UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 1, 2005

Valero L.P.

(Exact name of registrant as specified in its charter)

Registrant’s Telephone Number, including Area Code: (210) 345-2000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Explanatory Note

This Form 8-K/A amends the Current Report on Form 8-K of Valero L.P. dated July 1, 2005, and filed with the Securities and Exchange Commission on July 1, 2005.  That Form 8-K reported Valero L.P’s completion of its acquisition of Kaneb Services LLC (“KSL”) and Kaneb Pipe Line Partners, L.P. (“KPP”).  This report provides the financial statements and the pro forma financial information required under Item 9.01.

SIGNATURE

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

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EXHIBIT INDEX

Valero L.P.

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Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors of Valero GP, LLC

And Unitholders of Valero L.P.:

We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333-109541, 333-88264, and 333-81806) and on Form S-3 (File No. 333-109412) of Valero L.P. and subsidiaries of our reports dated March 11, 2005, with respect to the consolidated balance sheets of Kaneb Services LLC and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2004, which report appears in the Form 8-K/A of Valero L.P. and subsidiaries dated September 16, 2005.

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors of Valero GP, LLC

And Unitholders of Valero L.P.:

We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333-109541, 333-88264, and 333-81806) and on Form S-3 (File No. 333-109412) of Valero L.P. and subsidiaries of our reports dated March 11, 2005, with respect to the consolidated balance sheets of Kaneb Pipe Line Partners, L.P. as of December 31, 2004 and 2003, and the related consolidated statements of income, partners’ capital and cash flows for each of the years in the three-year period ended December 31, 2004, which report appears in the Form 8-K/A of Valero L.P. and subsidiaries dated September 16, 2005.

EXHIBIT 99.1

KANEB SERVICES LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands — Except Per Share Amounts)

(Unaudited)

See Notes to Consolidated Financial Statements

Exhibit 99.1 page 1

KANEB SERVICES LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

See Notes to Consolidated Financial Statements

Exhibit 99.1 page 2

KANEB SERVICES LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

See Notes to Consolidated Financial Statements

Exhibit 99.1 page 3

KANEB SERVICES LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.              SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements reflect the results of operations of Kaneb Services LLC (the “Company”), its wholly owned subsidiaries and Kaneb Pipe Line Partners, L.P. (“KPP”).  The Company controls the operations of KPP through its 2% general partner interest and 18% limited partner interest in KPP as of June 30, 2005.  All significant intercompany transactions and balances have been eliminated.

The unaudited condensed consolidated financial statements of the Company for the three and six month periods ended June 30, 2005 and 2004, have been prepared in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies followed by the Company are disclosed in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.  In the opinion of the Company’s management, the accompanying condensed consolidated financial statements contain all of the adjustments, consisting of normal recurring accruals, necessary to present fairly the consolidated financial position of the Company and its consolidated subsidiaries at June 30, 2005, and the consolidated results of their operations and cash flows for the periods ended June 30, 2005 and 2004.  Operating results for the three and six months ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

2.              VALERO L.P. MERGER

On July 1, 2005, Valero L.P. acquired all of the outstanding shares of the Company as well as all of the outstanding units of KPP.  Consequently, the Company and KPP became wholly owned subsidiaries of Valero L.P.

In connection with the acquisition by Valero L.P., the Company incurred certain costs directly related to the acquisition.  For the six months ended June 30, 2005, approximately $23.0 million was included in general and administrative expenses related principally to settling certain outstanding stock awards and settling other employee compensation obligations, and legal fees associated with the acquisition.  In addition, on June 30, 2005 the Company and KPP paid approximately $4.4 million in contractual change of control payments.  Because these payments were contingent upon the closing of the Valero L.P. merger, these payments were included in prepaid expenses and other at June 30, 2005.  To fund a portion of these expenses, the Company and KPP borrowed approximately $39.7 million in the second quarter of 2005.

