Haven, Connecticut marine terminal facility in September
2000. These acquisitions increased our size relative to other subsidiaries of
The Williams Companies, and as a result increased the percentage of general and
administrative expenses allocated by The Williams Companies to us. This increase
was partially offset by a decrease in the general and administrative expense
allocated by The Williams Companies to Williams Pipe Line Company, due largely
to a significant acquisition made by The Williams Companies which reduced
Williams Pipe Line Company's size relative to other subsidiaries of The Williams
Companies.

      Interest expense for the year ended December 31, 2000 was $27.0 million
compared to $19.2 million for the year ended December 31, 1999, an increase of
$7.8 million or 41%. This increase is primarily the result of a full year of
interest on debt incurred in the acquisition of three Gulf Coast marine terminal
facilities in August 1999 and four months of interest on debt incurred in the
acquisition of the New Haven marine terminal facility in September 2000.

      Interest income for the year ended December 31, 2000 was $1.7 million
compared to $0.2 million for the year ended December 31, 1999, an increase of
$1.5 million due primarily to an increase in the balance of a receivable due
from Longhorn Partners Pipeline.

      We do not pay income taxes because we are a partnership. We primarily
based our income tax rate of 38.0% for the pre-initial public offering earnings
from our petroleum products terminals and ammonia pipeline businesses upon the
effective income tax rate for The Williams Companies. In addition, the Williams
Pipe Line Company was taxed as a corporation prior to its acquisition by us on
April 11, 2002. Williams Pipe Line Company's effective tax rates for the years
ended December 31, 2000 and 1999 were 38.4% and 38.3%, respectively, also based
primarily on the effective income tax rates for The Williams Companies for those
periods. The effective income tax rates exceeded the U.S. federal statutory
income tax rate for corporations primarily due to state income taxes.

      Net income for the year ended December 31, 2000 was $48.9 million compared
to $55.1 million for the year ended December 31, 1999, a decrease of $6.2
million, or 11%. The operating margin increased by $7.3 million during the
period, primarily as a result of the acquisition of three Gulf Coast marine
terminal facilities in August 1999 and the New Haven marine terminal facility in
September 2000, partially offset by higher expenses related to those
acquisitions as well as higher casualty loss, environmental remediation, power
and other field operating expenses on the Williams Pipe Line system.
Depreciation and amortization expense increased by $6.0 million and general and
administrative and interest expense increased by $11.9 million in the aggregate.
Interest income rose $1.5 million, and other income fell $0.7 million. In
addition, income taxes declined by $3.7 million.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS AND CAPITAL EXPENDITURES

         Net cash provided by operating activities for the year ended December
31, 2001 was $135.3 million compared to $55.1 million for the year ended
December 31, 2000 and $84.5 million for the year ended December 31, 1999. The
increase from 2000 to 2001 was primarily attributable to increased net income
before non-cash items such as depreciation, deferred compensation expense and
deferred income taxes for the year ended December 31, 2001, and to changes in
components of operating assets and liabilities between 2000 and 2001. Net income
was increased primarily by the New Haven, Little Rock and Gibson petroleum
products terminals acquisitions, as well as by lower general and administrative
and


<PAGE>

interest expenses. Significant changes in components of operating assets and
liabilities during 2001 included:

         o   a decrease of $10.4 million in accounts receivable versus a $9.7
             million increase in 2000, due primarily to the collection during
             2001 of receivables related to reimbursable construction projects;

         o   a decrease of $15.8 million in affiliate accounts receivable versus
             a $1.9 million increase in 2000, due to the collection in 2001 of a
             large outstanding short-term affiliate receivable due from a
             subsidiary of The Williams Companies; and

         o   an increase of $12.9 million in inventories associated with
             blending, fractionation and over/short activities, versus a $2.5
             million decrease in 2000, due primarily to higher commodity prices
             during 2001.

         The decrease in net cash from operating activities from 1999 to 2000
was partially attributable to lower deferred income taxes in 2000 compared to
1999 and to changes in components of assets and liabilities between 1999 and
2000. Deferred taxes were $2.2 million for the year ended December 31, 2000
compared to $22.4 million for the year ended December 31, 1999, largely due to
one-time adjustments in 1999 to accruals for rate refunds and payroll
liabilities that required adjustments to the related deferred income taxes.
Significant changes in components of operating assets and liabilities during
2000 included:

         o   an increase of $9.7 million in accounts receivable, versus a $5.7
             million increase in 1999, due primarily to an increase during 2000
             in receivables related to reimbursable construction projects in
             2001;

         o   a decrease of $6.6 million in accounts payable, versus a $5.3
             million increase in 1999, due primarily to the conversion during
             2000 of Williams Pipe Line Company's accounts payable accounting
             system, which resulted in lower total accounts payable outstanding;

         o   an increase of $4.5 million in current and noncurrent environmental
             liabilities, due primarily to acrruals for environmental
             remediation expenses related to a discontinued refinery site, which
             was not included in the assets and liabilities transferred to us in
             connection with the acquisition of Williams Pipe Line Company; and

         o   a negative change of $14.0 million in other current and noncurrent
             assets and liabilities, versus a $36.1 million negative change in
             1999, due primarily to an increase in unbilled reimbursable
             construction projects classified as other current assets and to an
             increase in long-term affiliate receivables related to reimbursable
             Longhorn Partners Pipeline construction costs. The large negative
             change in 1999 was due primarily to reductions during the year of
             rate refund and pension liabilities.

         Net cash used by investing activities for the years ended December 31,
2001, 2000 and 1999 was $87.5 million, $74.4 million and $277.9 million,
respectively. We increased capital expenditures during these years primarily to
make acquisitions of petroleum products terminals, as well as to maintain and
expand the Williams Pipe Line system. In 2001, we acquired two inland terminals
in Little Rock, Arkansas and a marine terminal facility in Gibson, Louisiana. In
2000, we acquired an inland terminal and the New Haven, Connecticut marine
terminal facility. In 1999, we acquired 12 inland terminals, the Gulf Coast
marine terminal facilities and an additional ownership interest in eight
existing inland terminals. Capital expenditures related to the Williams Pipe
Line system were higher in 2000 and 1999 as a result of construction costs for
truck racks and costs related to the development of the ATLAS 2000 software
system. These costs totaled $9.1 million in 2000 and $16.8 million in 1999.

         Net cash provided (used) by financing activities for the years ended
December 31, 2001, 2000 and 1999 was $(34.0) million, $19.4 million and $193.4
million, respectively. The cash flow for 2001 is primarily comprised of $77.3
million of net equity proceeds from our initial public offering, $89.2 million
of debt proceeds from borrowings under our operating partnership's credit
facility at the time of our initial public offering and $49.5 million of
additional proceeds from borrowings under that facility for the acquisitions of
the Little Rock, Arkansas inland terminals and Gibson, Louisiana marine terminal
facility. These proceeds were offset by a $166.5


<PAGE>

million repayment of the affiliate note payable associated with petroleum
product terminal acquisitions using funds from the equity and debt proceeds and
a $68.6 million repayment of the affiliate note payable associated with the
Williams Pipe Line system using free cash flow generated by the system. The 2000
and 1999 amounts primarily represent loans we received from The Williams
Companies to fund our terminal acquisitions, offset by repayments of $6.7
million in 2000 and $38.6 million in 1999 of the affiliate note payable
associated with the Williams Pipe Line system using free cash flow generated by
the system.

CAPITAL REQUIREMENTS

         The transportation, storage and distribution business requires
continual investment to upgrade or enhance existing operations and to ensure
compliance with safety and environmental regulations. The capital requirements
of our businesses consist primarily of:

         o   maintenance capital expenditures, such as those required to
             maintain equipment reliability and safety and to address
             environmental regulations; and

         o   expansion capital expenditures to acquire additional complementary
             assets to grow our business and to expand or upgrade our existing
             facilities, such as projects that increase storage or throughput
             volumes or develop pipeline connections to new supply sources.

         The Williams Companies has agreed to reimburse us for maintenance
capital expenditures incurred in 2001 and 2002 in excess of $4.9 million per
year related to the assets contributed to us at the time of our initial public
offering. This reimbursement obligation is subject to a maximum combined
reimbursement for 2001 and 2002 of $15.0 million. We incurred $8.8 million of
maintenance capital expenditures in 2001 and recorded a reimbursement from The
Williams Companies of $3.9 million during 2001. As a result of these
reimbursements, the maximum reimbursement obligation of The Williams Companies
with respect to these assets has been reduced to $11.1 million for 2002. For
2002 we expect to incur maintenance capital expenditures for these assets of
approximately $16.0 million, of which $11.1 million will be reimbursed by The
Williams Companies.

         In connection with the acquisition of Williams Pipe Line Company, The
Williams Companies has agreed to reimburse us for maintenance capital
expenditures incurred in 2002, 2003 and 2004 in excess of $19.0 million per year
related to the Williams Pipe Line system, subject to a maximum combined
reimbursement for 2002, 2003 and 2004 of $15.0 million. In 2002, we expect to
incur maintenance capital expenditures related to the Williams Pipe Line system
of approximately $16.8 million and, therefore, do not anticipate that we will be
reimbursed for such expenditures.

         We expect to incur aggregate maintenance capital expenditures for 2002
for all of our businesses, in excess of reimbursements from The Williams
Companies, of $21.7 million.

         In addition to maintenance capital, we are also planning to incur
expansion and upgrade capital expenditures at our existing facilities, including
pipeline connections. The total we plan to spend for expansion is approximately
$7.0 million in 2002, not including capital needs associated with additional
acquisitions, if any. We expect to fund our expansion capital expenditures,
including any acquisitions, from:

         o   cash provided by operations;

         o   borrowings under the revolving credit facility discussed below and
             other borrowings; and

         o   the issuance of additional common units.

         If capital markets tighten and we are unable to fund these
expenditures, our business may be adversely affected and we may not be able to
acquire additional assets and businesses.


LIQUIDITY

         Operating Partnership Credit Facility. Subsequent to the closing of our
initial public offering on February 9, 2001, we have relied on cash generated
from internal operations as our primary source of



<PAGE>

funding. Additional funding requirements are met by a $175.0 million credit
facility of our operating partnership that expires on February 5, 2004. This
credit facility is comprised of a $90.0 million term loan and an $85.0 million
revolving credit facility. The revolving credit facility is comprised of a $73.0
million acquisition subfacility and a $12.0 million working capital subfacility.

         Immediately after the closing of our initial public offering, we
borrowed the entire $90.0 million term loan and $0.1 million under the revolving
credit facility. As of December 31, 2001, $23.5 million was available under the
acquisition subfacility after borrowing $49.5 million to fund the Little Rock,
Arkansas and Gibson, Louisiana acquisitions. In January 2002, we borrowed $8.9
million to pay for the Aux Sable transaction. In addition, $12.0 million was
available under the working capital sub-facility at December 31, 2001.

         Obligations under the credit facility are unsecured but are guaranteed
by all of the subsidiaries of our operating partnership. Indebtedness under the
credit facility ranks equally with all the outstanding unsecured and
unsubordinated debt of our operating partnership. Williams Pipe Line Company is
a separate operating subsidiary of ours and is not a borrower or guarantor under
this credit facility.

         We may prepay all loans at any time without penalty. We must reduce all
borrowings under the working capital subfacility to zero for a period of at
least 15 consecutive days once during each year, beginning on the effective date
of the credit facility.

         Indebtedness under the credit facility bears interest at the Eurodollar
rate plus an applicable margin that ranges from 1.00% to 1.45%. We incur a
commitment fee on the unused portions of the revolving credit facility and the
term loan.

         In addition, the credit facility contains various covenants limiting
our operating partnership's ability to:

         o   incur additional unsecured indebtedness of more than $75.0 million,
             subordinated debt owed to affiliates of more than $50.0 million and
             secured purchase money debt of more than $5.0 million, including
             maintaining the ratios described below;

         o   grant liens other than tax liens, mechanic's and materialman's
             liens and other liens and encumbrances incurred in the ordinary
             course of the operating partnership's business;

         o   make investments, other than investments in the operating
             partnership's subsidiaries, cash and short term securities and
             acquisitions;

         o   merge or consolidate unless the operating partnership is the
             survivor;

         o   sell all of the operating partnership's assets;

         o   make distributions other than from available cash;

         o   engage in any business other than the transportation, storage and
             distribution of hydrocarbons and ammonia;

         o   create obligations for some lease payments; or

         o   engage in transactions with affiliates other than arm's-length
             transactions.

         The credit facility also contains covenants requiring us to maintain
specified ratios of:

         o   EBITDA (as defined in the credit facility), pro forma for any asset
             acquisitions, to interest expense of not less than 3.0 to 1.0; and

         o   total debt to EBITDA, pro forma for any asset acquisitions, of not
             more than 4.0 to 1.0.

Our management believes that we are in compliance with all of these covenants.

         Williams Pipe Line Short-term Loan. In connection with the acquisition
of the Williams Pipe Line system, we and our subsidiary, Williams Pipe Line
Company, entered into a six-month $700.0 million credit agreement. All of the
proceeds were used to finance this acquisition.



<PAGE>

         Our obligations under this short-term loan are unsecured. This
indebtedness ranks equally with all of our outstanding unsecured and
unsubordinated debt. Our operating partnership is not a borrower under this
credit agreement. We may prepay this short-term loan at any time, in whole or in
part, without penalty.

         This indebtedness will bear interest, at our election, at the
Eurodollar rate plus 2.5%, or the prime rate plus 1.5%, for the first 120 days
of the short-term loan and, thereafter, at the Eurodollar rate plus 4.0%, or the
prime rate plus 3.0%.

         In addition, the credit agreement contains various covenants limiting
our and Williams Pipe Line Company's ability to:

         o   incur additional unsecured indebtedness other than under our
             operating partnership's credit facility described above;

         o   grant liens other than tax liens, mechanic's and materialman's
             liens and other lines and encumbrances incurred in the ordinary
             course of their business;

         o   make investments, other than investments in the Williams Pipe Line
             system, cash and short-term securities and acquisitions;

         o   merge or consolidate unless Williams Energy Partners is the
             survivor;

         o   dispose of their assets;

         o   make distributions other than from available cash or, in the case
             of Williams Pipe Line Company, in excess of $7.5 million in each
             quarter;

         o   engage in any business other than the transportation, storage and
             distribution of hydrocarbons and ammonia;

         o   create obligations for some lease payments; or

         o   engage in transactions with affiliates other than arm's-length
             transactions.

The credit agreement also contains a covenant requiring Williams Pipe Line
Company to maintain EBITDA (as defined in the credit agreement) of at least
$20.0 million for each fiscal quarter.

ENVIRONMENTAL

         Our operations are subject to environmental laws and regulations
adopted by various governmental authorities in the jurisdictions in which these
operations are conducted. We have accrued liabilities for estimated site
restoration costs to be incurred in the future at our facilities and properties,
including liabilities for environmental remediation obligations at various sites
where we have been identified as a possibly responsible party. Under our
accounting policies, liabilities are recorded when site restoration and
environmental remediation and cleanup obligations are either known or considered
probable and can be reasonably estimated.

         In conjunction with our initial public offering, and with respect
solely to the petroleum products terminals and ammonia pipeline assets owned at
the time of that offering, Williams Energy Services, an affiliate of ours and a
subsidiary of The Williams Companies, agreed to indemnify us against
environmental liabilities, up to $15.0 million, that arose prior to February 9,
2001, that become known within three years after February 9, 2001 and that
exceed all amounts recovered or recoverable by us under contractual indemnities
from third parties or under any applicable insurance policies.

         As of December 31, 2001, we had accrued environmental remediation
liabilities associated with our petroleum products terminals and ammonia
pipeline system of $5.4 million. This amount includes a $2.6 million liability
recorded in 2001 associated with our New Haven, Connecticut marine terminal
facility, based on third-party estimates developed as part of a Phase II
environmental assessment required by the State of Connecticut. Management
estimates that these expenditures for environmental remediation liabilities will
be paid over the next two to five years. Receivables of $5.1 million associated
with these environmental liabilities have been recognized as recoverable from
affiliates and third parties.


<PAGE>

         In connection with our acquisition of Williams Pipe Line Company on
April 11, 2002, Williams Energy Services agreed to indemnify us for losses and
damages related to breach of environmental representations and warranties and
the failure to comply with environmental laws prior to closing in excess of $2.0
million up to a maximum of $125.0 million. This $125.0 million will also be
subject to indemnification claims made by us for breaches of other
representations and warranties. The environmental indemnification obligation
applies to liabilities that result from conduct prior to the closing of our
acquisition of Williams Pipe Line Company and that are discovered within six
years of closing. In addition, certain of Williams Pipe Line Company's assets
and liabilities, including environmental remediation liabilities, were
transferred to an affiliate of The Williams Companies prior to our acquisition
of Williams Pipe Line Company.

