SANTA FE PACIFIC PIPELINE PARTNERS LP, 10-K405, 1995-03-28

SANTA FE PACIFIC PIPELINE PARTNERS LP
10-K405, 1995-03-28
PIPE LINES (NO NATURAL GAS)

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

FORM 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 1-10066
------------------------------

SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4191066
(State of incorporation) (I.R.S. Employer Identification No.)

888 SOUTH FIGUEROA STREET
LOS ANGELES, CALIFORNIA 90017
(Address of principal executive offices, including zip code)
(213) 614-1095
(Registrant's telephone number, including area code)

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

Name of each
Title of each class exchange on which registered
------------------- ----------------------------
COMMON DEPOSITARY UNITS NEW YORK STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
______________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]

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

The aggregate market value of the Common Depositary Units held by non-affiliates
of the registrant as of March 24, 1995 was approximately $400 million.
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
PART I
<S> <C>
Items 1 and 2. Business and Properties............................................. 1
General...................................................................... 1
Markets and Product Demand................................................... 2
Principal Customers.......................................................... 3
Capital Expenditures......................................................... 3
Description of the Pipeline System........................................... 4
Description of the Truck Loading Terminals................................... 5
Maintenance.................................................................. 5
Competition and Business Considerations...................................... 5
Regulation................................................................... 6
Employees.................................................................... 7
Item 3. Legal Proceedings.......................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders........................ 12

PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...... 12
Item 6. Selected Financial Data.................................................... 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................. 13
Item 8. Financial Statements and Supplementary Data................................ 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................................... 19

PART III
Item 10. Directors and Executive Officers of the Registrant........................ 19
Item 11. Executive Compensation.................................................... 21
Item 12. Security Ownership of Certain Beneficial Owners and Management............ 21
Item 13. Certain Relationships and Related Transactions............................ 21

PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 22
Signatures......................................................................... 24
</TABLE>

<PAGE>

SANTA FE PACIFIC PIPELINE PARTNERS, L.P.

PART I

ITEMS 1 AND 2. BUSINESS AND PROPERTIES.

GENERAL
Santa Fe Pacific Pipeline Partners, L.P. (the "Registrant") is a Delaware
limited partnership formed in 1988 to acquire and operate, through SFPP, L.P.,
formerly Southern Pacific Pipe Lines Partnership, L.P. (the "Operating
Partnership"), the refined petroleum products pipeline business of Santa Fe
Pacific Corporation ("Santa Fe"). The Registrant and the Operating Partnership
are collectively referred to as the "Partnership".

Santa Fe Pacific Pipelines, Inc. (the "General Partner"), a wholly owned
subsidiary of SFP Pipeline Holdings, Inc., which is in turn a wholly owned
subsidiary of Santa Fe, owns a 1% general partnership interest in the
Registrant and a 1% general partnership interest in the Operating Partnership.
In its capacities as general partner of both the Registrant and the Operating
Partnership, the General Partner also manages their operations. The General
Partner also owns 8,148,148 common depositary units ("common units"),
representing a 41.7% limited partner interest in the Registrant. Reference is
made to Item 12 of this Report concerning a potential change in control of Santa
Fe. Public ownership in the Registrant, represented by 11,000,000 publicly
traded common units, is 56.3%.

Prior to December 31, 1993, holders of the 11,000,000 publicly traded units (at
that time denominated as "preference units") were entitled to certain
preferences with respect to cash distributions. With the Partnership having met
certain financial criteria as of December 31, 1993, all limited partner
interests have equivalent rights with respect to cash distributions and, during
1994, the 11,000,000 preference units were redenominated and registered as
common units.

The Partnership is one of the largest independent pipeline common carriers of
refined petroleum products ("products") in the United States, and the largest in
the western United States, in terms of product deliveries, barrel miles, and
pipeline mileage, with approximately 3,300 miles of pipeline serving six states.

The Partnership transports products via pipeline, including gasoline, diesel
fuel and commercial and military jet fuel, primarily for major petroleum
companies, independent refiners, the United States military, and marketers and
distributors of such products. The Partnership also operates 14 truck loading
terminals and provides pipeline service to 44 customer-owned terminals, three
commercial airports, and 11 military bases. The Partnership's pipelines
(collectively, the "Pipeline System") are: (1) the South Line, which is composed
of two segments, the West Line, which transports products from Los Angeles to
Phoenix and Tucson, Arizona and various intermediate points, and the East Line,
which transports products from El Paso, Texas to Tucson, Phoenix and various
intermediate points; (2) the North Line, which transports products primarily
from the San Francisco Bay area to various cities in northern California and
western Nevada; (3) the Oregon Line, which transports products between Portland
and Eugene, Oregon, and one intermediate point; and (4) the San Diego Line,
which transports products from Los Angeles to San Diego, California and various
intermediate points. Substantially all of the Pipeline System's transportation
services constitute common carrier operations that are subject to federal or
state tariff regulation.
<PAGE>

The following table reflects the total volumes and barrel miles of products
delivered by the Pipeline System for each of the years indicated:

<TABLE>
<CAPTION>
Total Volumes and Barrel Miles Transported (a)
-------------------------------------------------------------
1994 1993 1992
-------------------- -------------------- -------------------
Barrel Barrel Barrel
Volume Miles Volume Miles Volume Miles
---------- -------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
South Line
West Line (b)............ 118.9 22,151 112.0 21,214 101.5 17,163
East Line ............... 25.3 8,819 20.7 7,188 26.6 9,674
North Line ................ 152.3 12,545 149.0 12,891 145.4 12,648
Oregon Line ............... 13.6 1,525 12.2 1,373 12.8 1,424
San Diego Line (b)......... 39.7 4,030 38.8 3,913 37.1 3,903
---------- -------- -------- ---------- -------- ---------
Total ................... 349.8 49,070 332.7 46,579 323.4 44,812
========== ======== ======== ========== ======== =========
</TABLE>

(a) Volumes are expressed in millions of barrels of products and barrel miles
are shown in millions. A barrel mile is the movement of a barrel of product
for a distance of one mile.

(b) Product volumes delivered through the West Line to the San Diego Line are
in turn delivered through the San Diego Line to the shipper's ultimate
destination for such volumes. This table reflects such volumes only in the
San Diego Line, from which ultimate delivery is made.

Although the mix of the products transported varies among the pipeline segments
constituting the Pipeline System, such variation is not substantial. Tariffs
charged for transportation do not vary for different product types. The
following table sets forth the volumes of gasoline, jet fuels and diesel fuel
transported by the Pipeline System during the years indicated (in millions of
barrels):

<TABLE>
<CAPTION>
Volumes Delivered by Product Type
-------------------------------------
1994 1993 1992
---------- --------- ----------
<S> <C> <C> <C>
Gasoline .............................. 225.5 219.6 211.2
Diesel fuel ........................... 67.3 59.1 56.0
Jet fuels ............................. 57.0 54.0 56.2
---------- --------- ----------
Total ............................ 349.8 332.7 323.4
========== ========= ==========
</TABLE>

MARKETS AND PRODUCT DEMAND
The Partnership currently serves approximately 75 shippers in the products
market, with the largest customers consisting of major petroleum companies,
independent refiners, the United States military, and marketers and distributors
of products. The volume of products transported in the Pipeline System is
directly affected by demand for such products in the geographic regions served
by the Partnership. Such market demand varies based upon the different end uses
to which the products delivered through the Pipeline System may be applied. A
substantial portion of product volumes transported in the Pipeline System is
gasoline, the demand for which is dependent on such factors as prevailing
economic conditions and demographic changes in the market served by the Pipeline
System, competition in certain markets and, to a lesser degree, product prices.
Portions of the Partnership's business can experience seasonal variations;
overall, however, volumes are only moderately seasonal, with lower than average
volumes being transported during the first and fourth quarters of each year.

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PRINCIPAL CUSTOMERS
Of the approximately 75 shippers served by the Partnership on a system-wide
basis in 1994, the largest shippers on each of the pipeline segments were
generally the same entities. The chart below reflects the percentage of
transportation revenues attributable to the top 10 shippers on the South Line,
North Line, Oregon Line and San Diego Line during each of the periods indicated,
based upon total product volumes shipped during the years indicated.

<TABLE>
<CAPTION>
Revenue Percentage
Attributable to Top 10 Shippers
---------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
South Line
West Line ............................... 84% 85% 93%
East Line .............................. 95 90 93
North Line ................................ 80 81 85
Oregon Line .............................. 99 98 98
San Diego Line ............................ 92 93 92
</TABLE>

Between 72% and 75% of the refined petroleum products transported in the
Pipeline System during each of the calendar years 1992 through 1994 were shipped
by major petroleum companies. Partnership revenues received from two major
petroleum companies exceeded 10% of total 1994 revenues and, individually,
accounted for 16.1% and 12.4% of total operating revenues. In 1993, these two
customers accounted for 16.9% and 12.9%, and a third customer accounted for
10.2%, of total operating revenues. In 1992, these same customers accounted for
17.1%, 13.7% and 10.8% of total operating revenues.

Products delivered to military facilities accounted for 4.8%, 4.6% and 5.3% of
total volumes shipped by the Partnership during 1994, 1993 and 1992,
respectively. Military volumes are dependent on the level of activity at
military bases served by the Pipeline System. Since 1991, the United States
Congress has approved, and may continue to approve, ongoing plans to reduce the
overall level of military activity. As of yearend 1994, three military bases
historically served by the Partnership had been closed and realignment of
certain other bases continues to occur, with the level of activity decreased at
certain bases and increased at others.

CAPITAL EXPENDITURES
For the year ended December 31, 1994, Partnership capital expenditures
aggregated $17.9 million, of which approximately $3 million was used for
revenue-generating projects, and the balance for sustaining projects. The
planned 1995 capital program aggregates approximately $32 million, of which
approximately $14 million is planned for income-enhancing projects, with the
balance expected to be invested in sustaining projects. The Partnership
presently anticipates that ongoing capital expenditures will aggregate
approximately $25 to $30 million per year over the next five years, however,
additional facility improvements, pipeline expansions or acquisitions may be
pursued under certain circumstances. (See also Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources.)

-3-
<PAGE>

DESCRIPTION OF THE PIPELINE SYSTEM

The SOUTH LINE consists of two pipeline segments, the West Line and the East
Line:

The WEST LINE consists of approximately 555 miles of primary pipeline and
currently transports products for approximately 50 shippers from eight
refineries and three pipeline terminals in the Los Angeles Basin to Phoenix and
Tucson, Arizona and various intermediate commercial and military delivery
points. In 1994, 1993 and 1992, the West Line transported averages of 326,000,
307,000 and 278,000 barrels per day, respectively, of which averages of 104,000,
100,000 and 78,000 barrels per day, respectively, were delivered to Phoenix and
Tucson. Also, a significant portion of West Line volumes are transported to
Colton, California for local distribution and for delivery to Calnev Pipeline,
an unaffiliated common carrier of refined petroleum products to Las Vegas,
Nevada and intermediate points. The West Line serves Partnership terminals
located in Colton and Imperial, California as well as in Phoenix and Tucson.

The EAST LINE is comprised of two parallel lines originating in El Paso, Texas
and continuing approximately 300 miles west to the Tucson terminal and one line
continuing northwest approximately 130 miles from Tucson to Phoenix. All
products received by the East Line at El Paso come from two refineries in El
Paso or are delivered through connections with non-affiliated pipelines from
refineries in Odessa, Texas and Artesia, New Mexico. The East Line transports
refined petroleum products for approximately 20 shippers. In 1994, 1993 and
1992, the East Line transported averages of 69,000, 57,000 and 73,000 barrels
per day, respectively, of refined petroleum products, of which averages of
34,000, 27,000 and 38,000 barrels per day, respectively, were delivered to
Phoenix. The East Line serves the Partnership's terminals located in Tucson and
Phoenix.

In August 1992, the second phase of the East Line expansion became operational
and increased the daily pumping capacity between El Paso and Tucson from 67,000
barrels to 95,000 barrels, and increased daily pumping capacity from Tucson to
Phoenix from 25,000 barrels to 55,000 barrels. In October 1992, El Paso
Refinery, L.P. filed a petition for reorganization under the federal bankruptcy
laws and its refinery was shut down until the third quarter of 1993, when the
refinery began operating again at a reduced level under new ownership. During
1994, East Line deliveries increased over 1993 levels largely as the result of
this refinery operating for the entire year. While increased movements into the
Arizona market from El Paso displace higher tariff volumes supplied from Los
Angeles on the West Line, such shift of supply sourcing has not had, and is not
expected to have, a material effect on the Partnership's results of operations.

In December 1993, Diamond Shamrock announced plans to construct a new products
pipeline from its refinery near Dumas, Texas to El Paso. In addition to
supplying its El Paso area demand, Diamond Shamrock plans to connect this
pipeline to the Partnership's East Line for potential deliveries to Tucson and
Phoenix. Completion of the project is anticipated in 1995.

The NORTH LINE of the Pipeline System consists of approximately 1,040 miles of
pipeline in six pipeline segments originating in Richmond, Concord and
Bakersfield, California. This line serves Partnership terminals located in
Brisbane, Bradshaw, Chico, Fresno and San Jose, California, and Sparks, Nevada.
The North Line delivers refined petroleum products for approximately 40
shippers. A substantial portion of the products delivered through the North Line
comes from refineries in the San Francisco Bay area. A small percentage of
supply is received from various pipeline and marine terminals that deliver
products from foreign and domestic ports. Substantially all of the products
shipped through the Bakersfield-Fresno segment of the North Line are supplied by
a refinery located in Bakersfield.

-4-
<PAGE>

The OREGON LINE is a 114-mile pipeline serving approximately 10 shippers. The
Oregon Line receives products from marine terminals in Portland and from Olympic
Pipeline, a non-affiliated carrier, which transports products from the Puget
Sound area to Portland. From its origination point in Portland, the Oregon Line
extends south and serves Partnership terminals located in Albany and Eugene,
Oregon.