On July 1, 2005, Valero L.P. sold all of the outstanding equity interests of Martin Oil LLC, an indirect wholly owned subsidiary of KSL, to Valero Marketing and Supply Company, a wholly owned subsidiary of Valero Energy Corporation, for approximately $27 million.

On July 1, 2005, Valero L.P. entered into a definitive agreement to sell certain of KPP’s assets to Pacific Energy Partners L.P. for approximately $455 million.  These asset sales were required by the U.S. Federal Trade Commission as a condition to closing the merger.

Exhibit 99.1 page 4

3.              COMPREHENSIVE INCOME

Comprehensive income (loss) for the three and six months ended June 30, 2005 and 2004, is as follows:

Accumulated other comprehensive income aggregated $2.6 million at June 30, 2005 and $3.2 million at December 31, 2004, respectively.

4.              CASH DISTRIBUTIONS

Prior to the acquisition by Valero L.P., the Company made quarterly distributions of 100% of its available cash, as defined in the limited liability company agreement, to common shareholders of record on the applicable record date, within 45 days after the end of each quarter.  Available cash consisted generally of all the cash receipts of the Company, less all cash disbursements and reserves.  Excess cash flow of the Company’s wholly owned marketing operations was used to reduce working capital borrowings.  Due to the acquisition by Valero L.P., neither the Company nor KPP declared any distributions subsequent to June 30, 2005.  Accordingly, the June 30, 2005 consolidated balance sheet of the Company does not reflect any amounts for accrued distributions payable.  A cash distribution of $0.495 per share with respect to the fourth quarter of 2004 was paid on February 14, 2005.  A cash distribution of $0.495 per share with respect to the first quarter of 2005 was paid on May 13, 2005.

Exhibit 99.1 page 5

5.              EARNINGS (LOSS) PER SHARE

Earnings (loss) per share for the three and six months ended June 30, 2005 and 2004, is calculated using the Company’s basic and diluted weighted average shares outstanding for the period.  For the three months ended June 30, 2005 and 2004, basic weighted average shares outstanding were 11,871,000 and 11,693,000, respectively, and diluted weighted average shares outstanding were 11,871,000 and 11,911,000, respectively.  For the six months ended June 30, 2005 and 2004, basic weighted average shares outstanding were 11,871,000 and 11,680,000, respectively, and diluted weighted average shares outstanding were 11,871,000 and 11,907,000, respectively.

6.              CONTINGENCIES

GENERAL

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

LITIGATION AND ENVIRONMENTAL

KPP has contingent liabilities resulting from various litigation, claims and commitments, some of which are incident to the ordinary course of business.  Other contingencies, which are considered more significant by KPP, are discussed below.  Subsequent to the acquisition of the Company by Valero L.P., new management of the Company determined based on a comprehensive review of the matters disclosed below that an additional $42 million accrual for potential loss contingencies was required, which was recorded in the quarter ended June 30, 2005.  Accordingly, KPP has recorded estimated reserves totaling approximately $44 million related to certain of the matters discussed below.  These reserves have been recorded in compliance with generally accepted accounting principles, however, management believes that there are defenses in each of these matters and it intends to vigorously defend each matter.  As a result, the actual payment of any amounts reserved and the timing of such payments ultimately made is uncertain.  Management also believes that should KPP be unable to successfully defend itself in these matters, the ultimate payment of any or all of the

Exhibit 99.1 page 6

amounts reserved would not have a material adverse effect on KPP’s financial position.  However, given the inherent uncertainty in estimating reserves for such matters, KPP can give no assurance that the amounts recorded will not require adjustment in the future, and such adjustments could be significant and could have a material adverse effect on KPP’s financial position and results of operations.

