Pembina completes Horizon Pipeline, increases distribution



    CALGARY, July 30 /CNW/ -

    
    -   Pembina announced an 8.3 percent increase in its monthly distribution
        rate to 13 cents per Trust Unit effective for the August 2008
        distribution, to be paid on September 15, 2008 to Unitholders of
        record on August 31, 2008. Solid operating results produced by
        Pembina's conventional assets together with growth in its oil sands &
        heavy oil infrastructure and midstream & marketing business units
        have generated what Pembina believes to be a significant and
        sustainable increase in cash flow that is expected to support this
        new distribution rate.

    -   The Fund distributed $0.36 per Trust Unit during the second quarter
        of 2008 for total cash distributions of $47.9 million, a 12 percent
        increase over the same period of 2007. Since inception of the Fund,
        Pembina has distributed at total of $1.1 billion to Unitholders, or
        $11.51 per Trust Unit, on a $10.00 per Trust Unit original issue
        price.

    -   Pembina generated net earnings of $42.1 million during the quarter
        and $74.7 million year-to-date, representing increases of 18.6 and
        7.6 percent, respectively, over the comparable periods in 2007.

    -   Pembina's Conventional Pipelines business segment contributed
        $37.7 million in net operating income during the second quarter of
        2008 and $77.6 million year to date, as compared to $37.4 million and
        $75.2 million, respectively, for the same periods of 2007.

    -   The Oil Sands & Heavy Oil Infrastructure segment generated
        $8.9 million and $18.5 million in net operating income during the
        second quarter and first half of 2008, compared to $9.9 million and
        $19.4 million during the same periods of 2007.

    -   Midstream & Marketing contributed $25.4 million in net operating
        income during the second quarter of 2008, a 65 percent increase over
        the same quarter of 2007. Year-to-date operating income of $47.1 is
        up 41 percent from the first six months of 2007.

    -   The $400 million Horizon Pipeline was completed on July 1, 2008, on
        schedule. Pembina expects the net operating income contribution of
        the Oil Sands & Heavy Oil Infrastructure segment to more than double
        with inclusion of an estimated $45 million annually in Horizon
        Pipeline net operating income commencing on the in-service date.
    

    Management's Discussion and Analysis

    This Management's Discussion and Analysis ("MD&A") is dated July 30, 2008
and is supplementary to, and should be read in conjunction with, the unaudited
comparative interim financial statements and notes of Pembina Pipeline Income
Fund as at and for the three and six months ended June 30, 2008, along with
the Fund's Management's Discussion and Analysis and audited financial
statements and notes for the year ended December 31, 2007. This MD&A has been
reviewed and approved by both the Audit Committee of the Board of Directors
and by the Board of Directors. All amounts are listed in Canadian dollars
unless otherwise specified. References to "mbbls/d", "bbls/d" and "$/bbl" mean
thousands of barrels per day, barrels per day and dollars per barrel,
respectively. See "Non-GAAP Measures" relating to footnoted non-GAAP measures
reflected in this document. This MD&A contains certain forward-looking
statements and information: see "Forward-Looking Information and Statements".

    Fund Description

    Pembina Pipeline Income Fund is among the predominant issuers in the
Canadian energy infrastructure trust sector. Pembina's network of conventional
liquids feeder pipelines, and growing presence in the oil sands and midstream
sectors, provide an integral service to the western Canadian energy industry.
This balanced portfolio of long-life energy infrastructure assets supports the
stability and sustainability of the Fund.
    Pembina Pipeline Income Fund, an unincorporated open-ended trust, pays
monthly cash distributions to Unitholders, if, as and when determined by the
Board of Directors of Pembina Pipeline Corporation. Pembina's publicly traded
securities trade on the Toronto Stock Exchange under the symbols: PIF.UN -
Trust Units and PIF.DB.B - 7.35% convertible debentures. Pembina's corporate
head office is located in Calgary, Alberta.

    Fund Strategy

    Pembina's principal objective is to provide a stable stream of
distributions to Unitholders while pursuing opportunities for enhancement
through accretive growth. Pembina believes the most prudent manner to achieve
this objective is to maintain and develop assets around its
hydrocarbon-liquids services business in western Canada. Pembina plans to
further develop this business through the continuous improvement and ongoing
expansion of its asset base and the acquisition of quality energy
infrastructure assets. To Pembina, "quality" means assets that are imbued with
inherent competitive advantages, which are under long-term contract with
credit-worthy customers, and either service or are in close proximity to
long-life and economic hydrocarbon reserves. Pembina intends this strategy to
generate stable or increasing per-unit cash distributions to Pembina's
Unitholders over the long-term.
    Pembina's business is structured in three key segments: Conventional
Pipelines, Oil Sands & Heavy Oil Infrastructure and Midstream & Marketing.
    The primary objective for Pembina's conventional pipeline assets is safe,
reliable operations and the maintenance of operating margin contribution while
pursuing opportunities for throughput and revenue enhancement. Margins are
maintained through the use of toll management, strict adherence to operating
cost controls and asset rationalization. Pembina strives to attract new
business to its conventional pipeline systems by offering cost-effective,
competitively-positioned and reliable transportation services.
    Pembina has successfully leveraged its uniquely positioned infrastructure
and operating knowledge in the oil sands and intends to continue to pursue
future opportunities in this key sector. Pembina's existing oil sands & heavy
oil infrastructure assets, and those currently under development, offer fully
contracted and long-term returns which are designed to provide a secure stream
of stable cash flow. The further expansion of Pembina's business interests in
this area is a priority.
    The Midstream & Marketing business consists of Pembina's 50 percent
non-operated interest in the Fort Saskatchewan Ethylene Storage Facility and
the wholly-owned terminalling, storage and hub services operated, or under
development, on several of Pembina's conventional pipeline systems. Pembina
anticipates that the further expansion of midstream services over segments of
its conventional assets will produce significant benefits to both pipeline
customers and to Unitholders of the Fund. This strategy serves to both expand
the range of services offered to customers and to extend the economic life of
Pembina's conventional asset base, with substantial revenue enhancement
potential.

    
    Results from Operations

    -------------------------------------------------------------------------
    HIGHLIGHTS(1)      3 Months 3 Months          6 Months 6 Months
    (in millions of       Ended    Ended             Ended    Ended
     dollars, except    June 30, June 30,     %    June 30, June 30,     %
     where noted)          2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Average throughput
     - conventional
     (mbbls/d)            433.4    443.8     (2.3)   446.2    451.6     (1.2)
    Contracted capacity
     - oil sands
     (mbbls/d)            525.0    525.0        -    525.0    525.0        -
    Total throughput
     and contracted
     volumes (mbbls/d)    958.4    968.8     (1.1)   971.2    976.6     (0.6)
    Capital
     expenditures          88.1     63.7     38.3    183.3    152.4     20.3
    Revenue               181.5    126.4     43.6    324.2    239.3     35.5
    Product purchases      76.2     33.0    130.9    112.6     49.5    127.5
    Operating expenses     33.3     30.7      8.5     68.4     61.9     10.5
    Net operating
     income(2)             72.0     62.7     14.8    143.2    127.9     12.0
    General &
     administrative
     expense                9.7      7.9     22.8     19.1     14.6     30.8
    Interest expense on
     long-term debt         8.3      7.1     16.9     16.5     14.3     15.4
    Net earnings           42.1     35.5     18.6     74.7     69.4      7.6
    Cash flow from
     operations            68.2     42.2     61.6    127.3     89.1     42.9
    Cash distributed
     to Unitholders        47.9     42.9     11.7     95.7     85.0     12.6
      $ Per Trust Unit  $0.3600  $0.3300      9.1  $0.7200  $0.6600      9.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) This second quarter 2008 Interim Report to Unitholders reports
        unaudited results of the Fund for the three and six months ended
        June 30, 2008.
    (2) Refer to "Non-GAAP Measures" below.


    Conventional Pipelines

    -------------------------------------------------------------------------
                       3 Months 3 Months          6 Months 6 Months
    (in millions of       Ended    Ended             Ended    Ended
     dollars, except    June 30, June 30,     %    June 30, June 30,     %
     where noted)          2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Average throughput
     (mbbls/d)            433.4    443.8     (2.3)   446.2    451.6     (1.2)
    Revenue             $  63.0  $  60.2      4.7  $ 130.1  $ 122.2      6.5
    Operating expenses     25.3     22.8     11.0     52.5     47.0     11.7
    Net operating
     income(1)             37.7     37.4      0.8     77.6     75.2      3.2
    Capital
     expenditures           9.2     20.8    (55.8)    25.2     43.8    (42.5)
    Operating expenses
     ($/bbl)               0.60     0.53     13.2     0.61     0.54     13.0
    Average revenue
     ($/bbl)               1.51     1.40      7.9     1.51     1.40      7.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.
    

    Pembina's conventional pipelines transported an average of 433,492 bbls/d
and an average of 446,200 bbls/d during the second quarter and the first six
months of 2008, respectively, slightly lower than volumes transported during
the same periods in 2007.
    Of the total average throughput for the second quarter, an average of
412,246 bbls/d was transported on the Alberta systems. Volume was marginally
lower than the same period of 2007. Volumes on the Peace, Drayton Valley and
Swan Hills systems continued to exceed expectations as a result of increased
receipts from new connections and significantly higher condensate throughputs.
Higher natural gas production likely contributed to increased volumes on the
Northern system during the second quarter, as receipts of natural gas liquids
rose substantially. Volume reductions at gas plants and truck terminals due to
seasonal turnarounds and road bans offset the increases noted above. A
pipeline failure on the Cremona system on June 15th has resulted in the
interruption of service on that system. For further discussion of this
incident, please see "New Developments and Outlook".
    Pembina's Western system transported 21,246 bbls/d during the second
quarter and 22,500 bbls/d for the first half of 2008, down 6 and 8 percent
from the same periods of 2007, due in part to restrictions at a third party
delivery point. The British Columbia (BC) gathering pipelines transported
22,446 bbls/d during the second quarter, down 17 percent from the same period
of 2007. Year-to-date throughputs on the BC gathering pipelines are down
12 percent year-over-year, due in part to weather related issues combined with
outages at a third party refinery.
    Pembina's conventional systems generated revenue of $63 million and
$130.1 million during the second quarter of 2008 and first six months 2008,
respectively, up from $60.2 million and $122.2 million in the same periods of
2007. The conventional systems contributed $77.6 million in operating income
during the first six months of the year, 3 percent higher year-over-year. Net
operating income during the second quarter of 2008 was impacted by roughly
$2.5 million in unexpected expense related to non-recurring events, including
the Cremona Pipeline incident noted above. The Alberta systems generated
revenue of $54.9 million during the quarter and $112.2 million for the first
half of the year which was 3 percent and 5 percent higher, respectively, than
the same periods of 2007. Revenue generated by the BC systems was up 19 and
21 percent from the second quarter and six months periods of 2007, as a result
of toll adjustments that were implemented on these systems in January and
February of this year. Average revenue per barrel on the Alberta systems of
$1.46 during the second quarter was up 7 cents per barrel from the average for
the same period of 2007. Average revenue per barrel on the BC systems
increased by 50 cents per barrel from the same period of 2007 to $1.91 per
barrel. This increase was primarily attributable to the toll adjustments
mentioned above. During the second quarter of 2008, Pembina continued
negotiations with shippers on the Western System to reach a toll settlement.