The SAN DIEGO LINE is a 135-mile pipeline serving major population areas in
Orange County (immediately south of Los Angeles) and San Diego. Approximately 20
shippers transport products on this line, supplied by the same refineries and
terminals that supply the West Line. The San Diego Line originates from the
pumping station at Norwalk, California on the West Line and extends south to
serve Partnership terminals in the cities of Orange and San Diego.

DESCRIPTION OF THE TRUCK LOADING TERMINALS
The Partnership's operations include 14 truck loading terminals with an
aggregate usable tankage capacity of approximately 8.2 million barrels.
Terminals are located at destination points on each of the lines as well as at
certain intermediate points along each line where deliveries are made. These
terminals furnish short-term product storage, truck loading and ancillary
services, such as vapor recovery, additive injection, oxygenate blending, and
quality control. The truck loading capacity of the terminals ranges from two to
12 trucks at a time. Approximately 129 million, 128 million and 128 million
barrels of products were delivered to commercial customers at such terminals
during 1994, 1993 and 1992, respectively, resulting in Partnership storage and
terminaling revenues of $33.8 million, $33.5 million and $30.1 million during
such years, respectively.

Utilization of and demand for the Partnership's terminaling services varies
widely throughout the Pipeline System and depends on whether the major petroleum
companies and other shippers or independent terminal operators have terminal
facilities and the necessary tankage capacity at locations where the Partnership
has facilities. The Partnership does not own terminal facilities at all pipeline
delivery locations. At certain locations, product deliveries are made to
facilities owned by shippers or independent terminal operators.

Truck loading and other terminal services are provided by the Partnership, and a
separate fee (in addition to transportation tariffs) is charged. Rates charged
for terminaling services are not economically regulated by the Federal Energy
Regulatory Commission ("FERC") or any state agency.

MAINTENANCE
To prolong the useful life of the Pipeline System and terminals, routine
preventive maintenance is performed. Such maintenance includes cathodic
protection to prevent corrosion, periodic internal inspection of the Pipeline
System and weekly patrols of the Pipeline System rights-of-way. The Pipeline
System is patrolled at regular intervals to identify excavation or other
activities by third parties which, if left unchecked, could result in damage to
the pipeline.

A computer-based pipeline monitoring system ("SCADA"), continuously monitors
pipeline operating conditions, including pressures, temperatures, pumping rates
and equipment configuration, on a real-time basis. In addition to providing
remote monitoring and control of certain operating equipment, SCADA
automatically alerts a 24-hour operator if changes in flow conditions require
attention. Use of this information by operating personnel allows them to respond
quickly to potential system problems.

COMPETITION AND BUSINESS CONSIDERATIONS
The Partnership conducts its operations without the benefit of exclusive
franchises from government entities. In addition, the Partnership provides
common carrier transportation services through the

-5-
<PAGE>

Pipeline System at posted tariffs, and, in virtually all cases, without long-
term contracts for transportation service with its customers. Demand for
transportation services in the Pipeline System arises, ultimately, from demand
for refined petroleum products in the geographic regions it serves. This demand
is primarily a function of total and per capita fuel consumption, prevailing
economic and demographic conditions, alternate modes of transportation,
alternate product sources and, to a lesser extent, price.

Because pipelines are generally the lowest cost method for intermediate and
long-haul overland product movement, the Pipeline System's most significant
competitors are proprietary pipelines owned and operated by major oil companies
in the areas where the Pipeline System delivers products, refineries within the
Partnership's market areas and trucks. The Partnership believes that high
capital costs, tariff regulation, environmental considerations and problems in
acquiring rights-of-way make it unlikely that a competing pipeline system
comparable in size and scope to the Pipeline System will be built in the
foreseeable future, provided that the Pipeline System has available capacity to
satisfy demand and its tariffs remain at reasonable levels. However, the
possibility of pipelines being constructed to serve specific markets is a
continuing competitive factor. Trucks may competitively deliver products in
certain markets.

For more than ten years, an individual entrepreneur has attempted to gain
investor support for a petroleum products refinery in the Phoenix area. Because
of the risk of this venture, and the large investment required, this project has
never been fully developed. In September 1994, The Williams Companies, Inc.
("Williams") announced that a subsidiary company had been given approval to
conduct detailed engineering and marketing analyses as part of a project that
could lead to the construction and operation of a 50,000 barrel-per-day oil
refinery near Phoenix, Arizona. The Williams proposal apparently contemplated
utilizing the refinery site and permits held by the entrepreneur. However, in
January 1995, Williams announced that it was canceling its participation in the
project, citing, among other things, higher than anticipated construction costs
and its inability to identify an experienced refiner-partner. Williams stated
that it would not reconsider its decision at a future date. Subsequently, the
entrepreneur has stated that there are other parties interested in pursuing the
refinery project, however none have publicly announced such interest. Should
such a refinery be constructed, the Partnership's throughput on the South Line
would be negatively affected, however, it is possible that a portion of any
revenue reduction could be recovered through rate increases.

REGULATION

Tariff Regulation
Substantially all of the Partnership's pipeline operations are common carrier
operations that are subject to federal or state rate regulation.

The Partnership's interstate common carrier pipeline operations are subject to
rate regulation by the Federal Energy Regulatory Commission ("FERC") under the
Interstate Commerce Act which requires, among other things, that petroleum
product pipeline rates be "just and reasonable" and nondiscriminatory. In
general, the FERC has evaluated the justness and reasonableness of petroleum
product pipeline rates under a "cost of service" approach that permits a
pipeline to establish its tariffs, based on projected volumes, at levels
sufficient to recover its cost of service. Under this approach, a pipeline's
cost of service includes the following components: (a) operating expenses, (b)
depreciation and amortization, (c) federal and state income taxes and (d) an
overall allowed rate of return on the pipeline's "rate base." Generally, rate
base is a measure of the investment in, and value of, the common carrier assets
of a petroleum products pipeline.

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<PAGE>

Under a "trended original cost" ("TOC") methodology adopted by the FERC in 1985
for establishing a liquid petroleum pipeline's tariffs, after a starting rate
base has been determined, a pipeline's rate base is to be (i) increased by an
amount equal to the equity portion of the rate base multiplied or "trended" by
an inflation factor, (ii) increased by property additions at cost and (iii)
decreased by property retirements, depreciation and amortization of the rate
base write-ups reflecting inflation. A petroleum product pipeline's capital
structure (i.e., the relative proportions of debt and equity in its total
capitalization) affects (i) its starting rate base, (ii) the proportion of the
rate base that is trended to reflect inflation under the TOC methodology and
(iii) other factors that bear on the determination of just and reasonable
pipeline rates.

The TOC methodology is subject to clarification and reconsideration in
individual cases and leaves many issues, including the appropriate rate of
return, for determination on a case-by-case basis. Alternatively, pipelines that
can demonstrate that they operate in competitive markets may be allowed to
establish tariffs under a less stringent form of "light-handed" rate regulation.

Intrastate common carrier operations of the Pipeline System in California are
subject to regulation by the California Public Utilities Commission ("CPUC")
under a "depreciated book plant" methodology, which is based on an original cost
measure of investment. Intrastate tariffs filed by the Partnership with the CPUC
have been made on the basis of revenues, expenses and investments allocated as
applicable to the intrastate portion of the Partnership's business. In this
regard, the operations of the San Diego Line are wholly intrastate and the
operations of certain portions of the North and South Lines are intrastate.

Tariff rates with respect to intrastate pipeline service in California are
subject to challenge by complaint by interested parties or by independent action
of the CPUC. A variety of factors, including changes in capitalization, can
affect the rates of return permitted by the CPUC and certain other issues
similar to those which have arisen with respect to the Partnership's FERC
regulated rates could also arise with respect to the Partnership's intrastate
rates.

(See also Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Other Matters - Rate Regulation.)

Environmental and Safety Regulation
The Partnership's operations are subject to federal, state and local laws and
regulations relating to protection of the environment, including laws and
regulations relating to water, air, solid waste and hazardous substances. The
discharge of, or contamination of property by, hazardous materials may arise
from transportation and storage of such materials in the Pipeline System. The
normal operations of the Pipeline System may expose the Partnership to claims
and potential liability for injuries to employees, other persons, property, and
the environment. (See also Item 3. Legal Proceedings and Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations - Other
Matters - Environmental Matters.) The Partnership's operations are also subject
to operating and safety regulation by the Department of Transportation and
various other federal, state and local agencies.

EMPLOYEES
The Partnership does not have any employees, officers or directors. The General
Partner is responsible for management and operation of the Partnership. As of
December 31, 1994, regular, full-time employees of the General Partner numbered
429.

-7-
<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

EAST LINE LITIGATION AND FERC PROCEEDING
In August 1992, two East Line refiners, Navajo Refining Company ("Navajo") and
El Paso Refinery, L.P. ("El Paso") filed separate, though similar, civil
lawsuits against the Partnership arising from the Partnership's alleged failure
to provide additional pipeline capacity to Phoenix and Tucson, Arizona from El
Paso, Texas. The Navajo action also sought an injunction to prohibit the
Partnership from reversing the direction of flow (from westbound to eastbound)
of its six-inch diameter pipeline between Phoenix and Tucson. In addition, El
Paso filed a protest/complaint with the FERC in September 1992 seeking to block
the reversal of the six-inch pipeline and challenging the Partnership's
proration policy as well as the Partnership's existing East Line tariffs.

FERC PROCEEDING
- ---------------
On September 29, 1992, the FERC's Oil Pipeline Board ordered an investigation
into the issues raised in the El Paso filing and, on October 19, 1992, the FERC
assigned an administrative law judge to the case. The FERC ruled in April 1993,
and has subsequently confirmed on rehearing, that the challenges to proration,
line reversal and East Line tariffs must proceed under a complaint proceeding.
That ruling expressly places the burden of proof on the complaining parties, who
must show that the Partnership's rates and practices there at issue violate the
requirements of the Interstate Commerce Act.

In August 1993, Chevron U.S.A. Products Company ("Chevron") filed a complaint
with the FERC challenging the Partnership's West Line tariffs and claiming that
a service charge at the Partnership's Watson Station is in violation of the
Interstate Commerce Act. In September 1993, the FERC ruled that the
Partnership's West Line tariffs are deemed "just and reasonable" under the
Energy Policy Act of 1992 ("EPACT") and may only be challenged on the basis of
"changed circumstances" and consolidated the various outstanding matters into a
single proceeding. Navajo, which, under a 1985 FERC rate case settlement, had
been prohibited from challenging the Partnership's rates until November 1993,
filed a complaint against certain East Line and West Line rates in December
1993. ARCO Products Company ("ARCO") and Texaco Refining and Marketing Inc.
("Texaco") filed their own complaint challenging certain West Line rates in
January 1994. Refinery Holding Company, L.P., a partnership formed by El Paso's
long-term, secured creditors that purchased El Paso's refinery in May 1993 is
the only other major outside party to the FERC proceeding.

On April 20, 1994, the FERC ruled that, because of Navajo's complaint against
certain West Line rates, certain other parties seeking to challenge West Line
rates would not need to demonstrate "changed circumstances" in order to do so.
However, the Partnership requested reconsideration of that portion of the ruling
pertaining to parties other than Navajo and, on July 20, 1994, the FERC reversed
a portion of the April 20, 1994 ruling, reaffirming that, other than with
respect to Navajo, the Partnership's West Line rates are deemed just and
reasonable under the provisions of EPACT. Accordingly, any shipper other than
Navajo that wishes to challenge the Partnership's West Line rates will need to
demonstrate "changed circumstances." On September 16, 1994, the FERC denied
certain other parties' request for a rehearing of the July 20, 1994 ruling. On
December 12, 1994, ARCO, Texaco and Chevron filed testimony in which they sought
to demonstrate the required "changed circumstances" in order to challenge the
Partnership's West Line rates. ARCO and Texaco have also sought review by the
United States Court of Appeals for the District of Columbia of the FERC's
rulings on the "grandfathering" of the West Line rates under EPACT.

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<PAGE>

At the direction of the FERC Administrative Law Judge, on February 14, 1994, the
Partnership submitted to the parties to the FERC proceeding a cost and revenue
study for its South Line, detailing unadjusted rate base, operating expenses and
revenues for the calendar year 1993.

On June 24, 1994, the complainants filed their cases-in-chief with the FERC,
seeking refunds for shipments between 1990 and 1993 aggregating in the range of
$15 million to $20 million, as well as tariff rate reductions of between 40% and
50% for future shipments. Three sets of joint testimony were filed, one by
Chevron and Navajo, a second by El Paso and Refinery Holding Company, L.P., and
a third by ARCO and Texaco. While each set of testimony was different in certain
respects, the claims for relief are generally based on cost of service
calculations developed from the detailed information included in the
Partnership's cost and revenue study, but with the complainants applying
different rate-making methodologies than the Partnership believes to be
appropriate.

On August 17, 1994, the FERC Staff submitted its case-in-chief in the FERC
proceeding, in which the FERC Staff also developed costs of service for the
Partnership's East and West Lines based on adjusted 1993 operating costs, but
did not present testimony concerning reparations or specific tariff rate
reductions. On January 30, 1995 and March 6, 1995, the FERC Staff filed exhibits
modifying its original presentation in certain respects. In a number of
respects, the FERC Staff has employed rate-making methodologies that were
generally similar to those presented by the complainants. In their testimony,
both the FERC Staff and several complainants, among other things, argue against
the Partnership's entitlement to an income tax allowance in its cost of service.
The FERC Staff and several complainants utilize the Partnership's capital
structure at the time of its formation in December 1988, or a hypothetical
capital structure, for the purpose of establishing the Partnership's 1985
starting rate base under FERC Order 154-B. In addition, the FERC Staff and
complainants generally excluded the majority of the Partnership's civil and
regulatory litigation expense from their cost of service calculations. Each of
these positions is detrimental to the Partnership's existing rate structure and,
if adopted by the FERC in a final decision, would result in a substantial
payment of reparations and reduction of existing rates.