Grace Matter

Certain subsidiaries of KPP were sued in a Texas state court in 1997 by Grace Energy Corporation (“Grace”), the entity from which KPP acquired ST Services in 1993. The lawsuit involves environmental response and remediation costs allegedly resulting from fuel leaks in the early 1970’s from a pipeline. The pipeline, which connected a former Grace terminal with Otis Air Force Base in Massachusetts (the “Otis pipeline” or the “pipeline”), ceased operations in 1973 and was abandoned before 1978, when the connecting terminal was sold to an unrelated entity. Grace alleged that subsidiaries of KPP acquired the abandoned pipeline as part of the acquisition of ST Services in 1993 and assumed responsibility for environmental damages allegedly caused by the fuel leaks. Grace sought a ruling from the Texas court that these subsidiaries are responsible for all liabilities, including all present and future remediation expenses, associated with these leaks and that Grace has no obligation to indemnify these subsidiaries for these expenses. In the lawsuit, Grace also sought indemnification for expenses of approximately $3.5 million that it had incurred since 1996 for response and remediation required by the State of Massachusetts and for additional expenses that it expects to incur in the future. The consistent position of KPP’s subsidiaries has been that they did not acquire the abandoned pipeline as part of the 1993 ST Services transaction, and therefore did not assume any responsibility for the environmental damage nor any liability to Grace for the pipeline.

At the end of the trial, the jury returned a verdict including findings that (1) Grace had breached a provision of the 1993 acquisition agreement by failing to disclose matters related to the pipeline, and (2) the pipeline was abandoned before 1978 — 15 years before KPP’s subsidiaries acquired ST Services. On August 30, 2000, the Judge entered final judgment in the case that Grace take nothing from the subsidiaries on its claims seeking recovery of remediation costs. Although KPP’s subsidiaries have not incurred any expenses in connection with the remediation, the court also ruled, in effect, that the subsidiaries would not be entitled to indemnification from Grace if any such expenses were incurred in the future. Moreover, the Judge let stand a prior summary judgment ruling that the pipeline was an asset acquired by KPP’s subsidiaries as part of the 1993 ST Services transaction and that any liabilities associated with the pipeline would have become liabilities of the subsidiaries. Based on that ruling, the Massachusetts Department of Environmental Protection and Samson Hydrocarbons Company (successor to Grace Petroleum Company) wrote letters to ST Services alleging its responsibility for the remediation, and ST Services responded denying any liability in connection with this matter. The Judge also awarded attorney fees to Grace of approximately $1.8 million. Both KPP’s subsidiaries and Grace have appealed the trial

Exhibit 99.1 page 7

court’s final judgment to the Texas Court of Appeals in Dallas. In particular, the subsidiaries have filed an appeal of the judgment finding that the Otis pipeline and any liabilities associated with the pipeline were transferred to them as well as the award of attorney fees to Grace.

On April 2, 2001, Grace filed a petition in bankruptcy, which created an automatic stay of actions against Grace. This automatic stay covers the appeal of the Dallas litigation, and the Texas Court of Appeals has issued an order staying all proceedings of the appeal because of the bankruptcy. Once that stay is lifted, KPP’s subsidiaries that are party to the lawsuit intend to resume vigorous prosecution of the appeal.

The Otis Air Force Base is a part of the Massachusetts Military Reservation (“MMR Site”), which has been declared a Superfund Site pursuant to CERCLA. The MMR Site contains a number of groundwater contamination plumes, two of which are allegedly associated with the Otis pipeline, and various other waste management areas of concern, such as landfills. The United States Department of Defense, pursuant to a Federal Facilities Agreement, has been responding to the Government remediation demand for most of the contamination problems at the MMR Site. Grace and others have also received and responded to formal inquiries from the United States Government in connection with the environmental damages allegedly resulting from the fuel leaks. KPP’s subsidiaries voluntarily responded to an invitation from the Government to provide information indicating that they do not own the pipeline. In connection with a court-ordered mediation between Grace and KPP’s subsidiaries, the Government advised the parties in April 1999 that it has identified two spill areas that it believes to be related to the pipeline that is the subject of the Grace suit. The Government at that time advised the parties that it believed it had incurred costs of approximately $34 million, and expected in the future to incur costs of approximately $55 million, for remediation of one of the spill areas. This amount was not intended to be a final accounting of costs or to include all categories of costs. The Government also advised the parties that it could not at that time allocate its costs attributable to the second spill area.