         During 2001, we recorded $7.5 million of environmental remediation
expenses associated with the Williams Pipe Line system. These expenses were
primarily the result of cleanup at several terminals located on the system and
at a discontinued refining site, which was not included in the assets and
liabilities transferred to us in connection with the acquisition of the Williams
Pipe Line system. In addition, we incurred costs related to the assessment and
monitoring of soil, groundwater and surface water conditions at various
locations on the system where operations may have resulted in releases of
hydrocarbons and other wastes.

         As of December 31, 2001, we had accrued environmental remediation
liabilities associated with the Williams Pipe Line system of $11.5 million. Of
these liabilities, $2.0 million were transferred to an affiliate of the Williams
Companies prior to our acquisition of Williams Pipe Line Company on April 11,
2002, and a receivable was recognized at the time of the closing of the
acquisition for the remaining $9.5 million that is recoverable under the
indemnification from Williams Energy Services. Management estimates that these
remaining expenditures for environmental remediation liabilities will be paid
over the next two to five years.

IMPACT OF INFLATION

     Although the impact of inflation has slowed in recent years, it is still a
factor in the United States economy and may increase the cost to acquire or
replace property, plant and equipment and may increase the costs of labor and
supplies. To the extent permitted by competition, regulation and our existing
agreements, we have and will continue to pass along increased costs to our
customers in the form of higher fees.

 CRITICAL ACCOUNTING POLICIES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates. We deem the following accounting policies to be critical:

         o   Transportation revenues are recognized when shipments are complete
             and estimated pipeline revenues are deferred for shipments in
             transit. Injection service fees associated with customary
             proprietary additives are recognized upon injection to the
             customer's product, which occurs at the time the product is
             delivered. Leased storage, terminalling and other related revenues
             are recognized upon provision of contract services. Other revenue,
             principally blending and fractionation revenue, is recognized upon
             sale of the product.

         o   Depreciation expense is calculated based on our estimate of the
             remaining useful lives of our assets. Because of the expected long
             useful lives of our assets, we depreciate terminals and



<PAGE>

             pipelines over a 6-year to 67-year period for financial statement
             purposes. Changes in the estimated lives of our assets could have a
             material effect on results of operations.

         o   Incentive compensation expense is recorded for the restricted unit
             compensation program for Williams employees assigned to our
             businesses. The expense associated with the one-time IPO award is
             based on the price of the units on the date of grant. The expense
             associated with the annual incentive compensation plan is computed
             based on the estimated number of units that will ultimately vest
             adjusted by the current market value of the units at each period
             end. We are accruing costs for these units assuming the maximum
             number of units that can vest. Any changes in those assumptions
             would result in lower compensation expense to the us.

         o   Environmental liabilities are recorded when site restoration,
             environmental remediation and cleanup obligations are either known
             or considered probable and can be reasonably estimated.
             Environmental liabilities are recorded independently of any
             potential claim for recovery. Receivables are recognized in cases
             where reimbursements for remediation costs are considered probable.

         o   With the adoption of Statement of Financial Accounting Standards
             No. 142, goodwill will no longer be amortized beginning January 1,
             2002 but will be tested periodically for impairment. Management's
             judgments and assumptions relative to estimating the future cash
             flows of our various assets will be critical in determining whether
             an impairment exists and, if so, the financial impact of such
             impairment. Changes in market conditions, customers and/or industry
             financial conditions, technology and other factors could materially
             impact the future assessment of goodwill values, which could have a
             material impact on our results of operations, financial condition
             and cash flows.

NEW ACCOUNTING PRONOUNCEMENTS

     In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." This Statement supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" and amends Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The Statement retains the basic framework of SFAS No.
121, resolves certain implementation issues of SFAS No. 121, extends
applicability to discontinued operations and broadens the presentation of
discontinued operations to include a component of an entity. The Statement is to
be applied prospectively and is effective for financial statements issued for
fiscal years beginning after December 15, 2001. The Statement is not expected to
have any initial impact on our results of operations, financial position or cash
flows.

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs and amends FASB Statement No.
19, "Financial Accounting and Reporting by Oil and Gas Producing Companies." The
Statement requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made and that the associated asset retirement
costs be capitalized as part of the carrying amount of the long-lived asset. The
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. We plan to adopt this standard in January 2003,
and we are evaluating its effect on our results of operations, financial
position or cash flows.

         In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 establishes
accounting and reporting standards for business combinations and requires all
business combinations to be accounted for by the purchase method. The Statement
is effective for all business combinations for which the date of acquisition is
July 1, 2001 or later. SFAS No. 142 addresses accounting and reporting standards
for goodwill and other intangible assets.



<PAGE>

Under this Statement, goodwill and intangible assets with indefinite useful
lives will no longer be amortized but will be tested annually for impairment.
The Statement becomes effective for all fiscal years beginning after December
15, 2001. We will apply the new rules on accounting for goodwill and other
intangible assets beginning January 1, 2002. Based on the amount of goodwill
recorded as of December 31, 2001, application of the non-amortization provision
of the Statement will result in a decrease to amortization expense in future
years of approximately $1.1 million.

     In September 2000, The FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." The
Statement provides guidance for determining whether a transfer of financial
assets should be accounted for as a sale or a secured borrowing and whether a
liability has been extinguished. The Statement is effective for recognition and
reclassification of collateral and for disclosures ending after December 15,
2000. The Statement became effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after March 31, 2001. The
initial application of SFAS No. 140 had no impact on our results of operations,
financial position or cash flows.

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This was followed in June 2000 by the
issuance of SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities," which amends SFAS No. 133. SFAS No. 133 and No. 138
establish accounting and reporting standards for derivative financial
instruments. The standards require that all derivative financial instruments be
recorded on the balance sheet at their fair value. Changes in fair value of
derivatives will be recorded each period in earnings if the derivative is not a
hedge. If a derivative qualifies for special hedge accounting, changes in the
fair value of the derivative will either be recognized in earnings as an offset
against the change in fair value of the hedged assets, liabilities or firm
commitments also recognized in earnings, or the changes in fair value will be
deferred on the balance sheet until the hedged item is recognized in earnings.
The ineffective portion of a derivative's change in fair value will be
recognized immediately in earnings. These standards were adopted on January 1,
2001. There was no impact on our results of operations, financial position or
cash flows from adopting these standards.

RELATED PARTY TRANSACTIONS

We have entered into a number of commercial agreements with affiliates,
including Williams Energy Marketing & Trading Company, Williams Refining &
Marketing, L.L.C., Williams Ethanol Services, Inc. and Mid-America Pipeline
Company. Each of these entities is a subsidiary of The Williams Companies and an
affiliate of ours and of our general partner. The principal business of Williams
Energy Marketing & Trading is the marketing and trading of energy commodities
including natural gas, natural gas liquids, power, crude oil and refined
petroleum products. Williams Refining & Marketing primarily owns and operates a
refinery in Memphis, Tennessee and also engages in the purchase and sale of
crude and refined petroleum products. Williams Ethanol Services operates two
ethanol plants and an ethanol distribution system and also engages in the
purchase and sale of ethanol. Mid-America Pipeline is an interstate common
carrier pipeline company engaged in the transportation and distribution of
natural gas liquids.

The agreements with our affiliates vary depending upon location and the types of
services provided. Approximately $15.9 million of our revenues in 2001 were
generated from agreements with affiliates at our petroleum products terminals
while approximately $78.4 million of revenue in 2001 was generated from
agreements with affiliates on The Williams Pipe Line system. In addition,
approximately $81.0 million of expenses were incurred from product purchases
with our affiliates on the Williams Pipe Line system. A summary of the
significant agreements follows:

The Williams Pipe Line System

Tariff-Based Shipments. Williams Energy Marketing & Trading and Williams
Refining & Marketing ship refined petroleum products on our pipeline system. We
charge rates for the shipments based upon tariffs filed with the FERC or the
applicable state agency that are the same rates we charge to non-affiliated
entities. These tariffs serve as individual contractual agreements that commit
our affiliate to pay for


<PAGE>

volume transported on our system as long as we abide by the terms of the tariff.
As a result, contracts do not exist that obligate our affiliates to ship volume
or make payments to us in the future. These tariff-based shipments generated
approximately $5.0 million of revenue in 2001.

System Lease Storage Agreements. We have entered into several agreements with
Williams Energy Marketing & Trading and William Refining & Marketing for the
access and utilization of storage along the Williams Pipe Line system. These
agreements provide for a fixed monthly storage capacity on the pipeline system
at a fixed rate. The rates charged to our affiliates are consistent with those
charged to non-affiliated entities. Services provided under these agreements
include the receipt of refined petroleum products into our system at any origin
point on our system. Our affiliates remain responsible for tariff charges
related to the actual shipment of product and delivery through our terminals. A
majority of these contracts have a term of one to two years. Historically, at
the end of the contract term, we have extended the agreements for one to two
additional years. These agreements generated approximately $2.2 million in
revenues in 2001.

Ethanol Storage and Throughput Agreements. We have entered into several
agreements with Williams Ethanol Services for the access and utilization of
storage along the Williams Pipe Line system. These agreements provide for a
fixed monthly ethanol storage capacity at our terminals at a fixed storage rate.
In addition, we charge additional fees ranging from $0.80 per barrel to over
$1.25 per barrel for blending services and handling fees at certain terminals.
The rates charged to our affiliates are consistent with those charged to
non-affiliated entities. A majority of these contracts have a term ranging from
less than one year and up to two years. These agreements generated approximately
$3.2 million in revenues in 2001.

Facility Rental Agreement. We have entered into an agreement to lease to
Mid-America Pipeline approximately 292 miles of pipeline, three active pump
stations and a propane storage and loading facility in Canton, South Dakota.
Mid-America Pipeline is responsible for utilities and other operating costs. The
agreement was entered into in 1998 and has been renewed yearly since that time.
The rate charged for this lease has not changed from year to year. This
agreement generated approximately $0.3 million in revenues in 2001.

System Services Agreements. We have entered into agreements with Williams Energy
Marketing & Trading, Williams Refining & Marketing and Williams Ethanol Services
providing them with a non-exclusive and non-transferable license to use the
ATLAS 2000 software system. The system can be utilized to access data for
monitoring shipment and inventory status and performing other functions related
to shipment activities. The agreements established fixed rates at which certain
services are provided. These agreements generated approximately $0.3 million in
revenues in 2001.

Over & Short Settlement and Product Purchases and Sales Agreements. We have
entered into agreements with Williams Energy Marketing & Trading to buy natural
gas liquids blendstocks and sell the refined petroleum products related to our
blending program and to purchase or sell us refined petroleum products needed to
maintain inventory balances on our pipeline system (which we refer to as over
and short settlements). These transactions are subject to master purchase and
sale agreements for refined petroleum products or a master purchase agreement
for natural gas liquids. Each transaction with our affiliate is recorded on a
confirmation statement, which is subject to the general terms outlined in the
master agreements. These confirmation statements determine the volume, price and
timing associated with the product purchases and sales. Because the confirmation
statements are generally associated with discrete transactions over short time
frames, contracts do not exist that obligate our affiliate to buy or sell
refined petroleum products or natural gas liquids to us in the future. The
revenues associated with these agreements were approximately $66.4 million in
2001, while the expenses incurred to purchase products from our affiliates were
approximately $76.8 million in 2001. Additional details related to the
activities that produce the purchase and sale opportunities are as follows:

o    Blending. Historically, Williams Pipe Line Company purchased natural gas
     liquids from Williams Energy Marketing & Trading at cost plus a fixed fee
     of $0.105 per barrel. Williams Energy Marketing & Trading purchased at
     prevailing market prices a majority of the finished gasoline that was
     produced from blending. In connection with the acquisition of the Williams
     Pipe Line system, we and Williams Energy Services agreed that the Williams
     Pipe Line system will no longer take title to the natural gas


<PAGE>

     liquids it blends or the resulting product. We will continue to perform
     these blending services for Williams Energy Services under a ten-year
     agreement for a fixed annual fee of $3.0 million.

o    Over and Short Settlement. Generally, the physical volumes on our system
     will not match the balances recorded by our customers. These differences
     are either product quality differences or absolute volume differences.
     Quality differences usually result from the commingling of product on the
     pipeline during times when we change the product being shipped on our
     pipeline. When these differences occur, we purchase and sell product at
     prevailing market prices from our affiliate to manage the imbalances.

Longhorn Partners Pipeline Construction Revenue Agreement. Williams Pipe Line
Company entered into agreements with Longhorn Partners Pipeline to provide
engineering, design, construction, start-up and pipeline operating services.
Under these agreements, Williams Pipe Line Company was reimbursed for costs
incurred and received contractor and operating fees. The revenues associated
with these agreements were approximately $1.0 million in 2001. In connection
with our acquisition of Williams Pipe Line Company, these agreements were
transferred to another affiliate of The Williams Companies and consequently we
will no longer provide these services and receive these fees.

Mid-America Pipeline Agreements. We have entered into agreements to lease from
Mid-America Pipeline underground natural gas liquids storage in Kansas, to ship
natural gas liquids on Mid-America Pipeline at published tariffs and to lease
from Mid-America Pipeline approximately 15 miles of pipeline in Illinois. The
natural gas liquids storage leases are typically renewed yearly, and the
pipeline lease has a term of ten years. Any tariff-based shipments are subject
to the prevailing tariff and are not subject to any other contract. Together,
these agreements generated operating expenses of $0.8 million in 2001.

Natural Gas and Fuel Oil Supply Agreements. We have entered into agreements with
Williams Energy Marketing & Trading and Williams Refining & Marketing for the
supply of natural gas and fuel oil used at pump stations throughout the Williams
Pipe Line system. We purchase fuel oil from Williams Refining & Marketing at the
prevailing market price. These purchases are identified on confirmation
statements that are subject to the master refined products purchase and sale
agreements used in the blending and over and short program. We purchase natural
gas from Williams Energy Marketing & Trading either based on indexed prices or
at fixed prices. In 2001, we elected to purchase a majority of our natural gas
at fixed prices, which required that we commit to a definite volume of natural
gas purchases. Long-term volume commitments are not required for index-based
pricing. The natural gas purchase agreement for fixed price natural gas expires
in August 2002. At that time, we expect to enter into a new agreement with
Williams Energy Marketing & Trading on terms similar to those in the existing
contract. These agreements generated operating expenses of $4.2 million in 2001.

Petroleum Products Terminals

Inland Terminal Use and Access Agreements. We have entered into several
agreements with Williams Energy Marketing & Trading and William Refining &
Marketing for the access and utilization of our inland terminals. The services
provided under these agreements include the receipt and delivery of refined
petroleum products via connecting pipelines, tank trucks or transport terminals.
Additional services include product handling, storage and additive injection.
These agreements establish a fixed fee at which these services are provided at
rates consistent with those charged to non-affiliated entities. A majority of
these contracts have a term of one year and are renewed on an annual basis. The
revenue associated with these agreements in 2001 was approximately $6.5 million.

Products Terminalling Agreement for the Galena Park, Texas Marine Terminal
Facility. We entered an agreement with Williams Energy Marketing & Trading to
provide approximately 2.5 million barrels of storage capacity and to provide
other ancillary services at our Galena Park, Texas marine terminal facility.
Because the storage fees are fixed and the storage capacity is already
committed, revenues only fluctuate to the extent other ancillary services are
utilized. The primary services provided include receipt and delivery of refined
petroleum products and blendstocks via marine vessel, pipeline, tank truck or
other transfers from customers within the terminal facility. Upon the request of
Williams Energy Marketing & Trading,



<PAGE>

we provide gasoline blending services to their product at an additional cost.
The prices charged under this agreement are consistent with those charged to
non-affiliated entities. The agreement generated approximately $7.4 million of
revenue during 2001 and extends until September 30, 2004, at which time it may
be renewed monthly.

Products Terminalling Agreement for Marrero, Louisiana and Galena Park, Texas
Marine Terminal Facilities. We entered an agreement with Williams Energy
Marketing & Trading to provide up to 0.4 million barrels of storage capacity at
Marrero and 0.1 million barrels of storage capacity at Galena Park. We also
agreed to provide other ancillary services including blending and tank heating
services. The primary services provided include receipt and delivery of refined
petroleum products and blendstocks at Galena Park and heavy oils and feedstocks
at Marrero. The prices charged under this agreement are consistent with those
charged to non-affiliated entities. The agreement generated approximately $1.4
million of revenue during 2001. This contract has been canceled and replaced
with the contract described immediately above.