While recognizing that FERC rate-making methodology is subject to interpretation
and leaves certain issues for determination on a case-by-case basis, Partnership
management believes that certain of the positions taken by the complainants and
the FERC Staff in their testimony are contrary to existing FERC precedent. For
example, the entitlement of a pipeline partnership to include an allowance for
income taxes in its cost of service has recently been ruled upon favorably by
the FERC Administrative Law Judge in the Lakehead Pipe Line Company, Limited
Partnership rate case; that ruling is presently on appeal before the FERC. The
Partnership's rates being challenged in the FERC proceeding were established
pursuant to FERC-approved settlements resolving a prior rate proceeding and have
not been changed since 1991, when they were adjusted in accordance with those
agreements. The Partnership continues to believe that its rates and practices
are lawful under FERC precedent and will continue its vigorous defense of that
position. However, because of the complexity of the issues involved and the
nature of FERC rate-making methodology, it is possible that the rates at issue
in the FERC proceeding will not ultimately be found just and reasonable. If the
FERC were to deny the Partnership's entitlement to an allowance for income taxes
in its cost of service, or otherwise reach adverse decisions on certain other
key issues in the proceeding which result in significant reparations being paid
and a significant reduction in the Partnership's current tariffs, such adverse
outcome could have a material adverse effect on the Partnership's results of
operations, financial condition and ability to maintain its current quarterly
cash distribution.

-9-
<PAGE>

The present procedural schedule calls for the Partnership to submit its case-in-
chief in response to the shippers' and FERC Staff's testimony on April 4, 1995
and for hearings to commence before a FERC Administrative Law Judge in October
1995.

EAST LINE CIVIL LITIGATION
- --------------------------
The civil actions brought by Navajo and El Paso ("El Paso Refining, Inc., and El
Paso Refinery, L.P. v. Santa Fe Pacific Pipelines, Inc. and Santa Fe Pacific
Pipeline Partners, L.P.", No. 92-9144, County Court No. 5, El Paso County) were
filed in New Mexico and Texas, respectively, seeking actual, punitive and
consequential damages arising from the Partnership's alleged failure to provide
additional pipeline capacity to Phoenix and Tucson from El Paso. The Navajo
action also sought an injunction to prohibit the Partnership from reversing the
direction of flow (from westbound to eastbound) of its six-inch diameter
pipeline between Phoenix and Tucson, which was planned to occur, and did occur,
during the third quarter of 1992 upon completion of the second phase of the East
Line expansion. This six-inch pipeline had previously flowed from Phoenix to
Tucson but was temporarily reversed, in August 1991, to accommodate East Line
shipments to Phoenix during the Partnership's expansion of the eight-inch
diameter pipeline that flows from Tucson to Phoenix. Generally, the lawsuits
allege that the refiners proceeded with significant refinery expansions under
the belief that the Partnership would provide whatever pipeline capacity was
required to transport their product into Arizona, and that they were damaged by
their inability to ship additional volumes into that highly competitive market.
This belief of Navajo and El Paso was purportedly obtained from oral
representations by General Partner personnel and from language contained in a
January 1989 settlement agreement with Navajo, relating to a 1985 FERC rate
case.

On July 28, 1993, the Partnership reached a settlement with Navajo whereby
Navajo agreed to dismiss its pending civil litigation in New Mexico and withdraw
any challenge to the direction of flow of the six-inch pipeline, including any
such challenge in the FERC proceeding. The Partnership agreed to make certain
cash payments to Navajo over three years and to undertake and complete an
additional pipeline capacity expansion between El Paso and Phoenix if certain
events related to volume levels and proration of pipeline capacity should occur
within the next five years.

El Paso's August 1992 civil action, as amended, claims unspecified actual
damages, which appear to include the $190 million cost of its refinery
expansion, plus punitive and consequential damages. In October 1992, El Paso
filed a petition for reorganization under Chapter 11 of the federal bankruptcy
laws and halted refinery operations. In November 1993, the El Paso bankruptcy
was converted from a Chapter 11 to a Chapter 7 proceeding, and an interim
trustee was appointed. In February 1994, a permanent trustee and a new judge
were named to handle these proceedings. During 1994, the bankruptcy trustee for
El Paso retained legal counsel for purposes of pursuing this litigation. In
addition, initial rounds of discovery were conducted by both parties in late-
1994 and early-1995. Should the action proceed to trial, it is anticipated that
such trial would begin in early to mid-1996, however, to date, there have been
no hearings before the court and there is no pre-trial schedule. The Partnership
intends to vigorously defend itself in this action.

ENVIRONMENTAL MATTERS
The Partnership is, from time to time, subject to environmental clean up and
enforcement actions. In particular, the federal Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA" or "Superfund" law) generally
imposes joint and several liability for cleanup and enforcement costs, without
regard to fault or the legality of the original conduct, on current or
predecessor owners and operators of a site. Since August 1991, the Partnership,
along with several other respondents, has been involved in one cleanup ordered
by the United States Environmental

-10-
<PAGE>

Protection Agency ("EPA") related to ground water contamination in the vicinity
of the Partnership's storage facilities and truck loading terminal at Sparks,
Nevada. In addition, the Partnership is also involved in six ground water
hydrocarbon remediation efforts under administrative orders issued by the
California Regional Water Quality Control Board at, or adjacent to, its
facilities at Colton, Concord, Mission Valley, Brisbane, San Jose and West
Sacramento, California.

The investigation and remediation at the Sparks terminal is also the subject of
a lawsuit brought in January 1991 entitled "Nevada Division of Environmental
Protection v. Santa Fe Pacific Pipelines, Inc., Southern Pacific Transportation
Company, Shell Oil Company, Time Oil Company, Berry-Hinckley Terminal, Inc.,
Chevron U.S.A., Inc., Texaco Refining and Marketing, Inc., Air BP, a division of
BP Oil, Unocal Corporation, and Golden Gate Petroleum Company", Case No. CV91-
546, in the Second Judicial District Court of the State of Nevada in and for the
County of Washoe. This lawsuit was subsequently joined by the County of Washoe
Health District and the City of Sparks, Nevada. The various parties seek
remediation of the contamination at and adjacent to the Sparks terminal as well
as unspecified, but potentially significant, damages and statutory penalties.

In addition, the Partnership was named as one of the defendants in a number of
other lawsuits brought by property owners seeking unspecified, but potentially
substantial, damages for alleged property value diminishment attributable to
soil or groundwater contamination arising from the defendants' operations.

In October 1994, the Second Judicial District Court ruled that all of the
outstanding cases against the respondent group, including the state, county,
city and property owner cases, shall be consolidated for trial purposes. In
February 1995, the Court established a procedural schedule which calls for the
trial to commence in January 1996. The Partnership is vigorously defending
itself in these actions, although it will continue to pursue settlement
discussions to reduce the costs and uncertainties of extended litigation.

With respect to the Sparks remediation, in September 1992, the EPA approved the
respondents' remediation plan and an estimate of remediation costs was made in
accordance with that plan. As a result, the Partnership recorded a $10 million
provision for environmental costs in the third quarter of 1992 which included
the Partnership's estimated share of remediation costs at Sparks and at two
other facilities. A contractor has been selected for the installation of the
remediation system. In January 1995, system design, engineering and permitting
activities began, and it is expected that the system will be operational by
September 1995. A Joint Defense, Mediation and Arbitration Agreement Among
Defendants has been reached by the ten participants, which establishes cost
allocation percentages among the participants.

As previously reported, in 1993, the EPA issued a Notice of Violations to the
Partnership associated with an oxygenate blending equipment malfunction at the
Partnership's Phoenix terminal. During the fourth quarter of 1994, the
Partnership agreed to pay the EPA a fine of $300,000 arising from this Notice of
Violations.

Reference is made to Note 4 to the Partnership's consolidated financial
statements, beginning on page F-9 of this Report, for additional discussion of
these matters.

-11-
<PAGE>

OTHER
The Partnership is also party to a number of other legal actions arising in the
ordinary course of business. While the final outcome of these legal actions
cannot be predicted with certainty, it is the opinion of management that none of
these other legal actions, when finally resolved, will have a material adverse
effect on the consolidated financial condition of the Partnership; nevertheless,
it is possible that the Partnership's results of operations, in particular
quarterly or annual periods, could be materially affected by the ultimate
resolution of these matters.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1994.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information as to the principal markets on which the Registrant's common units
are traded, the high and low sales prices of such units and distributions
declared on such units for the two years ended December 31, 1994, and the
approximate number of record holders of such units is set forth in Note 8 to the
Partnership's consolidated financial statements on page F-15 of this Report.

ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth, for the periods and at the dates indicated,
selected consolidated financial data for the Partnership:

<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------
(in thousands, except per unit data) 1990 1991 1992 1993 1994
---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues ......................................... $ 192,868 $ 193,438 $ 205,025 $ 219,471 $ 228,066
Operating expenses (excluding
depreciation & amortization) (a)...................... 78,110 80,775 95,340 122,178 97,199
Depreciation & amortization ............................ 15,884 16,834 18,327 18,971 19,820
Operating income ....................................... 98,874 95,829 91,358 78,322 111,047
Interest expense ....................................... 37,327 36,924 36,937 37,086 37,570
Income before cumulative
effect of accounting change (b)....................... 63,560 60,604 54,118 41,616 76,885
Cumulative effect of accounting change ................. -- -- (16,407) -- --
Net income ............................................ $ 63,560 $ 60,604 $37,711 $ 41,616 $ 76,885
</TABLE>

-12-
<PAGE>

<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------
(in thousands, except per unit data) 1990 1991 1992 1993 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER UNIT DATA:
Income before cumulative
effect of accounting change .................. $ 3.28 $ 3.10 $ 2.77 $ 2.13 $ 3.93
Cumulative effect of accounting change ......... -- -- (0.84) -- --
Net income ..................................... 3.28 3.10 1.93 2.13 3.93
Cash distributions paid ........................ 2.50 2.70 2.80 2.80 2.80
Cash distributions declared .................... 2.55 2.75 2.80 2.80 2.80

CAPITAL EXPENDITURES............................ $ 29,236 $ 27,715 $ 30,931 $ 21,084 $ 17,913

BALANCE SHEET DATA (AT YEAR END):
Properties, plant and equipment, net............ $598,021 $605,461 $618,098 $616,610 $613,039
Total assets.................................... 665,177 677,480 684,852 696,980 714,772
Long-term debt ................................. 355,000 355,000 355,000 355,000 355,000
Total partners' capital ........................ 288,092 296,075 279,010 265,851 287,961
</TABLE>

(a) 1993 operating expenses include a $27.0 million provision for
environmental and litigation costs and 1992 operating expenses include a $10.0
million provision for environmental costs.

(b) Effective January 1, 1992, the Partnership adopted new accounting
standards for postretirement and postemployment benefits (Statements of
Financial Accounting Standards Nos. 106 and 112).

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

RESULTS OF OPERATIONS

1994 COMPARED WITH 1993
- -----------------------
The Partnership reported 1994 net income of $76.9 million, or $3.93 per unit,
compared to net income of $41.6 million, or $2.13 per unit, in 1993. Results of
operations included a $3.1 million credit in 1994 resulting from changes in
eligibility requirements for postretirement medical benefits and, in 1993,
provisions for environmental and litigation costs aggregating $27.0 million.
Excluding the 1994 credit and the 1993 provisions, adjusted 1994 net income of
$73.9 million, or $3.78 per unit, was 8.5% higher than adjusted net income of
$68.1 million, or $3.48 per unit, in 1993.

Total 1994 revenues of $228.1 million were 4% above 1993 levels. Trunk revenues
of $179.3 million were $7.5 million higher than in 1993 primarily due to 5%
growth in total volumes transported. Commercial and military volumes were 5% and
9% higher, respectively, than in 1993, and the average length of haul was even.
Despite the higher volumes, storage and terminaling revenues were even with
1993. Other revenues increased $1.1 million due to higher tank rentals and new
terminal services.

Total operating expenses of $117.0 million were $24.1 million lower than in
1993, due largely to the 1993 provisions for environmental and litigation costs
aggregating $27.0 million. Excluding the 1993 provisions, operating expenses
would have been $2.9 million, or 2.5%, higher than in 1993, with higher power
cost ($1.8 million), facilities cost ($1.7 million), depreciation and
amortization ($0.8 million) and general and administrative expenses ($0.4
million), partially offset by lower field operating expenses ($1.8 million),
accounting for that increase. The increase in power cost resulted from higher
volumes, increased power rates and greater use of drag reducing agent to
increase pipeline capacity on selected routes. Facilities costs increased as a
result of higher right-of-way rentals and property taxes. General

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<PAGE>

and administrative expense increased less than 2% as the net result of higher
general legal expense and reduced overhead recoveries on recollectible projects
for customers or governmental agencies, largely offset by lower East Line
litigation, employee incentive compensation and information services costs. The
decrease in field operating expenses is largely attributable to nonrecurring
1993 pipeline inspection costs associated with the potential conversion of one
of the Partnership's pipelines to crude oil service and generally lower major
maintenance expense. Excluding the 1993 provisions, environmental remediation
and East Line litigation costs recorded as operating expense aggregated $3.8
million and $6.2 million in 1994 and 1993, respectively.

Other income, net increased significantly in 1994 as the result of a $3.1
million gain resulting from changes in eligibility requirements for
postretirement medical benefits and higher interest income in 1994.

1993 COMPARED WITH 1992
- -----------------------
The Partnership reported 1993 net income of $41.6 million, or $2.13 per unit,
compared to net income of $37.7 million, or $1.93 per unit, in 1992, with the
variance due largely to the effects of environmental and litigation provisions
and a 1992 accounting change. Excluding the effects of provisions for
environmental and litigation costs aggregating $27 million in 1993 and a $10
million provision for environmental costs in 1992, 1993 net income would have
been $68.1 million, or $3.48 per unit, compared to net income of $63.9 million,
or $3.27 per unit, before the cumulative effect of an accounting change in 1992.