    
    Oil Sands & Heavy Oil Infrastructure

    -------------------------------------------------------------------------
                       3 Months 3 Months          6 Months 6 Months
    (in millions of       Ended    Ended             Ended    Ended
     dollars, except    June 30, June 30,     %    June 30, June 30,     %
     where noted)          2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Average throughput
     (mbbls/d)(1)         525.0    525.0        -    525.0    525.0        -
    Revenue             $  14.7  $  15.4     (4.5) $  30.3  $  29.9      1.3
    Operating expenses      5.8      5.5      5.5     11.8     10.5     12.4
    Net operating
     income(2)              8.9      9.9    (10.1)    18.5     19.4     (4.6)
    Capital expenditures   63.0     42.3     48.9    139.4    107.7     29.4
    Operating expenses
     ($/bbl)(3)            0.24     0.23      4.3     0.24     0.20     20.0
    Average revenue
     ($/bbl)(3)            0.60     0.63     (4.8)    0.61     0.58      5.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Contracted capacity. Actual average throughput was 269,600 bbls/d in
        the second quarter of 2008 and 268,200 bbls/d in the second quarter
        of 2007.
    (2) Refer to "Non-GAAP Measures" below.
    (3) Calculation uses actual average throughput.
    

    Pembina's oil sands infrastructure consists of: the Syncrude Pipeline
which provides dedicated service to Syncrude, the world's largest crude oil
producer from oil sands; the Cheecham Pipeline which delivers synthetic crude
oil from the Syncrude Pipeline to a facility near Cheecham, Alberta; and, the
recently completed Horizon Pipeline which provides dedicated service to
Canadian Natural Resource Limited's (CNRL) Horizon Oil Sands Project. Revenue
generated by these fully contracted pipelines is independent of throughput and
provides for the full recovery of operating expenses.
    Throughput on the Syncrude Pipeline averaged 268,588 bbls/d during the
second quarter and 270,960 bbls/d during the first six months of 2008,
consistent with the comparable periods of 2007. This pipeline has a
transportation capacity of 389,000 bbls/d and is fully contracted to the
Syncrude owners. Revenue generated by the Syncrude Pipeline during the quarter
of $13.5 million is 5 percent lower than the second quarter of 2007 however is
consistent with year-over-year revenue of $27.9 million.
    The Cheecham Pipeline, which has a capacity of 136,000 bbls/d and is
fully contracted to shippers, generated revenue of $1.25 million and
$2.4 million during the second quarter and first six months of 2008.
    Pembina recently announced the completion of the Horizon Pipeline, which
will provide exclusive transportation service to CNRL's Horizon oil sands
project with a contracted capacity of up to 250,000 bbls/d. Work on the
$400 million project, which began in November 2006, was completed on July 1,
2008, on schedule. Pembina expects the Horizon Pipeline to contribute
$45 million in net operating income annually over the life of the 25-year
contract, commencing on the in-service date.
    With the completion of the Horizon Pipeline, Pembina has 775,000 bpd of
fully contracted synthetic crude oil transportation capacity in three distinct
pipelines serving customers in the Athabasca oil sands region.

    
    Midstream & Marketing Business

    -------------------------------------------------------------------------
                       3 Months 3 Months          6 Months 6 Months
    (in millions of       Ended    Ended             Ended    Ended
     dollars, except    June 30, June 30,     %    June 30, June 30,     %
     where noted)          2008     2007   Change     2008     2007   Change
    -------------------------------------------------------------------------
    Revenue             $ 103.8  $  50.7    104.7  $ 163.8  $  87.2     87.8
    Product purchases      76.2     33.0    130.9    112.6     49.5    127.5
    Operating expenses      2.2      2.4     (8.3)     4.0      4.4     (9.1)
    Net operating
     income(1)             25.4     15.4     64.9     47.1     33.3     41.4
    Capital expenditures   15.9      0.6  2,550.0     18.7      0.9  1,977.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.
    

    Pembina's Midstream & Marketing business segment is comprised of its
50 percent non-operated interest in the Fort Saskatchewan Ethylene Storage
Facility and its wholly-owned terminalling, storage and hub services operated
on several of its conventional pipeline systems.
    Since the onset of expansion of this business in 2005, Pembina has
experienced a material increase in cash flow contribution from this segment.
Pembina's 50 percent interest in the fully contracted Fort Saskatchewan
Ethylene Storage Facility generated $5.7 million in revenue and $4.4 million
in net operating income during the quarter. Pembina's Midstream & Marketing
business continues to exhibit strong aggregate performance, with revenue and
net operating income of $103.8 million and $25.4 million, during the second
quarter of 2008, representing a 105 percent and 65 percent increase,
respectively, over the same quarter of 2007.
    Effective July 1, 2008, Pembina expects to generate additional net
operating income from the addition of new merchant truck terminalling services
on the Peace System.
    Variables that have the potential to impact certain elements of this
business include, but are not limited to, pipeline volume and relative and
absolute product pricing. Pembina does not assume any material commodity price
or speculative risk in conducting this business and Pembina endeavors to
diversify its revenue sources in this unit to enhance stability in results.

    Expenses

    During the second quarter and first half of 2008, operating expenses
totaled $33.3 million and $68.4 million, up from the same periods of 2007 of
$30.7 million and $61.9 million. Pembina's conventional pipelines incurred
operating costs of $25.3 million during the second quarter of 2008, up from
$22.8 million incurred during the comparable period in 2007. On a per barrel
of throughput basis, operating expenses on the conventional systems averaged
0.60 cents for the quarter compared to 0.53 cents during the same quarter of
2007. This increase is related to one time maintenance work completed in the
quarter, $2.5 million in unexpected expense associated with the Cremona
Pipeline incident and other non-recurring events, and an increase in property
taxes, power and field costs.
    General and administrative expenses (G&A) of $9.7 million were recorded
during the second quarter of 2008, $1.8 million higher than the previous year.
Year-to-date G&A totaled $19.1 million compared to $14.6 million incurred
during the previous year. G&A expenses have risen in response to a substantial
increase in construction activities, competitive employment pressures, and to
an overall increase in staffing levels to support both ongoing business and
growth opportunities. Pembina expects G&A expenditures to approximate
11.4 percent of net operating income in 2008, slightly lower than 2007.
    A gain on the sale of Syncrude linefill has been recorded for $21 million
in the second quarter of 2008. Prior to the scheduled in-service date for
Horizon, Pembina purged and sold 196,000 barrels of excess linefill on the 22"
Syncrude Pipeline for total estimated proceeds of $27 million and a gain on
sale of $21 million. In early July, an additional 190,000 barrels were sold at
July prices for estimated proceeds of $28 million and an additional gain on
sale of $22 million to be recorded in the third quarter. Proceeds from the
sale of excess linefill on the Syncrude Pipeline will be credited to that
asset's rate base. The funds are expected to be redeployed on other capital
initiatives.

    Cash Distributions

    It is the Fund's principal objective to provide Unitholders with stable
cash distributions over time. As a result, not all cash available for
distribution is distributed to Unitholders. The Fund pays cash distributions
on a monthly basis to Unitholders of record on the last calendar day of each
month. Distributions are payable on the 15th day of the month following the
record date.
    Distributable cash is a non-GAAP measure that the Fund uses to manage its
business and to assess future cash requirements that impact the determination
of future distributions to Unitholders. The Fund defines distributable cash as
cash flow from operations less pension and post retirement benefits net of
pension contributions, net changes in non-cash working capital, trust unit
based compensation expense and amortization of financing fees. The impact of
these items is excluded in the calculation of distributable cash as it adjusts
for timing differences throughout the year.
    The following table sets forth the recalculation of cash flow from
operations to certain distributable cash and distributed cash measures.

    
    -------------------------------------------------------------------------
                                      3 Months  3 Months  6 Months  6 Months
                                         Ended     Ended     Ended     Ended
    (in thousands of dollars,          June 30,  June 30,  June 30,  June 30,
     except where noted)                  2008      2007      2008      2007
    -------------------------------------------------------------------------
    Cash flow from operations         $ 68,230  $ 42,180  $127,263  $ 89,087
    Add/(deduct):
      Employee future benefits
       expense                          (1,205)   (1,211)   (2,161)   (2,559)
      Employee future benefits
       contributions                       887     3,059     1,898     3,059
      Changes in non-cash working
       capital                         (19,404)    1,545   (27,447)    4,128
      Other                               (296)     (409)     (564)     (886)
    -------------------------------------------------------------------------
    Distributable cash(1)             $ 48,212  $ 45,164  $ 98,989  $ 92,829
    (Increase) decrease in
     distribution reserve             $   (290) $ (2,274) $ (3,274) $ (7,841)
    -------------------------------------------------------------------------
    Distributed cash(1)               $ 47,922  $ 42,890  $ 95,715  $ 84,988
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributable cash(1) per
     Trust Unit before reserve        $ 0.3622  $ 0.3507  $ 0.7427  $ 0.7209
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributed cash per
     Trust Unit(1)                    $ 0.3600  $ 0.3300  $ 0.7200  $ 0.6600
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted distributed cash to
     Unitholders Per Trust Unit         0.3528    0.3211    0.6872    0.6413
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.
    

    During the second quarter of 2008, the Fund declared distributions of
$0.36 per Trust Unit, or $47.9 million in aggregate, compared to $0.33 per
Trust Unit, or $42.9 million in aggregate, paid in the second quarter of 2007.
Under Canadian tax laws, a component of the Fund's cash distributions are
taxable in the hands of the Unitholder, with the remaining portion a return of
capital, unless held in a tax-deferred account. Pembina estimates that
80 percent of the distributions declared in 2008 will be taxable and
20 percent will be a return of capital for Canadian tax purposes. For purposes
of calculating the capital gains upon disposition of the Trust Units, the
amount considered a return of capital will reduce the Unitholders' adjusted
cost base of each Trust Unit for Canadian tax purposes. Pembina's
distributions are subject to current domestic tax laws which require a
withholding tax from distribution income to non-residents of Canada.
    Pembina generated $0.3622 per Trust Unit in distributable cash (before
reserve) during the second quarter of 2008. Excluding $2.5 million in
non-recurring expense, as described under "Conventional Pipelines", $0.3810
per Trust Unit in distributable cash was generated by Pembina's ongoing
operations during the quarter.
    The table below shows the Fund's cash distributions paid relative to cash
flow from operations and net earnings for the periods indicated. See also "New
Developments and Outlook" and "Risk Factors" below for further information
regarding the sustainability of cash distributions.

    
    -------------------------------------------------------------------------
                            3 Months  6 Months
    (in thousands of           Ended     Ended
     dollars, except         June 30,  June 30,      Year Ended December 31
     where noted)               2008      2008      2007      2006      2005
    -------------------------------------------------------------------------
    Cash flow from
     operations             $ 68,230  $127,263  $189,540  $143,860  $112,360
    Net earnings              42,122    74,694   142,305    88,885    70,409
    Distributed cash          47,922    95,715   178,870   142,285   113,482
    -------------------------------------------------------------------------
    Excess (shortfall)
     of cash flow from
     operations over
     distributed cash         20,308    31,548    10,670     1,575    (1,122)
    Excess (shortfall) of
     net earnings over
     distributed cash         (5,800)  (21,021)  (36,565)  (53,400)  (43,073)
    -------------------------------------------------------------------------
    Cumulative notional
     reserve(1)             $ 34,326  $ 34,326  $ 31,052  $ 21,022  $ 15,128
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.
    

    Pembina maintains a notional reserve designed to ensure stability over
economic and industry cycles and to absorb the impact of material one-time
events. Therefore, not all available cash is distributed to Unitholders but
instead a portion of the Fund's distributable cash is used to reduce bank
indebtedness. Historical cash distributions compared to cash flow from
operations shows excess cash flow in every period except for the year 2005.
The shortfall in 2005 was due to a prepaid pension contribution made by the
Fund in the amount of $13.3 million and due to changes in non-cash working
capital. As at December 31, 2005, a cumulative notional reserve of
$15.1 million remained after funding the shortfall. Cash distributions to
Unitholders are greater than net earnings as the Fund does not consider it
necessary to retain non-cash depreciation that has been deducted in the
determination of net earnings. Pembina generally does not expect the earning
capacity of the Fund's existing assets to erode or to be replaced provided
they are properly maintained, such maintenance costs are deducted in
determining net earnings. Asset additions increase the earning capacity of the
Fund and have historically been financed in either the debt or equity markets
and are not dependent on cash flow from existing assets.
    The Fund's payout ratio for the six months ended June 30, 2008 was
97 percent, 5.4 percent higher than the same period in the prior year. Pembina
estimates that the full year payout ratio in 2008 will approximate 90 percent,
lower than the full year payout ratio of 95 percent in 2007. Pembina
calculates the payout ratio as the percentage of distributable cash, prior to
distribution reserve adjustments, that is distributed to Unitholders. See
"Non-GAAP Measures" below.

    Liquidity and Capital Resources

    At June 30, 2008, Pembina's bank facilities consisted of an unsecured
$500 million revolving credit facility and a $30 million operating line of
credit. On July 24, 2007, the revolving credit facilities were increased from
$230 million to $500 million for a period of five years to July 24, 2012. In
addition, the $30 million operating facility has been extended to July 23,
2009. There are no repayments due over the term. At June 30, 2008, Pembina had
$404.6 million drawn leaving $125.4 million of undrawn capacity on the
$530 million of established bank facilities. Borrowings bear interest at
either prime lending rates or are based on bankers acceptances plus applicable
margins. The margins are based on the credit rating of the senior unsecured
debt of Pembina Pipeline Corporation and range from 0.50 percent to
1.50 percent. Other debt includes $83.6 million in fixed rate Senior Secured
Notes due 2017, $175 million in fixed rate Senior Unsecured Notes due 2014,
$75 million of Floating Rate Senior Unsecured Notes due 2009 and $200 million
in fixed rate Senior Unsecured Notes due 2021. At June 30, 2008, Pembina had
long-term debt (excluding deferred financing fees) of $938.1 million. This
long-term debt, together with $44.4 million of outstanding convertible
debentures, resulted in a ratio of total debt to total enterprise value of
29.0 percent compared to a ratio of 28.4 percent at March 31, 2008 and a ratio
of 26.2 percent as at December 31, 2007.
    During the second quarter, $7.1 million in net debt financing costs were
recorded, comparable to 2007.
    Pembina considers the maintenance of investment grade credit agency
ratings as critical to its ongoing ability to access capital markets on
attractive terms. The rating systems employed by the agencies referenced below
recognize the stable profile of Pembina's assets and financial results and the
sustainability of the per Trust Unit distributions of the Fund. The Dominion
Bond Rating Service Ltd. (DBRS) stability rating system measures the
volatility and sustainability of distributions per Trust Unit. DBRS has
assigned Pembina Pipeline Income Fund a STA-2 (low) stability rating. DBRS's
stability rating scale is from STA-1 to STA-7, with STA-1 representing the
highest rating possible, and STA-7 the lowest. Pembina Pipeline Corporation,
the Fund's primary operating subsidiary, is also rated by DBRS, which has
assigned a senior secured debt rating of 'BBB High' and a 'BBB' senior
unsecured debt rating. On July 24, 2008, Standard & Poor's (S&P) upgraded its
long-term corporate credit and bank loan ratings on Pembina Pipeline
Corporation to "BBB+" from "BBB", and its senior secured debt rating on the
company to "A-" from "BBB+", with a stable outlook. S&P also rates the Fund
and has a current rating of SR-2. According to S&P's rating system, which
rates distributable cash on a scale of SR-1 to SR-7, SR-2 rated funds are
considered to have very high stability and debt instruments rated BBB have
adequate protection parameters.

    Contractual Obligations

    The Fund is committed to annual payments as follows:

    
    -------------------------------------------------------------------------
    ($ millions)                           Payments Due By Period
    -------------------------------------------------------------------------
                                          Less
                                          than     1 - 3     4 - 5     After
    Contractual Obligations    Total    1 year     years     years   5 years
    -------------------------------------------------------------------------
    Office and vehicle
     leases                 $   17.4  $    4.3  $    7.4  $    5.4  $    0.3
    Long-term debt             938.1      81.7      23.1     598.0     235.3
    Convertible debentures      44.4                44.4
    Construction commitments    43.0      10.0      16.5      16.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total contractual
     obligations            $1,042.9  $   96.0  $   91.4  $  619.9  $  235.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Pembina is contractually committed to the construction and the operation
of the Horizon Pipeline. As of July 1, 2008, the Horizon Pipeline has been
substantially completed and Pembina expects to earn its fully contracted
revenue commencing on the in-service date. Pembina currently projects the cost
to be $400 million, with $390 million of that amount expended to June 30,
2008, $10 million expected to be spent in the last six months of 2008. Pembina
expects an additional $33 million to be spent in later years. Pembina expects
to utilize its undrawn bank facilities to finance the remaining costs of the
Horizon Pipeline.

    -------------------------------------------------------------------------
                                      3 Months  3 Months  6 Months  6 Months
                                         Ended     Ended     Ended     Ended
    Capital Expenditures               June 30,  June 30,  June 30,  June 30,
     ($ millions)                         2008      2007      2008      2007
    -------------------------------------------------------------------------
    Development capital
      Conventional pipelines          $    9.2  $   20.8  $   25.2  $   43.8
      Oil Sands infrastructure            63.0      42.3     139.4     107.7
      Midstream business                  15.9       0.6      18.7       0.9
    -------------------------------------------------------------------------
    Total development capital         $   88.1  $   63.7  $  183.3  $  152.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Pembina expended $88.1 million on capital projects during the second
quarter of 2008, up from $63.7 million expended during the second quarter of
2007. Capital expenditures for the conventional systems of $9.2 million during
the quarter related to $4.1 million for new connections and upgrades,
$3.1 million for the Peace system product segregation facilities, $0.7 million
for the Western system corrosion and pipeline inspection programs and upgrades
and $0.2 million for Drayton Valley system product segregation facilities. Oil
sands infrastructure spending totaled $63 million in the second quarter, up
from the $42.3 million expended during the same period of 2007. Of the oil
sands related capital expenditures during the second quarter of 2008,
$62.2 million was related to Horizon Pipeline construction and $0.8 million
was invested in upgrades on the Syncrude Pipeline and Cheecham Pipeline.
Spending in the midstream business segment of $15.9 million for the second
quarter related mainly to operations equipment. Capital expenditures are
financed utilizing Pembina's existing credit facilities.

    Trust Unit and Convertible Debenture Information

    Since June 30, 2007, Pembina has prorated its DRIP to zero as its bank
facilities offer a lower cost of financing for the Fund as compared to equity
issuances. Pembina expects that it has sufficient bank facilities to fund
current projects but it may resume the DRIP in the future should it desire to
raise new equity.
    The Fund's Trust Units, together with the one remaining series of
convertible debentures, are traded on the Toronto Stock Exchange.

    
    -------------------------------------------------------------------------
                                           July 28,     June 30,     June 30,
                                            2008(1)        2008         2007
    -------------------------------------------------------------------------
    Trust Units Outstanding            133,371,872  133,278,126  131,388,042
    Average Daily Trading Volume
     (Units per day)                       192,741      181,060      251,200
    Unit Trading Price ($/Unit)(2)      $    17.25   $    17.91   $    15.96

    Principal Amount of Debentures
     Outstanding ($millions)            $     45.5   $     46.4   $     60.5

    7.35% Convertible Debentures
     Trading Price(3)                   $   137.95   $   143.95   $   126.55
    Total Market Value of Securities
     Outstanding ($millions)            $ 2,363.38   $  2,453.7   $ 2,173.40
    -------------------------------------------------------------------------
    Pembina's convertible debentures are convertible to Trust Units at
     conversion prices of ($/Unit):
      7.35% Convertible Debentures
       maturing December 31, 2010                    $    12.50
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Based on the 19 trading days from July 1 to July 28, 2008, inclusive.
    (2) End of Period.
    (3) Full conversion to Trust Units of the remaining principal amount of
        the debenture issue as at July 28, 2008 would result in the issuance
        of 3.64 million Trust Units.
    

    As at June 30, 2008, non-resident holdings in the Fund totaled
approximately 20 percent. This level is within the 49 percent restriction on
non-resident ownership in the Fund imposed by Pembina's Declaration of Trust
and is consistent with the requirements of the Income Tax Act (Canada).

    Critical Accounting Estimates and Changes in Accounting Principles and
    Practices

    The Canadian Institute of Chartered Accountants issued three new
accounting standards; Handbook Section 1535 "Capital Disclosures", Handbook
Section 3862 "Financial Instruments - Disclosure" and Handbook Section 3863
"Financial Instruments - Presentation" effective January 1, 2008. The Fund
adopted these standards effective January 1, 2008 and as a result has included
additional disclosures, both qualitative and quantitative, on financial
instruments and on the management of capital in the financial statements and
notes in this 2008 interim report.
    There were no changes in Pembina's other critical accounting estimates
and practices that affected the disclosure of or the accounting for its
operations for the quarter ended June 30, 2008. Such critical accounting
estimates are presented in Management's Discussion and Analysis for the year
ended December 31, 2007.
    The Canadian Institute of Chartered Accountants (CICA) Accounting
Standards Board (AcSB) announced that Canadian publicly accountable
enterprises will adopt International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (IASB), effective
January 1, 2011. IFRS will require increased financial statement disclosures.
Although IFRS uses a conceptual framework similar to Canadian GAAP,
differences in accounting policies will need to be addressed to assess the
impact on the Fund's existing accounting policies, the impact on business
processes and the impact on information systems requirements and internal
controls. The Fund continues to assess the impact of this AcSB announcement on
its financial statements and business processes and develop implementation
conversion plans.

    New Developments and Outlook

    Pembina continues to work toward finalizing definitive agreements with
founding customers on its proposed Mitsue and Nipisi pipelines. The proposed
project targets Nipisi and Peace River heavy oil producers and, if
constructed, will offer 22,000 bpd of condensate delivery capacity and
100,000 bpd of diluted heavy oil take-away capacity from the region,
commencing in mid-2011. Pembina expects to finalize these arrangements during
the third quarter of 2008.
    On June 15th, a pipeline failure on Pembina's Cremona system caused the
release of approximately 125 barrels of sweet crude oil. The line was quickly
shut down and Pembina, in cooperation with various regulatory authorities,
contained and cleaned up the spill. On July 17th, Pembina experts and a safety
crew, under the supervision of provincial regulators, successfully installed a
pipeline clamp to seal the pipe in preparation for purging the line. The line
has now been successfully purged and, pending regulatory approvals, Pembina is
prepared to commence remedial activities. These remedial activities will
include removing approximately 700 m of pipe, replacing the pipe, reburying
the pipe and restoring the right-of-way. Pembina expects that this remedial
action will occur in August 2008, with the pipeline being placed back into
service early September 2008. This incident is not expected to have a material
impact on Pembina's financial results.
    On July 24, 2008, Standard & Poor's (S&P) upgraded its rating on Pembina
Pipeline Corporation to "BBB+" from "BBB", on a diverse business risk profile
and a stable outlook. S&P also raised its rating on Pembina's senior secured
debt to "A-" from "BBB+". Pembina considers the maintenance of investment
grade credit agency ratings as critical to its ongoing ability to access
capital markets on attractive terms.
    Pembina's reputation for consistent results and growing distributions is
supported by its continued success in developing new services and executing on
opportunities. Pembina's established record of accomplishment reflects the
quality of its strategically located assets, prudent expansions and additions
to its asset portfolio, the introduction of new and innovative services and
strong stakeholder relationships. Effective with the August 2008 distribution,
Pembina will increase its distribution rate by 8.3 percent to 13 cents per
Trust Unit per month, or $1.56 per Trust Unit on an annual basis. Continuing
solid operating performance across all three of Pembina's business segments,
together with the anticipated contribution of revenue generated by the
recently completed Horizon Pipeline, has enabled the above referenced increase
in the distribution rate. The quality of our current asset portfolio and the
breadth of tangible and prospective growth opportunities presently under
development across all of our business segments lend confidence in our
continuing ability to maintain and grow future distributions.

    Risk Factors

    Management has identified the primary risk factors that could potentially
have a material impact on the financial results and operations of the Fund.
Such risk factors are presented in Management's Discussion and Analysis for
the year ended December 31, 2007, and in the Fund's Annual Information Form
for the year ended December 31, 2007. See "Additional Information" below.

    Additional Information

    Additional information relating to Pembina Pipeline Income Fund,
including the Fund's Annual Information Form and financial statements, can be
found on the Fund's profile on the SEDAR website at www.sedar.com.

    
    Selected Quarterly Information

    -------------------------------------------------------------------------
                              2008                       2007
    -------------------------------------------------------------------------
    (in thousands of
     dollars, except
     where noted)          Q2       Q1       Q4       Q3       Q2       Q1
    -------------------------------------------------------------------------
    Revenue             181,484  142,735  133,990  131,477  126,373  112,948
    Product purchases    76,215   36,451   32,756   32,761   32,947   16,589
    Operating expenses   33,262   35,095   35,885   31,833   30,718   31,192
    EBITDA(1)            78,640   59,916   54,518   58,660   53,676   56,271
    Cash flow from
     operations          68,230   59,034   48,788   51,666   42,180   46,907
    Net earnings         42,122   32,572   34,981   37,903   35,492   33,929

    Net earnings per
     Trust Unit ($/Unit):
      Basic                0.32     0.25     0.26     0.29     0.27     0.27
      Diluted              0.31     0.24     0.26     0.28     0.27     0.26

    Distributed cash(1)  47,922   47,793   47,684   46,198   42,890   42,098

    Distributed cash
     per Trust Unit(1)
      Basic              0.3600   0.3600   0.3600   0.3500   0.3300   0.3300
      Diluted            0.3528   0.3530   0.3521   0.3393   0.3211   0.3219

    Trust Units
     outstanding
     (thousands):
      Weighted average
       (basic)          133,117  132,758  132,454  131,994  129,966  127,568
      Weighted average
       (diluted)        137,564  137,196  137,243  138,206  137,856  135,206
      End of period     133,278  132,816  132,542  132,065  131,388  128,247
    -------------------------------------------------------------------------


    ----------------------------------------------
                                   2006
    ----------------------------------------------
    (in thousands of
     dollars, except
     where noted)          Q4       Q3       Q2
    ----------------------------------------------
    Revenue              89,636   85,719   81,499
    Product purchases     1,574      393      575
    Operating expenses   32,933   29,570   28,132
    EBITDA(1)            49,626   50,261   39,554
    Cash flow from
     operations          41,111   32,430   26,055
    Net earnings         27,231   24,563   16,940

    Net earnings per
     Trust Unit ($/Unit):
      Basic                0.22     0.20     0.14
      Diluted              0.22     0.20     0.14

    Distributed cash(1)  37,687   36,461   34,567

    Distributed cash
     per Trust Unit(1)
      Basic              0.3000   0.2950   0.2850
      Diluted            0.2956   0.2902   0.2803

    Trust Units
     outstanding
     (thousands):
      Weighted average
       (basic)          125,625  123,576  121,289
      Weighted average
       (diluted)        132,789  131,502  130,036
      End of period     126,218  124,262  122,030
    ----------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.
    

    Net earnings of $42.1 million were recorded during the second quarter of
2008, compared to $35.5 million and $16.9 million over the same periods in
2007 and 2006. The 18.7 percent increase in net earnings over the same period
in 2007 relates in large measure to a $21 million gain on sale of linefill
associated with the completion of the Horizon Pipeline. Net operating income
continues to grow at $72.0 million in the second quarter of 2008, compared to
$62.7 million and $52.8 million over the same periods in 2007 and 2006. This
represents a substantial increase of 14.8 percent and 36.4 percent,
respectively, due to the expansion of midstream operations as well as to toll
increases and strong performance on conventional pipeline systems.
    Pembina's stable operations typically produce limited variability in
quarterly results. However, continued growth in Pembina's underlying asset
base and business operations has generally resulted in increased revenues,
expenses and cash flows over the last nine quarters. Variations in this trend
result from one-time events and expected seasonal factors which impact
pipeline receipts and operating expenses, occurring most frequently during the
second quarter of each year. Such events and factors include, but are not
limited to, regularly scheduled facilities maintenance, road bans and
weather-related impact on receipts and spending patterns.

    Non-GAAP Measures

    Throughout this MD&A the Fund and Pembina use the term "distributable
cash" to refer to the amount of cash that is to be available for distribution
to the Fund's Unitholders. Distributable cash is used as a financial measure
as it adjusts cash flow from operations for timing differences in non-cash
working capital and for non-cash items charged to earnings that the Fund
considers to be unavailable for distribution. "Distributable cash" is not a
measure recognized by Canadian generally accepted accounting principles
(GAAP). Therefore, distributable cash of the Fund may not be comparable to
similar measures presented by other issuers, and investors are cautioned that
distributable cash should not be construed as an alternative to net earnings,
cash flow from operations or other measures of financial performance
calculated in accordance with GAAP as an indicator of the Fund's performance.
    Further, the use of terms "EBITDA" (earnings before interest, taxes,
depreciation and amortization), "net operating income" (revenues less
operating expenses), "payout ratio" (the Fund's cash distributions to
Unitholders divided by its distributable cash), "notional reserve" (the
difference between the Fund's distributable cash and the cash distributions to
Unitholders in a given period) and "enterprise value" (the Fund's market
capitalization plus long-term debt) are not recognized under Canadian GAAP.
Management believes that, in addition to earnings, EBITDA, net operating
income, payout ratio and enterprise value are useful measures. They provide an
indication of the results generated by the Fund's business activities prior to
consideration of how activities were financed, how the results are taxed and
measured and, in the case of enterprise value, the aggregate value of the
Fund. Notional reserve indicates investors should be cautioned, however, that
EBITDA, net operating income, payout ratio, notional reserve and enterprise
value should not be construed as an alternative to net earnings, cash flows
from operating activities or other measures of financial performance
determined in accordance with GAAP as an indicator of the Fund's performance.
Furthermore, these measures may not be comparable to similar measures
presented by other issuers.

    Forward-Looking Information and Statements

    The information contained in this MD&A contains certain forward-looking
statements and information that are based on the Fund's current expectations,
estimates, projections and assumptions in light of its experience and its
perception of historical trends. In some cases, forward-looking statements and
information can be identified by terminology such as "may", "will", "should",
"expects", "projects", "plans", "anticipates", "targets", "believes",
"strives", "estimates", "continue", "designed", "objective", "maintain",
"schedule", "endeavor" and similar expressions. Further, this document
contains forward-looking statements regarding net operating income, which is
based upon the assumption that the in-service date for the Horizon Pipeline is
August 1, 2008, that future tolls are consistent with internal projections,
that counterparties comply with contracts in a timely manner, that there are
no unforeseen events preventing performance of contracts by Pembina, and that
there are no unforeseen material costs not recoverable from shippers. In
particular, this MD&A contains forward-looking statements and information with
respect to: future stability and sustainability of cash distributions to
Unitholders; ongoing utilization and expansions of and additions to Pembina's
asset base; the amount of future liabilities related to environmental
incidents; the availability of coverage under Pembina's insurance policies
(including in respect of Pembina's business interruption insurance policy);
future acquisitions and growth and growth potential in Pembina's conventional
pipelines, oil sands & heavy oil infrastructure and midstream & marketing
operations; the construction of the Mitsue and Nipisi pipelines; the
in-service date of the Horizon and Mitsue and Nipisi pipelines; potential
revenue and cash flow enhancement; future cash flows; maintenance of operating
margins; continued high levels of oil and gas activity and increased oil and
gas production in proximity to our pipelines and other assets (which could be
affected by, among other things, possible changes to applicable royalty and
tax regimes); additional throughput potential on additional connections and
other initiatives on the conventional system; expected project start-up and
construction dates; future distributions, payout ratios and taxation of
distributions; future financing capability and sources; negative credit rating
adjustments; the expansion of midstream services; and the future tax treatment
of the Fund and income trusts. These statements are not guarantees of future
performance and are subject to a number of known and unknown risks and
uncertainties, including but not limited to: the impact of competitive
entities and pricing, approvals by industry partners, reliance on key
alliances and agreements, non-performance of the transportation agreements in
accordance with their terms, the strength and operations of the oil and
natural gas production industry and related commodity prices, the regulatory
environment and decisions and the inability to obtain required regulatory
approvals (including in respect of the Mitsue and Nipisi pipelines), tax laws
and treatment, fluctuations in operating results, the ability of Pembina to
raise sufficient capital (or to raise capital on favourable terms) to complete
future projects and satisfy future commitments (including in respect of the
proposed construction of the Mitsue and Nipisi pipelines and related
facilities), construction delays and labour and material shortages, and
certain other risks detailed from time to time in the Fund's public disclosure
documents. The Fund believes the expectations reflected in these
forward-looking statements and information are reasonable as of the date
hereof but no assurance can be given that these expectations will prove to be
correct. Undue reliance should not be placed on these forward-looking
statements and information as both known and unknown risks and uncertainties,
including those business risks stated above, may cause actual performance and
financial results in future periods to differ materially from any projections
of future performance or results expressed or implied by such forward-looking
statements and information. Accordingly, readers are cautioned that events or
circumstances could cause results to differ materially from those predicted.
Such forward-looking statements and information are expressly qualified by the
above statements. The Fund does not undertake any obligation to publicly
update or revise any forward-looking statements or information contained
herein, except as required by applicable laws. Management of the Fund approved
the financial outlook contained herein as of the date hereof. The purpose of
the financial outlook contained herein is to give the reader an indication of
the value to Pembina of the Horizon Pipeline. Readers should be aware that the
information contained in the financial outlook contained herein may not be
appropriate for other purposes.



    
    consolidated balance sheets
    (unaudited)

    (In thousands of dollars)
    -------------------------------------------------------------------------
                                                        June 30      Dec. 31
                                                           2008         2007
    -------------------------------------------------------------------------

    Assets
    Current assets:
      Cash                                          $            $    16,736
      Accounts receivable and other                     100,056       56,177
    -------------------------------------------------------------------------
                                                        100,056       72,913
    Property, plant and equipment                     1,686,082    1,524,887
    Goodwill and other                                  356,124      358,212
    Derivative financial instruments                     13,455       10,796
    -------------------------------------------------------------------------
                                                    $ 2,155,717  $ 1,966,808
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Unitholders' Equity
    Current liabilities:
      Bank indebtedness                             $     7,489  $
      Accounts payable and accrued liabilities           71,874       59,485
      Distributions payable to Unitholders               15,993       15,905
      Current portion of long-term debt                  81,659        6,422
    -------------------------------------------------------------------------
                                                        177,015       81,812
    Long-term debt                                      849,348      772,364
    Convertible debentures                               44,378       47,702
    Asset retirement obligations                         81,646       62,236
    Future income taxes                                 103,137       93,957
    -------------------------------------------------------------------------
                                                      1,255,524    1,058,071
    -------------------------------------------------------------------------
    Unitholders' equity:
      Trust Units (note 6)                            1,331,215    1,320,692
      Deficit                                          (440,911)    (419,890)
      Accumulated other comprehensive income              9,889        7,935
    -------------------------------------------------------------------------
                                                        900,193      908,737
    -------------------------------------------------------------------------
                                                    $ 2,155,717  $ 1,966,808
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



    consolidated statements of earnings and deficit
    (Unaudited)

    (In thousands of dollars, except per Trust Unit amounts)
    -------------------------------------------------------------------------
                                3 Months    3 Months    6 Months    6 Months
                                   Ended       Ended       Ended       Ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Revenues:
      Conventional pipelines   $  62,983   $  60,190   $ 130,080   $ 122,175
      Oil Sands infrastructure    14,733      15,450      30,331      29,928
      Midstream & Marketing
       business                  103,768      50,733     163,808      87,218
    -------------------------------------------------------------------------
                                 181,484     126,373     324,219     239,321
    -------------------------------------------------------------------------

    Expenses:
      Operations                  33,262      30,718      68,357      61,910
      Product purchases           76,215      32,947     112,666      49,536
      General and administrative   9,705       7,875      19,077      14,596
      Depreciation and
       amortization               17,469      16,458      34,595      32,464
      Accretion on asset
       retirement obligations      1,566         594       2,510       1,002
      Internalization of
       management contract         4,479         781       6,338       1,339
      Other                      (20,817)        376     (20,775)      1,993
    -------------------------------------------------------------------------
                                 121,879      89,749     222,768     162,840
    -------------------------------------------------------------------------
    Earnings before interest
     and taxes                    59,605      36,624     101,451      76,481
    Interest on long-term debt     8,248       7,134      16,488      14,315
    Interest on convertible
     debentures                      872       1,378       1,771       2,803
    -------------------------------------------------------------------------
    Earnings before taxes         50,485      28,112      83,192      59,363
    Income tax expense
     (reduction)                   8,363      (7,380)      8,498     (10,058)
    -------------------------------------------------------------------------
    Net earnings                  42,122      35,492      74,694      69,421
    Deficit, beginning
     of period                  (435,111)   (391,494)   (419,890)   (383,325)
    Distributed cash             (47,922)    (42,890)    (95,715)    (84,988)
    -------------------------------------------------------------------------
    Deficit, end of period     $(440,911)  $(398,892)  $(440,911)  $(398,892)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per Trust Unit
      Basic                    $    0.32   $    0.27   $    0.56   $    0.54
      Diluted                  $    0.31   $    0.27   $    0.54   $    0.53
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



    consolidated statement of comprehensive income
    (Unaudited)

    (In thousands of dollars)
    -------------------------------------------------------------------------
                                3 Months    3 Months    6 Months    6 Months
                                   Ended       Ended       Ended       Ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Net earnings for the
     period                    $  42,122   $  35,492   $  74,694   $  69,421
    Other comprehensive income:
      Unrealized gain on
       derivative instruments
       designated as cash flow
       hedges, net of tax of
       $0.3 million and
       $0.7 million                  858       1,535       1,954       9,317
    -------------------------------------------------------------------------
    Total comprehensive income $  42,980   $  37,027   $  76,648   $  78,738
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other
     comprehensive income:
      Opening balance, net of
       tax of $3.3 million and
       $2.9 million            $   9,031   $  12,830   $   7,935   $   5,048
      Unrealized gain on
       derivative instruments
       designated as cash flow
       hedges, net of tax of
       $0.3 million and
       $0.7 million                  858       1,535       1,954       9,317
    -------------------------------------------------------------------------
      Balance, end of period,
       net of tax of
       $3.6 million            $   9,889   $  14,365   $   9,889   $  14,365
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



    consolidated statements of cash flows
    (Unaudited)

    (In thousands of dollars)
    -------------------------------------------------------------------------
                                3 Months    3 Months    6 Months    6 Months
                                   Ended       Ended       Ended       Ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Cash provided by (used in):
    Operating activities:
    Net earnings               $  42,122   $  35,492   $  74,694   $  69,421
    Items not involving cash:
      Depreciation and
       amortization               17,469      16,458      34,595      32,464
      Accretion on asset
       retirement obligations      1,566         594       2,510       1,002
      Future income tax expense
       (reduction)                 8,363      (7,380)      8,498     (10,058)
      Linefill gain              (21,308)                (21,308)
      Employee future benefits
       expense                     1,205       1,211       2,161       2,559
      Trust Unit based
       compensation expense          320         209         588         486
      Other                          (24)        200         (24)        400
    Employee future benefits
     contributions                  (887)     (3,059)     (1,898)     (3,059)
    Changes in non-cash
     working capital              19,404      (1,545)     27,447      (4,128)
    -------------------------------------------------------------------------
    Cash flow from operations     68,230      42,180     127,263      89,087

    Financing activities:
      Bank borrowings             93,762      40,018     155,377      87,024
      Repayment of senior
       secured notes              (1,591)     (1,479)     (3,153)     (2,932)
      Issue of Trust Units on
       exercise of options         4,482       1,843       6,611       3,404
      Issue of Trust Units
       under Distribution
       Reinvestment Plan                      24,053                  47,170
      Distributions to
       Unitholders -
        current year             (47,866)    (42,545)    (79,721)    (70,535)
      Distributions to
       Unitholders - prior year                          (15,905)    (12,622)
    -------------------------------------------------------------------------
                                  48,787      21,890      63,209      51,509
    Investing activities:
      Capital expenditures       (81,900)    (65,230)   (177,068)   (146,682)
      Changes in non-cash
       working capital           (42,227)     (1,176)    (37,629)       (133)
    -------------------------------------------------------------------------
                                (124,127)    (66,406)   (214,697)   (146,815)
    Change in cash                (7,110)     (2,336)    (24,225)     (6,219)
    Cash (bank indebtedness),
     beginning of period            (379)     (2,022)     16,736       1,861
    -------------------------------------------------------------------------
    Bank indebtedness, end
     of period                 $  (7,489)  $  (4,358)  $  (7,489)  $  (4,358)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Other cash disclosures:
      Interest on long-term
       debt paid               $ (10,230)  $  (9,083)  $ (20,866)  $ (19,034)
      Interest capitalized     $  (3,617)  $  (2,286)  $  (7,139)  $  (3,464)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



    Notes to the consolidated financial statements:
    (Tabular amounts in thousands of dollars, except per Trust Unit amounts)

    1.  Significant accounting policies:

        The interim consolidated financial statements of Pembina Pipeline
        Income Fund ("the Fund") have been prepared by management in
        accordance with Canadian generally accepted accounting principles for
        non rate-regulated entities. The interim consolidated financial
        statements have been prepared following the same accounting policies
        and methods of computation as the consolidated financial statements
        for the fiscal year ended December 31, 2007 with the exception of
        accounting policies relating to newly issued accounting standards by
        the Canadian Institute of Chartered Accountants. The disclosure
        provided below is incremental to that included with the annual
        consolidated financial statements. The interim consolidated financial
        statements should be read in conjunction with the Fund's consolidated
        financial statements and the notes thereto for the year ended
        December 31, 2007. Certain of the prior period's comparative figures
        have been reclassified to conform with the current period's
        presentation.

        Effective January 1, 2008, the Fund adopted the new recommendations
        of the Canadian Institute of Chartered Accountants ("CICA") Handbook
        Section 3862, Financial Instruments - Disclosures ("Section 3862")
        and Handbook Section 3863, Financial Instruments - Presentation
        ("Section 3863"). Section 3862 requires entities to provide
        disclosures in their financial statements that enable users to
        evaluate the significance of financial instruments on the entity's
        financial position and its performance and the nature and extent of
        risks arising from financial instruments to which the entity is
        exposed during the period and at the balance sheet date, and how the
        entity manages those risks. Section 3863 established standards for
        presentation of financial instruments and nonfinancial derivatives.
        It deals with the classification of financial instruments, from the
        perspective of the issuer, between liabilities and equities, the
        classification of related interest, dividends, losses and gains, and
        circumstances in which financial assets and financial liabilities are
        offset. The adoption of these standards did not have any impact on
        the classification and valuation of the Fund's financial instruments.
        The Fund has included disclosures recommended by these new standards
        in Note 4 of the financial statements.

        Effective January 1, 2008, the Fund adopted the new recommendation of
        CICA Handbook Section 1535, Capital Disclosures ("Section 1535").
        Section 1535 establishes standards for disclosing information about
        an entity's capital and how it is managed. It requires the disclosure
        of information about; the entity's objectives, policies and processes
        for managing capital, qualitative information about what the entity
        regards as capital, whether the entity has complied with any capital
        requirements, and if it has not complied, the consequences of such
        non-compliance. The Fund has included disclosures recommended by
        Section 1535 in Note 5 of the financial statements.

        International Financial Reporting Standards

        The Canadian Institute of Chartered Accountants ("CICA") Accounting
        Standards Board (AcSB) announced that Canadian publicly accountable
        enterprises will adopt International Financial Reporting Standards
        (IFRS) as issued by the International Accounting Standards Board
        (IASB), effective January 1, 2011. IFRS will require increased
        financial statement disclosures. Although IFRS uses a conceptual
        framework similar to Canadian GAAP, differences in accounting
        policies will need to be addressed to assess the impact on the Fund's
        existing accounting policies, the impact on business processes and
        the impact on information systems requirements and internal controls.
        The Fund continues to assess the impact of this AcSB announcement on
        its financial statements and business processes and develop
        implementation conversion plans.

    2.  Internalization of management contract:

        Effective June 30, 2006, the Fund acquired all of the outstanding
        common shares of Pembina Management Inc. (Manager), the manager of
        the Fund. Total consideration for the transaction consisted of an
        initial cash payment of $6 million and a contingent deferred payment
        payable in 2009 that is linked to future growth in distributable cash
        per Trust Unit of the Fund. If the future cumulative distributable
        cash in the period from January 1, 2006, to December 31, 2008 does
        not exceed $3.42 per Trust Unit ($1.14 per Trust Unit per year), the
        deferred amount is zero. Every approximate 10 cent per Trust Unit
        increase in cumulative distributable cash over $3.42 per Trust Unit
        results in a $1 million increase in purchase price to a maximum of
        $15 million, which is converted into notional Trust Units based on
        the weighted-average trading price of the Trust Units for the 20
        trading days prior to June 30, 2006 of $15.87 (the "closing price").
        The purchase price will also be adjusted by the distributions payable
        on the notional Trust Units for the period from January 1, 2006 to
        December 31, 2008, and the change in the value of the Fund's Trust
        Units from the closing price. No further payments under the share
        purchase agreement are payable until 2009, however assuming the total
        2008 distributable cash is similar to that for the six months ended
        June 30, 2008, and using the June 30, 2008 closing price of $17.91
        per Trust Unit on the TSX as the "closing price" and assuming monthly
        distributions for the remainder of 2008 remain at the level of
        distribution for the month of June 2008, the potential deferred
        payment would be $17.4 million of which, $4.7 million has been
        expensed in 2007 and $6.3 million has been expensed at June 30, 2008.

    3.  Business segments:

        The Fund conducts its operations through three operating segments:
        conventional pipelines, oil sands & heavy oil infrastructure and
        midstream & marketing business.

        Conventional pipelines consists of the tariff based operations of
        pipelines and related facilities to deliver crude oil, condensate and
        natural gas liquids in Alberta and British Columbia.

        Oil sands & Heavy Oil Infrastructure consists of the Syncrude
        Pipeline, the Cheecham Lateral and the Horizon Pipeline, which went
        into service on July 1, 2008. As at June 30, 2008, the Syncrude
        Pipeline and the Cheecham Lateral were operational. This operating
        segment consists of pipelines and related facilities to deliver
        synthetic crude oil produced from oil sands under long-term cost of
        service arrangements.

        Midstream & Marketing business consists of the Fund's direct and
        indirect interest in a storage operation and direct interests in
        terminalling, storage and hub services under a mixture of short,
        medium and long-term contractual arrangements.

        The financial results of the business segments are as follows:

        ---------------------------------------------------------------------
                                         Oil Sands &
                                           Heavy Oil  Midstream &
        (in thousands       Conventional      Infra-   Marketing
         of dollars)           Pipelines   structure    Business       Total
        ---------------------------------------------------------------------
        Three months ended
         June 30, 2008

        Revenues:
          Pipeline
           transportation     $   62,983  $   14,733  $           $   77,716
          Terminalling,
           storage and hub
           services                                      103,768     103,768
        ---------------------------------------------------------------------
          Revenue before
           expenses               62,983      14,733     103,768     181,484
        ---------------------------------------------------------------------

        Expenses:
          Operations              25,234       5,839       2,189      33,262
          Product purchases                               76,215      76,215
          General and
           administrative          9,320         337          48       9,705
          Depreciation and
           amortization           11,532       3,016       2,921      17,469
          Accretion on asset
           retirement
           obligations             1,296         270                   1,566
          Internalization of
           management contract     4,479                               4,479
          Other(2)                   491     (21,308)                (20,817)
        ---------------------------------------------------------------------
                                  52,352     (11,846)     81,373     121,879
        ---------------------------------------------------------------------
        Earnings before
         interest and taxes   $   10,631  $   26,579  $   22,395  $   59,605
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Property, plant and
         equipment(1)         $  788,120  $  742,307  $  155,655  $1,686,082
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Goodwill and other    $  206,309  $   28,300  $  121,515  $  356,124
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Included in property, plant and equipment are assets under
            construction for the Horizon Pipeline of $390.3 million.
        (2) Included in other for Oilsands & Heavy Oil Infrastructure segment
            is a gain on sale of Syncrude linefill of $21.3 million. This
            represents the purging and sale of 196,000 barrels of excess
            linefill for total proceeds of $27 million. In early July, an
            additional 190,000 barrels were sold at July prices for estimated
            proceeds of $28 million and an additional gain on sale of
            $22 million to be recorded in the third quarter.


        ---------------------------------------------------------------------
                                         Oil Sands &
                                           Heavy Oil  Midstream &
        (in thousands       Conventional      Infra-   Marketing
         of dollars)           Pipelines   structure    Business       Total
        ---------------------------------------------------------------------
        Six months ended
         June 30, 2008

        Revenues:
          Pipeline
           transportation     $  130,080  $   30,331  $           $  160,411
          Terminalling,
           storage and hub
           services                                      163,808     163,808
        ---------------------------------------------------------------------
          Revenue before
           expenses              130,080      30,331     163,808     324,219
        ---------------------------------------------------------------------

        Expenses:
          Operations              52,500      11,827       4,030      68,357
          Product purchases                              112,666     112,666
          General and
           administrative         18,134         674         269      19,077
          Depreciation and
           amortization           23,233       6,044       5,318      34,595
          Accretion on asset
           retirement
           obligations             2,188         322                   2,510
          Internalization of
           management contract     6,338                               6,338
          Other(2)                   533     (21,308)                (20,775)
        ---------------------------------------------------------------------
                                 102,926      (2,441)    122,283     222,768
        ---------------------------------------------------------------------
        Earnings before
         interest and taxes   $   27,154  $   32,772  $   41,525  $  101,451
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Property, plant and
         equipment(1)         $  788,120  $  742,307  $  155,655  $1,686,082
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Goodwill and other    $  206,309  $   28,300  $  121,515  $  356,124
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Included in property, plant and equipment are assets under
            construction for the Horizon Pipeline of $390.3 million.
        (2) Included in other for Oilsands & Heavy Oil Infrastructure segment
            is a gain on sale of Syncrude linefill of $21.3 million. This
            represents the purging and sale of 196,000 barrels of excess
            linefill for total proceeds of $27 million. In early July, an
            additional 190,000 barrels were sold at July prices for estimated
            proceeds of $28 million and an additional gain on sale of
            $22 million to be recorded in the third quarter.


        ---------------------------------------------------------------------
                                         Oil Sands &
                                           Heavy Oil  Midstream &
        (in thousands       Conventional      Infra-   Marketing
         of dollars)           Pipelines   structure    Business       Total
        ---------------------------------------------------------------------
        Three months ended
         June 30, 2007

        Revenues:
          Pipeline
           transportation     $   60,190  $   15,450  $           $   75,640
          Terminalling,
           storage and hub
           services                                       50,733      50,733
        ---------------------------------------------------------------------
          Revenue before
           expenses               60,190      15,450      50,733     126,373
        ---------------------------------------------------------------------

        Expenses:
          Operations              22,846       5,499       2,373      30,718
          Product purchases                               32,947      32,947
          General and
           administrative          7,548         327                   7,875
          Depreciation and
           amortization           11,170       3,045       2,243      16,458
          Accretion on asset
           retirement
           obligations               566          28                     594
          Internalization of
           management contract       781                                 781
          Other                      376                                 376
        ---------------------------------------------------------------------
                                  43,287       8,899      37,563      89,749
        ---------------------------------------------------------------------
        Earnings before
         interest and taxes   $   16,903  $    6,551  $   13,170  $   36,624
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Property, plant and
         equipment(1)         $  790,124  $  487,777  $  120,841  $1,398,742
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Goodwill and other    $  208,244  $   28,300  $  125,161  $  361,705
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        ---------------------------------------------------------------------
                                         Oil Sands &
                                           Heavy Oil  Midstream &
        (in thousands       Conventional      Infra-   Marketing
         of dollars)           Pipelines   structure    Business       Total
        ---------------------------------------------------------------------
        Six months ended
         June 30, 2007

        Revenues:
          Pipeline
           transportation     $  122,175  $   29,928  $           $  152,103
          Terminalling,
           storage and hub
           services                                       87,218      87,218
        ---------------------------------------------------------------------
          Revenue before
           expenses              122,175      29,928      87,218     239,321
        ---------------------------------------------------------------------

        Expenses:
          Operations              46,962      10,496       4,452      61,910
          Product purchases                               49,536      49,536
          General and
           administrative         13,942         654                  14,596
          Depreciation and
           amortization           21,953       6,029       4,482      32,464
          Accretion on asset
           retirement
           obligations               948          54                   1,002
          Internalization of
           management contract     1,339                               1,339
          Other                    1,993                               1,993
        ---------------------------------------------------------------------
                                  87,137      17,233      58,470     162,840
        ---------------------------------------------------------------------
        Earnings before
         interest and taxes   $   35,038  $   12,695  $   28,748  $   76,481
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Property, plant and
         equipment(1)         $  790,124  $  487,777  $  120,841  $1,398,742
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Goodwill and other    $  208,244  $   28,300  $  125,161  $  361,705
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Included in property, plant and equipment are assets under
            construction for the Horizon Pipeline of $146.4 million.


    4.  Financial Risk Management and Financial Instruments:

        Financial risk

        The Fund has exposure to credit risk, liquidity risk and market risk.
        The Fund's Board of Directors has the overall responsibility for the
        oversight of these risks and reviews the Fund's policies on an
        ongoing basis to ensure that these risks are appropriately managed.
        The Fund's Audit Committee oversees how management monitors
        compliance with the Fund's risk management policies and procedures
        and reviews the adequacy of this risk framework in relation to the
        risks faced by the Fund. The Fund's Risk Management Function assists
        in managing these risks. The Fund's primary risk management objective
        is to protect earnings and cash flow and ultimately Unitholder
        distributions.

        Credit risk

        Credit risk is the risk of financial loss to the Fund if a customer,
        partner or counterparty to a financial instrument fails to meet its
        contractual obligations and arises primarily from the Fund's cash and
        cash equivalents and receivables and from counterparties on its power
        cost swaps. The carrying amount of the financial assets and
        liabilities and the fair value of the long-term debt, convertible
        debentures and swaps represents the maximum credit exposure to the
        Fund.

        The Fund manages credit risk for its cash and cash equivalents by
        maintaining bank accounts with Schedule 1 banks. The Fund has minimal
        credit risk related to its receivables as a majority of these amounts
        are with large customers in the oil and gas industry and are subject
        to the terms of the Fund's shipping rules and regulations or pursuant
        to contracts. Balances are payable on the 25th day of the following
        month. This date coincides with the date on which oil and gas
        companies receive payment from industry partners and customers.
        Historically, Pembina has collected its receivables in full with an
        excess of 90% collected on the due date. Pembina also maintains lien
        rights on the oil and NGL's that are in the Fund's custody during the
        transportation of such products on the pipeline as well as the right
        to offset for single shipper operations. Therefore, the risk of non-
        collection is considered to be extremely low and no allowance for
        doubtful accounts has been made.

        Additionally, credit risk is mitigated through established credit
        management techniques, including conducting financial and other
        assessments for all new shippers on its systems and regular reviews
        of the credit status of current shippers to establish and monitor the
        counterparty's creditworthiness, to set exposure limits and to obtain
        financial assurances such as letters of credit and guarantees when
        warranted. The Fund's review includes external ratings for customers,
        where available, and in other cases, detailed financial assessments
        and reviews which generates a credit rating based on financial
        ratios. Purchase limits are established for each customer
        representing the maximum open amount without requiring approval from
        the Risk Management Committee. These limits are reviewed on an
        ongoing basis as deemed required.

        The Fund minimizes credit risk on its derivative financial
        instruments (power and commodity swaps) by entering into risk
        management transactions only with entities that have investment grade
        credit ratings.

        Liquidity risk

        Liquidity risk is the risk that the Fund will not be able to meet its
        financial obligations as they come due. The Fund's approach to
        managing liquidity risk is to ensure that it always has sufficient
        cash and credit facilities to meet its obligations when due.
        Management monitors daily cash positions and performs cash forecasts
        weekly to determine cash requirements. On a monthly basis, Management
        typically forecasts cash flows for a period of 12 months to identify
        financing requirements. These financing requirements are then
        addressed through a combination of credit facilities and through
        access to capital markets if required.

    -------------------------------------------------------------------------
    (in thousands of dollars)           Payment Due By Period
    -------------------------------------------------------------------------
                                                                     greater
                  Carrying  6 months    6 - 12     1 - 2     2 - 5      than
                    Amount   or less    months     years     years   5 years
    -------------------------------------------------------------------------
    Accounts
     payable and
     accrued
     liabilities  $ 71,874  $ 59,479  $    132  $ 11,038  $         $  1,225
    Distributions
     payable to
     Unitholders    15,993    15,993
    Long-term debt
     (excluding
     financing
     fees)         938,122     3,269    78,390    14,856   606,306   235,301
    Convertible
     debentures     44,378                                  44,378
    -------------------------------------------------------------------------
                $1,070,367  $ 78,741  $ 78,522  $ 25,894  $650,684  $236,526
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

        Market risk

        Market risk is the risk that the changes in market prices, such as
        interest rates, foreign exchange rates, and commodity prices affect
        the Fund's earnings and the value of financial instruments it holds.

        The Fund uses derivative financial instruments to manage exposure to
        power costs and crude oil and natural gas liquids. The Fund does not
        use financial instruments for trading or speculative purposes.

        Contracts used to manage market risk generally consist of swap
        contracts. These contracts consist of power swap hedges designated as
        cash flow hedges (see Note 16 in the December 31, 2007 Annual
        Report). These cash flow hedges are used to manage the potential
        increase or decrease in the price of non-transmission power charges.
        The $60 million interest rate swap matured on June 9, 2008.

        The Fund's credit facilities as at June 30, 2008 consisted of an
        unsecured $500 million revolving credit facility and a $30 million
        operating line of credit. Pembina had $404.6 million drawn leaving
        $125.4 of undrawn capacity. At June 30, 2008, the Fund was exposed to
        changes in interest rates on $479.6 million of bank borrowings.

        ---------------------------------------------------------------------
        Liquidity and Capital Resources                 June 30      Dec. 31
        (in thousands of dollars)                          2008         2007
        ---------------------------------------------------------------------
        Variable rate debt
          Bank debt                                 $   404,567  $   250,000
          Senior unsecured notes                         75,000       75,000
          Variable rate debt swapped to fixed                        (60,000)
        ---------------------------------------------------------------------
        Total variable rate debt outstanding
         (average rate of 3.76%)                        479,567      265,000
        ---------------------------------------------------------------------
        Fixed rate debt
          Senior unsecured notes                        375,000      375,000
          Senior secured notes                           83,555       86,708
          Variable rate debt swapped to fixed                         60,000
        ---------------------------------------------------------------------
        Total fixed rate debt outstanding
         (average rate of 5.78%)                        458,555      521,708
        ---------------------------------------------------------------------
        Convertible debentures                           44,378       47,702
        Total debt and debentures outstanding           982,500      834,410
        Unutilized debt capacity                        125,433      280,000
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Interest rates on $458.6 million in senior secured and unsecured
        notes have been fixed, leaving roughly 51% of Pembina's outstanding
        debt exposed to interest rate fluctuations. A 0.25 percent change in
        short-term interest rates would have an annualized impact of
        $1.2 million on net cash flows.

        The Fund is also exposed to changes in the cost of power. At June 30,
        2008, the Fund has fixed the price of non-transmission power charges
        by way of price swap contracts which expire in 2010. The fair value
        of these contracts at June 30, 2008, was an unrealized gain of
        $13.5 million. The power swap hedges the first 16 MW of power
        consumption each day on the conventional pipeline systems. Pembina's
        current consumption is not greater than 16 MW a day and hence
        considers its power costs fully hedged. Power costs on our oil sands
        systems are not hedged and as revenue on these pipelines is
        contracted to recover operating costs, Pembina's net operating income
        from oil sands is not impacted by fluctuations in power costs.
        Assuming a portion of the power was not hedged, every $5 change in
        the Alberta pool price will increase operating expenses by
        approximately $0.7 million.

        Terminalling, storage and hub services are dependent upon the ability
        of Pembina to take advantage of pricing differentials for various
        qualitative factors in the crude oil and NGL streams. These
        differentials are based primarily on product density and sulphur
        content and are subject to normal market forces. Pembina actively
        monitors the market conditions and the stream content and quality to
        ensure that it is not subject to undue risk or exposure should there
        be significant change in either price or quality factors. The Fund
        does have some commodity swap hedges in place but the swaps have an
        insignificant value and are recorded in current period earnings.

        The Fund documents all relationships between hedging instruments and
        hedged items, as well as its risk management objective and strategy
        for undertaking various hedge transactions for all financial
        instruments designated as cash flow hedges. The Fund also assesses,
        both at inception and on an ongoing basis, whether the derivatives
        that are used in hedging transactions are highly effective in
        offsetting changes in fair values or cash flows of hedged items.

        Pembina does not have any currency risk as all transactions are done
        in Canadian dollars.

        Fair values

        The Fund classifies its financial instruments as follows: cash is
        designated as "held for trading" and is measured at carrying value
        which approximates fair value due to the short term nature of these
        instruments. Accounts receivable and other are designated as "loans
        and receivables" and are measured at amortized cost. The derivative
        financial instruments are designated as cash flow hedges and are
        measured at fair value using market rates (values disclosed above).
        Accounts payable and accrued liabilities, distributions payable,
        long-term debt and convertible debentures are designated as "other
        liabilities" and recorded at amortized cost. The fair values for the
        long-term debt are determined by discounting the future contractual
        cash flows under the note agreements at discount rates which
        represent borrowing rates available for loans with similar terms and
        conditions. The fair value of debentures are determined based on
        available market information. There are no material differences in
        the carrying amounts of the financial instruments reported on the
        balance sheet compared to the estimated fair values except as
        follows:

        ---------------------------------------------------------------------
        (in thousands of dollars)   June 30, 2008        December 31, 2007
        ---------------------------------------------------------------------
                                Carrying        Fair    Carrying        Fair
                                  Amount       Value      Amount       Value
        ---------------------------------------------------------------------
        Long-term debt        $           $           $           $
          Senior secured notes    83,555      90,050      86,708      93,659
          Senior unsecured
           notes                 450,000     435,645     450,000     441,893
        Convertible debenture     44,378      66,732      47,702      67,770
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    5.  Capital Risk Management:

        The Fund's objective when managing capital is to safeguard the Fund's
        ability to continue as a going concern so that it can continue to
        provide a stable stream of distributions to Unitholders that is
        sustainable over the long-term. The Fund distributes all of its net
        cash flow, subject to retaining an appropriate distribution reserve,
        financing, making repayments on debt and, if applicable, funding
        future removal and site restoration reserves.

        The Fund manages its capital structure and makes adjustments to it in
        light of changes in economic conditions and risk characteristics of
        its underlying asset base and based on requirements arising from
        significant capital development activities. The Fund, upon approval
        from its Board of Directors, will balance its overall capital
        structure through new Trust Unit or debt issuances as required.
        Additionally, the Fund can resume its Premium Distribution Plan,
        Distribution Reinvestment and Optional Unit Purchase Plan ("DRIP")
        should it desire to raise new equity.

        The Fund maintains a conservative capital structure that allows it to
        finance its day-to-day cash requirements through its operations,
        without requiring external sources of capital. The Fund funds its
        operating commitments, short-term capital spending as well as its
        distributions to Unitholders through this cash flow, while new
        borrowing and equity issuances are reserved for the support of
        specific significant development activities. The capital structure of
        the Fund consists of Trust Units, deficit and accumulated other
        comprehensive income. Long-term debt is comprised of bank credit
        facilities, senior secured and unsecured notes and convertible
        debentures. The Fund monitors its ratio of total debt (as shown on
        the balance sheet) to total enterprise value (market value of trust
        units and debentures) quarterly and remains satisfied that the
        leverage currently employed in the Fund's capital structure is
        sufficient and appropriate given the characteristics and operations
        of the underlying asset base.

        The Fund is not subject to externally imposed capital requirements
        and the Fund's overall strategy with respect to capital risk
        management remains unchanged from the year ended December 31, 2007.

        Note 6 of these interim financial statements demonstrates the change
        in Trust Units for the six months ended 2008 and Note 12 in the
        December 31, 2007 Annual Report provides further information
        regarding the characteristics of the Trust Units outstanding.

    6.  Trust Units:

        The Fund is authorized to create and issue an unlimited number of
        Trust Units.

        ---------------------------------------------------------------------
                                                    Trust Units       Amount
        ---------------------------------------------------------------------
        Balance, January 1, 2008                    132,541,536    1,320,692
        Exercise of Trust Unit options                  458,750        6,611
        Debenture conversions                           277,840        3,325
        Contributed surplus                                              587
        ---------------------------------------------------------------------
        Balance, June 30, 2008                      133,278,126   $1,331,215
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The net earnings per Trust Unit are based on earnings available to
        Unitholders and the weighted average Trust Units outstanding for the
        period. The earnings available to Unitholders for the second quarter
        of 2008 was $42.1 million (2007 - $35.5 million) and for the six
        months ended June 30, 2008 was $74.7 million (2007 - $69.4 million).
        The weighted average Trust Units outstanding for the second quarter
        of 2008 were 133,117,000 Units (2007 - 129,966,000) and for the six
        months ended June 30, 2008 were 132,937,000 (2007 - 128,774,000).

        The diluted earnings per Trust Unit are based on net earnings and the
        weighted average Trust Units outstanding adjusted for the dilutive
        effect of convertible debentures and employee Trust Unit options. The
        diluted net earnings for the second quarter of 2008 were
        $42.7 million (2007 - $36.9 million). In computing diluted earnings
        per Trust Unit, 4,446,000 Trust Units (2007 - 7,889,000) were added
        to the weighted average Trust Units outstanding for the second
        quarter of 2008 for the dilutive effect of both convertible
        debentures and employee Trust Unit options. Basic and diluted
        earnings per Trust Unit for the second quarter of 2008 are $0.32 and
        $0.31, respectively, compared to $0.27 for both basic and diluted in
        the second quarter of 2007.

        The diluted net earnings for the six months ended June 30, 2008 were
        $75.9 million ($2007 - $72.2 million). In computing the six months
        ended diluted earnings per Trust Unit, 8,171,000 Trust Units (2007 -
        8,122,000) were added to the weighted average Trust Units for the
        dilutive effect of both convertible debentures and employee Trust
        Unit options. Basic and diluted earnings per Trust Unit for the six
        months ended June 30, 2008 are $0.56 and $0.54, respectively,
        compared to $0.54 and $0.53, respectively, in the six months period
        of 2007.

        At June 30, 2008, 3,631,702 options were outstanding, of which
        2,231,235 were exercisable (June 30, 2007 - 1,804,056) at a weighted
        average price of $14.17 (June 30, 2007 - $13.62).

    -------------------------------------------------------------------------
    Pembina Pipeline Income Fund                  INVESTOR INFORMATION
    -------------------------------------------------------------------------
    Exchange Listing and                    Premium Distribution,
    Trading Symbols:                        Distribution Reinvestment and
                                            Optional Unit Purchase Plan(1):
    The Toronto Stock Exchange
    Trust Units Symbol: PIF.UN              Pembina offers a Premium
    7.35% Convertible Debentures            Distribution, Distribution
    Symbol: PIF.DB.B                        Reinvestment and Optional Unit
                                            Purchase Plan to eligible
    Trustee, Registrar and Transfer         Unitholders of Pembina Pipeline
    Agent:                                  Income Fund.

    Computershare Trust Company             The Plan allows participants an
     of Canada                              opportunity to:
    Shareholder Communications:
    1-800-564-6253                          -  reinvest distributions into
                                               Trust Units at a 5 percent
    Corporate Office:                          discount to a weighted average
                                               market price, under the
    700 - 9th Avenue S.W.                      distribution reinvestment
    P.O. Box 1948                              component of the Plan; or,
    Calgary, Alberta T2P 2M7
    Telephone: (403) 231-7500               -  realize 2 percent more cash on
    Fax: (403) 237-0254                        their distributions, under the
                                               premium distribution component
    Investor Information:                      of the Plan;

    e-mail:                                 -  eligible Unitholders may also
    investor-relations@pembina.com          make optional Trust Unit
                                               purchases at the weighted
    Telephone: (403) 231-7500                  average market price.
               1-888-428-3222
    Fax:       (403) 691-7356               A brochure, detailing
                                            administration of the Plan and
    Website: www.pembina.com                eligibility and enrolment
                                            information, is available on-line
    Quarterly Results Webcast:              on Pembina's web site located at
                                            www.pembina.com, or call
    A live internet broadcast of            1-888-428-3222 to receive a copy
    Pembina's Second Quarter 2008           by mail. Unitholders wishing to
    Results conference call is              enroll in the Plan are asked to
    scheduled for July 30, 2008             contact their broker, investment
    at 2:00 p.m. Calgary (4:00 p.m.         dealer, financial institution or
    Eastern, 1:00 p.m. Pacific).            other nominee through which the
    Those wishing to access the             Trust Units are held.
    webcast are invited to visit
    Pembina's website located at            (1)  As of June 30, 2007,
    www.pembina.com, or the host                 Pembina has prorated its
    site at www.newswire.ca/webcast.             DRIP to zero as it prefers
    An archive of the call will be               not to raise further equity
    available on-line for 90 days                under this plan at this
    following the broadcast date.                time.
    -------------------------------------------------------------------------
    

    This document contains forward-looking information and statements that
involve risks and uncertainties. Such information, although considered
reasonable by Pembina at the time of preparation, may prove to be incorrect
and actual results may differ materially from those anticipated in the
statements made. For this purpose, any statements that are contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. Such risks and uncertainties include, but are not limited to risks
associated with operations, such as loss of market, regulatory matters,
environmental risks, industry competition, and ability to access sufficient
capital from internal and external sources. See "Forward-Looking Information
and Statements" presented in the Management's Discussion and Analysis
contained in this document for additional information, which applies to all
forward-looking information and statements contained in this document.

    %SEDAR: 00008906E




For further information:

For further information: Ms. Glenys Hermanutz, Vice President, Corporate
Affairs, Pembina Pipeline Corporation, (403) 231-7500, 1-888-428-3222, email:
investor-relations@pembina.com


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890