By letter dated July 26, 2001, the United States Department of Justice (“DOJ”) advised ST Services that the Government intends to seek reimbursement from ST Services under the Massachusetts Oil and Hazardous Material Release Prevention and Response Act and the Declaratory Judgment Act for the Government’s response costs at the two spill areas discussed above.  The DOJ relied in part on the Texas state court judgment, which in the DOJ’s view, held that ST Services was the current owner of the pipeline and the successor-in-interest of the prior owner and operator. The Government advised ST Services that it believed it had incurred costs exceeding $40 million, and expected to incur future costs exceeding an additional $22 million, for remediation of the two spill areas.  KPP believes that its subsidiaries have substantial defenses. ST Services responded to the DOJ on September 6, 2001, contesting the Government’s positions and declining to reimburse any response costs.  In 2002, the DOJ asserted that, inclusive of both spill areas, it had incurred over $49 million

Exhibit 99.1 page 8

in costs and expected to incur additional costs of approximately $19 million.  The DOJ has not filed a lawsuit against ST Services seeking cost recovery for its environmental investigation and response costs. Representatives of ST Services have met with representatives of the Government on several occasions since September 6, 2001 to discuss the Government’s claims and to exchange information related to such claims. Additional exchanges of information may occur in the future and additional meetings may be held to discuss possible resolution of the Government’s claims without litigation.  KPP does not believe this matter will have a material adverse effect on its financial condition, although there can be no assurances as to the ultimate outcome.

PEPCO Matter

On April 7, 2000, a fuel oil pipeline in Maryland owned by Potomac Electric Power Company (“PEPCO”) ruptured.  Some work performed with regard to the pipeline was conducted by a partnership of which ST Services is general partner.  PEPCO alleges that it has incurred costs of approximately $80 million as a result of the spill.  PEPCO probably will continue to incur some cleanup related costs for the foreseeable future, primarily in connection with EPA requirements for monitoring the condition of some of the impacted areas.  Since May 2000, ST Services has provisionally contributed a minority share of the cleanup expense, which has been funded by ST Services’ insurance carriers.  ST Services and PEPCO have not, however, reached a final agreement regarding ST Services’ proportionate responsibility for this cleanup effort, if any, and cannot predict the amount, if any, that ultimately may be determined to be ST Services’ share of the remediation expense, but ST Services believes that such amount will be covered by insurance and therefore will not materially adversely affect KPP’s financial condition.

As a result of the rupture, purported class actions were filed against PEPCO and ST Services in federal and state court in Maryland by property and business owners alleging damages in unspecified amounts under various theories, including under the Oil Pollution Act (“OPA”) and Maryland common law.  The federal court consolidated all of the federal cases in a case styled as In re Swanson Creek Oil Spill Litigation.  A settlement of the consolidated class action, and a companion state-court class action, was reached and approved by the federal judge.  The settlement involved creation and funding by PEPCO and ST Services of a $2,250,000 class settlement fund, from which all participating claimants would be paid according to a court-approved formula, as well as a court-approved payment to plaintiffs’ attorneys.   The settlement has been consummated and the fund, to which PEPCO and ST Services contributed equal amounts, has been distributed.  Participating claimants’ claims have been settled and dismissed with prejudice.  A number of class members elected not to participate in the settlement, i.e., to “opt out,” thereby preserving their claims against PEPCO and ST Services.  All non-participant claims have been settled for immaterial amounts with ST Services’ portion of such settlements provided by its insurance carrier.

Exhibit 99.1 page 9

PEPCO and ST Services agreed with the federal government and the State of Maryland to pay costs of assessing natural resource damages arising from the Swanson Creek oil spill under OPA and of selecting restoration projects.  This process was completed in mid-2002.  ST Services’ insurer has paid ST Services’ agreed 50 percent share of these assessment costs.  In late November 2002, PEPCO and ST Services entered into a Consent Decree resolving the federal and state trustees’ claims for natural resource damages.  The decree required payments by ST Services and PEPCO of a total of approximately $3 million to fund the restoration projects and for remaining damage assessment costs.  The federal court entered the Consent Decree as a final judgment on December 31, 2002.  PEPCO and ST Services have each paid their 50% share and thus fully performed their payment obligations under the Consent Decree.  ST Services’ insurance carrier funded ST Services’ payment.