Products Terminalling Agreement for the Gibson, Louisiana Marine Terminal
Facility. We entered an agreement to provide Williams Energy Marketing & Trading
capacity utilization rights to substantially all of the capacity of the Gibson,
Louisiana facility for nine years starting November 1, 2001. This agreement
allows for the delivery of crude oil and condensate to our facility by barge,
truck and pipeline where we then provide storage, blending and throughput
services. We ship the majority of the crude oil and condensate received through
our pipelines to Ship Shoal Pipeline. Williams Energy Marketing & Trading has
committed to utilize substantially all of the capacity at our facility at a
fixed rate which is consistent with rates charged by other service providers for
similar services at other locations. As a result, the revenues we receive should
not significantly vary as long as the services we provide do not fall below
certain performance standards. This contract expires after nine years and we
expect it to generate approximately $4.0 million in revenue in 2002. This
contract generated approximately $0.6 million in revenue for the two months we
owned the facility in 2001.

OTHER AFFILIATE AGREEMENTS

         In addition to the expenses incurred under the commercial agreements
with our affiliates discussed above, we also incur affiliate expenses for
general and administrative, operating and maintenance services under the terms
of our partnership agreement and our omnibus agreement, which governs the
relationship between us, our general partner and The Williams Companies.

ENRON EXPOSURE

         We have a crude storage contract with an affiliate of Enron. Following
Enron's voluntary bankruptcy petition, the Enron affiliate failed to pay
approximately $200,000 of the amount due to us under this contract. Under the
terms of our agreement, we seized assets from the Enron affiliate in an amount
sufficient to settle the obligation. As a result, we did not incur any loss
exposure associated with Enron or its affiliates at December 31,2001. We have
continued our business dealings with Enron's affiliate but the terms have been
changed such that the crude storage services are on a pre-paid basis.

         Through a variety of energy commodity and derivative contracts, our
affiliate Williams Energy Marketing & Trading has credit exposure to various
Enron entities. During the fourth-quarter 2001, Williams Energy Marketing &
Trading recorded a reduction in trading revenues of approximately $130 million
as a part of its valuation of energy commodity and derivative tracking contracts
with Enron entities. Approximately $91 million of this reduction in revenues was
recorded pursuant to events immediately preceding and following Enron's
announced bankruptcy. At December 31, 2001, The Williams Companies had reduced
its exposure to accounts receivable from Enron, net of margin deposits, to
expected recoverable amounts.






<PAGE>
ITEM 7.    FINANCIAL STATEMENTS AND EXHIBITS.

         The Partnership files the following exhibits as part of this report:

         Exhibit 23   Consent of Ernst & Young LLP

         Exhibit 99   Restated consolidated financial statements and notes of
                      the Partnership


                                   SIGNATURES

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

                                      WILIAMS ENERGY PARTNERS L.P.
                                      By:  Williams GP LLC, its general partner


Date:  May 3, 2002                    /s/ Suzanne H. Costin
                                      ------------------------------------------
                                      Name:  Suzanne H. Costin
                                      Title: Corporate Secretary
<PAGE>



                                INDEX TO EXHIBITS

<Table>
<Caption>
EXHIBIT
NUMBER                     DESCRIPTION
-------                    -----------
<S>                        <C>
Exhibit 23                 Consent of Ernst & Young LLP

Exhibit 99                 Restated consolidated financial statements and notes
                           of the Partnership
</Table>







</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>3
<FILENAME>h96522ex23.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP
<TEXT>
<PAGE>
                                                                      EXHIBIT 23


                         CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-71670) pertaining to the Williams Energy Partners Long-Term
Incentive Plan of our report dated April 11, 2002, with respect to the
consolidated financial statements of Williams Energy Partners included in this
Current Report on Form 8-K.

                                                Ernst & Young LLP

Tulsa, Oklahoma
April 30, 2002

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>4
<FILENAME>h96522ex99.txt
<DESCRIPTION>RESTATED CONSOLIDATED FINANCIAL STATEMENTS & NOTES
<TEXT>
<PAGE>

                                                                      EXHIBIT 99

                      SELECTED FINANCIAL AND OPERATING DATA
        (IN THOUSANDS, EXCEPT OPERATING STATISTICS AND PER UNIT AMOUNTS)

      The historical financial information presented below for Williams Energy
Partners was derived from our audited consolidated financial statements as of
December 31, 2001 and 2000 and for the three years in the period ended December
31, 2001. The consolidated financial statements and notes have been restated to
reflect the results of operations, financial position and cash flows of Williams
Energy Partners and Williams Pipe Line combined throughout the periods
presented. All other amounts have been prepared from Williams Energy Partners
and Williams Pipe Line's financial records.

      We define EBITDA as net income before income taxes plus interest expense
and depreciation and amortization expense less interest income. EBITDA provides
additional information as to Williams Energy Partners' ability to generate cash
and is presented solely as a supplemental measure. EBITDA should not be
considered as an alternative to net income, income before income taxes, cash
flows from operations or any other measure of financial performance presented in
accordance with generally accepted accounting principles. Williams Energy
Partners' EBITDA may not be comparable to EBITDA of other entities, and other
entities may not calculate EBITDA in the same manner as we do.

      We derived the following table from, and it should be read together with
and is qualified in its entirety by reference to, the historical financials
statements and the accompanying notes filed herewith. The table should be read
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" filed herewith.

<Table>
<Caption>
                                                                                  YEAR ENDED DECEMBER 31,
                                                        ---------------------------------------------------------------------------
                                                            2001            2000            1999            1998            1997
                                                        -----------     -----------     -----------     -----------     -----------
<S>                                                     <C>             <C>             <C>             <C>             <C>
INCOME STATEMENT DATA:
Operating revenues .................................... $   448,599     $   426,846     $   375,732     $   424,561     $   319,040
Operating expenses ....................................     160,880         144,899         121,599         100,271          99,398
Product purchases .....................................      95,268          94,141          59,230          55,274          68,242
Affiliate construction expenses .......................          --           1,025          15,464         101,924              --
Depreciation and amortization .........................      35,767          31,746          25,670          25,465          25,257
General and administrative ............................      47,365          51,206          47,062          44,195          31,545
                                                        -----------     -----------     -----------     -----------     -----------
   Total costs and expenses ........................... $   339,280     $   323,017     $   269,025     $   327,129     $   224,442
                                                        -----------     -----------     -----------     -----------     -----------
Operating profit ...................................... $   109,319     $   103,829     $   106,707     $    97,432     $    94,598
Interest expense, net .................................      12,366          25,329          18,998          11,328          12,967
Other (income) expense, net ...........................        (431)           (816)         (1,511)         12,661           1,081
                                                        -----------     -----------     -----------     -----------     -----------
Income before income taxes ............................ $    97,384     $    79,316     $    89,220     $    73,443     $    80,550
Income taxes(a) .......................................      29,512          30,414          34,121          28,250          31,271
                                                        -----------     -----------     -----------     -----------     -----------
Income before extraordinary items ..................... $    67,872     $    48,902     $    55,099     $    45,193     $    49,279
Extraordinary item - early extinguishment of debt .....          --              --              --              --           3,583
                                                         -----------     -----------     -----------     -----------     -----------
Net income ............................................ $    67,872     $    48,902     $    55,099     $    45,193     $    45,696
                                                        ===========     ===========     ===========     ===========     ===========
Basic and diluted net income per limited partner unit . $      1.87
                                                        ===========
BALANCE SHEET DATA:
Working capital (deficit) ............................. $    (2,211)    $    17,828     $    (2,115)    $    18,064     $    13,207
Total assets ..........................................   1,104,559       1,050,159         973,939         785,762         700,281
Long-term debt ........................................     139,500              --              --              --          40,000
Affiliate long-term note payable(b) ...................     138,172         432,957         406,022         251,179         178,215
Partners' capital .....................................     589,682         388,503         339,601         284,596         272,816

CASH FLOW DATA:
Net cash flow provided by (used in):
    Operating activities .............................. $   135,333     $    55,056     $    84,472     $    54,353     $    75,459
    Investing activities ..............................     (87,502)        (74,446)       (277,906)        (54,099)        (47,404)
    Financing activities ..............................     (34,004)         19,390         193,435            (254)        (28,055)
Cash distributions declared per unit(c) ............... $      2.02
</TABLE>


<PAGE>
<Table>
<Caption>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                -------------------------------------------------------------------
                                                                    2001          2000          1999          1998          1997
                                                                -----------   -----------   -----------   -----------   -----------
<S>                                                                <C>           <C>           <C>           <C>           <C>
OTHER DATA:
Operating margin:
  Williams Pipe Line system ...................................   $ 143,711     $ 147,778     $ 153,686     $ 153,864     $ 139,050
  Petroleum products terminals ................................      38,240        31,286        17,141         3,599         3,568
  Ammonia pipeline system .....................................      10,500         7,717         8,612         9,629         8,782
EBITDA (d) ....................................................     145,517       136,391       133,888       110,236       118,774
Maintenance capital, net of amounts reimbursed to Williams
  Energy Partners by affiliate ................................      20,482        25,874        29,236        27,466        23,072

OPERATING STATISTICS:
Williams Pipe Line system:
  Net transportation and capacity lease barrels
     shipped (millions)........................................       259.8         253.9         245.7         242.3         249.5
  Transportation revenue per barrel shipped
     (cents per barrel) .......................................        90.8          89.1          91.4          87.9          81.1


Petroleum products terminals:
  Marine terminal average storage capacity utilized per month
    (million barrels) (e) .....................................        15.7          14.7          10.1           N/A           N/A
  Marine terminal throughput (million barrels) (f) ............        11.5           3.7           N/A           N/A           N/A
  Inland terminal throughput (million barrels) ................        56.7          56.1          58.1          26.8          21.3

Ammonia pipeline system:
    Volume shipped (thousand tons) ............................         763           713           795           896           893
</Table>

(a)  Prior to our acquisition of Williams Pipe Line Company on April 11, 2002,
     Williams Pipe Line Company was subject to income taxes. Prior to our
     initial public offering on February 9, 2001, our petroleum products
     terminals and ammonia pipeline system operations were also subject to
     income tax. Following our initial public offering, the petroleum products
     terminals and ammonia pipeline system were no longer subject to income
     taxes as we are a partnership. Williams Pipe Line Company is no longer
     subject to income taxes following its acquisition by us.

(b)  At the time of our initial public offering, the affiliate note payable
     associated with the petroleum products terminals operations was contributed
     to us as a capital contribution by an affiliate of Williams. At the closing
     of our acquisition of Williams Pipe Line Company, its affiliate note
     payable was contributed to us as a capital contribution by an affiliate of
     Williams.

(c)  Cash distributions declared for 2001 include a pro-rated distribution for
     the first quarter, which included the period from February 10, 2001 through
     March 31, 2001. The cash distribution associated with the fourth quarter of
     2001 was declared on January 22, 2002 and paid on February 14, 2002.

(d)  The extraordinary expense in 1997, resulting from early extinguishment of
     debt is not deducted from EBITDA.

(e)  For the year ended December 31, 1999, represents the average storage
     capacity utilized per month for the Gulf Coast marine terminal facilities
     for the five months that we owned these assets in 1999. For the year ended
     December 31, 2000, represents the average monthly storage capacity utilized
     for the marine facilities (11.8 million barrels) and the average monthly
     storage capacity utilized for the four months that we owned the New Haven,
     Connecticut facility in 2000 (2.9 million barrels). For the year ended
     December 31, 2001, represents the average monthly storage capacity utilized
     for the marine facilities (12.7 million barrels) and the New Haven,
     Connecticut facility (3.0 million barrels). All of the above amounts
     exclude the Gibson, Louisiana facility.

(f)  For the year ended December 31, 2000, represents four months of activity at
     the New Haven, Connecticut facility, which was acquired in September 2000.
     For the year ended December 31, 2001, represents a full year of activity
     for the New Haven facility (9.3 million barrels) and two months of activity
     at the Gibson, Louisiana facility (2.2 million barrels), which was acquired
     on October 31, 2001.



                                       2
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


The Board of Directors of Williams GP LLC, General Partner of the Williams
Energy Partners L.P.

      We have audited the accompanying consolidated balance sheets of Williams
Energy Partners L.P. as of December 31, 2001 and 2000, and the related
consolidated statements of income and partners' capital and cash flows for each
of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial position of Williams Energy
Partners L.P. at December 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.




                                       ERNST & YOUNG LLP

Tulsa, Oklahoma
April 11, 2002


                                       3
<PAGE>


                          WILLIAMS ENERGY PARTNERS L.P.
                        CONSOLIDATED STATEMENTS OF INCOME
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                                           YEAR ENDED DECEMBER 31,
                                                                                      -----------------------------------
                                                                                         2001        2000          1999
                                                                                      ---------    ---------    ---------
                                                                                                   Restated
<S>                                                                                   <C>          <C>          <C>
Transportation and terminaling revenues:
   Third party .....................................................................   $ 314,027    $ 294,617    $ 271,135
   Affiliate .......................................................................       6,867       23,504       15,972
Product sales revenues:
   Third party .....................................................................      40,302       15,849        1,607
   Affiliate .......................................................................      66,385       91,024       69,143
Affiliate construction and management fee revenues .................................       1,018        1,852       17,875
                                                                                       ---------    ---------    ---------
      Total revenues ...............................................................   $ 448,599    $ 426,846    $ 375,732
Costs and expenses:
   Operating .......................................................................   $ 160,880    $ 144,899    $ 121,599
   Product purchases ...............................................................      95,268       94,141       59,230
   Affiliate construction expenses .................................................          --        1,025       15,464
   Depreciation and amortization ...................................................      35,767       31,746       25,670
   General and administrative ......................................................      47,365       51,206       47,062
                                                                                       ---------    ---------    ---------
      Total costs and expenses .....................................................   $ 339,280    $ 323,017    $ 269,025
                                                                                       ---------    ---------    ---------
Operating profit ...................................................................   $ 109,319    $ 103,829    $ 106,707
Interest expense:
   Affiliate interest expense ......................................................       9,770       27,009       19,167
   Other interest expense ..........................................................       5,089           --           --
Interest income ....................................................................      (2,493)      (1,680)        (169)
Other income .......................................................................        (431)        (816)      (1,511)
                                                                                       ---------    ---------    ---------
Income before income taxes .........................................................   $  97,384    $  79,316    $  89,220
Provision for income taxes .........................................................      29,512       30,414       34,121
                                                                                       ---------    ---------    ---------
Net income .........................................................................   $  67,872    $  48,902    $  55,099
                                                                                       =========    =========    =========

Allocation of 2001 net income:
   Portion applicable to the period January 1 through February 9, 2001 .............   $     304
   Portion applicable to partnership interests for the period after
       February 9, 2001 ............................................................      21,443
   Portion applicable to Williams Pipe Line ........................................      46,125
                                                                                       ---------
      Net income ...................................................................   $  67,872
                                                                                       =========

Portion of net income applicable to partnership interests ..........................   $  21,443
General partner's interest in income applicable to the period after
   February 9, 2001 ................................................................         226
                                                                                       ---------

Limited partners' interest in income applicable to the period after
   February 9, 2001.................................................................   $  21,217
                                                                                       =========

Basic and diluted net income per limited partner unit ..............................   $    1.87
                                                                                       =========

Weighted average number of units outstanding for the period after
   February 9, 2001.................................................................      11,359
                                                                                       =========
</Table>

                             See accompanying notes.



                                       4
<PAGE>
                          WILLIAMS ENERGY PARTNERS L.P.
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                                                  DECEMBER 31,
                                                                                            ------------------------
                                                                                              2001          2000
                                                                                            ----------    ----------
                                                 ASSETS                                             Restated
<S>                                                                                         <C>           <C>
Current assets:
   Cash and cash equivalents ...........................................................    $   13,837    $       10
   Accounts receivable (less allowance for doubtful accounts - $510 in 2001
      and $227 in 2000) ................................................................        18,157        19,340
   Other accounts receivable ...........................................................        10,754        19,657
   Affiliate accounts receivable .......................................................         6,386        22,144
   Inventory ...........................................................................        21,057         8,283
   Deferred income taxes - affiliate ...................................................         1,690         4,107
   Other current assets ................................................................         3,185         8,764
                                                                                            ----------    ----------
      Total current assets .............................................................    $   75,066    $   82,305
Property, plant and equipment, at cost .................................................    $1,338,393    $1,277,676
   Less: accumulated depreciation ......................................................       374,653       341,374
                                                                                            ----------    ----------
      Net property, plant and equipment ................................................        63,740    $  936,302
Deferred equity offering costs .........................................................            --         2,539
Goodwill (less amortization of $145) ...................................................        22,282            --
Other intangibles (less amortization of $310) ..........................................         2,639            --
Long-term affiliate receivables ........................................................        21,296        16,837
Long-term receivables ..................................................................         8,809           262
Other noncurrent assets ................................................................        10,727        11,914
                                                                                            ----------    ----------
   Total assets ........................................................................    $1,104,559    $1,050,159
                                                                                            ==========    ==========

                                    LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
   Accounts payable ....................................................................    $   12,636    $   10,180
   Affiliate accounts payable ..........................................................        10,157         8,485
   Affiliate income taxes payable ......................................................         8,544         5,465
   Accrued affiliate payroll and benefits ..............................................         4,606         5,428
   Accrued taxes other than income .....................................................         9,948        10,308
   Accrued interest payable ............................................................           277            --
   Accrued environmental liabilities ...................................................         8,650         8,131
   Deferred revenue ....................................................................         5,103         4,722
   Accrued product purchases ...........................................................         2,711         3,436
   Accrued casualty losses .............................................................           927         3,626
   Other current liabilities ...........................................................         4,865         4,696
   Acquisition payable .................................................................         8,853            --
                                                                                            ----------    ----------
      Total current liabilities ........................................................    $   77,277    $   64,477
Long-term debt .........................................................................       139,500            --
Long-term affiliate note payable .......................................................       138,172       432,957
Long-term affiliate payable ............................................................         1,262            --
Other deferred liabilities .............................................................         1,127         1,230
Deferred income taxes - affiliate ......................................................       147,029       156,984
Environmental liabilities ..............................................................         8,260         6,008
Minority interest ......................................................................         2,250            --
Commitments and contingencies
Partners' capital:
   Common unitholders (5,680 units outstanding at December 31, 2001) ...................       101,452        69,856
   Subordinated unitholders (5,680 units outstanding at December 31, 2001) .............       121,237            --
   General partner .....................................................................       366,993       318,647
                                                                                            ----------    ----------
     Total partners' capital ...........................................................       589,682       388,503
                                                                                            ----------    ----------
        Total liabilities and partners' capital ........................................    $1,104,559    $1,050,159
                                                                                            ==========    ==========
</TABLE>

                             See accompanying notes.



                                       5
<PAGE>
                          WILLIAMS ENERGY PARTNERS L.P.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                                            YEAR ENDED DECEMBER 31,
                                                                                     -------------------------------------
                                                                                       2001          2000          1999
                                                                                     ---------     ---------     ---------
                                                                                                    Restated
<S>                                                                                  <C>           <C>           <C>
Operating Activities:
   Net income....................................................................    $  67,872     $  48,902     $  55,099
   Adjustments to reconcile net income to net cash provided by operating
     activities:
        Depreciation and amortization ...........................................       35,767        31,746        25,670
        Debt issuance costs amortization ........................................          253            --            --
        Minority interest expense ...............................................          229            --            --
        Deferred compensation expense ...........................................        2,048            --            --
        Deferred income taxes ...................................................        6,438         2,229        22,383
        (Gain) loss on sale of assets ...........................................          249            --          (163)
        Changes in components of operating assets and liabilities:
        Accounts receivable and other accounts receivable .......................       10,393        (9,726)       (5,671)
        Affiliate accounts receivable ...........................................       15,758        (1,943)       11,317
        Inventories .............................................................      (12,919)        2,494        12,774
        Accounts payable ........................................................        2,456        (6,636)        5,271
        Affiliate accounts payable ..............................................        1,175        (4,146)       (1,166)
        Affiliate income taxes payable ..........................................        3,079         2,570       (16,666)
        Accrued affiliate payroll and benefits ..................................         (822)         (169)       (3,370)
        Accrued taxes other than income .........................................         (364)        1,756          (851)
        Accrued interest payable ................................................          277            --            --
        Current and noncurrent environmental liabilities ........................        2,669         4,511         1,631
        Other current and noncurrent assets and liabilities .....................          775       (16,532)      (21,786)
                                                                                     ---------     ---------     ---------
           Net cash provided by operating activities ............................    $ 135,333     $  55,056     $  84,472

Investing Activities:
   Additions to property, plant & equipment .....................................    $ (38,093)    $ (43,346)    $ (44,491)
   Purchases of businesses ......................................................      (49,409)      (31,100)     (223,300)
   Advances on affiliate note receivable ........................................           --            --       (10,115)
                                                                                     ---------     ---------     ---------
      Net cash used by investing activities .....................................    $ (87,502)    $ (74,446)    $(277,906)

Financing Activities:
   Distributions paid ...........................................................    $ (16,599)    $      --     $      --
   Borrowings under credit facility .............................................      139,500            --            --
   Capital contributions by affiliate ...........................................        1,792            --            --
   Sale of Common Units to public (less underwriters' commissions and
     payment of formation costs) ................................................       89,362            --            --
   Debt placement costs .........................................................         (909)           --            --
   Redemption of 600,000 Common Units from affiliate ............................      (12,060)           --            --
   Payments on affiliate note payable ...........................................     (235,090)      (12,679)      (38,639)
   Proceeds from affiliate note payable .........................................           --        32,069       232,074
                                                                                     ---------     ---------     ---------
      Net cash provided (used) by financing activities ..........................    $ (34,004)    $  19,390     $ 193,435
                                                                                     ---------     ---------     ---------

Change in cash and cash equivalents .............................................    $  13,827     $      --     $       1
Cash and cash equivalents at beginning of period ................................           10            10             9
                                                                                     ---------     ---------     ---------
Cash and cash equivalents at end of period ......................................    $  13,837     $      10     $      10
                                                                                     =========     =========     =========

Supplemental non-cash investing and financing transactions:
  Contributions by affiliate of predecessor company deferred income tax liability    $  13,976     $      --     $      --
  Contribution of long-term debt to partners' capital ...........................       59,695            --            --
  Purchase of Aux Sable pipeline ................................................        8,853            --            --
  Deferred equity offering costs ................................................           --         2,539            --
                                                                                     ---------     ---------     ---------
    Total .......................................................................    $  82,524     $   2,539     $      --
                                                                                     =========     =========     =========
</TABLE>

                             See accompanying notes



                                       6
<PAGE>




                          WILLIAMS ENERGY PARTNERS L.P.
                   CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
                       (IN THOUSANDS, EXCEPT UNIT AMOUNTS)

<Table>
<Caption>
                                NUMBER OF LIMITED
                                  PARTNER UNITS                                                   TOTAL
                            -------------------------                               GENERAL     PARTNERS'
                             COMMON      SUBORDINATED    COMMON     SUBORDINATED    PARTNER      CAPITAL
                            ---------    ------------  ---------    ------------   ---------   -----------
<S>                         <C>           <C>          <C>           <C>           <C>          <C>
Balances as previously
  reported - Jan. 1,
  1999 ...................         --            --    $  60,085     $      --     $      --    $  60,085

Adjustment for Williams
  Pipe Line
  transaction ............         --            --           --            --       224,417      224,417
                            ---------     --------     ---------     ---------     ---------    ---------
Balances as restated
  Jan. 1, 1999............         --            --       60,085            --       224,417      284,502

Net income ...............         --            --        6,766            --        48,333       55,099
                            ---------     ---------    ---------     ---------     ---------    ---------

Balance-Dec. 31, 1999 ....         --            --       66,851            --       272,750      339,601

Net income ...............         --            --        3,005            --        45,897       48,902
                            ---------     ---------    ---------     ---------     ---------    ---------

Balance-Dec. 31, 2000 ....         --            --       69,856            --       318,647      388,503

Issuance of units to
  public .................  4,600,000            --       89,362            --            --       89,362

Contribution of net
  assets of  predecessor
  companies ..............  1,679,694     5,679,694      (48,484)      118,762         2,326       72,604

Redemption of
  common units ...........   (600,000)           --      (12,060)           --            --      (12,060)

Distributions ............         --            --       (8,134)       (8,134)         (331)     (16,599)

Portion of net income
  applicable to period
  Jan. 1, 2001 through
  Feb. 9, 2001 ...........         --            --          304            --            --          304

Portion of net income
  applicable to
  partnership interests ..         --            --       10,608        10,609        46,351       67,568

                            ---------     ---------    ---------     ---------     ---------    ---------
Balance-Dec. 31, 2001 ....  5,679,694     5,679,694    $ 101,452     $ 121,237     $ 366,993    $ 589,682
                            =========     =========    =========     =========     =========    =========
</TABLE>



                             See accompanying notes.



                                       7
<PAGE>
                          WILLIAMS ENERGY PARTNERS L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    ORGANIZATION AND PRESENTATION

      Williams Energy Partners L.P. (the "Partnership") is a Delaware limited
partnership that was formed in August 2000, to acquire, own and operate: (a)
selected petroleum products terminals owned by Williams Energy Ventures, Inc.
("WEV"), and (b) an ammonia pipeline system, Williams Ammonia Pipeline Inc.,
owned by Williams Natural Gas Liquids, Inc. ("WNGL"). Prior to the closing of
the Partnership's initial public offering in February 2001, WEV was owned by
Williams Energy Services, LLC ("WES"). Both WES and WNGL are wholly owned
subsidiaries of The Williams Companies, Inc. ("Williams"). Williams GP LLC
("General Partner"), a Delaware limited liability company, wholly owned by
Williams, was also formed in August 2000, to serve as general partner for the
Partnership.

      On February 9, 2001, the Partnership completed its initial public offering
of 4,000,000 common units representing limited partner interests in the
Partnership at a price of $21.50 per unit. The proceeds of $86.0 million were
used to pay underwriting discounts and commissions of $5.6 million and legal,
professional fees and costs associated with the initial public offering of $3.1
million, with the remainder used to reduce affiliate note balances with
Williams.

      As part of the initial public offering, the underwriters exercised their
over-allotment option and purchased 600,000 common units, also at a price of
$21.50 per unit. The net proceeds of $12.1 million, after underwriting discounts
and commissions of $0.8 million, from this over-allotment option were used to
redeem 600,000 of the common units held by WES to reimburse it for capital
expenditures related to the Partnership's assets. The Partnership maintained the
historical costs of the net assets in connection with the initial public
offering. Following the exercise of the underwriters over-allotment option, 40
percent of the Partnership is owned by the public and 60 percent, including the
General Partner's ownership, is owned by affiliates of the Partnership. The
limited partners' liability in the Partnership is generally limited to their
investment.

      On February 26, 2002, the Partnership formed a wholly owned Delaware
corporation named Williams GP Inc. ("GP Inc.") The Partnership then contributed
a 0.001 percent limited partner interest in Williams OLP, L.P. ("OLP") to GP
Inc. as a capital contribution. The OLP agreement was then amended to convert GP
Inc.'s OLP limited partner interest to a general partner interest and to convert
the General Partner's existing interest to a limited partner interest. The
General Partner then contributed its 1.0101 percent OLP limited partner interest
to the Partnership in exchange for an additional 1.0 percent general partner
interest in the Partnership.

      On April 11, 2002, the Partnership acquired all of the membership
interests of Williams Pipe Line Company, LLC ("Williams Pipe Line") for
approximately $1.0 billion. Because Williams Pipe Line was an affiliate of the
Partnership at the time of the acquisition, the transaction was between entities
under common control and, as such, has been accounted for similarly to a pooling
of interest. Accordingly, the consolidated financial statements and notes of the
Partnership have been restated to reflect the historical results of operations,
financial position and cash flows throughout the periods presented. Williams
Pipe Line's operations will be reported as a separate operating segment of the
Partnership. The beginning equity balance of $224,417 and net income in the
amount of $48,333, $45,897 and $46,125 for the years ended December 31, 1999,
2000 and 2001, respectively, related to Williams Pipe Line have been included in
General Partner's equity for all periods presented.

     The historical results for Williams Pipe Line include income and expenses
and assets and liabilities that were conveyed to and assumed by an affiliate of
Williams Pipe Line prior to its acquisition by the Partnership. The assets
principally include Williams Pipe Line's interest in and agreements related to
Longhorn Partners Pipeline ("Longhorn"), a discontinued refinery site at
Augusta, Kansas and the ATLAS 2000 software system. The liabilities principally
include the environmental liabilities associated with the discontinued refinery
site in Augusta, Kansas and the current and deferred income taxes and affiliate
note payable. The current and deferred income taxes and the affiliate note
payable were contributed to the Partnership in form of a capital contribution by
an affiliate of Williams thereby increasing partnership capital by approximately
$200 million. As a result, the income and expenses associated with Longhorn and
Williams Pipe Line's blending operations will not be included in the future
financial results of the Partnership. In addition, general and administrative
expenses related to the Williams Pipe Line system that the Partnership will
reimburse to its General Partner will be limited to $30.0 million per year,
subject to an escalation provision.

2.    DESCRIPTION OF BUSINESSES

      The Partnership owns and operates a petroleum products pipeline system,
petroleum products terminals and an interstate ammonia pipeline system.



                                       8
<PAGE>
                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


      WILLIAMS PIPE LINE SYSTEM

      Williams Pipe Line is a petroleum products pipeline system that covers an
11-state area extending from Oklahoma through the Midwest to North Dakota,
Minnesota and Illinois. The system includes a 6,700-mile pipeline and 39
terminals that provide transportation, storage and distribution services. The
products transported on the Williams Pipe Line system are largely refined
petroleum products, including gasoline, diesel fuels, LPGs and aviation fuels.
Product originates on the system from direct connections to refineries and
interconnects with other interstate pipelines for transportation and ultimate
distribution to retail gasoline stations, truck stops, railroads, airlines and
other end-users.

   PETROLEUM PRODUCTS TERMINALS

      The Partnership has 30 petroleum products terminals that are not part of
the Williams Pipe Line system. Most of these terminals are strategically located
along or near third party pipelines or petroleum refineries. The petroleum
products terminals provide a variety of services such as distribution, storage,
blending, inventory management and additive injection to a diverse customer
group including governmental customers and end-users in the downstream refining,
retail, commercial trading, industrial and petrochemical industries. Products
stored in and distributed through the petroleum products terminal network
include refined petroleum products, blendstocks and heavy oils and feedstocks.
The terminal network consists of marine terminal facilities and inland
terminals. The inland terminals are located primarily in the southeastern United
States. Four marine terminal facilities are located along the Gulf Coast and one
marine terminal facility is located in Connecticut near the New York harbor.

   AMMONIA PIPELINE SYSTEM

      The ammonia pipeline system consists of an ammonia pipeline and six
company-owned terminals. Shipments on the pipeline primarily originate from
ammonia production plants located in Borger, Texas and Enid and Verdigris,
Oklahoma for transport to terminals throughout the Midwest for ultimate
distribution to end-users in Iowa, Kansas, Minnesota, Missouri, Nebraska,
Oklahoma and South Dakota. The ammonia transported through the system is used
primarily as nitrogen fertilizer. Approximately 94 percent of the ammonia
pipeline system's revenues are generated from transportation tariffs received
from three customers, who are obligated under "ship or pay" contracts to ship an
aggregate minimum of 700,000 tons per year but have historically shipped an
amount in excess of the required minimum. The current ammonia transportation
contracts extend through June 2005. The tariffs charged by the interstate
ammonia pipeline are regulated by the Surface Transportation Board of the U.S.
Department of Transportation.


3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   BASIS OF PRESENTATION

      The consolidated financial statements include the accounts of the
Partnership, Williams Pipe Line and their subsidiaries. The petroleum products
terminal operations consist of 30 petroleum products terminal facilities and
associated storage, located across 12 states primarily in the southeastern and
Gulf Coast areas of the United States. For 11 of these petroleum products
terminals, the Partnership owns varying undivided ownership interests. From
inception, ownership of these assets has been structured as an ownership of an
undivided interest in assets, not as an ownership interest in a partnership,
limited liability company, joint venture or other form of entity. Marketing and
invoicing are controlled separately by each owner, and each owner is responsible
for any loss, damage or injury that may occur to their own customers. As a
result, the Partnership applies proportionate consolidation for its interests in
these assets.



                                       9
<PAGE>


                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

USE OF ESTIMATES

      The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.

  REGULATORY REPORTING

       Williams Pipe Line is regulated by the Federal Energy Regulatory
Commission ("FERC"), which prescribes certain accounting principles and
practices for the annual Form 6 Report filed with the FERC that differ from
those used in these financial statements. Such differences relate primarily to
capitalization of interest, accounting for subsidiaries as equity investments
and other adjustments and are not significant to the financial statements.

   CASH EQUIVALENTS

      Cash and cash equivalents include demand and time deposits and other
marketable securities with maturities of three months or less when acquired.

INVENTORY VALUATION

       Inventory is comprised primarily of refined products, natural gas
liquids, and materials and supplies. Refined products and natural gas liquids
inventories are stated at the lower of average cost or market. The average cost
method is used for materials and supplies.

   PROPERTY, PLANT AND EQUIPMENT

      Property, plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to operations in the period incurred.
Depreciation of property, plant and equipment is provided on the straight-line
basis. For petroleum products terminal and ammonia pipeline system assets, the
costs of property, plant and equipment sold or retired and the related
accumulated depreciation is removed from the accounts, and any associated gains
or losses are recorded in the income statement, in the period of sale or
disposition. For Williams Pipe Line, gains or losses from the ordinary sale or
retirement of property, plant and equipment are credited or charged to
accumulated depreciation under FERC accounting guidelines.

   GOODWILL AND OTHER INTANGIBLE ASSETS

       Goodwill, which represents the excess of cost over fair value of assets
of businesses acquired, was amortized on a straight-line basis over a period of
20 years for those assets acquired prior to July 1, 2001. Beginning on January
1, 2002, goodwill is no longer amortized but must be evaluated periodically for
impairment. Other intangible assets are amortized on a straight-line basis over
a period of up to 25 years.

   IMPAIRMENT OF LONG-LIVED ASSETS

      The Partnership evaluates its long-lived assets of identifiable business
activities for impairment when events or changes in circumstances indicate, in
management's judgment, that the carrying value of such assets may not be
recoverable. The determination of whether an impairment has occurred is based on
management's estimate of undiscounted future cash flows attributable to the
assets as compared to the carrying value of the assets. If an impairment has
occurred, the amount of the impairment recognized is determined by estimating
the fair value for the assets and recording a provision for loss if the carrying
value is greater than fair value.

      For assets identified to be disposed of in the future, the carrying value
of these assets is compared to the estimated fair value less the cost to sell to
determine if an impairment is required. Until the assets are disposed of, an
estimate of the fair value is redetermined when related events or circumstances
change.

                                       10
<PAGE>


                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

      Judgments and assumptions are inherent in management's estimate of
undiscounted future cash flows used to determine recoverability of an asset and
the estimate of an asset's fair value used to calculate the amount of impairment
to recognize. The use of alternate judgments and/or assumptions could result in
the recognition of different levels of impairment charges in the financial
statements.

CAPITALIZATION OF INTEREST

       Interest is capitalized based on the approximate average interest rate on
long-term debt. For FERC reporting, capitalization of interest is allowed only
when specific borrowing is directly associated with a capital project.

   REVENUE RECOGNITION

      Williams Pipe Line transportation revenues are recognized when shipments
are complete and estimated pipeline revenues are deferred for shipments in
transit. Ammonia pipeline revenues are recognized when shipments are initiated.
Injection service fees associated with customer proprietary additives are
recognized upon injection to the customer's product, which occurs at the time
the product is delivered. Leased storage, terminalling and other related
revenues are recognized upon provision of contract services. Other revenue,
principally blending and fractionation revenue, is recognized upon sale of the
product.

   INCOME TAXES

      Prior to February 9, 2001, the Partnership's operations were included in
Williams' consolidated federal income tax return. The Partnership's income tax
provisions were computed as though separate returns were filed. Deferred income
taxes were computed using the liability method and were provided on all
temporary differences between the financial basis and tax basis of the
Partnership's assets and liabilities.

      Effective with the closing of the Partnership's initial public offering on
February 9, 2001 (See Note 1), the Partnership is not a taxable entity for
federal and state income tax purposes. Accordingly, for the petroleum products
and ammonia pipeline system operations after the initial public offering, no
recognition has been given to income taxes for financial reporting purposes. The
tax on Partnership net income is borne by the individual partners through the
allocation of taxable income. Net income for financial statement purposes may
differ significantly from taxable income of unitholders as a result of
differences between the tax basis and financial reporting basis of assets and
liabilities and the taxable income allocation requirements under the
Partnership's partnership agreement. The aggregate difference in the basis of
the Partnership's net assets for financial and tax reporting purposes cannot be
readily determined because information regarding each partner's tax attributes
in the Partnership is not available to the Partnership.

      Williams Pipe Line was included in Williams' consolidated federal income
tax return. Deferred income taxes were computed using the liability method and
were provided on all temporary differences between the financial basis and the
tax basis of Williams Pipe Line's assets and liabilities. Williams Pipe Line's
federal provision was computed at existing statutory rates as though a separate
federal tax return were filed. Williams Pipe Line paid its tax liability to
Williams as per its tax sharing agreement with Williams. No recognition will be
given to income taxes associated with Williams Pipe Line for financial reporting
purposes for periods subsequent to its acquisition by the Partnership.

   EMPLOYEE STOCK-BASED AWARDS

      Williams' employee stock-based awards are accounted for under provisions
of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Williams' fixed plan common stock
options do not result in compensation expense because the exercise price of the
stock options equals the market price of the underlying stock on the date of
grant.


                                       11
<PAGE>


                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

      The General Partner has issued incentive awards of restrictive units to
Williams employees assigned to the Partnership. These awards are also accounted
for under provisions of Accounting Principles Board Opinion No. 25. Since the
exercise price of the unit awards is less than the market price of the
underlying units on the date of grant, compensation expense is recognized by the
General Partner and directly allocated to the Partnership.

   ENVIRONMENTAL

      Environmental expenditures that relate to current or future revenues are
expensed or capitalized based upon the nature of the expenditures. Expenditures
that relate to an existing condition caused by past operations that do not
contribute to current or future revenue generation are expensed. Environmental
liabilities are recorded independently of any potential claim for recovery.
Receivables are recognized in cases where the realization of reimbursements of
remediation costs are considered probable. Accruals related to environmental
matters are generally determined based on site-specific plans for remediation,
taking into account prior remediation experience of the Partnership and
Williams.

   EARNINGS PER UNIT

      Basic earnings per unit are based on the average number of common and
subordinated units outstanding. Diluted earnings per unit include any dilutive
effect of restricted unit grants.

   RECENT ACCOUNTING STANDARDS

      In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." This Statement supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" and amends Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." The Statement retains the basic framework of SFAS No.
121, resolves certain implementation issues of SFAS No. 121, extends
applicability to discontinued operations and broadens the presentation of
discontinued operations to include a component of an entity. The Statement is to
be applied prospectively and is effective for financial statements issued for
fiscal years beginning after December 15, 2001. The Statement is not expected to
have any initial impact on the Partnership's results of operations or financial
position.

      In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs and amends FASB Statement No.
19, "Financial Accounting and Reporting by Oil and Gas Producing Companies." The
Statement requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made and that the associated asset retirement
costs be capitalized as part of the carrying amount of the long-lived asset. The
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Partnership plans to adopt this standard in
January 2003 and is evaluating its effect on the Partnership's results of
operations and financial position.

      In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 establishes
accounting and reporting standards for business combinations and requires all
business combinations to be accounted for by the purchase method. The Statement
is effective for all business combinations for which the date of acquisition is
July 1, 2001 or later. SFAS No. 142 addresses accounting and reporting standards
for goodwill and other intangible assets. Under this Statement, goodwill and
intangible assets with indefinite useful lives will no longer be amortized, but
will be tested annually for impairment. The Statement becomes effective for all
fiscal years beginning after December 15, 2001. The Partnership will apply the
new rules on accounting for goodwill and other intangible assets beginning
January 1, 2002. Based on the amount of goodwill recorded as of December 31,
2001 application of the non-amortization provision of the Statement will result
in a decrease to amortization expense in future years of approximately $1.1
million.

                                       12
<PAGE>

                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

      In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This was followed in June 2000 by the
issuance of SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities," which amends SFAS No. 133. SFAS No. 133 and No. 138
establish accounting and reporting standards for derivative financial
instruments. The standards require that all derivative financial instruments be
recorded on the balance sheet at their fair value. Changes in fair value of
derivatives will be recorded each period in earnings if the derivative is not a
hedge. If a derivative qualifies for special hedge accounting, changes in the
fair value of the derivative will either be recognized in earnings as an offset
against the change in fair value of the hedged assets, liabilities or firm
commitments also recognized in earnings, or the changes in fair value will be
deferred on the balance sheet until the hedged item is recognized in earnings.
The ineffective portion of a derivative's change in fair value will be
recognized immediately in earnings. These standards were adopted on January 1,
2001. There was no impact to the Partnership's financial position, results of
operations or cash flows from adopting these standards.

      The FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." The Statement provides
guidance for determining whether a transfer of financial assets should be
accounted for as a sale or a secured borrowing and whether a liability has been
extinguished. The Statement is effective for recognition and reclassification of
collateral and for disclosures ending after December 15, 2000. The Statement
became effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The initial
application of SFAS No. 140 had no impact on the Partnership's results of
operations and financial position.


4.    ACQUISITIONS AND DIVESTITURE

      ACQUISITIONS

      WILLIAMS PIPE LINE

      On April 11, 2002, the Partnership acquired all of the membership
interests of Williams Pipe Line from WES for approximately $1.0 billion. The
Partnership remitted to WES consideration in the amount of $674.4 million and
WES retained $15.0 million of Williams Pipe Line's receivables. The $310.6
million balance of the consideration consisted of $304.4 million of Class B
units representing limited partner interests in the Partnership issued to the
General Partner and affiliates of WES and Williams' contribution to the
Partnership by the General Partner of $6.2 million to maintain its 2 percent
general partner interest. The Partnership borrowed $700.0 million from a group
of financial institutions, paid WES $674.4 million and used $10.6 million of the
funds to pay debt fees and other transaction costs. The Partnership retained
$15.0 million of the funds to meet working capital needs.

       Williams Pipe Line primarily provides petroleum products transportation,
storage and distribution services and will be reported as a separate business
segment of the Partnership. Because of the Partnership's affiliate relationship
with Williams Pipe Line, the transaction was between entities under common
control and, as such, has been accounted for similarly to a pooling of interest.
Accordingly, the consolidated financial statements and notes of the Partnership
have been restated to reflect the historical results of operations, financial
position and cash flows as if the companies had been combined throughout the
periods presented.

       The results of operations for the separate companies and the combined
amounts presented in the Consolidated Income Statement follow:


                                       13
<PAGE>
                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                        ----------------------------------------
                                                           2001            2000          1999
                                                        -----------     ----------     ---------
<S>                                                     <C>             <C>            <C>
            Revenues:
              Williams Energy Partners ..........       $   86,054      $  72,492      $ 44,388
              Williams Pipe Line ..................        362,545        354,354       331,344
                                                        -----------     ----------     ---------
                 Combined                               $  448,599      $ 426,846       375,732
                                                        ===========     ==========     =========

            Net Income:
              Williams Energy Partners ............     $   21,747      $   3,005      $  6,766
              Williams Pipe Line ..................         46,125         45,897        48,333
                                                        -----------     ----------     ---------
                 Combined                               $   67,872      $  48,902      $ 55,099
                                                        ===========     ==========     =========
</TABLE>

      OTHER ACQUISITIONS

      Petroleum products terminal facilities and partial ownership interests in
several petroleum products terminals were acquired for cash during the periods
presented and are described below. All acquisitions, except the Aux Sable
transaction, were accounted for as purchases of businesses and the results of
operations of the acquired petroleum products terminals are included with the
combined results of operations from their acquisition dates.

      On December 31, 2001, the Partnership purchased an 8.5-mile, 8-inch
natural gas liquids pipeline in northeastern Illinois from Aux Sable Liquid
Products L.P. ("Aux Sable") for $8.9 million. The Partnership then entered into
a long-term lease arrangement under which Aux Sable is the sole lessee of these
assets. The Partnership has accounted for this transaction as a capital lease.
The lease expires in December 2016 and has a purchase option after the first
year. The minimum lease payments to be made by Aux Sable are $19.2 million in
total and $1.3 million per year over each of the next five years. Aux Sable has
the right to re-acquire the pipeline at the end of the lease for a de minimis
amount. The fair value of the lease at December 31, 2001, approximates its
carrying value.

      In October 2001, the Partnership acquired the crude oil storage and
distribution assets of Geonet Gathering, Inc. ("Geonet") located in Gibson,
Louisiana. The Partnership acquired these assets with the intent to use the
facility as a crude storage and distribution facility with an affiliate company
as its primary customer. The purchase price was approximately $21.1 million,
consisting of $20.3 million in cash and $0.9 million in assumed liabilities. The
purchase price and allocation to assets acquired and liabilities assumed was as
follows (in thousands):


                                       14
<PAGE>


                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

<Table>
<S>                                                                         <C>
            Purchase price:
                Cash paid, including transaction costs ...............      $20,261
                Liabilities assumed ..................................          856
                                                                            -------
                Total purchase price .................................      $21,117
                                                                            =======

            Allocation of purchase price:
                Current assets .......................................        $  62
                Property, plant and equipment ........................        4,607
                Goodwill .............................................       13,719
                Intangible assets ....................................        2,729
                                                                            -------
                Total allocation......................................      $21,117
                                                                            =======
</Table>
      Factors contributing to the recognition of goodwill are the market in
which the facility is located and the opportunity to enter into a throughput
agreement with an affiliate company, combined with the affiliate company's
ability to trade around those assets. Of the amount allocated to intangible
assets, $2.0 million represents the value of the leases associated with this
facility, which have amortization periods of up to 25 years. The remaining $0.7
million allocated to intangible assets represents covenants not-to-compete and
has an amortization period of five years. The total weighted average
amortization period of intangible assets is approximately 16 years. Of the
consideration paid for the facility, $1.0 million is held in escrow, pending
final evaluation of necessary repairs by the Partnership.

      In June 2001, the Partnership purchased two petroleum products terminals
located in Little Rock, Arkansas from TransMontaigne, Inc. ("TransMontaigne") at
a cost of $29.1 million, of which $20.2 million was allocated to property, plant
and equipment and $8.9 million to goodwill and other intangibles. Goodwill
resulting from this acquisition is being amortized over a 20-year period. The
final purchase price allocation has not been determined pending assessment of
the environmental liabilities assumed.

      In April 2001, the Partnership purchased a 6-mile pipeline for $0.3
million from Equilon Pipeline Company LLC, enabling connection of its existing
Dallas, Texas area petroleum storage and distribution facility to Dallas Love
Field. The acquisition was made in conjunction with an agreement for the
Partnership to provide jet fuel delivery services into Dallas Love Field for
Southwest Airlines. In December 2001, the Partnership completed construction of
additional jet fuel storage tanks at its distribution facility in Dallas to
support delivery of jet fuel to the airport. Total cost of the pipeline and
construction of the additional jet fuel storage tanks totaled $5.5 million.

      In September 2000, a northeast petroleum products terminal facility in New
Haven, Connecticut was acquired from Wyatt Energy, Incorporated ("Wyatt") and
its affiliates for approximately $30.8 million.

      In March 2000, a 50 percent ownership interest in CITGO Petroleum
Corporation's petroleum products terminal located in Southlake, Texas was
acquired for approximately $0.3 million.

      In August 1999, three storage and distribution petroleum products
terminals and Terminal Pipeline Company ("TPC"), a wholly owned subsidiary of
Amerada Hess Corporation ("Hess"), were acquired from Hess for approximately
$212 million. The petroleum products terminals are located in Galena Park and
Corpus Christi, Texas and Marrero, Louisiana. TPC owned a common carrier
pipeline that began at a connection east of the Houston Ship Channel and
terminated at the Galena Park terminal. The pipeline acquired from Hess was
converted to private pipeline status during 2001.

      In February 1999, an additional 10 percent ownership interest in eight
petroleum products terminals was acquired from Murphy Oil USA, Inc. for
approximately $3.4 million, which increased the Partnership's ownership interest
to 78.9 percent from 68.9 percent. The petroleum products terminals, which are
now operated by the Partnership, are located in Georgia, North Carolina, South
Carolina, Tennessee and Virginia.


                                       15
<PAGE>
                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

      In January 1999, 11 petroleum products terminals owned by Amoco Oil
Company ("Amoco") were acquired. The petroleum products terminals, located in
Alabama, Florida, Mississippi, North Carolina, Ohio, South Carolina and
Tennessee, were acquired for approximately $6.9 million. In addition, Amoco's 60
percent interest in a twelfth petroleum products terminal, located in
Greensboro, North Carolina, was acquired for approximately $1.0 million.

      The following summarized unaudited pro forma financial information for the
years ended December 31, 2001 and 2000, reflects the historical results of
Williams Pipe Line on a consolidated basis and assumes each other acquisition
had occurred on January 1 of the year immediately preceding the year of the
acquisition (in thousands):


<Table>
<Caption>
                                                                     2001         2000
                                                                  ---------    ---------
<S>                                                               <C>          <C>
            Revenues:
               Williams Energy Partners ......................    $ 448,599    $ 426,846
               Acquired businesses ...........................        5,552       14,354
                                                                  ---------    ---------
                 Combined ....................................    $ 454,151    $ 441,200
                                                                  =========    =========

            Net income:
               Williams Energy Partners ......................    $  67,872    $  48,902
               Acquired businesses ...........................          659        1,083
                                                                  ---------    ---------
                 Combined ....................................    $  68,531    $  49,985
                                                                  =========    =========

            Basic net income per limited partner unit ........    $    1.95
                                                                  =========
</TABLE>

      The pro forma results include operating results prior to the acquisitions
and adjustments to interest expense, depreciation expense and income taxes. The
pro forma consolidated results do not purport to be indicative of results that
would have occurred had the acquisitions been in effect for the periods
presented, nor do they purport to be indicative of results that will be obtained
in the future.

      Except where stated above, the purchase prices of the above acquisitions
were allocated to various categories of property, plant and equipment and
liabilities based upon the fair value of the assets acquired and liabilities
assumed.

       DIVESTITURE

     In October 2001, the Meridian, Mississippi terminal, previously reported
with the petroleum products terminals business segment, was sold for $1.7
million. The Partnership recognized a gain of $1.1 million associated with the
sale of the terminal, which is included in other income.


5.         PROPERTY, PLANT AND EQUIPMENT

      Property, plant and equipment consists of the following (in thousands):

<Table>
<Caption>

                                                         DECEMBER 31,                  ESTIMATED
                                                   ----------------------------       DEPRECIABLE
                                                       2001             2000             LIVES
                                                   -----------      -----------      -----------
<S>                                                <C>              <C>               <C>
       Construction work-in-progress ........      $    19,193      $    20,084

       Land and right-of-way ................           30,033           29,848

       Carrier property .....................          905,144          882,050      6 - 59 years
       Buildings ............................            8,957            8,533         30 years
       Storage tanks ........................          169,066          154,580         30 years
       Pipeline and station equipment .......           58,157           47,982      30 - 67 years
       Processing equipment .................          124,945          113,335         30 years
       Other ................................           22,898           21,264      10 - 30 years
                                                   -----------      -----------
            Total ...........................      $ 1,338,393      $ 1,277,676
                                                   ===========      ===========
</TABLE>



                                       16
<PAGE>
                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

      Carrier property is defined as pipeline assets regulated by the FERC.
Other includes $18.6 million of capitalized interest at both December 31, 2001
and 2000. Depreciation expense for the years ended December 31, 2001, 2000 and
1999 was $35.2 million, $31.7 million and $25.7 million, respectively.


6.         MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

      Williams Energy Marketing & Trading, an affiliate customer, and Customer A
are major customers of the Partnership. No other customer accounted for more
than 10 percent of total revenues during 2001, 2000 or 1999. Williams Energy
Marketing & Trading is a customer of the petroleum products terminals segment
and the Williams Pipe Line system segment. The percentage of revenues derived by
customer is provided below:

<Table>
<Caption>
                                                                      YEAR ENDED DECEMBER 31,
                                                                 ---------------------------------
                                                                  2001          2000          1999
                                                                 ------        ------        ------
<S>                                                                <C>           <C>           <C>
      Customer A ...........................................       10%           10%           10%
      Williams Energy Marketing & Trading ..................       18%           26%           22%
                                                                  -----         -----         -----
           Total............................................       28%           36%           32%
                                                                  =====         =====         =====
</TABLE>

      The accounts receivable balance of Williams Energy Marketing & Trading
accounted for 9 percent and 33 percent of total accounts receivable, including
affiliate receivables at December 31, 2001 and 2000, respectively.

           Williams Pipe Line transports refined petroleum products for refiners
and marketers in the petroleum industry. The major concentration of Williams
Pipe Line's customers is located in the central United States. A prepayment
process authorized by tariffs filed with the FERC is employed for all petroleum
products shippers on Williams Pipe Line's system. Due to the prepayment process
employed, credit losses to shippers have been limited. Sales to petroleum
products terminal and ammonia pipeline customers are generally unsecured and the
financial condition and creditworthiness of customers are routinely evaluated.
The Partnership has the ability with many of its terminalling contracts to sell
stored customer products to recover unpaid receivable balances, if necessary.
Any issues impacting the petroleum refining and marketing and anhydrous ammonia
industries could impact the Partnership's overall exposure to credit risk.

Williams Pipe Line's labor force of 601 employees is concentrated in the central
United States. At December 31, 2001, thirty-eight percent of the employees were
represented by a union and covered by collective bargaining agreements that
expired in February 2002. Williams Pipe Line's union employees ratified a new
four-year collective bargaining agreement with WES in March 2002. The petroleum
products terminals operation's labor force of 195 people are concentrated in the
southeastern and Gulf Coast regions of the United States. Other than at the
Galena Park, Texas marine terminal facility, none of the terminal operations
employees are represented by labor unions. The employees at the Partnership's
Galena Park marine terminal facility are currently represented by a union, but
have indicated their unanimous desire to terminate their union affiliation.
Nevertheless, the National Labor Relations Board has ordered the Partnership to
bargain with the union as the exclusive collective bargaining representative of
the employees at the facility. The Partnership is appealing this decision. If
the Partnership's appeal is unsuccessful, the Partnership will bargain with the
union as ordered by the National Labor Relations Board.

      Demand for nitrogen fertilizer has typically followed a combination of
weather patterns and growth in population, acres planted and fertilizer
application rates. Because natural gas is the primary feedstock for the
production of ammonia, the profitability of the Partnership's customers is
impacted by natural gas prices. To the extent they are unable to pass on higher
costs to their customers, they may reduce shipments through the pipeline.


                                       17
<PAGE>
                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

7.     EMPLOYEE BENEFIT PLANS

      All employees dedicated to, or otherwise supporting, the Partnership are
employees of Williams. Williams Pipe Line maintains a separate non-contributory
defined-benefit pension plan, which covers union employees (union plan).
Substantially all remaining employees are covered by Williams' noncontributory
defined benefit pension plans and health care plan that provides postretirement
medical benefits to certain retired employees. Contributions for pension and
postretirement medical benefits related to the Partnership's participation in
the Williams' plans were $1.5 million, $1.2 million and $1.7 million in 2001,
2000 and 1999, respectively.

      The following table presents the changes in benefit obligations and plan
assets for pension benefits for the union plan for the years indicated. It also
presents a reconciliation of the funded status of these benefits to the amount
recognized in the accompanying balance sheet at December 31 of each year
indicated (in thousands):


<Table>
<Caption>
                                                                     2001             2000
                                                                   --------         --------
<S>                                                                <C>              <C>
         Change in benefit obligation:
             Benefit obligation at beginning of year ......        $ 19,021         $ 17,125
             Service cost .................................             889              688
             Interest cost ................................           1,490            1,340
             Actuarial loss ...............................           1,279            1,351
             Benefits paid ................................          (1,082)          (1,483)
                                                                   --------         --------
             Benefit obligation at end of year ............        $ 21,597         $ 19,021
         Change in plan assets:
             Fair value of plan assets at beginning of year        $ 21,422         $ 23,341
             Loss on plan assets ..........................          (1,640)            (436)
             Benefits paid ................................          (1,082)          (1,483)
                                                                   --------         --------
             Fair value of plan assets at end of year .....        $ 18,700         $ 21,422
                                                                   --------         --------
         Funded status ....................................        $ (2,897)        $  2,401
         Unrecognized net actuarial loss ..................           5,399              298
         Unrecognized prior service cost ..................             420              473

         Unrecognized transition asset ....................              --             (126)
                                                                   --------         --------
         Prepaid benefit cost .............................        $  2,922         $  3,046
                                                                   ========         ========
</TABLE>

      Net pension benefit cost for the union plan consists of the following (in
thousands):

<Table>
<Caption>
                                                                     YEAR ENDED DECEMBER 31,
                                                            ----------------------------------------
                                                              2001            2000            1999
                                                            --------        --------        --------
<S>                                                         <C>             <C>             <C>
         Components of net periodic pension expense:
           Service cost ............................        $    889        $    688        $    801
           Interest cost ...........................           1,490           1,340           1,346
           Expected return on plan assets ..........          (2,182)         (2,075)         (1,903)
           Amortization of transition asset ........            (126)           (135)           (135)
           Amortization of prior service cost ......              53              53              53
           Recognized net actuarial loss ...........              --              --              88
                                                            --------        --------        --------
           Net periodic pension expense (income) ...        $    124        $   (129)       $    250
                                                            ========        ========        ========

</Table>

<TABLE>
<CAPTION>
                                                              2001            2000
                                                            --------        --------
<S>                                                           <C>             <C>
         Discount rate................................        7.50%           7.50%
         Expected return on plan assets ..............       10.00%          10.00%
         Rate of compensation increase ...............        5.00%           5.00%
</Table>

      Williams maintains various defined contribution plans in which employees
supporting the Partnership are included. The Partnership's costs related to
these plans were $2.4 million, $2.0 million and $1.8 million in 2001, 2000 and
1999, respectively.



                                       18
<PAGE>
                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

8.       RELATED PARTY TRANSACTIONS

The Partnership and Williams Pipe Line have entered into agreements with various
Williams subsidiaries. Agreements with Williams Energy Marketing & Trading
provide for sales of blended gasoline processed by Williams Pipe Line and sales
of pipeline inventory overages, as well as lease storage capacity. The
Partnership has several agreements with Williams Energy Marketing & Trading,
which provide for: (i) the access to and utilization of the inland terminals,
(ii) to provide approximately 2.5 million barrels of storage and other ancillary
services at the Partnership's marine terminal facilities and (iii) capacity
utilization rights to substantially all of the capacity of the Gibson, Louisiana
marine terminal facility. Williams Pipe Line has entered into agreements with
Mid-America Pipeline and Williams Bio Energy, both of which are affiliates of
Williams, to provide tank storage and pipeline system storage, respectively.

      Historically, Williams Pipe Line also has been a party to an agreement
with Williams Refining & Marketing for sales of blended gasoline. (See Note 1 -
for more information about income and expenses associated with Williams Pipe
Line operations that will not be conducted by the Partnership). Also, both
Williams Energy Marketing & Trading and Williams Refining & Marketing ship
product on the Williams Pipe Line system. Additionally, the Partnership has
agreements with Williams Refining & Marketing for the access and utilization of
the Partnership's inland terminal facilities. The following are revenues from
various Williams subsidiaries (in thousands):

<Table>
<Caption>
                                                                       YEAR ENDED DECEMBER 31,
                                                              -----------------------------------------
                                                                2001             2000            1999
                                                              --------        ---------        --------
 <S>                                                       <C>             <C>              <C>
      Williams Energy Marketing & Trading .........        $ 81,999        $ 111,847        $ 81,481
      Williams Refining & Marketing ...............           6,575               --              --
      Williams Bio Energy .........................           3,499            2,379           2,857
      Mid-America Pipeline ........................             285              282             282
      Other .......................................             894               20             495
                                                           --------        ---------        --------
          Total ...................................        $ 93,252        $ 114,528        $ 85,115
                                                           ========        =========        ========
</TABLE>

      Williams Pipe Line has various other transactions with Williams and its
subsidiaries in the ordinary course of business. Williams Pipe Line has also
entered into agreements with Williams Energy Marketing & Trading to purchase
product for blending activity, transmix for fractionation activity and product
to settle shortages. Mid-America Pipeline also leases storage space to Williams
Pipe Line. The following are costs and expenses from various affiliate companies
to Williams Pipe Line and the Partnership (in thousands):

<Table>
<Caption>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                               ----------------------------------------
                                                                                 2001            2000            1999
                                                                               --------        --------        --------
<S>                                                                            <C>             <C>             <C>
      WES - directly allocable expenses ...............................        $ 18,970        $ 27,303        $ 25,253
      Williams - allocated general corporate expenses .................          18,123          15,380           5,045
      Williams Energy Marketing & Trading - product purchases .........          80,959          47,466          25,276
      Mid-America Pipeline - operating and maintenance ................           2,730           2,060           1,421
</Table>

      The above costs are reflected in the cost and expenses in the accompanying
consolidated statements of income. In management's estimation the direct and
allocated expenses represent amounts that would have been incurred on a
stand-alone basis.

      In addition, Williams allocates interest expense charges to its affiliates
based on their inter-company debt balances (see note 10). The Partnership
entities also participate in employee benefit plans and long-term incentive
plans sponsored by Williams (see notes 7 and 11).

      Williams allocates both direct and indirect general and administrative
expenses to its subsidiaries. Direct expenses allocated by Williams are
primarily salaries and benefits of employees and officers associated with the
business activities of the subsidiary. Indirect expenses include legal,
accounting, treasury, engineering, information technology and other corporate
services. Williams allocates indirect expenses to its subsidiaries, including
the general partner, based on a three-factor formula that considers operating
margins, payroll costs and property, plant


                                       19
<PAGE>


                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

and a portion of the equipment. The Partnership reimburses the General Partner
and its affiliates for direct and indirect expenses incurred by or allocated to
them on the Partnership's behalf.

In connection with its initial public offering, and with respect solely to the
petroleum products terminal and ammonia pipeline assets held at the time of that
offering, the Partnership and our General Partner agreed that the general and
administrative expenses to be reimbursed to the General Partner by the
Partnership would not exceed $6.0 million for 2001, excluding expenses
associated with the Partnership's long-term incentive plan, regardless of the
amount of the direct and indirect general and administrative expenses actually
incurred by or allocated to the General Partner. The reimbursement limitation
will remain in place through 2011 and may increase by no more than the greater
of 7.0 percent per year or the percentage increase in the consumer price index
for that year. If the Partnership makes an acquisition, general and
administrative expenses may also increase by the amount of these expenses
included in the valuation of the business acquired. As a result of the
acquisitions made during 2001, the annual amount of general and administrative
expense reimbursement limitation increased to $6.3 million, excluding expenses
associated with long-term incentive plan. Based on the 7.0 percent escalation,
the Partnership's maximum reimbursement obligation for general and
administrative expenses in 2002, for the petroleum products terminals and
ammonia pipeline system operations, is $6.7 million before long-term incentive
plan charges and adjustments for acquisitions.

      As a result of the acquisition of Williams Pipe Line, general and
administrative expenses that had previously been incurred by or allocated to
Williams Pipe Line will be charged to the General Partner. In connection with
the acquisition, the Partnership and the General Partner agreed that the general
and administrative expenses to be reimbursed to the General Partner by the
Partnership for charges related to the Williams Pipe Line system would be $30.0
million for 2002, prorated for the actual period that the Partnership owns the
Williams Pipe Line. In each year after 2002, these expenses may increase by the
lesser of 2.5 percent per year or the percentage increase in the consumer price
index for that year. The additional general and administrative costs incurred by
the General Partner, but not charged to the Partnership, totaled $10.4 million
for the period February 10, 2001 through December 31, 2001.

      Williams Pipe Line had contributed $0.9 million to Longhorn in exchange
for a 0.3 percent ownership interest. Williams Pipe Line also had an agreement
to construct a pipeline, terminals and stations and charge a fee for these
services to Longhorn. Under this agreement, Williams Pipe Line paid for
construction costs and was reimbursed by Longhorn. The agreement allowed
Longhorn to defer payment of certain construction costs until it generated
break-even cash flows and allowed Williams Pipe Line to charge interest on the
outstanding receivable balance. Williams Pipe Line also had an agreement to
manage the pipeline for Longhorn for an agreed-upon monthly fee. The total
amount receivable from Longhorn at December 31, 2001 and 2000 was $16.8 million
and $20.0 million (which includes $3.1 million classified as current),
respectively. (See Note 1 - for more information about income and expenses
associated with Williams Pipe Line operations that will not be conducted by the
Partnership).


9.    INCOME TAXES

      The provision for income taxes is as follows (in thousands):

      <Table>
      <Caption>
                                                          YEAR ENDED DECEMBER 31,
                                                   --------------------------------------
                                                       2001         2000          1999
                                                     --------      --------     --------
<S>                                                  <C>           <C>          <C>
      Current:
           Federal ...........................       $ 19,405      $ 24,779     $ 10,466
           State .............................          3,669         3,406        1,272
      Deferred:
           Federal ...........................          5,597         1,743       19,379
           State .............................            841           486        3,004
                                                     --------      --------     --------
                                                     $ 29,512      $ 30,414     $ 34,121
                                                     ========      ========     ========
</TABLE>

      Reconciliations from the provision for income taxes at the U.S. federal
statutory rate to the effective tax rate for the provision for income taxes are
as follows (in thousands):


                                       20
<PAGE>

                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

<Table>
<Caption>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                        -----------------------------------------
                                                                          2001             2000            1999
                                                                        --------         --------        --------
<S>                                                                     <C>              <C>             <C>
      Income taxes at statutory rate for corporations.................  $ 34,084         $ 27,760        $ 31,227
      Less: income taxes at statutory rate on income applicable
        to partners interest .........................................    (7,504)              --              --

      Increase resulting from:
           State taxes, net of federal income tax benefit ............     2,931            2,529           2,780
           Other .....................................................         1              125             114
                                                                        --------         --------        --------
      Provision for income taxes .....................................  $ 29,512         $ 30,414        $ 34,121
                                                                        ========         ========        ========
</TABLE>

      Significant components of deferred tax liabilities and assets as of
December 31, 2001 and 2000, are as follows (in thousands):

<Table>
<Caption>
                                                                        DECEMBER 31,
                                                                --------------------------
                                                                   2001             2000
                                                                ---------        ---------
<S>                                                             <C>              <C>
     Deferred tax liabilities:
          Property, plant and equipment ................        $ 147,775        $ 182,662
          Other ........................................              841              650
                                                                ---------        ---------
               Total deferred tax liabilities ..........        $ 148,616        $ 183,312

     Deferred tax assets:
          Net operating loss carryforward ..............        $      --        $  25,270
          Other ........................................            5,266            7,154
                                                                ---------        ---------
               Total deferred tax assets ...............        $   5,266        $  32,424
     Valuation allowance ...............................            1,989            1,989
                                                                ---------        ---------
               Net deferred tax assets .................        $   3,277        $  30,435
                                                                ---------        ---------
                    Net deferred tax liabilities .......        $ 145,339        $ 152,877
                                                                =========        =========
</TABLE>

      The Partnership recognized a pre-initial public offering federal net
operating loss for income tax purposes of $3.9 million and $57.0 million for the
years 2001 and 2000, respectively. The $3.9 million federal net operating loss
expires in 2021. The $57.0 million federal net operating loss carryforward
expires in 2020. Payments to Williams in lieu of income taxes were $2.3 million
in 1999.

      As a result of the initial public offering and the concurrent transactions
on February 9, 2001 (see Note 1), the net deferred tax liability on that date of
approximately $14.0 million was assumed by Williams, in exchange for an
additional equity investment in the Partnership.


10.   LONG-TERM DEBT

       Long-term debt and available borrowing capacity for the Partnership at
December 31, 2001, were $139.5 million and $35.5 million, respectively. At
December 31, 2001, the Partnership had a $175.0 million bank credit facility.
The credit facility was comprised of a $90.0 million term loan facility and an
$85.0 million revolving credit facility, which includes a $73.0 million
acquisition sub-facility and a $12.0 million working capital sub-facility. On
February 9, 2001, the OLP borrowed $90.0 million under the term loan facility
and $0.1 million under the acquisition sub-facility. The $0.1 million borrowed
under the acquisition sub-facility was repaid in July 2001. In June 2001, the
Partnership borrowed $29.5 million under the acquisition facility to fund the
purchase of two terminals in Little Rock, Arkansas from TransMontaigne. In
October 2001, the Partnership borrowed $20.0 million to fund the acquisition of
the Gibson, Louisiana terminal from Geonet. In January 2002, the Partnership
borrowed $8.5 million to finance the acquisition of a pipeline from Aux Sable.
The Partnership entered into a long-term lease arrangement with Aux Sable under
which Aux Sable is the sole lessee of these assets. The transaction will be
accounted for as a capital lease.

      The credit facility's term extends through February 5, 2004, with all
amounts due at that time. Borrowings under the credit facility carry an interest
rate equal to the Eurodollar rate plus a spread from 1.0 percent to 1.5 percent,
depending on the OLP's leverage ratio. Interest is also assessed on the unused
portion of the credit facility at a rate from 0.2 percent to 0.4 percent,
depending on the OLP's leverage ratio. The OLP's leverage ratio is defined


                                       21
<PAGE>


                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

as the ratio of consolidated total debt to consolidated earnings before
interest, income taxes, depreciation and amortization for the period of the four
fiscal quarters ending on such date. Closing fees associated with the initiation
of the credit facility were $0.9 million, which are being amortized over the
life of the facility. Average interest rates at December 31, 2001 were 3.1
percent for the term loan facility and 3.3 percent for the acquisition
sub-facility. The fair value of the long-term debt approximates its carrying
value, because of the floating interest rate applied to the debt facility.

      Long-term affiliate debt for the Partnership consists of the following (in
thousands):

<Table>
<Caption>
                                                                    DECEMBER 31,
                                                               ----------------------
                                                                 2001          2000
                                                               --------      --------

<S>                                                            <C>           <C>
            WES Affiliate Note ............................    $138,172      $386,731
            Williams Pipe Line Affiliate Note .............           -        46,226
                                                               --------      --------
                                                               $138,172      $432,957
                                                               ========      ========
</TABLE>

      Williams Pipe Line was a participant in an inter-company note between WES
and Williams. Terms of the affiliate note required payment on demand; however,
Williams had no plans or intentions to demand payment within the next 12 months
at any time the note was outstanding. Under WES' cash management practices,
Williams Pipe Line shared banking arrangements with other WES subsidiaries.
Interest expense charges from Williams to WES were allocated to Williams Pipe
Line based on WES subsidiaries inter-company balances. Interest rates varied
with current market conditions (2.83 percent at December 31, 2001 and 7.57
percent at December 31, 2000). (See Note 1 - for more information about income
and expenses associated with Williams Pipe Line operations that will not be
conducted by the Partnership).

      At December 31, 2000, Williams Pipe Line had an affiliate note payable to
Williams. This note was repaid during 2001. Interest was calculated and paid
monthly. Interest rates varied with current market conditions (7.57 percent at
December 31, 2000).

      Prior to February 9, 2001, the petroleum products terminals and ammonia
pipeline business segments of the Partnership were participants in Williams'
cash management program. As of December 31, 2000, the affiliate note payable
associated with these segments consisted of an unsecured promissory note
agreement with Williams for advances from Williams. The advances were due on
demand; however, in February 2001, a portion of the advances was refinanced with
debt and equity offerings (see Note 1). Williams contributed the remaining
advances in exchange for equity of the Partnership. Therefore, the affiliate
note payable was classified as noncurrent at December 31, 2000.

      Prior to the initial public offering, affiliate interest income or expense
charged or credited to the petroleum products terminals and ammonia pipeline
operations was calculated at the London Interbank Offered Rate ("LIBOR") plus a
spread based on the outstanding balance of the note receivable or note payable
with Williams. The spread was equivalent to the spread above LIBOR rates on
Williams' revolving credit facility. The interest rate of the note with Williams
was 7.6 percent at December 31, 2000. As the interest rate on the affiliate note
payable was variable, the carrying value of the affiliate note payable at
December 31, 2000 approximated its fair value.

      During years ending December 31, 2001, 2000, and 1999, cash payments for
interest, net of amounts capitalized, were $9.3 million, $11.3 million and $13.7
million, respectively.


11.   LONG-TERM INCENTIVE PLAN

      In February 2001, the General Partner adopted the Partnership's Long-Term
Incentive Plan for Williams' employees who perform services for the Partnership
and directors of the General Partner. The Long-Term Incentive Plan consists of
two components, restricted units, which are also referred to as phantom units,
and unit options. The Long-Term Incentive Plan permits the grant of awards
covering an aggregate of 700,000 common

                                       22
<PAGE>

                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

units. The Long-Term Incentive Plan is administered by the compensation
committee of the General Partner's board of directors.

      In April 2001, the General Partner issued grants of 92,500 phantom units
to certain key employees associated with the Partnership's initial public
offering in February 2001. These one-time initial public offering phantom units
will vest over a 34-month period ending on February 9, 2004, and are subject to
forfeiture if employment is terminated prior to vesting. These units are subject
to early vesting if the Partnership achieves certain performance measures. The
Partnership recognized $0.7 million of compensation expense associated with
these grants in 2001. The fair market value of the phantom units associated with
this grant was $2.7 million on the grant date. On February 14, 2002, one-half of
these phantom units vested, resulting in additional compensation of $1.0 million
to the Partnership (see Note 15 - Distributions).

      In April 2001, the General Partner issued grants of 64,200 phantom units
associated with the annual incentive compensation plan. The actual number of
units that will be awarded under this grant will be determined by the
Partnership on February 9, 2004. At that time, the Partnership will assess
whether certain performance criteria have been met and determine the number of
units that will be awarded, which could range from zero units up to a total of
128,400 units. These units are also subject to forfeiture if employment is
terminated prior to February 9, 2004. These awards do not have an early vesting
feature. The Partnership recognized $1.3 million of deferred compensation
expense associated with these awards in 2001. The fair market value of the
phantom units associated with this grant was $5.4 million on December 31, 2001.

      Certain employees of Williams dedicated to or otherwise supporting the
Partnership receive stock-based compensation awards from Williams. Williams has
several plans providing for common-stock-based awards to employees and to
nonemployee directors. The plans permit the granting of various types of awards
including, but not limited to, stock options, stock-appreciation rights,
restricted stock and deferred stock. Awards may be granted for no consideration
other than prior and future services or based on certain financial performance
targets being achieved. The purchase price per share for stock options and the
grant price for stock-appreciation rights may not be less than the market price
of the underlying stock on the date of grant. Depending upon terms of the
respective plans, stock options generally become exercisable in one-third
increments each year from the date of the grant or after three or five years,
subject to accelerated vesting if certain future Williams' stock prices or
specific Williams' financial performance targets are achieved. Stock options
expire 10 years after grant.

      The following summary reflects activity for options to purchase shares of
Williams common stock for 2001, 2000 and 1999, for those employees principally
supporting the Partnership operations:

<Table>
<Caption>
                                                   2001                      2000                        1999
                                           ---------------------    -----------------------      ---------------------
                                                       WEIGHTED-                  WEIGHTED-                  WEIGHTED-
                                                       AVERAGE                    AVERAGE                    AVERAGE
                                                       EXERCISE                   EXERCISE                   EXERCISE
                                            OPTIONS     PRICE        OPTIONS       PRICE         OPTIONS      PRICE
                                           ---------   ---------    ----------    ---------      ---------   ---------
<S>                                         <C>         <C>          <C>           <C>            <C>         <C>
Outstanding - beginning of year..........   371,502     $31.92       306,307       $28.05         233,374     $22.22
Granted..................................   102,584      34.96        82,887        43.16         117,494      36.54
Forfeited ...............................    (3,000)     30.14          (109)       34.54               -        -
Exercised................................    (9,291)     22.59       (17,583)       17.76         (44,561)     19.87
                                           --------                 --------                     --------
Outstanding - ending of year.............   461,795      32.80       371,502        31.91         306,307      28.05
                                           ========                 ========                     ========
Exercisable at end of year...............   316,483      31.85       328,774        31.59         263,470      27.00
                                           ========                 ========                     ========
</TABLE>

      The following summary provides information about outstanding and
exercisable Williams' stock options, held by employees principally supporting
the partnership's operations, at December 31, 2001:



                                       23
<PAGE>
                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

<Table>
<Caption>
                                                                                       WEIGHTED-
                                                                      WEIGHTED-        AVERAGE
                                                                      AVERAGE          REMAINING
                                                                      EXERCISE        CONTRACTUAL
                  RANGE OF EXERCISE PRICES                OPTIONS      PRICE              LIFE
      -----------------------------------------------    ---------   ----------       ------------
<S>                                                        <C>         <C>             <C>
      $12.22 to $17.31................................     38,599      $15.19          4.5 years
      $20.83 to $30.00................................    102,704       25.14          6.0 years
      $31.56 to $46.06................................    320,492       37.36          8.1 years
                                                         --------
           Total......................................    461,795       32.79          7.3 years
                                                         ========
</TABLE>


      The estimated fair value at the date of grant of options for Williams'
common stock granted in 2001, 2000 and 1999, using the Black-Scholes option
pricing model, is as follows:

<Table>
<Caption>
                                                                                      2001       2000      1999
                                                                                    --------   --------  --------
<S>                                                                                  <C>        <C>       <C>
Weighted-average grant date fair value of options for
    Williams' common stock granted during the year .............................     $11.08     $15.44    $11.90

Assumptions:
     Dividend yield ............................................................        1.9%       1.5%      1.5%
     Volatility ................................................................       34.5%      31.0%     28.0%
     Risk-free interest rate ...................................................        4.8%       6.5%      5.6%
     Expected life (years) .....................................................        5.0        5.0       5.0
</Table>

      Pro forma net income, assuming the Partnership had applied the fair-value
method of SFAS No. 123, "Accounting for Stock-Based Compensation" in measuring
compensation costs beginning with 1999 employee stock-based awards, are as
follows (in thousands, except per unit amounts):

<Table>
<Caption>
                                               2001                          2000                         1999
                                    -------------------------    --------------------------    -------------------------
                                      PRO FORMA     REPORTED      PRO FORMA       REPORTED      PRO FORMA      REPORTED
                                    ------------   ----------    ------------    ----------    -----------    ----------
<S>                                 <C>            <C>           <C>             <C>           <C>            <C>
Net income........................   $    67,710   $   67,872    $     48,167    $   48,902    $    54,171    $   55,099
                                     ===========   ==========    ============    ==========    ===========    ==========
Net income per limited partner
  unit ...........................   $      1.86   $     1.87
                                     ===========   ==========
</TABLE>

      Pro forma amounts for 2000 include the total compensation expense from the
awards made in 2000, as these awards fully vested in 2000 as a result of the
accelerated vesting provisions. Pro forma amounts for 1999 include the remaining
total compensation expense from Williams' awards made in 1998 and the total
compensation expense from Williams' awards made in 1999 as a result of the
accelerated vesting provisions. Since compensation expense from stock options is
recognized over the future years' vesting period for pro forma disclosure
purposes, and additional awards generally are made each year, pro forma amounts
may not be representative of future years' amounts.


12.   SEGMENT DISCLOSURES

      Management evaluates performance based upon segment profit or loss from
operations, which includes revenues from affiliate and external customers,
operating expenses, depreciation and affiliate general and administrative
expenses. The accounting policies of the segments are the same as those
described in Note 3 - Summary of Significant Accounting Policies. Affiliate
revenues are accounted for as if the sales were to unaffiliated third parties.

      The Partnership's reportable segments are strategic business units that
offer different products and services. The segments are managed separately
because each segment requires different marketing strategies and business
knowledge.


                                       24
<PAGE>

                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

<Table>
<Caption>
                                                                 YEAR ENDED DECEMBER 31, 2001
                                                 ------------------------------------------------------------
                                                 WILLIAMS        PETROLEUM        AMMONIA
                                                 PIPE LINE       PRODUCTS         PIPELINE
                                                  SYSTEM         TERMINALS         SYSTEM             TOTAL
                                                ----------       ----------       ---------        ----------
                                                                     (IN THOUSANDS)
<S>                                             <C>              <C>              <C>              <C>
Revenues:
Third party customers ..................        $ 284,174        $  55,611        $  14,544        $  354,329
Affiliate customers ....................           78,371           15,899               --            94,270
                                                ---------        ---------        ---------        ----------
  Total revenues .......................        $ 362,545        $  71,510        $  14,544        $  448,599

Operating expenses .....................          123,566           33,270            4,044           160,880
Product purchases ......................           95,268               --               --            95,268
Depreciation and amortization ..........           24,019           11,099              649            35,767
General and administrative expenses ....           38,410            7,641            1,314            47,365
                                                ---------        ---------        ---------        ----------
Segment profit .........................        $  81,282        $  19,500        $   8,537        $  109,319
                                                =========        =========        =========        ==========

Total assets ...........................        $ 705,115        $ 368,409        $  31,035        $1,104,559

Goodwill ...............................        $      --        $  22,282        $      --        $   22,282

Additions to long-lived assets .........        $  24,232        $  64,590        $     330        $   89,152
</Table>

      Non-cash charges for incentive compensation costs, included in 2001
general and administrative expenses, were $1.7 million for the petroleum
products terminal operations and $0.3 million for the ammonia pipeline
operations.

<Table>
<Caption>
                                                                 YEAR ENDED DECEMBER 31, 2000
                                                 ------------------------------------------------------------
                                                 WILLIAMS        PETROLEUM        AMMONIA
                                                 PIPE LINE       PRODUCTS         PIPELINE
                                                  SYSTEM         TERMINALS         SYSTEM             TOTAL
                                                ----------       ----------       ---------        ----------
                                                                     (IN THOUSANDS)
<S>                                             <C>              <C>              <C>              <C>
Revenues:
Third party customers ..................        $ 255,389        $  43,367        $  11,710        $  310,466
Affiliate customers ....................           98,965           17,415               --           116,380
                                                ---------        ---------        ---------        ----------
  Total revenues .......................        $ 354,354        $  60,782        $  11,710        $  426,846

Operating expenses .....................          111,410           29,496            3,993           144,899
Product purchases ......................           94,141               --               --            94,141
Affiliate construction expenses ........            1,025               --               --             1,025
Depreciation and amortization ..........           22,413            8,688              645            31,746
General and administrative expenses ....           39,243           10,351            1,612            51,206
                                                ---------        ---------        ---------        ----------
Segment profit .........................        $  86,122        $  12,247        $   5,460        $  103,829
                                                =========        =========        =========        ==========

Total assets ...........................        $ 731,654        $ 296,819        $  21,686        $1,050,159

Additions to long-lived assets .........        $  32,697        $  41,348        $     401        $   74,446
</Table>



                                       25
<PAGE>
                         WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

<Table>
<Caption>
                                                                          YEAR ENDED DECEMBER 31, 1999
                                                           -----------------------------------------------------------
                                                           WILLIAMS        PETROLEUM        AMMONIA
                                                           PIPE LINE       PRODUCTS         PIPELINE
                                                            SYSTEM         TERMINALS         SYSTEM             TOTAL
                                                          ----------       ----------       ---------        ---------
                                                                                  (IN THOUSANDS)
<S>                                                       <C>              <C>              <C>              <C>
Revenues:
Third party customers ............................        $ 235,273        $  25,330        $  12,139        $ 272,742
Affiliate customers ..............................           96,071            6,919               --          102,990
                                                          ---------        ---------        ---------        ---------
  Total revenues .................................        $ 331,344        $  32,249        $  12,139        $ 375,732

Operating expenses ...............................          102,964           15,108            3,527          121,599
Product purchases ................................           59,230               --               --           59,230
Affiliate construction expenses ..................           15,464               --               --           15,464
Depreciation and amortization ....................           21,060            3,969              641           25,670
Affiliate general and administrative expenses ....           41,604            3,915            1,543           47,062
                                                          ---------        ---------        ---------        ---------
Segment profit ...................................        $  91,022        $   9,257        $   6,428        $ 106,707
                                                          =========        =========        =========        =========

Total assets .....................................        $ 690,600        $ 261,425        $  21,914        $ 973,939

Additions to long-lived assets ...................        $  40,173        $ 227,234        $     384        $ 267,791
</Table>


13.   COMMITMENTS AND CONTINGENCIES

      The Partnership leases land, tanks and related terminal equipment at the
Gibson terminal facility. Minimum future lease payments for these leases as of
December 31, 2001, are $0.1 million for each of the next five years and $1.7
million thereafter. The lease payments can be canceled after 2006 and include
provisions for renewal of the lease at five-year increments which can extend the
lease for a total of 25 years.

      WES has agreed to indemnify the Partnership against any covered
environmental losses, up to $15.0 million, relating to assets it contributed to
the Partnership that arose prior to February 9, 2001, that become known within
three years after February 9, 2001, and that exceed all amounts recovered or
recoverable by the Partnership under contractual indemnities from third parties
or under any applicable insurance policies. Covered environmental losses are
those non-contingent terminal and ammonia system environmental losses, costs,
damages and expenses suffered or incurred by the Partnership arising from
correction of violations of, or performance of remediation required by,
environmental laws in effect at February 9, 2001, due to events and conditions
associated with the operation of the assets and occurring before February 9,
2001.

      In connection with the Partnership's acquisition of Williams Pipe Line on
April 11, 2002, WES agreed to indemnify the Partnership for losses and damages
related to breach of environmental representations and warranties and the
failure to comply with environmental laws prior to closing in excess of $2.0
million up to a maximum of $125.0 million. This environmental indemnification
obligation applies to liabilities that result from conduct prior to the closing
of the Partnership's acquisition of the Williams Pipe Line and that are
discovered within six years of closing.

      Estimated liabilities for environmental remediation costs were $16.9
million and $14.1 million at December 31, 2001 and 2000, respectively.
Management estimates that expenditures associated with the accrued environmental
remediation liabilities will be paid over the next two to five years.
Receivables associated with these environmental liabilities of $5.1 million and
$0.3 million at December 31, 2001 and 2000, respectively, have been recognized
as recoverable from affiliates and third parties. These estimates, provided on
an undiscounted basis, were determined based primarily on data provided by a
third-party environmental evaluation service. These liabilities have been
classified as current or non-current based on management's estimates regarding
the timing of actual payments. (See Note 4 - Acquisitions for more information
about liabilities associated with Williams Pipe Line operations that were
conveyed to and assumed by an affiliate of Williams prior to the acquisition of
Williams Pipe Line by the Partnership).


                                       26
<PAGE>
                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

      In conjunction with the 1999 acquisition of the Gulf Coast marine
terminals from Hess, Hess has disclosed to the Partnership all suits, actions,
claims, arbitrations, administrative, governmental investigation or other legal
proceedings pending or threatened, against or related to the assets acquired by
the Partnership, which arise under environmental law. Hess agreed to indemnify
the Partnership through July 30, 2014 against all known and required
environmental remediation costs at the Corpus Christi and Galena Park, Texas
marine terminal facilities from any matters related to pre-acquisition actions.
In the event that any pre-acquisition releases of hazardous substances at the
Partnership's Corpus Christi and Galena Park and Marrero, Louisiana marine
terminal facilities are identified by the Partnership prior to July 30, 2004,
the Partnership will be liable for the first $2.5 million of environmental
liabilities, Hess will be liable for the next $12.5 million of losses, and the
Partnership will assume responsibility for any losses in excess of $15.0
million. Hess has indemnified the Partnership for a variety of pre-acquisition
fines and claims that may be imposed or asserted against the Partnership under
certain environmental laws. At both December 31, 2001 and December 31, 2000, the
Partnership had accrued $0.6 million for costs that may not be recoverable under
Hess' indemnification.

      During 2001, the Partnership recorded an environmental liability of $2.6
million at its New Haven, Connecticut facility, which was acquired in September
2000. This liability was based on third-party environmental engineering
estimates completed as part of a Phase II environmental assessment, routinely
required by the State of Connecticut to be conducted by the purchaser following
the acquisition of a petroleum storage facility. The Partnership will complete a
Phase III environmental assessment at this facility during the second or third
quarter of 2002, and the environmental liability could change materially based
on this more thorough analysis. The seller of these assets agreed to indemnify
the Partnership for certain of these environmental liabilities. In addition, the
Partnership purchased insurance for up to $25.0 million of environmental
liabilities associated with these assets, which carries a deductible of $0.3
million.

      WNGL will indemnify the Partnership for right-of-way defects or failures
in the Partnership's ammonia pipeline easements for 15 years after the initial
public offering closing date. WES has also indemnified the Partnership for
right-of-way defects or failures associated with the marine terminal facilities
at Galena Park and Corpus Christi, Texas and Marrero, Louisiana for 15 years
after the initial public offering closing date. In addition, WES has indemnified
the Partnership for right-of-way defects or failures in Williams Pipe Line's
easements for 10 years after the closing date of its acquisition by the
Partnership up to a maximum of $125.0 million with a deductible of $6.0 million.
This $125.0 million amount will also be sjubect to indemnification claims made
by the Partnership for breaches of other representations and warranties.

      The Partnership is party to various other claims, legal actions and
complaints arising in the ordinary course of business. In the opinion of
management, the ultimate resolution of all claims, legal actions and complaints
after consideration of amounts accrued, insurance coverage or other
indemnification arrangements will not have a material adverse effect upon the
Partnership's future financial position, results of operations or cash flows.


                                       27
<PAGE>

                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

14.        QUARTERLY FINANCIAL DATA (UNAUDITED)

       Summarized quarterly financial data is as follows (in thousands, except
per unit amounts).

<Table>
<Caption>
                                                             FIRST          SECOND          THIRD           FOURTH
                                                            QUARTER         QUARTER         QUARTER         QUARTER
                                                           ---------        --------        --------        --------
<S>                                                         <C>             <C>             <C>             <C>
2001
----
Revenues ...........................................        $107,676        $108,890        $118,201        $113,832
Total costs and expenses ...........................          84,818          75,376          89,871          89,215
Net income .........................................          13,053          22,887          18,150          13,782
Basic and diluted net income per limited partner
 unit ..............................................            0.31            0.64            0.49            0.42

2000
----
Revenues ...........................................        $ 94,819        $104,532        $ 99,900        $127,595
Total costs and expenses ...........................          66,987          74,013          73,465         108,552
Net income .........................................          13,170          14,681          13,440           7,611
</Table>

      Basic and diluted net income for the first quarter of 2001 is calculated
on the Limited Partners' interest in net income applicable for the period after
February 9, 2001, through the end of the quarter. Revenues and expenses in 2001
were impacted by the acquisition of two terminals from TransMontaigne in June
2001 and the Gibson terminal from Geonet in October 2001. See Note 4 -
Acquisitions. First quarter 2001 costs and expenses included $0.9 million of
casualty losses. Second quarter 2001 revenues were impacted by a $1.0 million
throughput deficiency billing to an ammonia pipeline customer. Operating
expenses included a $0.8 million reduction of environmental expense associated
with insurance settlement and net income included a $0.9 million gain on the
sale of the Aurora, Ohio terminal. Fourth quarter 2001 net income included a
gain of $1.1 million on the sale of the Meridian, Mississippi terminal. Interest
expense for 2001 reflects the payment and forgiveness of the predecessor
company's affiliate debt and new borrowings by the Partnership. Net income was
also impacted by incentive compensation costs of $2.0 million during 2001.

      Revenues and costs and expenses in 2000 were impacted by the Southlake
terminal acquisition in March 2000 and the marine terminal acquisition from
Wyatt in September 2000. A throughput revenue deficiency billing related to the
August 1999 acquisition of certain assets from Hess resulted in adjustments to
revenues of $0.7 million impacting the first and second quarters of 2000. Second
quarter 2000 expenses included a $0.5 million charge from the write-off of an
unsuccessful business transaction and a $0.5 million charge for legal costs.
Third quarter 2000 costs and expenses included a $1.5 million environmental
accrual. Fourth quarter 2000 costs and expenses included an increase in product
purchases of $25.0 million due to increased product prices, $4.4 million of
environmental charges, $1.9 million for casualty losses and a $1.0 million
charge associated with a customer dispute settlement.


15.   DISTRIBUTIONS

      On May 15, 2001, the Partnership paid cash distributions of $0.292 per
unit on its outstanding common and subordinated units to unitholders of record
at the close of business on May 1, 2001. This distribution represented the
minimum quarterly distribution for the 50-day period following the initial
public offering closing date, which included February 10, 2001 through March 31,
2001. The total distributions paid were $3.4 million.

      On August 14, 2001, the Partnership paid cash distributions of $0.5625 per
unit on its outstanding common and subordinated units to unitholders of record
at the close of business on August 2, 2001. The total distributions paid were
$6.5 million.

      On November 14, 2001, the Partnership paid cash distributions of $0.5775
per unit on its outstanding common and subordinated units to unitholders of
record at the close of business on November 1, 2001. The total distributions
paid were $6.7 million.

                                       28
<PAGE>
                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


      Total distributions paid during 2001 were as follows (in thousands except
per unit amounts):

<Table>
<Caption>
                                               AMOUNT       DISTRIBUTION
                                              PER UNIT         AMOUNT
                                             ----------     ------------
<S>                                          <C>            <C>
  Common Unitholders ......................     $1.43       $    8,134

  Subordinated Unitholders ................     $1.43            8,134
  General Partner .........................     $1.43              331
                                                            ----------
       Total ..............................                 $   16,599
                                                            ==========
</TABLE>

       On February 14, 2002, the Partnership paid cash distributions of $0.59
per unit on its outstanding common and subordinated units to unitholders of
record at the close of business on February 1, 2002. The total distribution,
including distributions paid to the general partner on its equivalent units, was
$6.9 million.

       With the payment of the $0.59 per unit distribution on February 14, 2002,
the first early vesting performance measure of the one-time initial public
offering grants to key employees was achieved, and 46,250 units associated with
this grant vested on that date. The Partnership recognized additional
compensation expense of $1.0 million with the vesting of these units in February
2002.


16.        NET INCOME PER UNIT

       The following table provides details of the basic and diluted earnings
per unit computations (in thousands, except per unit amounts):


<Table>
<Caption>
                                                                  FOR THE YEAR ENDED DECEMBER 31, 2001
                                                              ---------------------------------------------
                                                                INCOME               UNITS         PER UNIT
                                                              (NUMERATOR)         (DENOMINATOR)     AMOUNT
                                                              -----------         -------------    --------
<S>                                                            <C>                  <C>             <C>
Limited partners' interest in income applicable to the
   period after February 9, 2001 .........................    $   21,217

Basic earnings per common and subordinated unit ..........    $   21,217           11,359          $1.87

Effect of dilutive restricted unit grants ................             -               11              -
                                                              ----------           -------         -----

Diluted earnings per common and subordinated unit..........   $   21,217           11,370          $1.87
                                                              ==========           ======          =====
</TABLE>

      Units reported as dilutive securities are related to restricted unit
grants associated with the one-time initial public offering award (see Note 11).


17.   PARTNERS' CAPITAL

      Of the 5,679,694 common units outstanding at December 31, 2001, 4,600,000
are held by the public, with the remaining 1,079,694 held by affiliates of the
Partnership. All of the 5,679,694 subordinated units are held by affiliates of
the Partnership.

      During the subordination period, the Partnership can issue up to 2,839,847
additional common units without obtaining unitholder approval. In addition, the
General Partner can issue an unlimited number of common units as follows:

      o     Upon conversion of the subordinated units;

      o     Under employee benefit plans;

      o     Upon conversion of the general partner interest and incentive
            distribution rights as a result of a withdrawal of the General
            Partner;


                                       29
<PAGE>
                            WILLIAMS ENERGY PARTNERS
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


      o     In the event of a combination or subdivision of common units;

      o     In connection with an acquisition or a capital improvement that
            increases cash flow from operations per unit on a pro forma basis;
            or

      o     If the proceeds of the issuance are used exclusively to repay up to
            $40.0 million of the Partnership's indebtedness.

      The subordination period will end when the Partnership meets certain
financial tests provided for in the partnership agreement but it generally
cannot end before December 31, 2005.

      The limited partners holding common units of the Partnership have the
following rights, among others:

      o     Right to receive distributions of the Partnership's available cash
            within 45 days after the end of each quarter;

      o     Right to transfer common unit ownership to substitute limited
            partners;

      o     Right to receive an annual report, containing audited financial
            statements and a report on those financial statements by the
            Partnership's independent public accountants within 120 days after
            the close of the fiscal year end;

      o     Right to receive information reasonably required for tax reporting
            purposes within 90 days after the close of the calendar year;

      o     Right to vote according to the limited partners' percentage interest
            in the Partnership on any meeting that may be called by the General
            Partner. However, if any person or group other than the General
            Partner and its affiliates acquires beneficial ownership of 20
            percent or more of any class of units, that group or person loses
            voting rights on all of its units; and

      o     Right to inspect the Partnership's books and records at the
            unitholders' own expense.

       Net income, excluding amounts attributable to Williams Pipe Line, is
allocated to the General Partner and limited partners based on their
proportionate share of cash distributions for the period. Cash distributions to
the General Partner and limited partners are made based on the following table:

<Table>
<Caption>
                                       PERCENTAGE OF DISTRIBUTIONS
       ANNUAL DISTRIBUTION          ---------------------------------
        AMOUNT (PER UNIT)           UNITHOLDERS       GENERAL PARTNER
        -----------------           -----------       ---------------
<S>                                   <C>                  <C>
           Up to $2.31                  98                    2
     Above $2.31 up to $2.62            85                   15
     Above $2.62 up to $3.15            75                   25
           Above $3.15                  50                   50
</Table>

       In the event of a liquidation, all property and cash in excess of that
required to discharge all liabilities will be distributed to the partners in
proportion to the positive balances in their respective tax-basis capital
accounts.


18.    REGISTRATION STATEMENT

       In March 2002, the Partnership filed a shelf registration statement to
register $1.8 billion of common units representing limited partner interests and
debt securities, including guarantees. The Partnership, exclusive of its
investment in its wholly owned operating limited partnerships and subsidiaries,
has no independent assets or operations. If a series of debt securities is
guaranteed, such series will be guaranteed by all of the Partnership's
subsidiaries on a full and unconditional and joint and several basis.


                                       30

</TEXT>
</DOCUMENT>
</SUBMISSION>
