Pembina Pipeline Income Fund - First Interim Report for the Three Months Ended March 31, 2009



    
    STRATEGIC ACQUISITION OF CUTBANK COMPLEX EXPECTED TO BOLSTER PEMBINA'S
    2009 RESULTS
    

    CALGARY, April 29 /CNW/ -

    
    -   Subsequent to the end of the quarter, Pembina announced the pending
        acquisition of the Cutbank Complex, a network of natural gas
        gathering and processing facilities, for $300 million in an all cash
        transaction with Talisman Energy Canada ("Talisman"). Pembina
        estimates the transaction, upon closing (scheduled for early
        June 2009), to be accretive to distributable cash flow per trust unit
        and anticipates the acquisition will generate additional net
        operating income of $40 million on an annual basis. This acquisition
        presents Pembina's Midstream business unit with a strategic entry
        point into the natural gas gathering and processing business with
        assets located in the Deep Basin region of the Western Canadian
        Sedimentary Basin. Further, Pembina has arranged committed financing
        for the acquisition. See "New Developments and Outlook" in this
        report.

    -   Subsequent to the end of the quarter, Pembina has obtained a
        $75 million non-revolving credit facility from a Canadian chartered
        bank. The credit facility is for a term of 5 years at a fixed rate of
        approximately 6.0 percent. The net proceeds of the credit facility
        are to be used for the refinancing of $75 million floating rate notes
        coming due on June 22, 2009, and may also be used for other general
        corporate purposes at Pembina's discretion. See "New Developments and
        Outlook" in this report.

    -   Pembina's three business units generated consolidated revenue of
        $116.1 million during the quarter, up from $106.3 million during the
        first quarter of 2008.

    -   Both net operating income and EBITDA increased by $0.8 million over
        the first three months of 2008. See "Non-GAAP Measures" below.

    -   Net earnings for the first quarter were $28.3 million, compared to
        $32.6 million during the first quarter 2008. Excluding the timing of
        costs related to Pembina's pipeline integrity program, net earnings
        would have remained stable quarter-over-quarter.

    -   Distributed cash of $53.2 million ($0.39 per trust unit) during the
        quarter, compares to $47.8 million ($0.36 per Trust Unit), for the
        same quarter of the prior year.

    -   During the quarter, Pembina's Board of Directors approved an
        expansion of the Nipisi Pipeline project that is expected to increase
        ultimate throughput capacity to 200,000 barrels per day (bbls/d) from
        the original 100,000 bbls/d. As a result, Pembina's capital
        expenditure estimate for the Nipisi and Mitsue Pipeline projects was
        revised to $440 million from the original $400 million. Pending
        regulatory approval, Pembina expects construction on both pipeline
        projects to begin late 2009 and be in service by mid 2011. See "New
        Developments and Outlook" in this report.

    -   Starting with Pembina's distribution which is expected to be declared
        in June and paid in July, Pembina expects to change its distribution
        record date to the 25th day of each month to better facilitate the
        administration of Pembina's Premium Distribution, Distribution
        Reinvestment and Optional Unit Purchase Plan ("DRIP") (other than for
        the December distribution record date, which will remain
        December 31st for accounting purposes). The distribution payment
        date, which is the 15th day of the calendar month following the
        distribution record date, will remain unchanged.
    

    Management's Discussion and Analysis

    This Management's Discussion and Analysis ("MD&A") is dated April 29,
2009 and is supplementary to, and should be read in conjunction with, the
unaudited comparative interim financial statements and notes thereto of
Pembina Pipeline Income Fund for the three months ended March 31, 2009, along
with the Fund's Management's Discussion and Analysis and audited financial
statements and notes for the year ended December 31, 2008. 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 Statements and Information".

    Fund Description

    Pembina Pipeline Income Fund ("Pembina" or the "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.
    The 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 objectives are to provide a long-term stable stream
of distributions to Unitholders and to enhance and preserve the long-term
value of the Fund. The business strategy Pembina follows to achieve these
objectives has five key elements:

    
    -   Generate value by partnering with customers to provide the cost
        effective, competitively priced and reliable products and services
        they require to be successful.

    -   Build business flexibility, allowing Pembina to diversify its assets
        and respond to market conditions to help enhance profitability.

    -   Maintain a strong balance sheet through the application of prudent
        financial management to all business decisions.

    -   Implement staged, carefully managed growth in a safe and
        environmentally responsible way.

    -   Develop businesses which lend themselves to future economic expansion
        and vertical integration.
    

    Pembina believes the most prudent manner to achieve these objectives is
to maintain and to develop assets around Pembina's hydrocarbon-liquids
services business within Western Canada. Pembina plans to further develop this
business through the continuous improvement and ongoing expansion of Pembina's
existing asset base and the acquisition and development of quality energy
infrastructure assets. Pembina regards quality assets as assets that are
imbued with inherent competitive advantages, that have cash flows that can be
predicted with a reasonable degree of certainty, and either service or are in
close proximity to long-life, economic hydrocarbon reserves.
    Pembina's business is structured in three segments: Conventional
Pipelines, Oil Sands & Heavy Oil Infrastructure and Midstream & Marketing.
    The primary objectives for Pembina's conventional pipeline assets located
in Alberta and British Columbia ("BC") are safe, reliable operations and the
maintenance of competitive operating margin contributions, while pursuing
opportunities for increased throughput and revenue enhancements. Operating
margins are maintained through incremental volume capture and system
expansion, revenue management and operating cost discipline. Pembina strives
to attract new business to its conventional pipeline systems by offering
cost-effective, competitively-positioned and reliable transportation services.
    Over the last decade, Pembina has successfully leveraged its uniquely
positioned infrastructure and operating knowledge in the oil sands area and
will continue to pursue future opportunities in this sector. Pembina's oil
sands and heavy oil infrastructure assets are characterized by long term
contracts which provide a secure and stable cash flow. Net operating income
contribution from this business is primarily related to invested capital and
is not sensitive to fluctuations in operating expenses or actual throughputs.
The expansion of Pembina's infrastructure in this sector is a priority, due to
the long-term and stable nature of these assets, and the low-risk business
model that governs Pembina's oil sands operations.
    The Midstream & Marketing business consists of Pembina's 50 percent
non-operated interest in the Fort Saskatchewan Ethylene Storage Facility and
the network of terminals, storage facilities and hub services operated, or
under development, on several of Pembina's conventional pipeline systems and,
its natural gas gathering and processing assets upon closing of the Cutbank
Complex acquisition. By expanding Pembina's participation in the value chains
of crude oil and natural gas liquids (NGLs), Pembina has developed additional
revenue sources associated with its existing energy infrastructure assets.
Pembina anticipates that the further expansion of midstream services should
diversify sources of revenue, thereby increasing the predictable base level of
revenues generated annually, which is of significant benefit to both pipeline
customers and Unitholders. This strategy serves to both expand the quality and
range of services offered to customers and to extend the economic life of
Pembina's conventional asset base.

    
    Results from Operations
    -------------------------------------------------------------------------
    HIGHLIGHTS(1)                         3 Months     3 Months
                                             Ended        Ended
    (in millions of dollars,              March 31,    March 31,
     except where noted)                      2009         2008     % Change
    -------------------------------------------------------------------------
    Average throughput - conventional
     (mbbls/d)                               421.9        459.0         (8.1)
    Contracted capacity - oil sands
     (mbbls/d)                               775.0        525.0         47.6
    Total throughput and contracted
     volumes (mbbls/d)                     1,196.9        984.0         21.6
    Capital expenditures                      30.6         95.2        (67.9)
    Revenue                                  158.0        142.8         10.6
    Product purchases                         41.9         36.5         14.8
    Operating expenses                        44.1         35.1         25.6
    Net operating income(2)                   72.0         71.2          1.1
    General & administrative expense          10.9          9.4         16.0
    Interest expense on long-term debt        10.3          8.2         25.6
    Net earnings                              28.3         32.6        (13.2)
    Cash flow from operations                 41.2         59.0        (30.2)
    EBITDA(2)                                 59.8         59.0          1.4
    Cash distributions to Unitholders         53.2         47.8         11.3
      $ Per Trust Unit                     $0.3900      $0.3600          8.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) This first quarter 2009 Interim Report to Unitholders reports
        unaudited results of the Fund for the three months ended March 31,
        2009 and comparative to unaudited results for the three months ended
        March 31, 2008.
    (2) Refer to "Non-GAAP Measures" below.



    Conventional Pipelines
    -------------------------------------------------------------------------
                                          3 Months     3 Months
                                             Ended        Ended
    (in millions of dollars,              March 31,    March 31,
     except where noted)                      2009         2008     % Change
    -------------------------------------------------------------------------
    Average throughput (mbbls/d)             421.9        459.0         (8.1)
      Alberta                                401.4        435.3         (7.8)
      BC                                      20.5         23.7        (13.5)
    Revenue                                $  66.1      $  67.1         (1.5)
    Operating expenses                        32.4         27.3         18.7
    Net operating income(1)                   33.7         39.8        (15.3)
    Capital expenditures                       9.6         16.0        (40.0)
    Operating expenses ($/bbl)                0.81         0.62         30.6
    Average revenue ($/bbl)                   1.63         1.53          6.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.
    

    Pembina's extensive network of pipelines in Alberta and BC provides safe,
dependable, and cost effective transportation service to customers in Western
Canada. The conventional pipeline business unit represents Pembina's
traditional core business. These strategically located pipeline assets are
expected to generate stable and predictable cash flows.
    During the quarter ended March 31, 2009, Pembina's conventional pipelines
collectively transported an average of 421,900 bbls/d, a reduction of 8
percent from the first quarter of 2008.
    The Alberta pipelines transported an average of 401,400 bbls/d during the
first quarter, 8 percent lower than volumes transported during the first
quarter of 2008. This decline is in part due to reduced Nisku production on
the Drayton Valley pipeline, which resulted from lower production associated
with the current low commodity price environment. Should this trend continue,
Pembina estimates that this decrease in production could result in a decline
of 4,000 bbls/d annualized. The Alberta pipelines were also impacted by
reduced trucked receipts as producers move volumes to alternative delivery
points offering higher near term netbacks. Extended maintenance activities at
connected gas plants impacted NGL receipts on the Alberta pipelines in the
first quarter of 2009. Pembina anticipates that these volumes will normalize
as maintenance activities subside in the coming quarter.
    Throughput on Pembina's Western system averaged 20,500 bbls/d during the
first quarter of 2009, a 14 percent decrease from the same period of 2008.
This reduction in throughput is largely a result of declining oil production
in Northeast BC, and a decline in trucked volumes. The BC gathering pipelines
transported an average of 25,330 bbls/d over the three months ended March 31,
2009, as compared to 26,244 bbls/d a year earlier.
    Revenue in the first quarter of 2009 was approximately $66.1 million, a
modest decrease from $67.1 million during the same period of 2008.
    The Alberta systems recorded revenue of $56.6 million during the quarter,
one percent lower than the same period of the prior year. This decrease in
revenue is primarily a result of reduced throughput and the associated
reduction in toll revenue.
    Revenue on the provincially regulated BC pipelines, which is largely
based on flow through of operating expenses and a return on invested capital,
was $9.5 million in the first quarter of 2009, down 3 percent from the first
quarter of 2008 due to lower operating expenses.
    Operating expenses relating to Pembina's integrity and environmental
program incurred during the first quarter of 2009 on the conventional systems
contributed to a 18.7 percent quarter-over-quarter increase in operating
expenses, to $32.4 million. This increase is primarily attributable to the
timing of pipeline inspection digs on the Peace system, which accounts for
approximately $4.2 million of the $5.1 million increase during the first
quarter. With the completion of these digs, Pembina expects operating expenses
to normalize through the balance of 2009. Net operating income decreased 15
percent over the same quarter of 2008 to $33.7 million during the first
quarter of 2009, primarily as a result of the timing of operating expenses
mentioned above.
    Pembina continues to reinvest capital in its infrastructure to ensure the
safety and reliability of its pipeline assets and to benefit from accretive
opportunities as they arise. During the first quarter of 2009, capital
investment of approximately $9.6 million was focused on new connections and
upgrades on the conventional system. Pembina expects that these new
connections, when fully commissioned, will provide incremental volumes and
revenue to Pembina's conventional system.

    
    Oil Sands & Heavy Oil Infrastructure
    -------------------------------------------------------------------------
                                          3 Months     3 Months
                                             Ended        Ended
    (in millions of dollars,              March 31,    March 31,
     except where noted)                      2009         2008     % Change
    -------------------------------------------------------------------------
    Average throughput (mbbls/d)(1)          775.0        525.0         47.6
    Revenue                                $  29.8      $  15.6         91.0
    Operating expenses                         8.9          6.0         48.3
    Net operating income(2)                   20.9          9.6        117.7
    Capital expenditures                       9.7         76.4        (87.3)
    Operating expenses ($/bbl)(3)             0.35         0.24         45.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Contracted capacity. Actual average throughput was 278,867 bbls/d in
        the first quarter of 2009 and 272,332 bbls/d in the first quarter of
        2008.
    (2) Refer to "Non-GAAP Measures" below.
    (3) Calculation uses actual average throughput.
    

    Pembina has 775,000 barrels per day of fully contracted crude oil
transportation capacity in three distinct pipelines serving customers in the
Athabasca oil sands region; the Syncrude Pipeline which provides dedicated
service to Syncrude Canada Ltd.; the Cheecham Pipeline which delivers
synthetic crude oil from the Syncrude Pipeline to a third party facility near
Cheecham, Alberta; and, the Horizon Pipeline which was completed in July of
2008 and which provides dedicated service to Canadian Natural Resources
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.

    Syncrude Pipeline

    The Syncrude Pipeline has a transportation capacity of 389,000 barrels
per day and is fully contracted to the Syncrude owners. Net operating income
generated by the Syncrude Pipeline during the quarter of $7.9 million is
consistent year-over-year.

    Cheecham Pipeline

    The Cheecham Pipeline has a capacity of 136,000 barrels per day and
commenced operation in 2006. The pipeline has a 25-year contract and is fully
contracted to shippers. The net operating income was $1.5 million during the
first quarter, which is consistent with the first quarter of 2008.

    Horizon Pipeline

    In July 2008, Pembina completed construction of the $400 million Horizon
Pipeline. The Horizon Pipeline is fully contracted to CNRL and has an ultimate
capacity of 250,000 barrels per day. The pipeline is operated under the terms
of a 25-year extendible transportation agreement providing Pembina a fixed
return on invested capital and full recovery of operating expenses. Pembina
projects the Horizon Pipeline will contribute an estimated $45 million of
incremental net operating income annually over the contract term. The Horizon
Pipeline commenced earning its full contracted return on November 1, 2008 and
contributed $11.5 million in net operating income during the quarter ending
March 31, 2009.

    
    Midstream & Marketing Business
    -------------------------------------------------------------------------
                                          3 Months     3 Months
                                             Ended        Ended
    (in millions of dollars,              March 31,    March 31,
     except where noted)                      2009         2008     % Change
    -------------------------------------------------------------------------
    Revenue                                $  62.1      $  60.1          3.3
    Product purchases                         41.9         36.5         14.8
    Operating expenses                         2.9          1.8         61.1
    Net operating income(1)                   17.3         21.8        (20.6)
    Capital expenditures                      11.3          2.8        303.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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.
    The Midstream & Marketing business recorded revenue (net of product
purchases) of $20.2 million during the first quarter of 2009, representing a
14.4 percent decrease from the same quarter of 2008. Lower volume transported
on the conventional systems, together with continued weakness in commodity
pricing and related product differentials combined to limit midstream results
during the quarter.
    Operating expenses for the Midstream & Marketing business for the first
quarter of 2009 of $2.9 million have increased from the prior year as the
result of the ongoing expansion of this business unit.
    Pembina expects that its 50 percent interest in the fully contracted Fort
Saskatchewan Ethylene Storage Facility will generate stable, long-term returns
that are independent of capacity utilization and operating expenses.
    Capital expenditures during the first quarter of $11.3 million were
primarily related to the expansion of Peace and Drayton truck terminal
facilities and the development of the Namao terminal.
    Pembina's Midstream & Marketing business is structured to provide a
diversified revenue stream with the objective of generating a predictable base
level of results under a variety of market conditions. Results for the quarter
were impacted by the decline in commodity prices, lower throughput volumes,
and narrowing product differentials. Based on Pembina's current projections,
assumptions and expectations, Pembina anticipates that the operating income
contribution of this segment will improve over the balance of 2009 compared to
the first quarter of 2009, as certain existing business activities are
recalibrated and new undertakings are developed to exploit current market
conditions. Pembina expects the Cutbank Complex to contribute additional
fee-for-service revenue to the Midstream & Marketing business unit, which is
expected to assist in further diversifying the sources of revenues and
stabilizing revenues going forward. See "New Developments and Outlook", "Risk
Factors" and "Forward-Looking Statements and Information" in this report.

    General and Administrative Expenses

    General and administrative expenses (G&A) of $10.9 million were recorded
during the first three months of 2009, $1.5 million higher than the first
quarter of 2008. Higher G&A expenses are primarily the result of increased
employment levels, higher compensation and benefit costs and increased costs
to acquire third-party products, services and consultants. Pembina expects G&A
expenditures to approximate 12.4 percent of net operating income in 2009,
consistent with 2008.

    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 if, as and when determined by the Board of Directors of
Pembina Pipeline Corporation, 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.
    Starting with Pembina's distribution which is expected to be declared in
June and paid in July, Pembina expects to change its distribution record date
to the 25th day of each month to better facilitate the administration of
Pembina's Premium Distribution, Distribution Reinvestment and Optional Unit
Purchase Plan ("DRIP") (other than for the December distribution record date,
which will remain December 31st for accounting purposes). The distribution
payment date, which is the 15th day of the calendar month following the
distribution record date, will remain unchanged.
    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
                                                          Ended        Ended
    (in millions of dollars,                           March 31,    March 31,
     except where noted)                                   2009         2008
    -------------------------------------------------------------------------
    Cash flow from operations                        $   41,155   $   59,034
    Add/(deduct):
      Employee future benefits expense                   (1,631)        (945)
      Employee future benefits contributions              2,712        1,000
      Changes in non-cash working capital                 7,986       (8,043)
      Other                                                (258)        (268)
    -------------------------------------------------------------------------
    Distributable cash(1)                                49,964       50,778
    Decrease (increase) in distribution reserve           3,210       (2,985)
    -------------------------------------------------------------------------
    Distributed cash(1)                              $   53,174   $   47,793
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributable cash(1) per Trust Unit             $   0.3665   $   0.3823
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributed cash per Trust Unit(1)               $   0.3900   $   0.3600
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted distributed cash to Unitholders
     per Trust Unit(1)                               $   0.3843   $   0.3530
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Payout ratio                                           106%          94%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.
    

    During the first quarter of 2009, the Fund declared distributions of
$0.39 per Trust Unit, or $53.2 million in aggregate, compared to $0.36 per
Trust Unit, or $47.8 million in aggregate, paid in the first quarter of 2008.
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 75
percent of the distributions declared in 2009 will be taxable and 25 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 $0.3665 per Trust Unit in distributable cash (before
reserve) during the first quarter of 2009.
    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", "Risk Factors" and "Forward-Looking Statements and
Information" below for further information regarding the sustainability of
cash distributions.

    
    -------------------------------------------------------------------------
                                   3 Months
                                      Ended
    (in thousands of dollars,      March 31,
     except where noted)               2009       2008       2007       2006
    -------------------------------------------------------------------------
    Cash flow from operations      $ 41,155  $ 219,905  $ 189,540  $ 143,860
    Net earnings                     28,281    161,793    142,305     88,885
    Distributed cash(1)              53,174    198,759    178,870    142,285
    -------------------------------------------------------------------------
    Excess (shortfall) of cash
     flow from operations over
     distributed cash               (12,019)    21,146     10,670      1,575
    Excess (shortfall) of net
     earnings over distributed
     cash                           (24,893)   (36,966)   (36,565)   (53,400)
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.
    

    To ensure stability over economic and industry cycles and to absorb the
impact of material one-time events, not all available cash is distributed to
Unitholders. Historical cash distributions compared to cash flow from
operations shows excess cash flow in every period disclosed in the table
above. However, for the three months ended March 31, 2009, there was a
shortfall of $12 million primarily due to changes in non-cash working capital
and the timing of incurring $4.2 million of costs related to Pembina's
pipeline integrity program on the Peace system. 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 three months ended March 31, 2009 was 106
percent, 12 percent higher than the same period in the prior year. This
increase is largely due to the timing of maintenance activities, such as the
integrity costs referenced above which impacted distributable cash in the
first quarter of 2009. Excluding the timing of the above mentioned events, the
payout ratio would have been approximately 98 percent. Pembina estimates that
the full year payout ratio in 2009 will be approximately 92 percent, before
the benefits accrued from the acquisition of the Cutbank Complex. Pembina
calculates the payout ratio as the percentage of distributable cash (prior to
distribution reserve adjustments) that is distributed to Unitholders. See "New
Developments and Outlook", "Forward-Looking Statements and Information" and
"Non-GAAP Measures" below.

    Liquidity and Capital Resources

    The Fund's credit facilities at March 31, 2009 consisted of an unsecured
$500 million revolving credit facility due July, 2012. Pembina also has a $30
million operating facility in place which matures July 2009, that Pembina
expects will be extended to July 2010. There are no repayments due over the
term of either facility. At March 31, 2009, Pembina had $408.1 million drawn
leaving $121.9 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 2.50 percent. Other debt includes
$78.6 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 June 2009 and $200 million in fixed rate Senior
Unsecured Notes due 2021. At March 31, 2009, Pembina had long-term debt
(excluding deferred financing fees) of $936.8 million. This long-term debt,
together with $40.1 million of outstanding convertible debentures, resulted in
a ratio of total debt to total enterprise value of 33.9 percent compared to a
ratio of 32.1 percent at December 31, 2008. See "Non-GAAP Measures" below.
    During the first quarter, $6.4 million in net debt financing costs were
recorded, comparable to 2008.
    Subsequent to the quarter end, Pembina has entered into a non-revolving
credit facility with a Canadian chartered bank to refinance the $75 million
Floating Rate Senior Unsecured Notes due June 2009. The credit facility is for
a term of 5 years at a fixed rate based on a spread above 5 year GOC bond
rates to be determined at drawdown and which Pembina anticipates will be
approximately 6.0 percent.
    Pembina also entered into a commitment letter to provide for an
Acquisition Facility of $300 million. See "New Developments and Outlook:
Financing of the Cutbank Complex Acquisition" in this report.
    Pembina considers the maintenance of an investment grade credit rating as
critical to its ongoing ability to access capital markets on attractive terms.
The Dominion Bond Rating Service Ltd. (DBRS) stability rating system measures
the stability and sustainability of distributions per Trust Unit. DBRS has
assigned Pembina Pipeline Income Fund a STA-2 (low) stability rating which was
confirmed by DBRS on February 29, 2008. 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. These ratings
were also confirmed in February 2008. 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+", all with a stable outlook. S&P also rates
the Fund and has a current rating of SR-2, which rating was last confirmed on
November 17, 2008. 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 level of distributable cash flow generation stability and debt
instruments rated BBB have adequate protection parameters, however, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligations. See "Description of the Fund and the Trust Units - Credit
Ratings" in the Fund's Annual Information Form for the year ended December 31,
2008.

    
    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                 $   17.8   $   4.8   $   8.2   $   4.8   $
    Long-term debt             936.8      82.0     432.6     194.5     227.7
    Convertible debentures      40.1                40.1
    Construction
     commitments               461.9     138.0     307.4      16.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total contractual
     obligations            $1,456.6   $ 224.8   $ 788.3   $ 215.8   $ 227.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Pembina is, subject to certain conditions, contractually committed to the
construction and the operation of the Nipisi and Mitsue Pipelines. Pembina
currently projects the cost of these pipelines to total approximately $440
million. To date, $11.1 million has been expended. Pembina expects that $138
million will be spent within one year and the balance by mid-2011. An
additional $33 million in construction costs related to the Horizon Pipeline
is also expected to be incurred in later years, to meet potential increased
capacity requirements in the future. Pembina anticipates utilizing its undrawn
credit facilities, equity raised under the DRIP and potentially accessing the
debt and equity markets to finance the costs of the Nipisi and Mitsue
Pipelines, and other future capital expenditures. See "Forward-Looking
Statements and Information" in this report.

    
    -------------------------------------------------------------------------
                                                       3 Months     3 Months
                                                          Ended        Ended
                                                       March 31,    March 31,
    Capital Expenditures ($ millions)                      2009         2008
    -------------------------------------------------------------------------
    Development capital
      Conventional pipelines                         $      9.6   $     16.0
      Oil Sands & Heavy Oil infrastructure                  9.7         76.4
      Midstream & Marketing business                       11.3          2.8
    -------------------------------------------------------------------------
    Total development capital                              30.6   $     95.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Pembina expended $30.6 million on capital projects during the first
quarter of 2009, down considerably from $95.2 million expended during the
first quarter of 2008. Capital expenditures for the conventional systems of
$9.6 million during the quarter related to new connections and upgrades, the
installation of a fire suppression system at Pembina's facilities in Kamloops
and $2.2 million for the Mitsue Pipeline. Oil Sands & Heavy Oil infrastructure
spending totaled $9.7 million in the first quarter, down from the $76.4
million expended during the same period of 2008. Of the oil sands related
capital expenditures during the first quarter of 2009, $6.6 million was
related to remediation associated with the Horizon Pipeline construction, and
$2.6 million was invested in the Nipisi Pipeline. Spending in the midstream
business segment of $11.3 million year-to-date was related mainly to
operations equipment and the development of truck terminals along Pembina's
conventional system. These capital expenditures were financed, where
necessary, utilizing Pembina's existing credit facilities, and proceeds from
the DRIP.

    Trust Unit and Convertible Debenture Information

    Pembina launched its DRIP in 2003. Since inception, the DRIP has
attracted significant Unitholder interest and has raised $261.3 million. The
plan, which was discontinued as of June 30, 2007, was reinstated effective
October 31, 2008. Participation in the DRIP for the most recently completed
month (March, 2009) was 82.3 million Trust Units or $10.7 million. Pembina
expects participation in the DRIP to remain consistent at this rate through
the balance of 2009.
    The Fund's Trust Units, together with the one remaining series of
convertible debentures, are traded on the Toronto Stock Exchange.

    
    -------------------------------------------------------------------------
                                        April 28,     March 31,     March 31,
                                         2009(1)          2009          2008
    -------------------------------------------------------------------------

    Trust Units Outstanding          138,088,951   137,246,119   132,815,734
    Average Daily Volume (Units
     per day)                            226,239       259,112       208,300
    Unit Trading Price ($/Unit)(2)  $      13.92  $      13.98  $      16.30

    Principal Amount of Debentures
     Outstanding ($millions)        $       41.9  $       41.9  $       48.3

    7.35% Convertible Debentures
     Trading Price(3)               $     112.31  $     115.89  $     133.00
    Total Market Value of
     Securities Outstanding
     ($millions)                    $    1,969.2  $    1,967.2  $    2,229.0
    -------------------------------------------------------------------------
    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 April 1 to April 28, 2009,
        inclusive.
    (2) End of Period.
    (3) Full conversion to Trust Units of the remaining principal amount of
        the debenture issue as at April 28, 2009 would result in the issuance
        of 3.3 million Trust Units with an effective conversion price of
        $12.50 per Trust Unit.

    As at March 31, 2009, non-resident holdings in the Fund were less than 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
    

    There were no changes in Pembina's critical accounting estimates and
practices that affected the disclosure of or the accounting for its operations
for the quarter ended March 31, 2009. Such critical accounting estimates are
presented in Management's Discussion and Analysis for the year ended December
31, 2008.

    International Financial Reporting Standards (IFRS)

    The impact assessment phase has been substantially completed. Assessment
findings are being confirmed and reassessed during the subsequent phase as new
projects and pronouncements evolve from the International Accounting Standards
Board workplan. The impact analysis and evaluation phase has commenced and
training for the working group has been initiated. Significant completion of
the impact analysis and evaluation phase is necessary before the Fund can
prudently increase the specificity of the disclosure. For a complete
discussion of Pembina's IFRS conversion plan, see the Fund's 2008 Annual
Report available at Pembina's website at www.pembina.com and on the Fund's
profile on the SEDAR website at www.sedar.com.

    New Developments and Outlook

    Acquisition of Cutbank Complex

    Pembina announced on April 29, 2009, that Pembina Gas Services Limited
Partnership, a newly formed indirect subsidiary of Pembina, has entered into
an agreement with Talisman Energy Canada ("Talisman") to acquire its Cutbank
Complex midstream gas gathering and processing facilities for $300 million in
an all cash transaction. The acquisition, which is anticipated to close on
June 2, 2009, provides Pembina's Midstream business unit with a strategic
entry into the natural gas gathering and processing business. Closing of the
acquisition is subject to satisfaction of closing conditions customary for a
transaction of this nature, including Competition Act approval.
    The Cutbank Complex is a fully interconnected sweet gas gathering and
processing complex comprised of three gas plants (the Cutbank, Musreau and
Kakwa gas plants), nine compressor stations, and approximately 300 kilometres
of gathering systems with a total gross processing capacity of 360 MMcf per
day (305 MMcf per day net to Pembina). The Cutbank gas plant and the Musreau
gas plant will be operated by Pembina and the Kakwa Gas Plant, in which
Pembina will acquire a 50 percent interest, is operated by a third party.
Average throughput at the Cutbank Complex in 2008 was 208 MMcf per day net to
Talisman. The Cutbank Complex is located in the west central region of Alberta
and provides fee for service gathering and processing to customers in the
area. A portion of the assets within the Cutbank Complex are subject to rights
of first refusal. If all of the rights of first refusal are fully exercised,
Pembina's effective net processing capacity will be reduced to 250 MMcf per
day, average net throughput (based on net 2008 throughput) would be reduced to
175 MMcf per day, and the purchase price will be reduced by the value of the
assets which are excluded from the acquisition. The interconnectivity of the
assets provides a high degree of flexibility with respect to the utilization
of capacity. Further, all operating costs associated with the Cutbank Complex
are passed through to customers which helps to provide stability to cash
flows.

    Rationale for the Cutbank Complex Acquisition

    The Fund believes that the principal benefits of the Cutbank Complex
Acquisition are as follows:

    
    Excellent Strategic Fit
    -----------------------
    
    Consistent with the Fund's existing assets, the assets comprising the
Cutbank Complex represent high quality energy (natural gas and NGLs)
infrastructure located in the Deep Basin region of the Western Canadian
Sedimentary Basin. The acquisition of the Cutbank Complex will integrate the
ownership of the Cutbank Complex with the Pembina owned Peace Pipeline,
through which the processed NGLs are transported to the Edmonton, Alberta
area.

    
    Consistent Risk Profile
    -----------------------
    
    The Cutbank Complex is not directly exposed to the price of natural gas
and other commodities. The gathering and processing contracts associated with
the Cutbank Complex provide for the flow through of operating costs and are
structured on a fee-for-service basis. Over 50 percent of the capacity
associated with the Cutbank Complex is contracted on a firm service basis
until 2014, thereby providing the Fund with a potential source of long-term
stable cash flow.

    
    Value-Added Transaction
    -----------------------
    Pembina expects the acquisition of the Cutbank Complex to be accretive to
distributable cash flow per Trust Unit and anticipates the Cutbank Complex
will generate additional net operating income of $40 million on an annual
basis.

    Enhanced Diversification
    ------------------------
    The Cutbank Complex acquisition will further diversify the Fund's
operations to include natural gas gathering and processing capacity.
    

    Financing of the Cutbank Complex Acquisition

    Pembina has arranged financing for the acquisition of the Cutbank Complex
through new committed bank credit facilities.
    Pembina has obtained a commitment from a Canadian chartered bank to
provide a $150 million 18 month term credit facility and a $150 million 9
month equity bridge facility. Closing of the term credit facility and equity
bridge facility is subject to satisfaction of conditions that are typical of
transactions of this nature, including simultaneous completion of the Cutbank
Complex acquisition, on or before August 31, 2009. Pembina intends to use the
net proceeds from the new credit facilities to complete the acquisition of the
Cutbank Complex. The credit facilities are unsecured and rank pari passu with
all other senior unsecured debt of Pembina.

    Refinancing of $75 million notes

    Pembina has obtained a $75 million non-revolving credit facility from a
Canadian chartered bank. The credit facility is for a term of 5 years at a
fixed rate based on a spread above 5 year GOC bond rates to be determined at
drawdown and which Pembina anticipates will be approximately 6.0 percent. The
net proceeds of the credit facility are to be used for the refinancing of $75
million floating rate notes coming due on June 22, 2009, and may also be used
for other general corporate purposes at Pembina's discretion.

    Major Projects

    Pembina's priority growth projects in 2009 are the Nipisi and Mitsue
Pipelines. These projects were initiated in response to industry demand for
reliable diluent supply to, and diluted heavy oil take-away capacity from, the
Nipisi, Alberta region.
    In March 2009, following an extensive customer consultation process,
Pembina's Board of Directors approved a plan to expand the design capacity of
the Nipisi Pipeline. The planned 'pre-build' will allow the capacity of the
Nipisi Pipeline to be increased in stages, as customer demand materializes, to
a maximum of 200,000 bbls/d. Pembina's revised capital expectation for the
combined Nipisi and Mitsue Pipelines is approximately $440 million. This
estimate does not include the proposed Utikuma truck terminal and related
facilities.
    Pembina's major customers, CNRL and EnCana Corporation, have, subject to
certain conditions, long term contracted capacity totaling 80 to 90 percent of
the available base capacity on the Nipisi Pipeline. Pembina Marketing Ltd., a
wholly-owned subsidiary of Pembina Pipeline Corporation, has contracted for
the balance of available capacity on these pipelines and aims to attract and
retain third party production.
    The agreements governing operations on the Nipisi and Mitsue Pipelines
are designed to provide Pembina with a fixed return on invested capital and
allow for the full recovery of operating costs over the term of the
agreements. Based on Pembina's internal projections, the two pipelines are
estimated to initially contribute approximately $45 million per annum in net
operating income once operations commence. See "Forward-Looking Statements and
Information".
    Project consultation and preliminary engineering work is underway for the
Nipisi and Mitsue pipelines, as well as the Utikuma truck terminal. Pembina is
seeking feedback on the proposed pipeline routing, traditional land use,
environmental impact and other aspects of the projects to be incorporated into
project planning, and is in negotiations for construction materials. Further,
Pembina anticipates submitting regulatory applications in May 2009, and
expects that regulatory approvals could be in place by late 2009. Pending a
successful regulatory approval process, Pembina expects the Nipisi and Mitsue
Pipelines to be in service in mid-2011.

    Conventional Pipelines

    In mid-2009, the Alberta government will award approximately $2 billion
in funding towards the development of Carbon Capture and Sequestration (CCS)
projects. Use of captured carbon dioxide (CO(2)) in enhanced oil recovery has
the potential to increase recovery of original oil in place by as much as 15
to 20 percent. As CO(2) flooding may be used to enhance oil recovery in mature
fields such as Drayton Valley, Swan Hills, and Redwater, Pembina believes that
it is uniquely positioned to capture the increased production that will result
from Alberta's long-term commitment to climate change.

    Oil Sands & Heavy Oil Infrastructure

    Pembina expects a significant increase in net operating income from Oil
Sands and Heavy Oil Business Unit in 2009 resulting from a full year of net
operating income contribution from the Horizon Pipeline. Pembina continues to
actively explore other oil sands and heavy oil infrastructure opportunities
and believes its strong assets, and recent construction experience and
embedded expansion rights on existing pipelines gives Pembina a competitive
edge to attract new business.

    Midstream & Marketing

    As evidenced by the Cutbank Complex acquisition, Pembina continues to
expand the scope and range of services provided in this business unit, and
expects to see increased activity throughout the remainder of 2009. See "Risk
Factors" and "Forward-Looking Statements and Information" in this report.

    Distribution Sustainability

    In 2006, the Government of Canada introduced legislation designed to
change the taxation of certain specified investment flow-through entities
("SIFTs"), more commonly referred to as income trusts. In response to this
change, after detailed consideration of the various options available to the
Fund, Pembina's Board of Directors has determined conversion from an income
trust to a corporate entity, prior to January 1, 2011, when the new tax
legislation will take effect, will best serve the interest of Pembina's
owners.
    Solid, sustainable, long-term results generated by all three of Pembina's
business units, together with anticipated significant incremental cash flow
contribution from the capital projects presently underway, lend confidence in
Pembina's ability to maintain the current distribution rate through corporate
conversion (in the form of a dividend after conversion) and the onset of
taxable status to 2013. Based on the Fund's current assumptions, expectations,
estimates and projections, Pembina believes this level of dividend, post
conversion, can be continued while maintaining a prudent capital structure and
continuing to fund its planned growth initiatives. For important information
regarding additional assumptions made by Pembina in this regard, and the
related risks associated with these assumptions. See "Forward-Looking
Statements and Information".

    Change in Distribution Record Date

    Starting with Pembina's distribution which is expected to be declared in
June and paid in July, Pembina expects to change its distribution record date
to the 25th day of each month to better facilitate the administration of
Pembina's DRIP (other than for the December distribution record date, which
will remain December 31st for accounting purposes). The distribution payment
date, which is the 15th day of the calendar month following the distribution
record date, will remain unchanged.

    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, 2008, and in the Fund's Annual Information Form
for the year ended December 31, 2008. 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
    -------------------------------------------------------------------------
                               2009                     2008
    -------------------------------------------------------------------------
    (in thousands of dollars,
     except where noted)        Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Revenue                  158,034   149,375   201,289   181,484   142,735
    Product purchases         41,927    24,025    84,243    76,215    36,451
    Operating expenses        44,129    42,428    40,136    33,262    35,095
    EBITDA(1)                 59,762    66,801    85,037    77,074    58,972
    Cash flow from
     operations               41,155    63,505    50,445    46,921    59,034
    Net earnings              28,281    38,968    48,131    42,122    32,572

    Net earnings per Trust
     Unit ($/Unit):
      Basic                     0.21      0.29      0.36      0.32      0.25
      Diluted                   0.21      0.29      0.35      0.31      0.24

    Distributed cash(1)       53,174    52,312    50,732    47,922    47,793

    Distributed cash per
     Trust Unit ($/Unit)(1)
      Basic                   0.3900    0.3900    0.3800    0.3600    0.3600
      Diluted                 0.3843    0.3840    0.3729    0.3528    0.3530

    Trust Units outstanding
     (thousands):
      Weighted average
       (basic)               136,344   134,133   133,504   133,117   132,758
      Weighted average
       (diluted)             139,777   137,668   137,595   137,564   137,196
      End of period          137,246   134,703   133,569   133,278   132,816
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    ---------------------------------------------------------------
                                              2007
    ---------------------------------------------------------------
    (in thousands of dollars,
     except where noted)        Q4        Q3        Q2        Q1
    ---------------------------------------------------------------
    Revenue                  133,990   131,477   126,373   112,948
    Product purchases         32,756    32,761    32,947    16,589
    Operating expenses        35,885    31,833    30,718    31,192
    EBITDA(1)                 53,614    57,901    53,082    55,863
    Cash flow from
     operations               48,788    51,666    42,180    46,907
    Net earnings              34,981    37,903    35,492    33,929

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

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

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

    Trust Units outstanding
     (thousands):
      Weighted average
       (basic)               132,454   131,994   129,966   127,568
      Weighted average
       (diluted)             137,243   136,850   135,274   135,206
      End of period          132,542   132,065   131,388   128,247
    ---------------------------------------------------------------
    ---------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.
    

    Net earnings of $28.3 million were recorded during the first quarter of
2009, compared to $32.6 million and $33.9 million over the same periods in
2008 and 2007. The decrease in net earnings over the same period in 2008
relates primarily to increases in both operating and G&A expenses as well as
increases in depreciation expense on a larger asset base due to capital
expenditures. Increases in interest expense year-over-year also contributed to
a decline in net earnings. Revenue increases have not been sufficient to
offset these expense increases year-over-year. Net operating income decreased
quarter-over-quarter 13 percent to $72.0 million as a result of the timing of
maintenance activities and the reduction in midstream operating income.
    Pembina's stable operations typically produce limited variability in
quarterly results. Variations in this trend result from one-time events;
extraordinary circumstances, such as the weak market conditions that
characterized the first quarter of 2009; and expected seasonal factors which
impact pipeline receipts and operating expenses. Such events and factors
include, but are not limited to, regularly scheduled facilities maintenance,
road bans and weather-related impact on receipts, spending patterns, and
outages.

    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 "distributed cash" (the amount of cash that has
been or is to be available for distribution to Unitholders),"EBITDA" (earnings
before interest, taxes, depreciation and amortization), "net operating income"
(revenues less operating expenses and product purchases), "payout ratio" (the
Fund's cash distributions to Unitholders divided by its distributable cash)
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, distributed cash 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. Investors
should be cautioned, however, that distributed cash EBITDA, net operating
income, payout ratio 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 Statements and Information

    The information contained in this MD&A contains certain forward-looking
statements and information ("forward-looking statements") 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", "intends", "estimates",
"continue", "designed", "objective", "maintain", "schedule", "endeavor" and
similar expressions.
    In particular, this document contains material forward-looking
statements, including certain financial outlook, regarding (i) the possible
conversion of Pembina to a corporate form in the latter half of 2010 and the
ability of Pembina to maintain its current level of cash distributions to its
equity holders both prior to and for the foreseeable future after conversion
(in the form of dividends after conversion); (ii) the future net operating
income of Pembina in relation to the Horizon Pipeline; (iii) the proposed
construction of the Mitsue and Nipisi Pipelines; (iv) the performance of the
Cutbank Complex, and specifically with respect to the expected accretion to
distributable cash flow per Trust Unit and generation of additional net
operating income, (v) the expected time for receiving various approvals to
proceed with the acquisition of the Cutbank Complex, (vi) the projected
closing date of the acquisition of the Cutbank Complex, (vii) the rationale
for and the expected benefits of the Cutbank Complex acquisition; (viii) the
normalization in future quarters of results from operations in respect of
Pembina's conventional and midstream and marketing business segments and the
associated improvement in Pembina's payout ratio for full-year 2009; and (ix)
the debt financing commitments that Pembina has obtained in respect of the
proposed acquisition of the Cutbank Complex; and (*) the expected extension of
Pembina's $30 million operating facility to July 2010. These forward-looking
statements are being made by Pembina based on certain assumptions that Pembina
has made in respect thereof as at the date of this document including those
discussed below.
    In respect of the possible corporate conversion of Pembina and future
cash distributions or dividends to equity holders, these assumptions include
that Pembina's internal cash flow and tax projections are correct; that
Pembina can obtain all necessary approvals in respect of the corporate
conversion; that favourable growth parameters continue to exist in respect of
current and future projects of Pembina (including in respect of the ability to
finance such projects on favourable terms); that there will be no changes to
current tax laws governing the taxation of SIFT entities and the treatment
distributions from such entities; that the draft legislation related to the
conversion of SIFT entities into corporations, as introduced on July 14, 2008,
will be enacted in the form proposed; and the continued sustainable results of
all three of Pembina's business segments.
    In respect of the forward-looking statements made in relation to the
Horizon and Mitsue and Nipisi Pipelines, Pembina has assumed that the
in-service date for the Mitsue and Nipisi Pipelines will be in mid-2011; that
future tolls in respect of such pipelines will be consistent with internal
projections; that counterparties will comply with contracts in a timely
manner; that there are no unforeseen events preventing the performance of
contracts by Pembina; that Pembina is able to obtain financing on favourable
terms in respect of the costs associated with the Mitsue and Nipisi Pipelines;
that there are no unforeseen construction costs related to the Mitsue and
Nipisi Pipelines; that there are no unforeseen material costs relating to the
pipeline systems which are not recoverable from shippers; that Pembina can
obtain all required regulatory approvals in respect of the Nipisi and Mitsue
pipelines and related facilities.
    In respect of the forward-looking statements made in relation to the
proposed acquisition of the Cutbank Complex, the accretive nature of such
acquisition to Pembina and generation of additional net operating income.
Pembina has assumed: that the timing of the closing of the acquisition will
occur on or about June 2, 2009 and on the terms negotiated; that the accretion
to Pembina will be in accordance with internal projections; that the future
performance of the Cutbank Complex assets will be consistent with 2008
operating and financial results; that all required regulatory approvals can
and will be obtained on favourable terms; that all closing conditions are
satisfied; that certain rights of first refusal relating to the assets expire
or are waived; that the counterparties to contracts in respect of the Cutbank
Complex comply with such contacts in a timely manner; that the committed
acquisition credit facilities will be funded on the terms negotiated; and that
there are no unforeseen events preventing the performance of contracts by
Pembina.
    In respect of the forward-looking statements made in relation to the debt
financing arrangements that Pembina has arranged in respect of the proposed
acquisition of the Cutbank Complex, Pembina has assumed: that the timing of
any future closing in respect of such finances will be as indicated; that all
regulatory approvals can and will be obtained; that all closing conditions are
satisfied; and that there are no unforeseen events preventing the execution of
any required definitive agreements on the expected terms, and satisfaction of
conditions contained therein.
    In respect of the forward-looking statements made in relation to the
normalization of Pembina's results from operations and the associated
improvement in Pembina's payout ratio for full-year 2009, Pembina has assumed
that current general market conditions and commodity prices stabilize and/or
improve in the latter half of 2009, that the improvement and/or stabilization
of market conditions will increase oil and gas exploration and production
activity in Alberta and British Columbia in the latter half of 2009, that
Pembina successfully completes its proposed acquisition of the Cutbank Complex
on the proposed timelines and on the proposed terms and that Pembina realizes
its anticipated accretion on distributable cash from such acquisition.
    Further, this MD&A contains forward-looking statements with respect to:
the timing of and 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 amount and frequency of maintenance and other capital
expenditures; the availability of coverage under Pembina's insurance policies
(including in respect of Pembina's business interruption insurance policy);
future acquisitions, growth and growth potential in Pembina's conventional
pipelines, oil sands & heavy oil infrastructure and midstream & marketing
operations; 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 Pembina's
pipelines and other assets (which could be affected by, among other things,
possible changes to applicable royalty and tax regimes and low commodity
prices); 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.
    None of the forward-looking statements described above are guarantees of
future performance and they are all 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 on satisfactory terms or at all (including in respect of the Mitsue
and Nipisi pipelines and Cutbank Complex), 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 and the
debt financing arrangements in respect of the Cutbank Complex acquisition),
construction costs of the Mitsue and Nipisi Pipelines, 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 of this document. The purpose of the financial outlook contained
herein is to give the reader an indication of the value to Pembina of the
Horizon Pipeline as well as the potential effects to Unitholders of a possible
conversion of Pembina to a corporate form. 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)
    -------------------------------------------------------------------------
                                                       March 31      Dec. 31
                                                           2009         2008
    -------------------------------------------------------------------------

    Assets
    Current assets:
      Cash                                          $            $    13,638
      Accounts receivable and other                      69,401       65,140
    -------------------------------------------------------------------------
                                                         69,401       78,778
    Property, plant and equipment (note 3)            1,699,928    1,685,394
    Goodwill and other                                  354,200      354,037
    -------------------------------------------------------------------------
                                                    $ 2,123,529  $ 2,118,209
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Unitholders' Equity
    Current liabilities:
      Bank indebtedness                             $       176  $
      Accounts payable and accrued liabilities           44,228       65,913
      Distributions payable to Unitholders               17,842       17,511
      Current portion of long-term debt                  82,031       81,904
    -------------------------------------------------------------------------
                                                        144,277      165,328
    Long-term debt                                      848,327      831,797
    Convertible debentures                               40,101       40,865
    Derivative financial instruments                     19,099       13,962
    Asset retirement obligations                         85,414       84,158
    Future income taxes                                  98,600       98,869
    -------------------------------------------------------------------------
                                                      1,235,818    1,234,979
    -------------------------------------------------------------------------
    Unitholders' equity:
      Trust Units (note 6)                            1,383,860    1,350,694
      Deficit                                          (481,749)    (456,856)
      Accumulated other comprehensive loss              (14,400)     (10,608)
    -------------------------------------------------------------------------
                                                        887,711      883,230
    -------------------------------------------------------------------------
                                                    $ 2,123,529  $ 2,118,209
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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
                                                          Ended        Ended
                                                       March 31,    March 31,
                                                           2009         2008
    -------------------------------------------------------------------------
    Revenues:
      Conventional pipelines                        $    66,144  $    67,097
      Oil Sands & Heavy Oil infrastructure               29,785       15,598
      Midstream & Marketing business                     62,105       60,040
    -------------------------------------------------------------------------
                                                        158,034      142,735
    -------------------------------------------------------------------------

    Expenses:
      Operations                                         44,129       35,095
      Product purchases                                  41,927       36,451
      General and administrative                         10,918        9,372
      Depreciation and amortization                      19,395       17,126
      Accretion on asset retirement obligations           1,256          944
      Internalization of management contract                           1,859
      Other                                                  42           42
    -------------------------------------------------------------------------
                                                        117,667      100,889
    -------------------------------------------------------------------------
    Earnings before interest and taxes                   40,367       41,846
    Interest on long-term debt                           10,289        8,240
    Interest on convertible debentures                      765          898
    -------------------------------------------------------------------------
    Earnings before taxes                                29,313       32,708
    Income tax expense                                    1,032          136
    -------------------------------------------------------------------------
    Net earnings                                         28,281       32,572
    Deficit, beginning of period                       (456,856)    (419,890)
    Distributed cash                                    (53,174)     (47,793)
    -------------------------------------------------------------------------
    Deficit, end of period                          $  (481,749) $  (435,111)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per Trust Unit (note 4)
      Basic                                         $      0.21  $      0.25
      Diluted                                       $      0.21  $      0.24
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements



    Consolidated statement of comprehensive income (loss)
    (Unaudited)

    (In thousands of dollars)
    -------------------------------------------------------------------------
                                                       3 Months     3 Months
                                                          Ended        Ended
                                                       March 31,    March 31,
                                                           2009         2008
    -------------------------------------------------------------------------

    Net earnings for the period                     $    28,281  $    32,572

    Other comprehensive income:

      Change in unrealized gain (loss) on
       derivative instruments designated as cash
       flow hedges, net of tax of $1.3 million           (3,792)       1,096
    -------------------------------------------------------------------------
      Total comprehensive income                    $    24,489  $    33,668
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other comprehensive income (loss):

      Opening balance, net of tax of $3.4 million   $   (10,608) $     7,935

      Change in unrealized gain (loss) on
       derivative instruments designated as cash
       flow hedges, net of tax of $1.3 million           (3,792)       1,096
    -------------------------------------------------------------------------
      Accumulated other comprehensive income (loss) $   (14,400) $     9,031
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements



    Consolidated statements of cash flows
    (Unaudited)

    (In thousands of dollars)
    -------------------------------------------------------------------------
                                                       3 Months     3 Months
                                                          Ended        Ended
                                                       March 31,    March 31,
                                                           2009         2008
    -------------------------------------------------------------------------

    Cash provided by (used in):
    Operating activities:
    Net earnings                                    $    28,281  $    32,572
    Items not involving cash:
      Depreciation and amortization                      19,395       17,126
      Accretion on asset retirement obligations           1,256          944
      Future income tax expense                           1,032          136
      Employee future benefits expense                    1,631          945
      Trust Unit based compensation expense                 213          268
      Other                                                  45
    Employee future benefits contributions               (2,712)      (1,000)
    Changes in non-cash working capital                  (7,986)       8,043
    -------------------------------------------------------------------------
    Cash flow from operations                            41,155       59,034

    Financing activities:
      Bank borrowings                                    18,336       61,615
      Repayment of senior secured notes                  (1,679)      (1,562)
      Issue of Trust Units on exercise of options           536        2,129
      Issue of Trust Units under Distribution
       Reinvestment Plan                                 31,653
      Distributions to Unitholders - current year       (35,332)     (31,855)
      Distributions to Unitholders - prior year         (17,511)     (15,905)
    -------------------------------------------------------------------------
                                                         (3,997)      14,422
    Investing activities:
      Capital expenditures                              (33,011)     (95,168)
      Changes in non-cash working capital               (17,961)       4,597
    -------------------------------------------------------------------------
                                                        (50,972)     (90,571)
    Change in cash                                      (13,814)     (17,115)
    Cash, beginning of period                            13,638       16,736
    -------------------------------------------------------------------------
    Cash (bank indebtedness), end of period         $      (176) $      (379)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Other cash disclosures:
      Interest on long-term debt paid               $    (9,447) $   (10,636)
      Interest capitalized                          $      (384) $    (3,522)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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, 2008. 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,
        2008. Certain of the prior period's comparative figures have been
        reclassified to conform with the current period's presentation.

        International Financial Reporting Standards

        The impact assessment phase has been substantially completed.
        Assessment findings are being confirmed and reassessed during the
        subsequent phase as new projects and pronouncements evolve from the
        International Accounting Standards Board (IASB) workplan. The impact
        analysis and evaluation phase has commenced and training for the
        working group has been initiated. Significant completion of the
        impact analysis and evaluation phase is necessary before the Fund can
        prudently increase the specificity of the disclosure. For a complete
        discussion of Pembina's IFRS conversion plan, see the Fund's 2008
        Annual Report available at Pembina's website at www.pembina.com and
        on the Fund's profile on the SEDAR website at www.sedar.com.

    2.  Business segments:

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

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

        Oil Sands & Heavy Oil infrastructure consists of the Syncrude system,
        the Cheecham Lateral and the Horizon Pipeline. 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 hub services under a mixture of short, medium
        and long-term contractual arrangements, and pending natural gas
        gathering and processing facilities.

        The financial results of the business segments are as follows:
    -------------------------------------------------------------------------
                                Oil Sands &       Mid-
                         Conven-  Heavy Oil   stream &
    (in thousands         tional     Infra-  Marketing
     of dollars)       Pipelines  structure   Business  Corporate      Total
    -------------------------------------------------------------------------
    Three months ended
     March 31, 2009

    Revenues:
      Pipeline
       transportation $   66,144 $   29,785 $          $          $   95,929
      Terminalling,
       storage and hub
       services                                 62,105                62,105
    -------------------------------------------------------------------------
      Revenue before
       expenses           66,144     29,785     62,105               158,034
    -------------------------------------------------------------------------

    Expenses:
      Operations          32,423      8,853      2,853                44,129
      Product purchases                         41,927                41,927
      General and
       administrative                   345                10,573     10,918
      Depreciation and
       amortization       10,864      5,380      2,892        259     19,395
      Accretion on asset
       retirement
       obligations         1,095        161                            1,256
      Other                                                    42         42
    -------------------------------------------------------------------------
                          44,382     14,739     47,672     10,874    117,667
    -------------------------------------------------------------------------
    Earnings before
     interest and
     taxes            $   21,762 $   15,046 $   14,433 $  (10,874)$   40,367
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Property, plant
     and equipment(1) $  793,556 $  710,787 $  187,525 $    8,060 $1,699,928
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill and
     other            $  194,370 $   28,300 $  118,780 $   12,750 $  354,200
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Included in property, plant and equipment are assets under
        construction for Nipisi and Mitsue Pipelines of $11.1 million.



    -------------------------------------------------------------------------
                                Oil Sands &       Mid-
                         Conven-  Heavy Oil   stream &
    (in thousands         tional     Infra-  Marketing
     of dollars)       Pipelines  structure   Business  Corporate      Total
    -------------------------------------------------------------------------
    Three months ended
     March 31, 2008

    Revenues:
      Pipeline
       transportation $   67,097 $   15,598 $          $          $   82,695
      Terminalling,
       storage and hub
       services                                 60,040                60,040
    -------------------------------------------------------------------------
      Revenue before
       expenses           67,097     15,598     60,040               142,735
    -------------------------------------------------------------------------

    Expenses:
      Operations          27,266      5,988      1,841                35,095
      Product purchases                         36,451                36,451
      General and
       administrative                   337                 9,035      9,372
      Depreciation and
       amortization       11,505      3,028      2,397        196     17,126
      Accretion on asset
       retirement
       obligations           892         52                              944
      Internalization of
       management contract                                  1,859      1,859
      Other                                                    42         42
    -------------------------------------------------------------------------
                          39,663      9,405     40,689     11,132    100,889
    -------------------------------------------------------------------------
    Earnings before
     interest and
     taxes            $   27,434 $    6,193 $   19,351 $  (11,132)$   41,846
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Property, plant
     and equipment(1) $  791,394 $  665,833 $  140,988 $    5,627 $1,603,842
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill and
     other            $  194,370 $   28,300 $  122,426 $   12,258 $  357,354
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Included in property, plant and equipment are assets under
        construction for the Horizon Pipeline of $329.5 million.


    3.  Property, Plant and Equipment:

        ---------------------------------------------------------------------
                                        March 31      March 31      March 31
                                            2009          2009          2009
                                                   Accumulated
        (in thousands of dollars)           Cost  Depreciation           Net
        ---------------------------------------------------------------------
        Conventional Pipelines       $ 1,397,808   $  (604,252)  $   793,556
        Oil Sands & Heavy Oil
         Infrastructure                  783,302       (72,515)      710,787
        Midstream & Marketing
         Business                        225,057       (37,532)      187,525
        Corporate                         13,794        (5,734)        8,060
        ---------------------------------------------------------------------
                                     $ 2,419,961   $  (720,033)  $ 1,699,928
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
                                     December 31   December 31   December 31
                                            2008          2008          2008
                                                   Accumulated
        (in thousands of dollars)           Cost  Depreciation           Net
        ---------------------------------------------------------------------
        Conventional Pipelines       $ 1,390,278   $  (593,394)  $   796,884
        Oil Sands & Heavy Oil
         Infrastructure                  772,847       (66,398)      706,449
        Midstream & Marketing
         Business                        210,940       (35,552)      175,388
        Corporate                         12,148        (5,475)        6,673
        ---------------------------------------------------------------------
                                     $ 2,386,213   $  (700,819)  $ 1,685,394
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    4.  Earnings Per Trust Unit:

        The following table summarizes the computation of net earnings per
        Trust Unit:

        ---------------------------------------------------------------------
                                                       March 31     March 31
        (in thousands of dollars)                          2009         2008
        ---------------------------------------------------------------------
        Net Earnings
        Numerator for basic earnings per Trust Unit $    28,281  $    32,572
        Numerator for diluted earnings per Trust Unit    28,820       33,206
        ---------------------------------------------------------------------
        Denominator:
          Weighted average denominator for basic
           Trust Units                                  136,344      132,758
          Dilutive instruments
            Debentures                                    3,375        3,922
            Employee options                                 58          516
        ---------------------------------------------------------------------
          Denominator for diluted earnings per Trust
           Unit                                         139,777      137,196
        ---------------------------------------------------------------------
        Basic earnings per Trust Unit               $      0.21  $      0.25
        Diluted earnings per Trust Unit             $      0.21  $      0.24
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    5.  Financial Instruments:

        ---------------------------------------------------------------------
        Liquidity and Capital Resources                March 31      Dec. 31
        (in thousands of dollars)                          2009         2008
        ---------------------------------------------------------------------
        Variable rate debt
          Bank debt                                 $   408,145  $   390,000
          Senior unsecured notes                         75,000       75,000
          Variable rate debt swapped to fixed          (200,000)    (200,000)
        ---------------------------------------------------------------------
        Total variable rate debt outstanding
         (average rate of 1.74%)                        283,145      265,000
        ---------------------------------------------------------------------
        Fixed rate debt
          Senior unsecured notes                        375,000      375,000
          Senior secured notes                           78,607       80,286
          Variable rate debt swapped to fixed           200,000      200,000
        ---------------------------------------------------------------------
        Total fixed rate debt outstanding
         (average rate of 4.88%)                        653,607      655,286
        ---------------------------------------------------------------------
        Convertible debentures                           40,101       40,865
        Total debt and debentures outstanding           976,853      961,151
        Unutilized debt capacity                        121,855      140,000
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Fund's credit facilities as at March 31, 2009, consisted of an
        unsecured $500 million revolving credit facility and a $30 million
        operating line of credit. Pembina had $400 million drawn on bank debt
        and $8.1 million drawn on the operating line, leaving $122 million of
        undrawn capacity. At March 31, 2009, the Fund was exposed to changes
        in interest rates on $283 million of bank borrowings.

        The Fund has fixed the interest rate on $200 million of variable rate
        bank borrowings through interest rate swaps. The interest rate swaps
        had a fair value of $24.1 million unrealized loss as at March 31,
        2009 and are for terms of 5 to 10 years.

        Including the interest swaps, interest rates on $653.6 million in
        Senior Secured and unsecured notes have been fixed, leaving roughly
        30 percent of Pembina's outstanding debt exposed to interest rate
        fluctuations.

        The Fund is also exposed to changes in the cost of power. At March
        31, 2009, 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 March 31, 2009, was an unrealized gain of
        $5 million. The power swap hedges the first 16 MW of power
        consumption each day on the conventional pipeline systems. Power
        costs on our oil sands & heavy oil systems are not hedged and as
        revenue on these pipelines is contracted to recover operating costs,
        Pembina's net operating income from oil sands & heavy oil 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.

        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)    March 31, 2009       December 31, 2008
        ---------------------------------------------------------------------
                                   Carrying       Fair   Carrying       Fair
                                     Amount      Value     Amount      Value
        ---------------------------------------------------------------------
        Long-term debt
          Senior secured notes    $  78,607  $  87,816  $  80,286  $  76,941
          Senior unsecured notes  $ 450,000  $ 415,992  $ 450,000  $ 424,208
        Convertible debenture     $  40,101  $  48,546  $  40,865  $  48,243
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Fund classifies transaction costs (deferred financing fees)
        related to long-term debt with "long-term debt" on the balance sheet.
        These costs amount to $6.4 million as at March 31, 2009.

    6.  Trust Units:

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

        ---------------------------------------------------------------------
                                                    Trust Units       Amount
        ---------------------------------------------------------------------
        Balance, January 1, 2009                    134,703,067    1,350,694
        Exercise of Trust Unit options                   50,543          536
        Debenture conversions                            63,920          764
        Distribution Reinvestment Plan                2,428,589       31,653
        Contributed surplus                                              213
        ---------------------------------------------------------------------
        Balance, March 31, 2009                     137,246,119  $ 1,383,860
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        At March 31, 2009, 3,945,564 options were outstanding, of which
        3,459,894 were exercisable (March 31, 2008 - 2,447,550) at a weighted
        average price of $14.58 (March 31, 2008 - $14.14).

    7.  Subsequent Events:

        Pembina has obtained a $75 million non-revolving credit facility from
        a Canadian chartered bank. The credit facility is for a term of
        5 years at a fixed rate based on a spread above 5 year GOC bond rates
        to be determined at drawdown and which Pembina anticipates will be
        approximately 6.0 percent. The net proceeds of the credit facility
        are to be used for the refinancing of $75 million floating rate notes
        coming due on June 22, 2009, and may also be used for general
        corporate purposes at Pembina's discretion.

        Pembina announced on April 29, 2009 that Pembina Gas Services Limited
        Partnership, a new wholly-owned entity, has entered into an agreement
        with Talisman Energy Canada ("Talisman") to acquire its Cutbank
        Complex midstream gas gathering and processing facilities for
        $300 million in an all cash transaction. Pembina expects the
        transaction to close on June 2, 2009. Closing of the acquisition is
        subject to satisfaction of closing conditions customary for a
        transaction of this nature, including compliance with the Competition
        Act (Canada).

        Pembina has arranged committed financing for the acquisition of the
        Cutbank Complex from a syndicate of banks to provide a $150 million
        eighteen month term credit facility and a $150 million nine month
        equity bridge facility. Closing of the term credit facility and
        equity bridge facility is subject to satisfaction of conditions that
        are typical of transactions of this nature.

    -------------------------------------------------------------------------
    Pembina Pipeline Income Fund                  Investor Information
    -------------------------------------------------------------------------
    Exchange Listing and                    Premium Distribution,
    Trading Symbols:                        Distribution Reinvestment and
                                            Optional Unit Purchase Plan:
    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:             -  reinvest distributions into
    1-800-564-6253                             Trust Units at a 5 percent
                                               discount to a weighted average
    Corporate Office:                          market price, under the
                                               distribution reinvestment
    700 - 9th Avenue S.W.                      component of the Plan; or,
    P.O. Box 1948
    Calgary, Alberta T2P 2M7                -  realize 2 percent more cash on
    Telephone: (403) 231-7500                  their distributions, under the
    Fax: (403) 237-0254                        premium distribution component
                                               of the Plan;
    Investor Information:
                                            -  eligible Unitholders may also
    e-mail:                                    make optional Trust Unit
    investor-relations@pembina.com          purchases at the weighted
                                               average market price.
    Telephone: (403) 231-7500
               1-888-428-3222               A brochure, detailing
    Fax:       (403) 691-7356               administration of the Plan and
                                            eligibility and enrolment
    Website: www.pembina.com                information, is available on-line
                                            on Pembina's web site located at
                                            www.pembina.com, or call
                                            1-888-428-3222 to receive a copy
                                            by mail. Unitholders wishing to
                                            enroll in the Plan are asked to
                                            contact their broker, investment
                                            dealer, financial institution or
                                            other nominee through which the
                                            Trust Units are held.

    -------------------------------------------------------------------------
    
    This document contains forward-looking statements and information 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 Statements
and Information " presented in the Management's Discussion and Analysis
contained in this document for additional information, which applies to all
forward-looking statements and information 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, e-mail:
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