The U.S. Department of Transportation (“DOT”) has issued a Notice of Proposed Violation to PEPCO and ST Services alleging violations over several years of pipeline safety regulations and proposing a civil penalty of $647,000 jointly against the two companies.  ST Services and PEPCO have contested the DOT allegations and the proposed penalty.  A hearing was held before the Office of Pipeline Safety at the DOT in late 2001. In June of 2004, the DOT issued a final order reducing the penalty to $256,250 jointly against ST Services and PEPCO and $74,000 against ST Services.

By letter dated January 4, 2002, the Attorney General’s Office for the State of Maryland advised ST Services that it intended to seek penalties from ST Services in connection with the April 7, 2000 spill.  The State of Maryland subsequently asserted that it would seek penalties against ST Services and PEPCO totaling up to $12 million.  A settlement of this claim was reached in mid-2002 under which ST Services’ insurer will pay a total of slightly more than $1 million in installments over a five year period.  PEPCO has also reached a settlement of these claims with the State of Maryland.  Accordingly, KPP believes that this matter will not have a material adverse effect on its financial condition.

On December 13, 2002, ST Services sued PEPCO in the Superior Court, District of Columbia, seeking, among other things, a declaratory judgment as to ST Services’ legal obligations, if any, to reimburse PEPCO for costs of the oil spill.  On December 16, 2002, PEPCO sued ST Services in the United States District Court for the District of Maryland, seeking recovery of all its costs for remediation of and response to the oil spill.  Pursuant to an agreement between ST Services and PEPCO, ST Services’ suit was dismissed, subject to refiling.  ST Services has moved to dismiss PEPCO’s suit.  ST Services is vigorously defending against PEPCO’s claims and is pursuing its own counterclaims for return of monies ST Services has advanced to PEPCO for settlements and cleanup costs.  KPP believes that any costs or damages resulting from these lawsuits will be covered by insurance and therefore will not materially adversely affect KPP’s financial condition.  The amounts claimed by PEPCO, if recovered, would trigger an excess insurance policy which has a

Exhibit 99.1 page 10

$600,000 retention, but KPP does not believe that such retention, if incurred, would materially adversely affect KPP’s financial condition.

Paulsboro GATX Matter

In 2003, Exxon Mobil filed a lawsuit in a New Jersey state court against GATX Corporation, Kinder Morgan Liquid Terminals (“Kinder Morgan”), the successor in interest to GATX Terminals Corporation (“GATX”), and ST Services, seeking reimbursement for remediation costs associated with the Paulsboro, New Jersey terminal. The terminal was owned and operated by Exxon Mobil from the early 1950’s until 1990 when purchased by GATX.  ST Services purchased the terminal in 2000 from GATX.  GATX was subsequently acquired by Kinder Morgan. As a condition to the sale to GATX in 1990, Exxon Mobil undertook certain remediation obligations with respect to the site.  In the lawsuit, Exxon Mobil is claiming that it has complied with its remediation and contractual obligations and is entitled to reimbursement from GATX Corporation, the parent company of GATX, Kinder Morgan, and ST Services for costs in the amount of $400,000 that it claims are related to releases at the site subsequent to its sale of the terminal to GATX. It is also alleging that any remaining remediation requirements are the responsibility of GATX Corporation, Kinder Morgan, or ST Services. Kinder Morgan has alleged that it was relieved of any remediation obligations pursuant to the sale agreement between its predecessor, GATX, and ST Services.   ST Services believes that, except for remediation involving immaterial amounts, GATX Corporation or Exxon Mobil are responsible for the remaining remediation of the site. Costs of completing the required remediation depend on a number of factors and cannot be determined at the current time.  Discovery is underway in anticipation of mediation scheduled for November 2005.