Total 1993 revenues of $219.5 million were 7% above prior year levels. Trunk
revenues of $171.8 million were $10.7 million higher than in 1992 due to higher
volumes, a longer average length of haul, a favorable shift of volumes from the
East Line to the West Line and the full year effect in 1993 of a May 1992
California intrastate tariff increase. Total volumes transported increased 3% in
1993, with commercial volumes 3.6% higher, and military volumes approximately
10% lower, than in 1992. The longer average haul reflects increased deliveries
to Arizona and Nevada, as well as increased deliveries to Tucson from Los
Angeles as a result of reduced supply from El Paso refineries in 1993. The
refinery formerly owned by El Paso Refinery, L.P., which had been out of service
since that company entered bankruptcy in October 1992, began operating at a
reduced level during the third quarter of 1993. Management expected that a
portion of this refinery's production would continue to be shipped to Arizona,
resulting in a shift of certain volumes from the West Line back to the East
Line, which did occur in 1994. Storage and terminaling revenues were $3.2
million higher due to a January 1993 terminal services rate increase. Other
revenues increased $0.5 million due to higher volumes.

Total 1993 operating expenses of $141.1 million included a $15.0 million
provision to increase the Partnership's existing reserve for environmental
remediation and investigation costs and a $12.0 million provision to reflect
anticipated legal fees and other costs related to certain East Line civil
litigation as well as a related Federal Energy Regulatory Commission ("FERC")
proceeding. Total 1992 operating expenses of $113.7 million included a $10.0
million provision for environmental remediation costs. Excluding the
environmental and litigation provisions, 1993 operating expenses of $114.1
million were $10.5 million, or 10%, higher than in 1992, with higher field
operating expenses ($5.4 million), general and administrative expenses ($3.0
million), power cost ($0.8 million), facilities costs ($0.7 million) and
depreciation and amortization ($0.6 million) accounting for that increase. The
increase in field operating expenses is largely attributable to higher major
maintenance costs due to preventative pipeline repairs associated with the
Partnership's ongoing internal inspection program and flood damage repairs,
partially offset by lower environmental remediation costs subsequent to
recording the $15.0 million provision in September 1993. Also contributing to
higher field operating expenses were $1.5 million in

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<PAGE>

pipeline inspection costs associated with the potential conversion of one of the
Partnership's pipelines to crude oil service, greater usage of drag reducing
agent to increase capacity on certain lines and higher salary costs. The
increase in general and administrative expense is largely attributable to higher
outside legal and consulting costs associated with the East Line civil
litigation and FERC proceeding that were incurred prior to recording the $12.0
million litigation provision in September 1993. The increase in power cost
reflects increased volumes and length of haul. The increase in facilities costs
primarily resulted from higher right-of-way rentals and property taxes. This
increase in property taxes and the increase in depreciation and amortization
expense resulted from the Partnership's expanding capital asset and software
base.

FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1994, cash flow from operations before working
capital and minority interest adjustments totaled $92.1 million, compared to
$82.8 million in 1993. Working capital cash requirements increased $3.7 million
in 1994 due to timing differences in collection of accounts receivable and
payment of accrued obligations. Significant uses of cash in 1994 included cash
distributions of $55.9 million and capital expenditures of $17.9 million,
resulting in a net increase in cash and cash equivalents of $16.8 million for
the year. Total cash and cash equivalents of $48.9 million at December 31, 1994
included $14.0 million for the fourth quarter 1994 cash distribution, which was
paid in February 1995.

Since the useful lives of the pipeline system and terminal properties are
generally long and technological change is limited, replacement of facilities is
relatively infrequent. The principal need for capital, therefore, has been in
connection with capacity expansions, service enhancements, compliance with
increasingly stringent environmental and safety regulations and installation of
Supervisory Control and Data Acquisition ("SCADA") equipment and related
operations systems software.

For the year ended December 31, 1994, Partnership capital expenditures
aggregated $17.9 million. Capital expenditures for environmental and safety
projects included additions and modifications to storage tanks and vapor
recovery systems to comply with more stringent regulations, oily water handling
facilities and fire protection improvements. Such expenditures aggregated
approximately $5 million in 1994 and are expected to increase over time in
response to increasingly rigorous governmental environmental and safety
standards.

The planned 1995 capital program aggregates approximately $32 million, of which
approximately $14 million is planned for income-enhancing projects, with the
balance expected to be invested in sustaining projects. The Partnership
presently anticipates that ongoing capital expenditures will average
approximately $25 to $30 million per year over the next five years, however
additional facility improvements, pipeline expansions or acquisitions may be
pursued under certain circumstances.

The Partnership is currently investigating the feasibility of providing pipeline
service from the San Francisco Bay area to Colton, California by expanding
existing capacity on its North Line and building a new line between Fresno and
Colton. The total investment in this project could exceed $100 million,
depending on the pipeline capacity and routing selected. If sufficient shipper
throughput commitments are obtained and project approval is received in early
1995, the new pipeline could be in service by late 1996.

The Partnership expects that it will generally finance its ongoing capital
program with internally-generated funds, however the Partnership may use
borrowed funds or proceeds from additional equity

-15-
<PAGE>

offerings to finance a portion of significant capital expenditures such as the
pipeline project that may be undertaken to link Northern and Southern
California. Future capital expenditures will continue to depend on numerous
factors, some of which are beyond the Partnership's control, including demand
for refined petroleum products in the pipeline system's market areas,
governmental regulations and the availability of sufficient funds from
operations to pay for such expenditures.

Due to the capital-intensive nature of the Partnership's business, inflation
generally causes an understatement of operating expenses because depreciation is
based on the historical costs of assets rather than the replacement costs of
assets.

Long-term debt aggregated $355 million at December 31, 1994 and consisted of
$344 million of First Mortgage Notes (the "Notes") and an $11 million borrowing
under the Partnership's bank term credit facility. The Partnership intends to
refinance some or all of the Notes as the various series become payable. To
facilitate such refinancing and provide for additional financial flexibility,
the Partnership presently has available the multi-year term credit facility,
with a $60 million aggregate limit, and a $20 million working capital facility
with three banks. The term facility may continue to be used for refinancing a
portion of the Notes and for capital projects, while the working capital
facility is available for general short-term borrowing purposes.

OTHER MATTERS

RATE REGULATION
The Partnership's interstate common carrier pipeline operations are subject to
rate regulation by the Federal Energy Regulatory Commission ("FERC"). Intrastate
common carrier operations in California are subject to regulation by the
California Public Utilities Commission ("CPUC"). In 1994, tariffs subject to
FERC and CPUC regulation accounted for approximately 55% and 45% of total
transportation revenues, respectively.

In 1985, the FERC adopted a cost-based methodology for establishing allowable
rates for liquid petroleum pipelines, however this methodology continues to be
subject to clarification in individual cases and leaves many issues for
determination on a case-by-case basis. In July 1994, the FERC issued Order 561-A
establishing a new rate-making methodology that allows oil pipelines to adjust
their transportation tariffs as long as those rates do not exceed prescribed
ceiling levels determined by reference to annual changes in the Producer Price
Index for Finished Goods, minus one percent. The FERC Order, which became
effective January 1, 1995, allows pipelines to apply for cost of service-based
rates in those cases where the carrier can demonstrate that a "substantial
divergence" exists between the rates that would be allowed under cost-based
rate-making and the rates produced by indexation. The FERC also recently issued
Order 572-A, effective January 1, 1995, which allows carriers that can
demonstrate that they do not have significant market power in the relevant
markets served to establish market-based rates in those markets. The access to
cost-based and market-based rates is significant because the Partnership
believes the index selected by the FERC does not adequately reflect historical
cost of service increases and, accordingly, the Partnership may need to pursue
cost-based or market-based tariff adjustments in future rate filings. The
Partnership does not expect that interstate tariff indexing will result in a
significant increase in trunk revenues in 1995.

-16-
<PAGE>

EAST LINE LITIGATION AND FERC PROCEEDING
Certain of the Partnership's shippers have filed civil suits and initiated a
FERC proceeding alleging, among other things, that the shippers had been damaged
by the Partnership's failure to fulfill alleged promises to expand the East
Line's capacity between El Paso, Texas and Phoenix, Arizona to meet shipper
demand. The FERC proceeding also involves claims, among other things, that
certain of the Partnership's tariffs and charges on the East and West Lines are
excessive. The remaining civil action, brought by El Paso Refinery, L.P. ("El
Paso") and its general partner, claims unspecified actual damages, which appear
to include the $190 million cost of a refinery expansion completed in 1992, plus
punitive and consequential damages.

During the quarter ended September 30, 1993, the Partnership recorded a $12
million provision for litigation costs, which reflects the terms of settlement
of one of the civil actions as well as anticipated legal fees and other costs
related to the FERC proceeding and El Paso's civil action. Subsequently, lesser
amounts of such litigation costs have, from time to time, been recorded as
current period expense to maintain the reserve at a level deemed adequate.

Management believes that it has acted properly with respect to expansion of the
East Line and the direction of flow of the six-inch pipeline from Phoenix to
Tucson, Arizona, which are the primary issues in the remaining civil action.
Management also believes that the Partnership's current tariffs are just and
reasonable and that, so long as certain of the underlying assumptions and
interpretations of rate-making methodology made by the Partnership with respect
to these tariffs are ruled upon favorably, these tariffs will be upheld should
the FERC proceeding progress to its completion. However, because of the nature
of the FERC rate-making methodology, it is not possible to predict with
certainty whether the Partnership's assumptions and rate-making approach will be
upheld by the FERC or whether any reparations will be ordered paid to the
complainants or any prospective rate reductions will be required. A decision by
the FERC which results in significant reparations being paid and a significant
reduction in the Partnership's current tariffs could have a material adverse
effect on the Partnership's results of operations, financial condition and
ability to maintain its current quarterly cash distribution.

ENVIRONMENTAL MATTERS
The Partnership's transportation and terminal operations are subject to
extensive regulation under federal, state and local environmental laws
concerning, among other things, the generation, handling, transportation and
disposal of hazardous materials and the Partnership is, from time to time,
subject to environmental cleanup and enforcement actions. In particular, the
federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "Superfund" law) generally imposes joint and several liability for
cleanup and enforcement costs, without regard to fault or the legality of the
original conduct, on current or predecessor owners and operators of a site. The
Partnership is presently involved in approximately 45 soil and ground water
remediation projects, at and adjacent to various terminal and pipeline
locations, either under mandate by government agencies or in the ordinary course
of business. In a number of these cleanup projects, the Partnership is
participating with other entities ranging from large integrated petroleum
companies to certain less financially sound parties.

-17-
<PAGE>

certain sites, the lengthy time frames required to complete remediation at most
locations, the number of parties involved, the number of remediation
alternatives available, the uncertainty of potential recoveries from third
parties and the evolving nature of environmental laws and regulations.

The Partnership's balance sheet at December 31, 1994 and 1993 includes reserves
for environmental costs aggregating $22.7 million and $23.2 million,
respectively, which reflect the estimated cost of completing all remediation
projects presently known to be required, either by government mandate or in the
ordinary course of business, as well as the cost of performing preliminary
environmental investigations at several locations. Approximately 80% of the
accrued costs at December 31, 1994 are expected to be paid over the next five
years. Certain remediation projects, including the largest project at Sparks,
Nevada, are expected to continue for a period of approximately ten years. The
environmental reserves are monitored on a regular basis by Partnership
management and are adjusted, from time to time, to reflect changing
circumstances and estimates. During 1993, the Partnership completed a
comprehensive re-evaluation of its potential liabilities associated with
environmental remediation activities and, as a result, recorded a $15 million
provision to increase its existing reserve for environmental remediation and
related costs and, during 1992, a $10 million provision was recorded for
environmental remediation costs at Sparks and two sites in California.

Effective January 1, 1995, the Partnership's pollution insurance coverage was
renewed with an increase in the per-occurrence deductible from $100,000 to
$1,000,000. The Partnership may attempt to secure coverage with a lower
deductible during 1995, however, environmental remediation costs, resulting from
any new product releases not covered by insurance, are likely to increase in
1995.

DEMAND FOR REFINED PETROLEUM PRODUCTS
Demand for transportation and terminaling services is principally a function of
product consumption and competition in markets served by the pipeline system.
Commercial volumes are generally dependent upon such factors as prevailing
economic conditions, demographic changes, transportation and terminaling
alternatives and, to a lesser degree, product prices. Military volumes are
dependent upon the level of activity at military bases served by the
Partnership.

Management anticipates that commercial deliveries of refined petroleum products
will continue to gradually increase as the economies of Arizona and Nevada
continue to grow and as the California economy recovers from the economic
downturn that has been apparent since late 1990. Military volumes, which
accounted for 5% of total 1994 volumes, showed improvement over 1993 but are not
expected to increase over the foreseeable future. As of year end 1994, four
military bases historically served by the Partnership had been closed and
realignment of certain other bases continues to occur.

During 1994, the pipeline systems, on average, operated at approximately 75% of
capacity. While capacity utilization on individual system segments generally
ranged from 70% to 90% of capacity, the lines from the Los Angeles area to San
Diego and Colton, California operated at or near full capacity for a portion of
the year.

Overall, volumes have been moderately seasonal, with somewhat lower than average
volumes being transported during the first and fourth quarters of each year,
although deliveries to specific locations also experience seasonal variations.

-18-
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Partnership's consolidated financial statements, together with the report
thereon of Price Waterhouse LLP dated January 27, 1995, are set forth on pages
F-1 through F-15 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant has no officers, directors or employees. Set forth below is
certain information concerning the directors and executive officers of the
General Partner.

Edward F. Swift, age 71, is a director of the General Partner, Chairman of the
Audit Committee and a member of the Compensation and Benefits Committee and
Committee on Directors. He has been a consultant to Lehman Brothers (investment
bankers) since 1990 and previously had been an advisory director of Shearson
Lehman Hutton, Inc. (investment banker and broker-dealer) since 1988. Mr. Swift
is also a director of Santa Fe.

Orval M. Adam, age 64, is a director of the General Partner, Chairman of the
Compensation and Benefits Committee and a member of the Audit Committee and
Committee on Directors. He retired in January 1991 from his position as Senior
Vice President and Chief Financial Officer of Santa Fe, which he held since
April 1988. Mr. Adam is also a director of SFP Pipeline Holdings, Inc., the sole
shareholder of the General Partner.

Wilford D. Godbold, Jr., age 56, is a director of the General Partner and a
member of the Audit Committee and Committee on Directors. Mr. Godbold has served
as President and Chief Executive Officer of Zero Corporation (container
manufacturer) since 1984. Mr. Godbold is also a director of Zero Corporation,
Pacific Enterprises and Southern California Gas Company.

Robert D. Krebs, age 52, is a director of the General Partner, Chairman of the
Committee on Directors and a member of the Compensation and Benefits Committee.
Mr. Krebs has served as Chairman, President and Chief Executive Officer of Santa
Fe since June 1988 and, previously, served as President and Chief Executive
Officer of Santa Fe from July 1987. As Chairman, Mr. Krebs is a director of
Santa Fe and is also a director of The Atchison, Topeka and Santa Fe Railway
Company, Santa Fe Energy Resources, Inc., Santa Fe Pacific Gold Corporation,
Phelps Dodge Corporation, Northern Trust Corporation and Catellus Development
Corporation.

Denis E. Springer, age 49, is a director of the General Partner and a member of
the Compensation and Benefits Committee and Committee on Directors. Mr. Springer
has been Senior Vice President and Chief Financial Officer of Santa Fe since
October 1993. Mr. Springer previously served Santa Fe as Senior Vice President,
Treasurer and Chief Financial Officer since January 1992, Vice President,
Treasurer and Chief Financial Officer since January 1991 and Vice President-
Finance from April 1988 to December 1990. Mr. Springer is also a director of SFP
Pipeline Holdings, Inc., the sole shareholder of the General Partner, and The
Atchison, Topeka and Santa Fe Railway Company.

-19-
<PAGE>

Irvin Toole, Jr., age 53, is President, Chief Executive Officer and Chairman of
the Board of Directors of the General Partner. From November 1988 until
assignment to his present position in September 1991, Mr. Toole served as Senior
Vice President, Treasurer and Chief Financial Officer, and previously as Vice
President-Administration from February 1986 to November 1988. Mr. Toole is also
Chairman of the Board of Directors of SFP Pipeline Holdings, Inc., the sole
shareholder of the General Partner.

Robert L. Edwards, age 39, is a director of the General Partner and has been
Senior Vice President-Business Development and Planning of the General Partner
since January 1995. Previously, Mr. Edwards was Senior Vice President, Treasurer
and Chief Financial Officer from December 1991 through January 1995. Mr. Edwards
served Santa Fe from July 1990 through November 1991 as Vice President-
Administration; from March 1989 through June 1990 as Vice President-Human
Resources and Administration; and from June 1988 through February 1989 as
Assistant Vice President-Executive Department. Prior to that, Mr. Edwards held
various executive positions with the General Partner since May 1985. Mr. Edwards
is also a director of SFP Pipeline Holdings, Inc., the sole shareholder of the
General Partner.

Barry R. Pearl, age 45, has been Senior Vice President, Treasurer and Chief
Financial Officer of the General Partner since January 1995. Mr. Pearl
previously served as Senior Vice President-Business Development and Planning
between January 1992 and January 1995, as Vice President-Business Development
and Planning between November 1988 and January 1992 and as Vice President-
Operations between May 1986 and November 1988.

John M. Abboud, age 52, has been Senior Vice President of the General Partner
since 1985. In his current capacity, Mr. Abboud is responsible for operations,
engineering and environmental affairs.

Lyle B. Boarts, age 51, has been Vice President-Human Resources of the General
Partner since November 1988. Previously, Mr. Boarts was Director of Human
Resources since June 1986.

R. Gregory Cunningham, age 49, has been Vice President-General Counsel since
January 1994. Previously, he served as General Counsel of the General Partner
since January 1991 and, prior to such date, as General Attorney since November
1985.

Burnell H. DeVos III, age 41, has served as Controller and Secretary of the
General Partner since January 1993. Mr. DeVos was Assistant Controller of the
General Partner from May 1989 through December 1992.

Patrick L. Avery, age 42, has served as Vice President-Environmental and Safety
of the General Partner since October 1993. Mr. Avery was Corporate Environmental
Manager at Amerada Hess Corporation from October 1992 to October 1993.
Previously, he held various positions at ARCO Products Company since 1982,
including Director-California Government Relations and Environmental Health and
Safety Manager at ARCO's Los Angeles refinery.

William M. White, age 49, has served as Vice President-Engineering of the
General Partner, with responsibility for engineering and construction, since
January 1993. Mr. White previously was Manager-Northern District from May 1986
through December 1992.

-20-
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION.
The directors, officers and employees of the General Partner receive no direct
compensation from the Partnership for their services to the Partnership. The
Partnership reimburses the General Partner for all direct costs incurred in
managing the Partnership and all indirect costs (principally salaries and other
general and administrative costs) allocable to the Partnership.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

(a) Security Ownership of Certain Beneficial Owners

To the best of the General Partner's knowledge, the following persons are the
only persons who are beneficial owners of more than five percent of the
Registrant's equity securities:

<TABLE>
<CAPTION>
Percent
Title of Class Name and Address Amount of Class
- -------------------- --------------------------------------- ------------- --------
<S> <C> <C> <C>
Common units Santa Fe Pacific Pipelines, Inc. 8,148,148 42.6%
888 South Figueroa Street
Los Angeles, CA 90017
</TABLE>

As discussed in Items 1 and 2 of this Report, Santa Fe Pacific Pipelines, Inc.
is also the general partner of the Partnership and is a wholly owned indirect
subsidiary of Santa Fe Pacific Corporation, also referred to herein as "Santa
Fe." On February 7, 1995, the stockholders of Santa Fe approved an Agreement and
Plan of Merger between Santa Fe and Burlington Northern Inc. ("BNI"), pursuant
to which Santa Fe is to merge with and into BNI, with BNI to be the surviving
corporation. Like Santa Fe, BNI and its subsidiaries are also principally
engaged in railroad transportation operations. Upon completion of the merger,
BNI will change its name to Burlington Northern Santa Fe Corporation. Gerald
Grinstein, BNI's chairman and chief executive officer, will be chairman of the
surviving corporation. Robert D. Krebs, chairman, president and chief executive
officer of Santa Fe, will be president and chief executive officer of the
surviving corporation. Two-thirds of the directors of the surviving corporation
will be designated by BNI, and one-third of the directors of the surviving
corporation will be designated by Santa Fe. The merger was also approved by
BNI's stockholders, but is still subject to a number of conditions, including
approval by the Interstate Commerce Commission.

(b) Security Ownership of Management

As of March 1, 1995, common units beneficially held by all directors and
officers as a group represent less than 1% of the Partnership's outstanding
units.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant and the Operating Partnership are managed by the General Partner
pursuant to the Amended and Restated Agreement of Limited Partnership of the
Partnership (the "Partnership Agreement"), and the Amended and Restated
Agreement of Limited Partnership of the Operating Partnership (the "Operating
Partnership Agreement").

Under the Partnership Agreement and Operating Partnership Agreement, the General
Partner and certain related parties are entitled to reimbursement of all direct
and indirect costs and expenses related to the business activities of the
Partnership and the Operating Partnership. These costs and expenses include
compensation and benefits payable to officers and employees of the General
Partner, payroll

-21-
<PAGE>

taxes, corporate office building rentals, general and administrative costs, and
legal and other professional services fees. These costs to the Partnership
totaled $44.2 million, $43.0 million and $37.1 million in 1994, 1993 and 1992,
respectively.

The Partnership Agreement provides for incentive distribution payments to the
General Partner out of the Partnership's "Available Cash" (as defined in the
Partnership Agreement) which increase as quarterly distributions to unitholders
exceed certain specified targets. The incremental incentive distributions
payable to the General Partner are 8%, 18% and 28% of all distributions of
Available Cash that exceed, respectively, $0.60, $0.65 and $0.70 per unit. Such
incentive distributions aggregated $1.2 million in each of the years 1994, 1993
and 1992.

PART IV

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

<TABLE>
<CAPTION>
(a) The following documents are filed as a part of this Report: Page
----
<S> <C>
(1) Financial Statements:
Report of Independent Accountants ...................................................... F-1
Consolidated Balance Sheet as of December 31, 1994 and 1993 ............................ F-2
Consolidated Statement of Income for the three years ended December 31, 1994............ F-3
Consolidated Statement of Cash Flows for the three years
ended December 31, 1994 .............................................................. F-4
Notes to Consolidated Financial Statements ............................................. F-5

(2) Financial Statement Schedules: None.

(3) Exhibits: The following exhibits are filed as a part of this Report. With the exception of Exhibits 21, 24 and 27, all
exhibits listed herein are incorporated by reference, with the location of the exhibit in the Registrant's previous filing
indicated parenthetically.
</TABLE>

3.2 Amended and Restated Agreement of Limited Partnership of the
Operating Partnership, dated as of December 19, 1988. (1988 Form 10-
K - Exhibit 3.2)
3.3 Certificate of Limited Partnership of the Registrant, dated as of
August 23, 1988. (1988 Form 10-K - Exhibit 3.3)
3.4 Certificate of Limited Partnership of the Operating Partnership,
dated as of August 23, 1988. (1988 Form 10-K - Exhibit 3.5)
3.5 Assumption Agreement between the Registrant and Santa Fe Pacific
Pipelines, Inc., dated as of December 7, 1989. (1989 Form 10-K -
Exhibit 3.4)
3.6 Amendment No. 1 to Amended and Restated Agreement of Limited
Partnership of the Registrant, dated as of December 7, 1989. (1989
Form 10-K -Exhibit 3.2)
3.7 Certificate of Amendment to Certificate of Limited Partnership of
the Registrant, dated as of December 7, 1989. (1989 Form 10-K -
Exhibit 3.3)
3.8 Amendment No. 1 to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, dated as of December 7,
1989. (1989 Form 10-K - Exhibit 3.5)
</TABLE>
-22-
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description
- ---------- -------------------------------------------------------------
<C> <S>
3.9 Certificate of Amendment to Certificate of Limited Partnership of
the Operating Partnership, dated as of December 7, 1989. (1989
Form 10-K - Exhibit 3.6)
3.10 Amendment No. 2 to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, dated as of January 24,
1990. (1989 Form 10-K - Exhibit 3.8)
3.11 Certificate of Amendment No. 2 to Certificate of Limited
Partnership of the Operating Partnership, dated as of January 30,
1990. (1989 Form 10-K - Exhibit 3.9)
4.1 Form of Deposit Agreement between the Registrant, American Stock
Transfer & Trust Company and the General Partner, as attorney-in-
fact for holders of units and depositary receipts. (Form S-1
Registration Statement No. 33-24395 - Exhibit 4.1)
4.2 First Mortgage Note Agreement, dated December 8, 1988 (a conformed
composite of 54 separate note agreements, identical except for
signatures). (1988 Form 10-K - Exhibit 4.2)
4.3 Deed of Trust, Security Agreement and Fixture Filing, dated
December 8, 1988, between the Operating Partnership, the General
Partner, Chicago Title Insurance Company and Security Pacific
National Bank. (1988 Form 10-K - Exhibit 4.3)
4.4 Trust Agreement, dated December 19, 1988, between the Operating
Partnership, the General Partner and Security Pacific National
Bank. (1988 Form 10-K - Exhibit 4.4)
4.5 The Operating Partnership has established a $60 million term
credit facility with three banks, dated as of October 14, 1993. As
the maximum allowable borrowings under this facility do not exceed
10% of the Registrant's total assets, this instrument is not filed
as an exhibit to this Report, however, the Registrant hereby
agrees to furnish a copy of such instrument to the Securities and
Exchange Commission upon request.
21 Subsidiaries of the Registrant*
24 Powers of attorney*
27 Financial Data Schedule as of and for the year ended December 31,
1994*

* Filed herewith.
</TABLE>

(b) Reports on Form 8-K filed during the quarter ended December 31, 1994: None

-23-
<PAGE>

SIGNATURES

Santa Fe Pacific Pipeline Partners, L.P., pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.

SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
(Registrant)
By: Santa Fe Pacific Pipelines, Inc., as General Partner

Dated: March 24, 1995 By: /s/ IRVIN TOOLE, JR.
---------------------------------------------------
Irvin Toole, Jr.
Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities with Santa Fe Pacific Pipelines, Inc., as General Partner, and
on the date indicated.

Signature Title
- ------------------------------ --------------------------------------
Chairman, President and
Chief Executive Officer
/s/ IRVIN TOOLE, JR. (Principal Executive Officer)
- ------------------------------
Irvin Toole, Jr. and Director

Senior Vice President-
/s/ ROBERT L. EDWARDS Business Development and Planning
- ------------------------------
Robert L. Edwards and Director

Senior Vice President, Treasurer
/s/ BARRY R. PEARL and Chief Financial Officer
- ------------------------------
Barry R. Pearl (Principal Financial Officer)

/s/ BURNELL H. DEVOS III Controller and Secretary
- ------------------------------
Burnell H. DeVos III (Principal Accounting Officer)

EDWARD F. SWIFT*
- ------------------------------
Edward F. Swift Director

ORVAL M. ADAM*
- ------------------------------
Orval M. Adam Director

WILFORD D. GODBOLD, JR.*
- ------------------------------
Wilford D. Godbold, Jr. Director

ROBERT D. KREBS*
- ------------------------------
Robert D. Krebs Director

DENIS E. SPRINGER*
- ------------------------------
Denis E. Springer Director

*By: /s/ BARRY R. PEARL
--------------------------
Barry R. Pearl, attorney in fact

Dated: March 24, 1995

-24-
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE PARTNERS OF SANTA FE PACIFIC PIPELINE PARTNERS, L.P.

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1) on page 22 present fairly, in all material
respects, the financial position of Santa Fe Pacific Pipeline Partners, L.P. and
its majority-owned operating partnership at December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

As discussed in Note 4 to the consolidated financial statements, certain of the
Partnership's shippers have initiated a Federal Energy Regulatory Commission
("FERC") proceeding alleging, among other things, that certain of the
Partnership's tariffs and charges are excessive. Management believes that the
Partnership's rates are just and reasonable and its practices are lawful under
FERC precedent; however, it is not possible to predict with certainty the
ultimate outcome of this proceeding.

Note 6 includes a description of a change in the method of accounting for
postretirement and postemployment benefits effective January 1, 1992.

PRICE WATERHOUSE LLP

Los Angeles, California
January 27, 1995

F-1
<PAGE>

SANTA FE PACIFIC PIPELINE PARTNERS, L.P.

CONSOLIDATED BALANCE SHEET

(In thousands)

<TABLE>
<CAPTION>
December 31,
----------------------
1994 1993
--------- ---------
A S S E T S
<S> <C> <C>
Current assets
Cash and cash equivalents..................... $ 48,948 $ 32,162
Accounts receivable, net ..................... 36,470 32,787
Other current assets.......................... 2,420 2,801
--------- ---------
Total current assets....................... 87,838 67,750
--------- ---------
Properties, plant and equipment ................. 691,263 683,082
Less accumulated depreciation ................ 78,224 66,472
--------- ---------
Net properties, plant and equipment ....... 613,039 616,610
Other assets..................................... 13,895 12,620
--------- ---------

Total assets............................... $ 714,772 $ 696,980
========= =========

<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
Current liabilities
Accounts payable.............................. $ 3,369 $ 2,403
Accrued liabilities........................... 28,403 33,235
--------- ---------
Total current liabilities.................. 31,772 35,638

Long-term debt .................................. 355,000 355,000
Other long-term liabilities ..................... 38,363 39,283
--------- ---------

Total liabilities ......................... 425,135 429,921
--------- ---------

Minority interest ............................... 1,676 1,208
--------- ---------
Commitments and contingencies (Note 4)...........
--------- ---------

Partners' capital
General Partner .............................. 1,676 1,208
Limited Partners.............................. 286,285 264,643
--------- ---------

Total partners' capital ................... 287,961 265,851
--------- ---------

Total liabilities and partners' capital ... $ 714,772 $ 696,980
========= =========
</TABLE>

See Notes to Consolidated Financial Statements.

F-2
<PAGE>

SANTA FE PACIFIC PIPELINE PARTNERS, L.P.

CONSOLIDATED STATEMENT OF INCOME

(In thousands, except per unit amounts)

<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1994 1993 1992
------------ ------------ -----------
<S> <C> <C> <C>
Operating revenues
Trunk revenues...................................... $ 179,339 $ 171,848 $ 161,116
Storage and terminaling revenues.................... 37,262 37,213 34,020
Other revenues...................................... 11,465 10,410 9,889
------------ ----------- -----------
Total operating revenues........................ 228,066 219,471 205,025
------------ ----------- -----------
Operating expenses
Field operating expenses............................ 32,492 34,305 28,928
General and administrative expenses................. 22,753 22,378 19,420
Facilities costs.................................... 21,256 19,555 18,876
Power cost.......................................... 20,698 18,940 18,116
Depreciation and amortization....................... 19,820 18,971 18,327
Provisions for environmental
and litigation costs (Note 4) ................... -- 27,000 10,000
------------ ----------- -----------
Total operating expenses........................ 117,019 141,149 113,667
------------ ----------- -----------
Operating income...................................... 111,047 78,322 91,358
Interest expense...................................... 37,570 37,086 36,937
Other income, net..................................... 5,037 1,262 843
Net income before minority interest and ------------ ----------- -----------
cumulative effect of accounting change ............. 78,514 42,498 55,264
Less minority interest .............................. (1,629) (882) (1,146)
------------ ----------- -----------
Net income before cumulative effect
of accounting change ............................... 76,885 41,616 54,118

Cumulative effect of change in accounting
for postretirement and postemployment
benefits, net of minority interest ................. -- -- (16,407)
------------ ----------- -----------

Net income ........................................... $ 76,885 $ 41,616 $ 37,711
============ =========== ===========
Income per unit:
Before cumulative effect of accounting change ........ $ 3.93 $ 2.13 $ 2.77
Cumulative effect of accounting change ............... -- -- (0.84)
------------ ----------- -----------
Net income ........................................... $ 3.93 $ 2.13 $ 1.93
============ =========== ===========
Operating expenses reflected above include
the following expenses incurred by, and
reimbursed to, the General Partner (Note 5) ....... $ 44,220 $ 43,025 $ 37,065
============ =========== ===========
</TABLE>

See Notes to Consolidated Financial Statements.

F-3
<PAGE>

SANTA FE PACIFIC PIPELINE PARTNERS, L.P.

CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 76,885 $ 41,616 $ 37,711
----------- ----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation and amortization.................... 19,820 18,971 18,327
Provisions for environmental
and litigation costs.......................... -- 27,000 10,000
Environmental and litigation costs paid.......... (5,914) (4,275) (275)
Cumulative effect of change
in accounting principle........................ -- -- 16,407
Other, net....................................... 1,296 (464) 1,825
Minority interest in net income.................. 1,629 882 1,146
Changes in--
Accounts receivable........................... (3,683) (4,636) (820)
Accounts payable and accrued liabilities...... (399) 2,375 (2,689)
Other current assets.......................... 381 81 5,460
----------- ----------- -----------
Total adjustments........................... 13,130 39,934 49,381
----------- ----------- -----------
Net cash provided by operating activities... 90,015 81,550 87,092
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures................................ (17,913) (21,084) (30,931)
Other............................................... 620 276 487
----------- ----------- -----------
Net cash used by investing activities....... (17,293) (20,808) (30,444)
----------- ----------- -----------
Cash flows from financing activities:
Distributions to partners and minority interest..... (55,936) (55,936) (55,936)
Repayment of long-term debt......................... (11,000) -- --
Proceeds from issuance of long-term debt............ 11,000 -- --
----------- ----------- -----------
Net cash used by financing activities....... (55,936) (55,936) (55,936)
----------- ----------- -----------
Increase in cash and cash equivalents.................. 16,786 4,806 712

Cash and cash equivalents--
Beginning of year................................... 32,162 27,356 26,644
----------- ----------- -----------
End of year......................................... $ 48,948 $ 32,162 $ 27,356
=========== =========== ===========
</TABLE>

See Notes to Consolidated Financial Statements.

F-4
<PAGE>

SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------

ORGANIZATION AND BASIS OF ACCOUNTING
The accompanying consolidated financial statements include the accounts of Santa
Fe Pacific Pipeline Partners, L.P. (the "Trading Partnership") and SFPP, L.P.,
(the "Operating Partnership"), collectively referred to as the "Partnership", on
a consolidated basis. The Trading Partnership is a publicly traded limited
partnership organized under the laws of the state of Delaware in 1988 which owns
a 99% limited partnership interest in the Operating Partnership, through which
the Partnership conducts all its operations. The Operating Partnership was
acquired by the Trading Partnership in December 1988 and is engaged in the
transportation of refined petroleum products and related services. The Operating
Partnership is managed by its general partner, Santa Fe Pacific Pipelines, Inc.
(the "General Partner"), which, by virtue of this 1% general partner interest,
represents the minority interest in the Partnership's consolidated financial
statements. The General Partner, which is a wholly owned indirect subsidiary of
Santa Fe Pacific Corporation ("Santa Fe"), also holds the 1% general partner
interest in the Trading Partnership and, therefore, in total, holds a 2% general
partner interest in the Partnership on a consolidated basis. In addition, the
General Partner owns 8,148,148 Partnership common units, representing an
approximate 42% limited partner interest in the Trading Partnership. The
remaining approximate 56% limited partner ownership in the Trading Partnership
is represented by 11,000,000 publicly traded common units.

REVENUE RECOGNITION
Substantially all revenues are derived from pipeline transportation and storage
and terminaling charges and are recognized in income upon delivery. Other
revenues, primarily incidental service charges and tank and land rentals, are
recognized as earned.

Operating revenues received from two major petroleum companies exceeded 10% of
total 1994 revenues and, individually, account for 16.1% and 12.4% of total
operating revenues. In 1993, these two customers accounted for 16.9% and 12.9%,
and a third customer accounted for 10.2%, of total operating revenues. In 1992,
these same customers accounted for 17.1%, 13.7% and 10.8% of total operating
revenues.

The Partnership's interstate common carrier pipeline operations are subject to
rate regulation by the Federal Energy Regulatory Commission ("FERC") under a
rate-making methodology that is subject to clarification and reconsideration in
individual cases and leaves many issues for determination on a case-by-case
basis. The Partnership's California intrastate common carrier pipeline
operations are subject to rate regulation by the California Public Utilities
Commission.

F-5
<PAGE>

PROPERTIES, PLANT AND EQUIPMENT
Properties are stated at cost and include capitalized interest on borrowed
funds. Additions and replacements are capitalized. Expenditures for maintenance
and repairs are charged to income. Upon sale or retirement of depreciable
properties, cost less salvage is charged to accumulated depreciation.

Properties are depreciated on a straight-line basis over the estimated service
lives of the related assets. Rates for the Partnership's interstate pipeline
properties are prescribed by the FERC. The Partnership's intrastate pipeline
properties and its terminal properties are depreciated using similar rates. The
following annual rates were used in computing depreciation:

<TABLE>

<S> <C>
Rights-of-way......................................... 2.60%
Line pipe, fittings and pipeline construction......... 2.22% to 2.60%
Buildings and field equipment......................... 2.95% to 4.00%
Storage tanks and delivery facilities................. 3.10% to 3.20%
Vehicles, office and communications equipment......... 3.00% to 15.70%
</TABLE>

Depreciation expense aggregated $17,447,000 in 1994, $16,921,000 in 1993 and
$16,148,000 in 1992.

ENVIRONMENTAL COSTS
Environmental expenditures that relate to current or future revenues are
expensed or capitalized, as appropriate. Expenditures that relate to an existing
condition caused by past operations, and do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or clean-ups are probable and the costs can be reasonably
estimated.

INCOME PER UNIT
Income per unit is computed based upon net income of the Partnership less an
allocation of income to the general partner of the Trading Partnership in
accordance with the partnership agreement, and is based upon 19,148,148 common
units. The quarterly allocation of net income to the general partner of the
Trading Partnership (which is always equivalent to the minority interest in net
income) is based on its percentage of cash distributions from Available Cash at
the end of each quarter (see Note 7). The general partner of the Trading
Partnership was allocated 2.07% of net income before minority interest in each
of the years 1994, 1993 and 1992.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Partnership considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

INCOME TAX
For federal and state income tax purposes, the Partnership is not a taxable
entity. Accordingly, the taxable income or loss resulting from the operations of
the Partnership is ultimately includable in the federal and state income tax
returns of the general and limited partners, and may vary substantially from the
income or loss reported for financial reporting purposes.

RECLASSIFICATIONS
Certain comparative prior year amounts have been reclassified to conform with
the current year presentation.

F-6
<PAGE>

NOTE 2 - DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
- --------------------------------------------------

<TABLE>
<CAPTION>
December 31,
------------------------
1994 1993
(In thousands) ----------- ----------
<S> <C> <C>
ACCOUNTS RECEIVABLE:
Trade accounts receivable.................................. $ 24,094 $22,587
Recollectible construction and maintenance
expenditures, insurance claims and other................. 12,376 10,200
----------- ----------
$ 36,470 $32,787
=========== ==========
PROPERTIES, PLANT AND EQUIPMENT:
Land....................................................... $ 56,000 $ 55,545
Rights-of-way.............................................. 12,677 12,601
Line pipe, fittings and pipeline construction.............. 288,303 287,008
Buildings and equipment.................................... 165,613 162,412
Storage tanks and delivery facilities...................... 149,162 144,678
Construction in progress................................... 19,508 20,838
----------- ----------
691,263 683,082

Less accumulated depreciation.............................. 78,224 66,472
----------- ----------
$613,039 $616,610
=========== ==========
ACCRUED LIABILITIES:
Environmental remediation costs............................ $ 6,310 $ 6,270
Capital expenditures and major maintenance................. 4,558 2,685
East Line litigation costs................................. 3,250 6,570
Property taxes............................................. 2,980 3,210
Military product loss reserve.............................. 2,788 5,111
Right-of-way rents......................................... 2,495 1,335
Interest................................................... 1,695 1,709
Other...................................................... 4,327 6,345
----------- ----------
$28,403 $33,235
=========== ==========
</TABLE>

F-7
<PAGE>

NOTE 3 - LONG-TERM DEBT
- -----------------------
Long-term debt consists of the following:

<TABLE>
<CAPTION>
December 31,
-------------------------
1994 1993
(In thousands) ----------- -----------
<S> <C> <C>
First Mortgage Notes:
Series A 9.85% due December 1994.................. $ -- $ 11,000
Series B 10.00% due December 1995.................. 17,000 17,000
Series C 10.05% due December 1996.................. 22,000 22,000
Series D 10.15% due December 1997.................. 28,500 28,500
Series E 10.25% due December 1998.................. 32,500 32,500
Series F 10.70% due December 1999 through 2004..... 244,000 244,000
----------- -----------
344,000 355,000

Bank term loan, due April 1999 through September 2001.... 11,000 --
----------- -----------
$355,000 $355,000
=========== ===========
</TABLE>

The Partnership intends to refinance the Series B Notes on a long-term basis
upon their maturity and, therefore, has included them in long-term debt at
December 31, 1994. The Series F Notes become payable in annual installments
ranging from $31.5 million in 1999 to the final payment of $49.5 million in
December 2004. The Notes may also be prepaid beginning in 1999 in full or in
part at a price equal to par plus, in certain circumstances, a premium.

The First Mortgage Notes (the "Notes") are secured by mortgages on substantially
all of the properties of the Partnership (the "Mortgaged Property"). The Notes
contain covenants specifying certain limitations on the Partnership's operations
including the amount of additional debt or equity that may be issued, cash
distributions, investments and property dispositions. Management does not
believe such limitations will adversely affect the Partnership's ability to fund
its operations or planned capital expenditures.

The Partnership arranged a $60 million multi-year term credit facility and a $20
million working capital facility with three banks in October 1993. The term
facility is available for refinancing a portion of the Partnership's long-term
debt and capital projects, and may be utilized on a revolving basis through
October 1998, with any outstanding balance at that time converted to a three-
year amortizing term loan. Borrowings under the term facility are also secured
by the Mortgaged Property and are generally subject to the same terms and
conditions of the Notes. In December 1994, the Partnership refinanced the Series
A Notes by borrowing $11 million under this facility. The Partnership has
selected an interest rate on this loan that is presently determined by reference
to a short-term Eurodollar rate, and was 6.9375% at December 31, 1994.

Advances under the $20 million working capital credit facility can be used for
general Partnership purposes and would be secured by certain of the
Partnership's accounts receivable. This facility may not be utilized for a 45-
day period, the designation of such period to be at the Partnership's
discretion, during each year. This facility also provides for certain interest
rate options, and is subject to annual renewal and other reasonable and
customary terms and conditions. To date, the working capital facility has not
been utilized.

F-8
<PAGE>

Interest on the Notes is payable semiannually in June and December. Interest on
the bank term loan is generally payable quarterly. Total interest paid was
$37,326,000 during each of the years 1994, 1993 and 1992. Interest capitalized
during the years 1994, 1993 and 1992 aggregated $206,000, $598,000 and $760,000,
respectively.

The fair value of the Partnership's long-term debt is approximately $425 million
at December 31, 1994. Such estimate represents the present value of interest and
principal payments on the Notes discounted at present market yields, and assumes
the Series F Notes will be prepaid in full in 1999 at par plus a premium. The
fair market value of the term loan is considered to be equal to its principal
amount.

NOTE 4 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------

EAST LINE LITIGATION AND FERC PROCEEDING
Certain of the Partnership's shippers have filed civil suits and initiated a
Federal Energy Regulatory Commission ("FERC") proceeding alleging, among other
things, that the shippers had been damaged by the Partnership's failure to
fulfill alleged promises to expand the East Line's capacity between El Paso,
Texas and Phoenix, Arizona to meet shipper demand. The FERC proceeding also
involves claims, among other things, that certain of the Partnership's tariffs
and charges on its East and West Lines are excessive. In July 1993, the
Partnership reached a settlement with one of these shippers, Navajo Refining
Company ("Navajo"), whereby, among other things, Navajo agreed to dismiss its
pending civil litigation in New Mexico and the Partnership agreed to make
certain cash payments to Navajo over three years. The remaining civil action,
brought by El Paso Refinery, L.P. ("El Paso") and its general partner, claims
unspecified actual damages, which appear to include the $190 million cost of a
refinery expansion completed in 1992, plus punitive and consequential damages.

During the quarter ended September 30, 1993, the Partnership recorded a $12
million provision for litigation costs, which reflects the terms of the Navajo
settlement as well as anticipated legal fees and other costs related to the FERC
proceeding and El Paso's civil action. Subsequently, lesser amounts of such
litigation costs have, from time to time, been recorded as current period
expense to maintain the reserve at a level deemed adequate.

Management believes that it has acted properly with respect to expansion of the
East Line and the direction of flow of the six-inch pipeline from Phoenix to
Tucson, Arizona, which are the primary issues in El Paso's civil action.
Management also believes that the Partnership's current tariffs are just and
reasonable and that, so long as certain of the underlying assumptions and
interpretations of rate-making methodology made by the Partnership with respect
to these tariffs are ruled upon favorably, these tariffs will be upheld should
the FERC proceeding progress to its completion. However, because of the nature
of the FERC rate-making methodology, it is not possible to predict with
certainty whether the Partnership's assumptions and rate-making approach will be
upheld by the FERC or whether any reparations will be ordered paid to the
complainants or any prospective rate reductions will be required. A decision by
the FERC which results in significant reparations being paid and a significant
reduction in the Partnership's current tariffs could have a material adverse
effect on the Partnership's results of operations, financial condition and
ability to maintain its current quarterly cash distribution.

F-9
<PAGE>

ENVIRONMENTAL
The Partnership's transportation and terminal operations are subject to
extensive regulation under federal, state and local environmental laws
concerning, among other things, the generation, handling, transportation and
disposal of hazardous materials and the Partnership is, from time to time,
subject to environmental cleanup and enforcement actions. In particular, the
federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "Superfund" law) generally imposes joint and several liability for
cleanup and enforcement costs, without regard to fault or the legality of the
original conduct, on current or predecessor owners and operators of a site.

Along with several other respondents, the Partnership is presently involved in
one cleanup ordered by the United States Environmental Protection Agency related
to ground water contamination in the vicinity of the Partnership's storage
facilities and truck loading terminal at Sparks, Nevada. The investigation and
remediation at the Sparks terminal is also the subject of lawsuits brought by
the State of Nevada, the City of Sparks and several property owners seeking
unspecified but, in the aggregate, potentially substantial fines and damages.

In addition, the Partnership is involved in six ground water hydrocarbon
remediation efforts under administrative orders issued by the California
Regional Water Quality Control Board and one remediation effort with the United
States military and, from time to time, may be involved in groundwater
investigations or remediations for other governmental agencies. The Partnership
is also involved in soil and ground water remediation projects, at and adjacent
to various other terminal and pipeline locations, that have not been mandated by
government agencies but are conducted in the ordinary course of business. In a
number of these cleanup projects, the Partnership is participating with other
entities ranging from large integrated petroleum companies to certain less
financially sound parties.

The Partnership accrues for environmental costs that relate to an existing
condition caused by past operations. Such costs include initial site surveys and
environmental studies of potentially contaminated sites, costs for remediation
and restoration of sites determined to be contaminated and ongoing monitoring
costs, as well as fines, damages and other costs, when estimable. Estimates of
the Partnership's ultimate liabilities associated with environmental costs are
particularly difficult to make with certainty due to the number of variables
involved, including the early stage of investigation at certain sites, the
lengthy time frames required to complete remediation at most locations, the
number of parties involved, the number of remediation alternatives available,
the uncertainty of potential recoveries from third parties and the evolving
nature of environmental laws and regulations.

The Partnership's balance sheet at December 31, 1994 and 1993 includes reserves
for environmental costs aggregating $22.7 million and $23.2 million,
respectively, which reflect the estimated cost of completing all remediation
projects presently known to be required, either by government mandate or in the
ordinary course of business, as well as the cost of performing preliminary
environmental investigations at several locations. Approximately 80% of the
accrued costs at December 31, 1994 are expected to be paid over the next five
years. Certain remediation projects, including the largest project at Sparks,
are expected to continue for a period of approximately ten years. The
environmental reserves are monitored on a regular basis by Partnership
management and are adjusted, from time to time, to reflect changing
circumstances and estimates. During 1993, the Partnership completed a
comprehensive re-evaluation of its potential liabilities associated with
environmental remediation activities and, as a result, recorded a $15 million
provision to increase its existing reserve for environmental remediation and
related costs and, during 1992, a $10 million provision was recorded for
environmental remediation costs at Sparks, Nevada and two sites in California.

F-10
<PAGE>

Based on the information presently available, it is the opinion of management
that the Partnership's environmental costs, to the extent they exceed recorded
liabilities, will not have a material adverse effect on the Partnership's
financial condition; nevertheless, it is possible that the Partnership's results
of operations in particular quarterly or annual periods could be materially
affected as conditions change or additional information becomes available.

OTHER CLAIMS AND LITIGATION
The Partnership is also party to a number of other legal actions arising in the
ordinary course of business. While the final outcome of these other legal
actions cannot be predicted with certainty, it is the opinion of management that
none of these other legal actions, when finally resolved, will have a material
adverse effect on the consolidated financial condition of the Partnership;
nevertheless, it is possible that the Partnership's results of operations, in
particular quarterly or annual periods, could be materially affected by the
ultimate resolution of these matters.

LEASE COMMITMENTS
The General Partner leases space in an office building and certain computer
equipment, the rent on which is charged to the Partnership. The General
Partner's total lease commitments not subject to cancellation at December 31,
1994 are as follows: $2,100,000 in 1995 and $1,215,000 in 1996.

The Partnership also leases certain rights-of-way and land under agreements that
can be canceled at any time should they not be required for operations. The
annual payments associated with these leases aggregated approximately $5 million
in 1993, however a substantial portion of this amount became subject to
renegotiation effective January 1, 1994. To date, the Partnership and the lessor
have been unable to reach an agreement on the base annual rental payments for
the next ten-year period, although it is expected that this matter will be
resolved through arbitration during 1995. While the lessor has requested a
significant increase in the annual lease payment for 1994 and future years, it
is not presently possible to predict the annual rent associated with these
leases. Rental expense for all operating leases was $8,335,000, $7,130,000 and
$6,600,000 for the years 1994, 1993 and 1992, respectively.

NOTE 5 - RELATED PARTY TRANSACTIONS
- -----------------------------------

The Partnership has no employees and is managed by the General Partner. Under
certain partnership and management agreements, the General Partner and Santa Fe
or its subsidiaries are entitled to reimbursement of all direct and indirect
costs related to the business activities of the Partnership. These expenses,
which are included in field operating and general and administrative expenses in
the Partnership's statement of income, totaled $44.2 million, $43.0 million and
$37.1 million for the years 1994, 1993 and 1992, respectively, and include
compensation and benefits payable to officers and employees of the General
Partner, payroll taxes, corporate office building rentals, general and
administrative costs, tax information and reporting costs and legal and other
professional services fees.

F-11
<PAGE>

NOTE 6 - PENSION AND POSTRETIREMENT PLANS
- -----------------------------------------

The General Partner is included with certain other affiliates in the trusteed
non-contributory Santa Fe Pacific Retirement Plan (the "Plan") which fully
complies with ERISA requirements. The Plan covers substantially all officers and
employees of Santa Fe and its subsidiaries not covered by collective bargaining
agreements. Benefits payable under the Plan are based on years of service and
compensation during the sixty highest paid consecutive months of service during
the ten years immediately preceding retirement. Santa Fe's funding policy is to
contribute annually at a rate not less than the ERISA minimum, and not more than
the maximum amount deductible for income tax purposes. Since the General Partner
is included with certain other affiliates, detailed Plan information for the
General Partner is not available in all cases, however, as of September 30,
1994, the fair value of Plan assets allocated to employees associated with the
Partnership's operations was $50.4 million, and the actuarial present value of
projected Plan obligations, discounted at 8.5%, was $47.5 million. The expected
return on the market value of Plan assets was 9.75% and compensation levels were
assumed to increase at 4.0% per year. Primarily as a result of the excess of
Plan assets over liabilities, pension income of $200,000, $435,000 and $605,000
was recognized in 1994, 1993 and 1992, respectively.

As of June 1994, salaried employees who have rendered ten years of service after
attaining age 45 are eligible for both medical benefits and life insurance
coverage during retirement. Prior to June 1994, salaried employees who had
attained age 55 and who had rendered ten years of service were eligible. This
change in eligibility requirements resulted in a $3.1 million curtailment gain
in 1994 relating to employees who are no longer currently eligible for
postretirement benefits, and a negative plan amendment due to a reduction in the
accumulated postretirement benefit obligation related to remaining eligible
active employees. This curtailment gain is included in other income in the
Partnership's statement of income. The retiree medical plan is contributory and
provides benefits to retirees, their covered dependents and beneficiaries.
Retiree contributions are adjusted annually. The plan also contains fixed
deductibles, coinsurance and out-of-pocket limitations. The life insurance plan
is non-contributory and covers retirees only.

Effective January 1, 1992, the General Partner and the Partnership adopted
Statement of Financial Accounting Standards ("FAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", and FAS No. 112,
"Employers' Accounting for Postemployment Benefits." FAS No. 106 requires that
an actuarial method be used to accrue the expected cost of postretirement health
care and other benefits over employees' years of service. FAS No. 112 relates to
benefits provided to former or inactive employees after employment but before
retirement and requires recognition of these benefits if they are vested and
payment is probable and reasonably estimable. Prior to 1992, the costs of
postretirement and postemployment benefits were generally expensed when paid.
For the Partnership, the cumulative effect of the accounting change attributable
to years prior to 1992 was to decrease 1992 net income by $16,407,000, net of
minority interest of $347,000. The impact of FAS No. 106 comprised approximately
95% of the change.

F-12
<PAGE>

Net periodic postretirement benefit cost in 1994, 1993 and 1992 was $1,500,000,
$1,557,000 and $2,231,000, respectively, and included the following components:

<TABLE>
<CAPTION>
Medical Plan Life Insurance Plan
----------------------------- ----------------------------
(In thousands) 1994 1993 1992 1994 1993 1992
--------- -------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost.................. $ 660 $ 553 $ 718 $ 40 $ 37 $ 26
Interest cost................. 970 1,066 1,275 240 213 212
Amortization of prior
service credit............... (410) (312) -- -- -- --
--------- -------- -------- --------- -------- -------
Net periodic postretire-
ment benefit cost............ $1,220 $1,307 $1,993 $ 280 $ 250 $ 238
========= ======== ======== ========= ======== =======
</TABLE>

The Partnership's policy is to fund benefits payable under the medical and life
insurance plans as they come due. The following table shows the reconciliation
of the plans' obligations, using a September 30 measurement date, to amounts
accrued at December 31, 1994 and 1993:

<TABLE>
<CAPTION>
Medical Plan Life Insurance Plan
---------------------- -----------------------
(In thousands) 1994 1993 1994 1993
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees................................ $ 4,487 $ 5,253 $ 1,957 $ 2,086
Fully eligible active plan participants. 4,658 1,148 24 --
Other active plan participants.......... 1,013 9,199 444 648
---------- --------- ---------- ----------
10,158 15,600 2,425 2,734
Unrecognized prior service credit......... 4,242 3,763 -- --
Unrecognized net gain (loss).............. 612 (2,249) (230) (243)
---------- --------- ---------- ----------
Accrued postretirement liability.......... $15,012 $17,114 $ 2,195 $ 2,491
========== ========= ========== ==========
</TABLE>

The unrecognized prior service credit will be amortized straight-line over the
average future service to full eligibility of the active population. For 1995,
the assumed health care cost trend rate for managed care medical costs is 11%
and is assumed to decrease gradually to 5% by 2006 and remain constant
thereafter. For medical costs not in managed care, the assumed health care cost
trend is 13% in 1995 and is assumed to decrease gradually to 5% by 2006 and
remain constant thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would increase
the accumulated postretirement benefit obligation for the medical plan by $1.8
million and the combined service and interest components of net periodic
postretirement benefit cost recognized in 1994 by $170,000. In 1994, the assumed
health care cost trend rate for managed care medical costs was 11.5% and was
assumed to decrease gradually to 5% by 2006 and remain constant thereafter. For
medical costs not in managed care, the assumed health care cost trend was 14% in
1994 and was assumed to decrease gradually to 5% by 2006 and remain constant
thereafter. The weighted-average discount rate assumed in determining the
accumulated postretirement benefit obligation was 8.5% and 7% in 1994 and 1993,
respectively. The assumed weighted-average salary increase was 4% in both 1994
and 1993.

F-13
<PAGE>

NOTE 7 - PARTNERS' CAPITAL AND CASH DISTRIBUTIONS
- -------------------------------------------------

Changes in partners' capital were as follows:

<TABLE>
<CAPTION>
General Limited
(In thousands) Partner Partners Total
----------- ------------ ----------
<S> <C> <C> <C>
Partners' capital at December 31, 1991............... $1,848 $294,227 $296,075

1992 net income before accounting change............. 1,146 52,972 54,118
Cumulative effect of accounting change............... (347) (16,060) (16,407)
1992 cash distributions.............................. (1,161) (53,615) (54,776)
----------- ------------ ----------
Partners' capital at December 31, 1992............... 1,486 277,524 279,010

1993 net income...................................... 882 40,734 41,616
1993 cash distributions.............................. (1,160) (53,615) (54,775)
----------- ------------ ----------
Partners' capital at December 31, 1993............... 1,208 264,643 265,851

1994 net income...................................... 1,629 75,256 76,885
1994 cash distributions.............................. (1,161) (53,614) (54,775)
----------- ------------ ----------
Partners' capital at December 31, 1994............... $1,676 $286,285 $287,961
=========== ============ ==========
</TABLE>

The Partnership makes quarterly cash distributions of substantially all of its
available cash, generally defined as consolidated cash receipts less
consolidated cash expenditures and such retentions for working capital,
anticipated capital expenditures and contingencies as the General Partner deems
appropriate or as are required by the terms of the Notes. Distributions are made
98% to the common unitholders and 2% to the General Partner, subject to the
payment of incentive distributions to the General Partner which increase as
quarterly distributions to unitholders exceed certain specified target levels.
The incremental incentive distributions payable to the General Partner are 8%,
18% and 28% of all quarterly distributions of available cash that exceed,
respectively, $0.60, $0.65 and $0.70 per unit. Such incentive distributions
aggregated $1,202,000 in each of the years 1994, 1993 and 1992.

Cash distributions declared for each of the years 1994, 1993 and 1992 aggregated
$2.80 per unit. In January 1995, the Partnership announced a fourth quarter 1994
distribution of $0.70 per unit, payable in February 1995.

Prior to December 31, 1993, in the event that there was not sufficient available
cash to pay the minimum distribution of $0.55 per unit to all unitholders at the
end of a quarter, holders of the 11,000,000 publicly traded units (at that time
denominated as "preference units") were entitled to receive the minimum
quarterly distribution, plus any arrearages, prior to any distribution of
available cash on the 8,148,148 common units held by the General Partner. With
the Partnership having met certain financial criteria, this subordination period
ended on December 31, 1993, and all units henceforth have equivalent rights with
respect to cash distributions. During 1994, the 11,000,000 preference units were
redenominated and registered as common units.

F-14
<PAGE>

NOTE 8 - SUMMARIZED QUARTERLY OPERATING RESULTS
- -----------------------------------------------
AND COMMON UNIT INFORMATION (UNAUDITED)
--------------------------------------

Quarterly results of operations are summarized below:

<TABLE>
<CAPTION>
First Second Third Fourth
(In thousands, except per unit amounts) Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994
Net revenues............................. $52,522 $58,162 $59,446 $57,936
Operating income......................... 23,456 30,084 29,942 27,565
Net income............................... 14,075 23,672 20,692 18,446

Income per unit.......................... $ 0.72 $ 1.21 $ 1.06 $ 0.94
1993
Net revenues............................. $49,674 $57,222 $56,778 $55,797
Operating income......................... 21,758 29,150 1,478 25,936
Net income (loss) ....................... 12,516 19,674 (7,326) 16,752

Income (loss) per unit................... $ 0.64 $ 1.01 ($ 0.37) $ 0.86
</TABLE>

Notes: Third quarter 1993 included a $27.0 million provision for
environmental and litigation costs. The sum of net income (loss) per unit for
the four quarters of 1993 does not equal net income per unit for the full
year due to the effect of rounding differences.

Santa Fe Pacific Pipeline Partners, L.P. common units are traded on the New York
Stock Exchange, under the symbol SFL. The quarterly price range per unit and
cash distributions declared per unit for 1994 and 1993 are summarized below:

<TABLE>
<CAPTION>
High Low Cash
Unit Unit Distributions
Price Price Declared
--------- --------- ---------------
<S> <C> <C> <C>
1994
Fourth Quarter...................... 34 30 $0.70
Third Quarter....................... 36-7/8 32-3/8 0.70
Second Quarter...................... 37-7/8 31-1/2 0.70
First Quarter....................... 40 34-5/8 0.70

1993
Fourth Quarter...................... 39-7/8 36-3/8 $0.70
Third Quarter....................... 40 36-3/8 0.70
Second Quarter...................... 40-3/4 36-3/8 0.70
First Quarter....................... 39-3/4 35-3/4 0.70
</TABLE>

As of January 31, 1995, there were approximately 18,000 unitholders.

F-15
<PAGE>

EXHIBIT INDEX SEQUENTIAL
PAGE NO.

<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- --------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Agreement of Limited Partnership of the
Registrant, dated as of December 19, 1988.(1988 Form 10-K-Exhibit
3.1)
3.2 Amended and Restated Agreement of Limited Partnership of the
Operating Partnership, dated as of December 19, 1988. (1988 Form 10-
K - Exhibit 3.2)
3.3 Certificate of Limited Partnership of the Registrant, dated as of
August 23, 1988. (1988 Form 10-K - Exhibit 3.3)
3.4 Certificate of Limited Partnership of the Operating Partnership,
dated as of August 23, 1988. (1988 Form 10-K - Exhibit 3.5)
3.5 Assumption Agreement between the Registrant and Santa Fe Pacific
Pipelines, Inc., dated as of December 7, 1989. (1989 Form 10-K -
Exhibit 3.4)
3.6 Amendment No. 1 to Amended and Restated Agreement of Limited
Partnership of the Registrant, dated as of December 7, 1989. (1989
Form 10-K -Exhibit 3.2)
3.7 Certificate of Amendment to Certificate of Limited Partnership of
the Registrant, dated as of December 7, 1989. (1989 Form 10-K -
Exhibit 3.3)
3.8 Amendment No. 1 to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, dated as of December 7,
1989. (1989 Form 10-K - Exhibit 3.5)
3.9 Certificate of Amendment to Certificate of Limited Partnership of
the Operating Partnership, dated as of December 7, 1989. (1989 Form
10-K - Exhibit 3.6)
3.10 Amendment No. 2 to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, dated as of January 24,
1990. (1989 Form 10-K - Exhibit 3.8)
3.11 Certificate of Amendment No. 2 to Certificate of Limited Partnership
of the Operating Partnership, dated as of January 30, 1990. (1989
Form 10-K - Exhibit 3.9)
4.1 Form of Deposit Agreement between the Registrant, American Stock
Transfer & Trust Company and the General Partner, as attorney-in-
fact for holders of units and depositary receipts. (Form S-1
Registration Statement No. 33-24395 - Exhibit 4.1)
4.2 First Mortgage Note Agreement, dated December 8, 1988 (a conformed
composite of 54 separate note agreements, identical except for
signatures). (1988 Form 10-K - Exhibit 4.2)
4.3 Deed of Trust, Security Agreement and Fixture Filing, dated December
8, 1988, between the Operating Partnership, the General Partner,
Chicago Title Insurance Company and Security Pacific National Bank.
(1988 Form 10-K - Exhibit 4.3)
4.4 Trust Agreement, dated December 19, 1988, between the Operating
Partnership, the General Partner and Security Pacific National Bank.
(1988 Form 10-K - Exhibit 4.4)
4.5 The Operating Partnership has established a $60 million term credit
facility with three banks, dated as of October 14, 1993. As the
maximum allowable borrowings under this facility do not exceed 10%
of the Registrant's total assets, this instrument is not filed as an
exhibit to this Report, however, the Registrant hereby agrees to
furnish a copy of such instrument to the Securities and Exchange
Commission upon request.
21 Subsidiaries of the Registrant*
24 Powers of attorney*
27 Financial Data Schedule as of and for the year ended December 31,
1994*

* Filed herewith.
</TABLE>

(b) Reports on Form 8-K filed during the quarter ended December 31, 1994: None

<PAGE>

EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT

The following is a subsidiary of the Registrant:
SFPP, L.P., a Delaware limited partnership.

<PAGE>

POWER OF ATTORNEY
-----------------

WHEREAS, SANTA FE PACIFIC PIPELINE PARTNERS, L.P., a Delaware limited
partnership (the "Registrant"), will file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, its Annual Report on Form 10-K for the fiscal year ended December 31,
1994; and

WHEREAS, Santa Fe Pacific Pipelines, Inc. (the "General Partner") is the
general partner of the Registrant; and

WHEREAS, the undersigned holds the office in the General Partner as set
forth below his name;

NOW THEREFORE, the undersigned hereby constitutes and appoints Barry R.
Pearl, his attorney, with full power to act for him in his name, place and
stead, to sign his name to the Annual Report on Form 10-K of the Registrant for
the fiscal year ended December 31, 1994; and to any and all amendments to such
Annual Report on Form 10-K, and hereby ratifies and confirms all that said
attorney may or shall lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 16th day of February 1995.

/s/ EDWARD F. SWIFT
------------------------------
Edward F. Swift
Director

<PAGE>

POWER OF ATTORNEY
-----------------

WHEREAS, Santa Fe Pacific Pipelines, Inc. (the "General Partner") is the
general partner of the Registrant ; and

WHEREAS, the undersigned holds the office in the General Partner as set
forth below his name;

NOW THEREFORE, the undersigned hereby constitutes and appoints Barry
R. Pearl, his attorney, with full power to act for him in his name, place and
stead, to sign his name to the Annual Report on Form 10-K of the Registrant for
the fiscal year ended December 31, 1994; and to any and all amendments to such
Annual Report on Form 10-K, and hereby ratifies and confirms all that said
attorney may or shall lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 16th day of February 1995.

/s/ ORVAL M. ADAM
-------------------------------
Orval M. Adam
Director
<PAGE>

POWER OF ATTORNEY
-----------------

WHEREAS, Santa Fe Pacific Pipelines, Inc. (the "General Partner") is the
general partner of the Registrant; and

WHEREAS, the undersigned holds the office in the General Partner as set
forth below his name;

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 16th day of February 1995.

/s/ WILFORD D. GODBOLD, JR.
--------------------------------------
Wilford D. Godbold, Jr.
Director
<PAGE>

POWER OF ATTORNEY
-----------------

WHEREAS, Santa Fe Pacific Pipelines, Inc. (the "General Partner") is the
general partner of the Registrant; and

WHEREAS, the undersigned holds the office in the General Partner as set
forth below his name;

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 22nd day of February 1995.

/s/ ROBERT D. KREBS
------------------------------------
Robert D. Krebs
Director
<PAGE>

POWER OF ATTORNEY
-----------------

WHEREAS, Santa Fe Pacific Pipelines, Inc. (the "General Partner") is the
general partner of the Registrant; and

WHEREAS, the undersigned holds the office in the General Partner as set
forth below his name;

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 16th day of February 1995.

/s/ DENIS E. SPRINGER
----------------------------------
Denis E. Springer
Director

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 48,948
<SECURITIES> 0
<RECEIVABLES> 36,470
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 87,838
<PP&E> 691,263
<DEPRECIATION> 78,224
<TOTAL-ASSETS> 714,772
<CURRENT-LIABILITIES> 31,772
<BONDS> 355,000
<COMMON> 0
0
0
<OTHER-SE> 287,961
<TOTAL-LIABILITY-AND-EQUITY> 714,772
<SALES> 0
<TOTAL-REVENUES> 228,066
<CGS> 0
<TOTAL-COSTS> 117,019
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,570
<INCOME-PRETAX> 78,514
<INCOME-TAX> 0
<INCOME-CONTINUING> 76,885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,885
<EPS-PRIMARY> 3.93
<EPS-DILUTED> 3.93

</TABLE>