Surface Transportation Board Matter

A subsidiary of KPP purchased the approximately 2,000-mile ammonia pipeline system from Koch Pipeline Company, L.P. and Koch Fertilizer Storage and Terminal Company in 2002.  The rates of the ammonia pipeline are subject to regulation by the Surface Transportation Board (the “STB”).  The STB had issued an order in May 2000, prescribing maximum allowable rates KPP’s predecessor could charge for transportation to certain destination points on the pipeline system.  In 2003, KPP instituted a 7% general increase to pipeline rates. On August 1, 2003, CF Industries, Inc. (“CFI”) filed a complaint with the STB challenging these rate increases. On August 11, 2004, STB ordered KPP to pay reparations to CFI and to return CFI’s rates to the levels permitted under the rate prescription.  KPP has complied with the order. The STB, however, indicated in the order that it would lift the rate prescription in the event KPP could show “materially changed circumstances.”  KPP has submitted evidence of “materially changed circumstances,” which specifically includes its capital investment in the pipeline.  CFI has argued that KPP’s acquisition costs should not be considered by the STB as a measure of KPP’s investment base.

Exhibit 99.1 page 11

Also, on June 16, 2003, Dyno Nobel Inc. (“Dyno”) filed a complaint with the STB challenging the 2003 rate increase on the basis that (i) the rate increase constitutes a violation of a contract rate, (ii) rates are discriminatory and (iii) the rates exceed permitted levels. Dyno also intervened in the CFI proceeding described above. Unlike CFI, Dyno’s rates are not subject to a rate prescription.  On May 11, 2005, the STB held a hearing on KPP’s request to vacate the existing rate prescription and Dyno’s contract claims, and post-hearing briefing was completed on June 10, 2005.  The case is currently pending before the STB and a ruling is expected later this year.  As of June 30, 2005, Dyno would be entitled to approximately $3.1 million in rate refunds, should it be successful.  KPP believes, however, that Dyno’s claims are of limited merit.

Port of Vancouver 

ST Services (“STS”) currently owns a refined products terminal on property owned by the Port of Vancouver (“Port”) and leases the land under the terminal from the Port.  Under an Agreed Order entered into with the Washington Department of Ecology (“WDE”) when STS purchased the terminal in 1998, STS agreed to investigate and remediate a groundwater plume contaminated by the terminal’s previous owner and operator.  STS has submitted a final remedial action plan to WDE, and is waiting for WDE to approve that plan.  The Port also owns property near the STS terminal site that has been contaminated by other parties, some of which are in bankruptcy.  Estimated costs to remediate the STS terminal site depend on a number of factors, including the outcome of litigation involving the other properties owned by the Port that are near the STS terminal site.  STS’s liability for remediation of the STS site is not the subject of any pending litigation.  Until formal claims asserting such liability are made, liability is difficult to assess.  Accordingly, STS’s liability for any portion of total future remediation costs is not reasonably estimable at this time.

KPP has other contingent liabilities resulting from litigation, claims and commitments incident to the ordinary course of business.  Management of KPP believes, after consulting with counsel, that the ultimate resolution of such contingencies will not have a material adverse effect on the financial position, results of operations or liquidity of KPP.

Exhibit 99.1 page 12

7.              BUSINESS SEGMENT DATA

The Company conducts business through three reportable business segments: the Pipeline Operations Segment of KPP, which consists primarily of the transportation of refined petroleum products and fertilizer in the Midwestern states as a common carrier; the Terminaling Operations Segment of KPP, which provides storage for petroleum products, specialty chemicals and other liquids; and the Company’s Product Marketing Services Segment, which provides wholesale motor fuel marketing services throughout the Midwest and Rocky Mountain regions, delivers bunker fuels to ships in the Caribbean and Nova Scotia, Canada, and sells bulk petroleum products to various commercial interests.  General corporate includes accounting, tax, finance, legal, investor relations and other corporate expenses not related to the segments.  General corporate assets include cash, receivables from affiliates of the Company and other assets not related to the segments.

The Company measures segment profit as operating income.  Total assets are those assets controlled by each reportable segment.  Business segment data is as follows:

Exhibit 99.1 page 13

The business segment profit of the terminaling operations segment includes the $42 million provision for loss contingencies (see note 6) and a $4 million loss due to an impairment of a terminal in the U.K.

8.              ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS

In March of 2005, the Financial Accounting Standards Board issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”), which requires companies to recognize a liability for the fair value of a legal obligation to perform asset-retirement activities, even though the timing and/or method of settlement are conditional on a future event, if the amount can be reasonably estimated.  FIN 47 must be adopted by the Company by the end of fiscal 2005.  The impact of adoption of FIN 47 on the Company’s consolidated financial statements is still being evaluated.

Exhibit 99.1 page 14

KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands — Except Per Unit Amounts)

(Unaudited)

See Notes to Consolidated Financial Statements

Exhibit 99.1 page 15

KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

See Notes to Consolidated Financial Statements

Exhibit 99.1 page 16

KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

See Notes to Consolidated Financial Statements

Exhibit 99.1 page 17

KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.              SIGNIFICANT ACCOUNTING POLICIES

Kaneb Pipe Line Partners, L.P. (the “Partnership”), a master limited partnership, owns and operates a refined petroleum products and fertilizer pipeline business, a petroleum products and specialty liquids storage and terminaling business and a petroleum product sales operation. Kaneb Pipe Line Company LLC (“KPL”), a wholly owned subsidiary of Kaneb Services LLC (“KSL”), manages and controls the Partnership through its general partner interest and an 18% (at June 30, 2005) limited partner interest. The Partnership operates through Kaneb Pipe Line Operating Partnership, L.P. (“KPOP”), a limited partnership in which the Partnership holds a 99% interest as limited partner.   KPL owns a 1% interest as general partner of the Partnership and a 1% interest as general partner of KPOP.  KPL’s 1% interest in KPOP is reflected as the minority interest in the financial statements.

The unaudited condensed consolidated financial statements of the Partnership for the three and six month periods ended June 30, 2005 and 2004, have been prepared in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies followed by the Partnership are disclosed in the notes to the consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2004. In the opinion of the Partnership’s management, the accompanying condensed consolidated financial statements contain all of the adjustments, consisting of normal recurring accruals, necessary to present fairly the consolidated financial position of the Partnership and its consolidated subsidiaries at June 30, 2005, and the consolidated results of their operations and cash flows for the periods ended June 30, 2005 and 2004.  Operating results for the three and six months ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

2.              VALERO L.P. MERGER

On July 1, 2005, Valero L.P. acquired all of the outstanding units of the Partnership as well as all of the outstanding shares of KSL.  Consequently, the Partnership and KSL became wholly owned subsidiaries of Valero L.P.

In connection with the acquisition by Valero L.P., the Partnership incurred certain costs directly related to the acquisition.  For the six months ended June 30, 2005, approximately $15.7 million was included in general and administrative expenses related principally to settling certain outstanding stock awards and settling other employee compensation obligations, and legal fees associated with the acquisition.  In addition, on June 30, 2005 the Partnership paid approximately $3.6 million in contractual change of control payments.  Because these payments were contingent upon the closing of the Valero L.P. merger, these payments were included in prepaid expenses and other at June 30, 2005.  To fund a portion of these expenses, the Partnership borrowed approximately $28.0 million in the second quarter of 2005.

On July 1, 2005, Valero L.P. entered into a definitive agreement to sell certain of the Partnership’s assets to Pacific Energy Partners L.P. for approximately $455 million.  These asset sales were required by the U.S. Federal Trade Commission as a condition to closing the merger.

Exhibit 99.1 page 18

3.              COMPREHENSIVE INCOME

Comprehensive income (loss) for the three and six months ended June 30, 2005 and 2004, is as follows: