Pembina Pipeline Income Fund third interim report for the nine months ended September 30, 2007



    PEMBINA CELEBRATES 10 YEARS AS AN INCOME FUND WITH RECORD RESULTS

    CALGARY, Nov. 1 /CNW/ -

    
    -   In October 2007, Pembina celebrated its 10th anniversary as an income
        fund. Since inception of the Fund in October 1997, Pembina has
        distributed a total of $961 million to Unitholders, or $10.43 per
        Trust Unit, on a $10.00 per Trust Unit original issue price.

    -   The Fund distributed $0.35 per Trust Unit during the third quarter of
        2007 for total cash distributions of $46.2 million during the third
        quarter and $131.2 million year-to-date 2007, up 27 percent and
        25 percent, respectively, from the same periods of 2006.

    -   Pembina generated net earnings of $33.4 million for the third quarter
        of 2007 and $93.7 million year-to-date in 2007. This represents an
        increase of 36 percent and 52 percent, respectively, over the
        comparable periods of 2006.

    -   The conventional pipelines contributed $60.9 million in revenue and
        $38.4 million in net operating income during the third quarter of
        2007, a 13 percent and 19 percent increase, respectively, from the
        same quarter of 2006.

    -   Pembina's oil sands business segment contributed $17.1 million in
        revenue and $9.8 million in net operating income during the third
        quarter of 2007, a 6 percent and 3 percent increase, respectively,
        from the same quarter of 2006.

    -   The midstream business unit contributed $20.7 million in revenue and
        $18.7 million in net operating income during the third quarter of
        2007, a 35 and 32 percent increase, respectively, from the same
        quarter 2006.
    

    Management's Discussion and Analysis

    This Management's Discussion and Analysis ("MD&A") is dated November 1,
2007 and is supplementary to, and should be read in conjunction with, the
unaudited comparative interim financial statements and notes of Pembina
Pipeline Income Fund as at and for the three and nine months ended
September 30, 2007, along with the Fund's Management's Discussion and Analysis
and audited financial statements and notes for the year ended December 31,
2006. This MD&A has been reviewed and approved by both the Audit Committee of
the Board of Directors and by the Board of Directors. All amounts are listed
in Canadian dollars unless otherwise specified. References to "mbbls/d",
"bbls/d" and "$/bbl" mean thousands of barrels per day, barrels per day and
dollars per barrel, respectively. See "Non-GAAP Measures" relating to
footnoted non-GAAP measures reflected in this document. This MD&A contains
certain forward-looking statements and information: see "Forward-Looking
Information and Statements".

    Fund Description

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

    Fund Strategy

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

    
    Results from Operations

    -------------------------------------------------------------------------
    HIGHLIGHTS(1)      3 Months  3 Months         9 Months  9 Months
    (in millions of       Ended     Ended            Ended     Ended
     dollars, except   Sept. 30, Sept. 30,     %  Sept. 30, Sept. 30,    %
     where noted)          2007      2006  Change     2007      2006  Change
    -------------------------------------------------------------------------
    Average throughput
     - conventional
     (mbbls/d)            435.4    438.4     (0.7)   446.1    445.4      0.2
    Contracted capacity
     - oil sands
     (mbbls/d)            525.0    389.0     35.0    525.0    389.0     35.0
    Total throughput and
     contracted volumes
     (mbbls/d)            960.4    827.4     16.1    971.1    834.4     16.4
    Capital expenditures   62.4     21.8    186.2    214.9    102.2    110.3
    Revenue(2)             98.7     85.3     15.7    288.5    247.8     16.4
    Operating expenses     31.8     29.2      8.9     93.7     86.5      8.3
    Net operating
     income(3)             66.9     56.2     19.0    194.8    161.3     20.8
    General &
     administrative
     expense                7.4      5.9     25.4     22.0     19.9     10.6
    Interest expense on
     long-term debt         7.7      6.5     18.5     22.0     17.7     24.3
    Net earnings           33.4     24.6     35.8     93.7     61.7     51.9
    Cash flow from
     operations            51.7     32.4     59.6    140.8    102.7     37.1
    Cash distributed
     to Unitholders        46.2     36.5     26.6    131.2    104.6     25.4
      $ Per Trust Unit  $0.3500  $0.2950     18.6  $1.0100  $0.8650     16.8
    -------------------------------------------------------------------------

    (1) This third quarter 2007 Interim Report to Unitholders reports
        unaudited results of the Fund for the three and nine months ended
        September 30, 2007.
    (2) Net of product purchases of $32.8 million in the third quarter of
        2007 ($0.4 million in the third quarter of 2006) and $82.3 million
        year-to-date ($3.5 million year-to-date 2006).
    (3) Refer to "Non-GAAP Measures" below.


    Conventional Pipelines

    -------------------------------------------------------------------------
                       3 Months  3 Months         9 Months  9 Months
    (in millions of       Ended     Ended            Ended     Ended
     dollars, except   Sept. 30, Sept. 30,    %   Sept. 30, Sept. 30,    %
     where noted)          2007      2006  Change     2007      2006  Change
    -------------------------------------------------------------------------
    Average throughput
     (mbbls/d)            435.4    438.4     (0.7)   446.1    445.4      0.2
    Revenue             $  60.9  $  53.9     13.0  $ 183.1  $ 165.0     11.0
    Operating expenses     22.5     21.5      4.7     69.5     66.8      4.0
    Net operating
     income(1)             38.4     32.4     18.5    113.6     98.2     15.7
    Capital
     expenditures(2)       16.1      9.7     66.0     59.9     36.6     63.7
    Operating expenses
     ($/bbl)               0.53     0.50      6.0     0.53     0.52      1.9
    Average revenue
     ($/bbl)               1.43     1.25     14.4     1.41     1.29      9.3
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.
    (2) Maintenance capital in 2006 has been reclassified to development
        capital for comparative purposes.
    

    Pembina's conventional pipelines transported an average of 435,400 bbls/d
during the third quarter of 2007 and an average of 446,100 bbls/d year-to-date
2007. Volumes on the Alberta pipeline systems remained consistent
quarter-over-quarter and year-over-year to date with a number of new
connections closing in on production targets. The British Columbia (BC)
gathering pipelines transported volumes of 28,900 bbls/d during the third
quarter of 2007 and 30,000 bbls/d year-to-date 2007, down 10 and 8 percent,
respectively, from the same periods in 2006. The provincially regulated BC
gathering pipelines volumes were down due to fewer receipts at the truck
terminals, though revenues on these systems are not throughput dependent. The
Western system transported 24,100 bbls/d during the quarter and 24,300 bbls/d
year-to-date 2007 up 3 percent and 9 percent, respectively, when compared to
same periods during the prior year, as shippers continue to direct a higher
proportion of volumes west instead of east into the Edmonton market than
during 2006.
    Pembina continued to work on a number of new connections in the
Resthaven, Lator and Pushwa areas on the conventional systems during the third
quarter which Pembina expects to lead to enhanced receipts on these systems.
Receipts from the Nisku connections on the Drayton Valley system rose
substantially late in the quarter, meeting Pembina's expectations and
offsetting anticipated lower receipts due to scheduled plant turnarounds and
delivery restrictions on a number of the Alberta pipeline systems.
    Pembina completed the first phase of the $32 million product segregation
facilities on the Drayton Valley pipeline system at the end of the third
quarter of 2007. Similar facilities on the Peace system are progressing as
Pembina expected, with one of the four necessary storage tanks being completed
during the third quarter and two more currently under construction. Pembina
anticipates that the Peace facilities will be complete and onstream in the
first quarter of 2008. Pembina anticipates that facilities on both the Peace
and Drayton Valley systems will ensure Pembina is able to maintain the stream
quality and associated product pricing for its customers.
    Increased tolls on Pembina's Western system were accepted by the British
Columbia Utilities Commission (BCUC) on an interim basis beginning July 1,
2007, and served to increase revenues on this system during the third quarter
of 2007. The interim tolls are calculated in accordance with the established
BCUC tolling methodology for the Western system. Pembina is preparing for a
toll hearing to set permanent tolls for the second half of 2007 and all of
2008. No date has been set for this hearing at this time. Pembina believes the
tolls ultimately established by the BCUC will give Pembina a reasonable return
on its capital and reimbursement of its operating expenses.
    During the third quarter of 2007, the conventional systems generated
revenue of $60.9 million and $183.1 million year-to-date up from $53.9 million
and $165.0 million, respectively, from a year earlier. The Alberta systems
generated revenue of $52.7 million during the third quarter of 2007 which was
10 percent higher than the same period in 2006. Year-to-date revenue generated
by the Alberta systems was 10.5 percent higher than the first nine months of
2006. Average revenue per barrel on the Alberta systems was $1.39 during the
first nine months of 2007 and was up 14 cents per barrel from the average for
the same period of 2006 as toll adjustments were implemented on certain
systems earlier in the year in response to higher operating and maintenance
costs.

    
    Oil Sands Infrastructure

    -------------------------------------------------------------------------
                       3 Months  3 Months         9 Months  9 Months
    (in millions of       Ended     Ended            Ended     Ended
     dollars, except   Sept. 30, Sept. 30,    %   Sept. 30, Sept. 30,    %
     where noted)          2007      2006  Change     2007      2006  Change
    -------------------------------------------------------------------------
    Average throughput
     (mbbls/d)(1)         525.0    389.0     35.0    525.0    389.0     35.0
    Revenue             $  17.1  $  16.1      6.2  $  47.0  $  44.5      5.6
    Operating expenses      7.3      6.6     10.6     17.8     16.5      7.9
    Net operating
     income(2)              9.8      9.5      3.2     29.2     28.0      4.3
    Capital expenditures   43.7      6.7    552.2    151.5     49.4    206.7
    Operating expenses
     ($/bbl)(3)            0.22     0.25    (12.0)    0.21     0.24    (12.5)
    Average revenue
     ($/bbl)(3)            0.52     0.61    (14.8)    0.56     0.66    (15.2)
    -------------------------------------------------------------------------
    (1) Contracted capacity. Actual average throughput was 354,400 bbls/d in
        the third quarter of 2007.
    (2) Refer to "Non-GAAP Measures" below.
    (3) Calculation uses actual average throughput.
    


    Pembina's oil sands infrastructure consists of: the Syncrude Pipeline
(formerly AOSPL) which provides dedicated service to Syncrude, the world's
largest crude oil producer from oil sands; the Cheecham Lateral pipeline which
delivers synthetic crude oil to a facility near Cheecham Alberta; and, the
Horizon Pipeline will provide dedicated service from Canadian Natural Resource
Limited's (CNRL) Horizon Project, located 70 kilometres north of Fort
McMurray, to Edmonton, Alberta which is expected to come into service in
mid-2008.
    The fully contracted Syncrude Pipeline transported an average of 354,400
bbls/d during the quarter, 23 percent higher than the third quarter of 2006.
This pipeline has a transportation capacity of 389,000 bbls/d and is fully
contracted to the Syncrude owners. The Syncrude Pipeline generated revenue of
$15.8 million during the third quarter of 2007, 1.9 percent lower than the
same quarter of the prior year. Year-to-date 2007 revenue of $43.7 million was
1.8 percent lower than the nine month period in 2006.
    The Cheecham Lateral has a capacity of 136,000 bbls/d and is fully
contracted to shippers. This pipeline generated $1.3 million of revenue during
the quarter and has generated $3.3 million year-to-date.
    Revenue on both of these pipelines is contracted to recover operating
costs and earn a return on invested capital, therefore is not impacted by
actual pipeline throughput.
    Pembina continued Horizon Pipeline Phase II construction activities
during the third quarter of 2007, with the final construction phase currently
scheduled to begin in the fourth quarter. Pembina is committed to working
collaboratively with its customer, CNRL, to ensure that the project remains on
schedule. Pembina is currently targeting completion of construction for
July 1, 2008. Pembina expects that the Horizon Pipeline will ultimately have a
capacity of 250,000 bbls/d and will provide fully-contracted, exclusive
transportation service to CNRL's Horizon Oil Sands project. Returns generated
by this service will be independent of actual throughput and operating costs.
    
    Midstream Business

    -------------------------------------------------------------------------
                       3 Months  3 Months         9 Months  9 Months
    (in millions of       Ended     Ended            Ended     Ended
     dollars, except   Sept. 30, Sept. 30,    %   Sept. 30, Sept. 30,    %
     where noted)          2007      2006  Change     2007      2006  Change
    -------------------------------------------------------------------------
    Revenue(1)          $  20.7  $  15.3     35.3  $  58.4  $  38.2     52.9
    Operating expenses      2.0      1.1     81.8      6.4      3.2    100.0
    Net operating
     income(2)             18.7     14.2     31.7     52.0     35.0     48.6
    Capital
     expenditures(3)        2.6      5.4    (51.9)     3.5     16.2    (78.4)
    -------------------------------------------------------------------------
    (1) Net of $32.8 million in product purchase expense for the third
        quarter 2007 ($0.4 million in the third quarter of 2006) and
        $82.3 million year-to-date 2007 ($3.5 million year-to-date 2006).
    (2) Refer to "Non-GAAP Measures" below.
    (3) Maintenance capital in 2006 has been reclassified to development
        capital for comparative purposes.
    

    Pembina's midstream business consists of our 50 percent non-operated
interest in the Fort Saskatchewan Ethylene Storage Facility and our
wholly-owned terminalling, storage and hub services currently operated on our
Swan Hills, Cremona and Drayton Valley pipeline systems.
    Since the start up of this business, Pembina has experienced substantial
growth resulting in another material year-over-year increase in cash flow
contribution. Pembina's midstream business generated revenue and net operating
income of $20.7 million and $18.7 million, respectively, during the third
quarter of 2007, representing a 35 percent and 32 percent increase over the
same quarter of 2006.
    Pembina's 50 percent interest in the fully contracted Fort Saskatchewan
Ethylene Storage Facility generates stable, long-term returns that are
independent of capacity utilization and operating expenses. Returns generated
by the terminalling, storage and hub services business have risen dramatically
over the past three years and, should current market conditions persist,
Pembina expects that they will continue to increase in 2008 as new services
are introduced. Variables that have the potential to impact certain elements
of this business include, but are not limited to, pipeline volume and relative
and absolute product pricing. Pembina does not assume any material commodity
price or speculative risk in conducting this business and Pembina endeavors to
diversify its revenue sources in this unit to enhance stability in results.

    Expenses

    Operating expenses totaled $31.8 million for the third quarter of 2007
and $93.7 million for the first nine months of the year, up from operating
expenses incurred during the same periods of 2006 of $29.2 million and
$86.5 million, respectively. The conventional pipelines incurred operating
costs of $69.5 million during the first nine months of 2007, up from
$66.8 million incurred during the comparable period in 2006. On a per barrel
of throughput basis, operating expenses on the conventional systems averaged
53 cents for the quarter compared to 50 cents during the same quarter of 2006.
    General and administrative expenses (G&A) of $22.0 million were recorded
during the first nine months of 2007, $2.1 million higher than the previous
year. Pembina expects G&A expenditures to approximate 11.6 percent of net
operating income in 2007 compared to 11.8 percent in 2006. Higher G&A expenses
resulted from the introduction of the midstream and other new businesses, the
substantial increase in construction activities and competitive employment
pressures which led to the introduction of short-term incentive and long-term
incentive programs in 2006.

    Cash Distributions

    It is the Fund's principal objective to provide Unitholders with stable
cash distributions over time. As a result, not all cash available for
distribution is distributed to Unitholders. The Fund pays cash distributions
on a monthly basis to Unitholders of record on the last calendar day of each
month. Distributions are payable on the 15th day of the month following the
record date.

    
    -------------------------------------------------------------------------
                                   3 Months   3 Months   9 Months   9 Months
    (in thousands of                  Ended      Ended      Ended      Ended
     dollars, except               Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,
     where noted)                      2007       2006       2007       2006
    -------------------------------------------------------------------------
    Cash flow from operations     $  51,666  $  32,430  $ 140,752  $ 102,749
    Add/(deduct):
      Maintenance capital
       expenditures                             (1,109)               (2,465)
      Employee future benefits
       expense                       (1,282)    (1,071)    (3,841)    (4,312)
      Employee future benefits
       contributions                    732      5,650      3,791      9,000
      Changes in non-cash working
       capital                         (337)     5,133      3,792      3,559
      Other                            (823)       (91)    (1,709)      (272)
    -------------------------------------------------------------------------
    Distributable cash(1)         $  49,956  $  40,942  $ 142,785  $ 108,259
    (Increase) decrease in
     distribution reserve         $  (3,758) $  (4,481) $ (11,599) $  (3,661)
    -------------------------------------------------------------------------
    Cash distributions to
     Unitholders                  $  46,198  $  36,461  $ 131,186  $ 104,598
    -------------------------------------------------------------------------
    Distributable cash(1) per
     Trust Unit (before reserve)  $  0.3785  $  0.3313  $  1.0995  $  0.8954
    Cash distributions to
     Unitholders per Trust Unit   $  0.3500  $  0.2950  $  1.0100  $  0.8650
    -------------------------------------------------------------------------
    Diluted cash distributions to
     Unitholders per Trust Unit   $  0.3426  $  0.2902  $  0.9936  $  0.8627
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.
    

    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
changes in non-cash working capital, trust unit based compensation expense and
financing fees. Pension contributions made by the Fund are added back to cash
flow from operations. The impact of these items is excluded in the calculation
of distributable cash as it adjusts for timing differences throughout the
year.
    During the third quarter of 2007, the Fund declared distributions of
$0.35 per Trust Unit, or $46.2 million in aggregate, compared to $0.2950 per
Trust Unit, or $36.5 million in aggregate, paid in the third quarter of 2006.
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
85 percent of the distributions declared in 2007 will be taxable and 15
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.
    The table below shows the Fund's cash distributions paid relative to cash
provided by operating activities and net earnings for the periods indicated.
See also "New Developments and Outlook" and "Risk Factors" below for further
information regarding the sustainability of cash distributions.

    
    -------------------------------------------------------------------------
                        3 Months   9 Months
    (in thousands of       Ended      Ended
     dollars, except    Sept. 30,  Sept. 30,
     where noted)           2007       2007       2006       2005       2004
    -------------------------------------------------------------------------
    Cash flow from
     operations        $  51,666  $ 140,752  $ 143,860  $ 112,360  $ 117,581
    Net earnings          33,362     93,701     88,885     70,409     60,423
    Cash distributions
     to Unitholders       46,198    131,186    142,285    113,482    106,192
    -------------------------------------------------------------------------
    Excess (shortfall)
     of cash flow from
     operations over
     cash distributions
     paid                  5,468      9,566      1,575     (1,122)    11,389
    Excess (shortfall)
     of net earnings
     over cash
     distributions paid  (12,836)   (37,485)   (53,400)   (43,073)   (45,769)
    -------------------------------------------------------------------------
    Cumulative notional
     reserve           $  32,622  $  32,622  $  21,022  $  15,128  $   5,216
    -------------------------------------------------------------------------
    

    Pembina maintains a notional reserve in order to ensure stability over
economic and industry cycles and to absorb the impact of material one-time
events. Therefore, not all available cash is distributed to Unitholders but
instead a portion of the Fund's distributable cash is used to reduce bank
indebtedness. Historical cash distributions compared to cash flow from
operations shows excess cash flow in every period except 2005. The shortfall
in 2005 was due to a prepaid pension contribution made by the Fund in the
amount of $13.3 million and due to changes in non-cash working capital. As at
December 31, 2005, a cumulative notional reserve of $15.1 million existed and
funded the shortfall. Cash distributions to Unitholders are greater than net
earnings as the Fund does not consider it necessary to retain depreciation
that has been deducted in the determination of net earnings. The earning
capacity of the Fund's existing assets will generally not erode and are not
expected 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 are financed in either the debt
or equity markets and are not dependent on cash flow from existing assets.
    During the third quarter of 2007, Pembina's business operations and
interests generated a $3.7 million increase in the notional distribution
reserve, resulting in a balance of $32.6 million at September 30, 2007. The
payout ratio for the nine months ended September 30, 2007 was 92 percent,
comparable to the same period of the prior year excluding the impact of the
management internalization. Pembina estimates that the full year payout ratio
in 2007 will approximate 96 percent, comparable to the payout ratio in 2006.
Pembina calculates the payout ratio as the percentage of distributable cash,
prior to distribution reserve adjustments, that is distributed to Unitholders.
See "Non-GAAP Measures" below.

    Liquidity and Capital Resources

    At September 30, 2007, Pembina's bank facilities consisted of an
unsecured $500 million revolving credit facility and a $30 million operating
line of credit. On July 24, 2007, the revolving credit facilities were
increased from $230 million to $500 million for a period of five years to
July 24, 2012. In addition, the $30 million operating facility was extended to
July 24, 2008. Pembina had $155.4 million drawn, leaving $374.6 million of
undrawn capacity on the $530 million of established facilities at
September 30, 2007. There are no repayments due over the term. Borrowings bear
interest at either prime lending rates or are based on bankers acceptances
plus applicable margins. The margins are based on the credit rating of the
senior unsecured debt of Pembina Pipeline Corporation and range from 0.50
percent to 1.50 percent. Other debt includes $88.2 million in Senior Secured
Notes due 2017, $175 million in Senior Unsecured Notes due 2014, $75 million
of Floating Rate Senior Unsecured Notes due 2009 and $200 million in Senior
Unsecured Notes due 2021. At September 30, 2007, Pembina had long-term debt
(excluding transaction costs) of $693.6 million, compared to $637.5 million at
June 30, 2007 and $598.9 million at March 30, 2007. This long-term debt,
together with $50.9 million of outstanding convertible debentures, resulted in
a ratio of debt to total enterprise value of 24 percent. This compares to a
ratio of 24 percent at the end of 2006.
    During the third quarter, $7.7 million in net debt financing costs were
recorded, and $22.0 million for the first nine months of 2007 compared with
$6.5 million and $17.7 million, respectively, during the same periods of 2006.
Interest rate exposure on Pembina's floating rate debt is managed utilizing
interest rate swap instruments. At September 30, 2007, Pembina had an interest
rate swap in place on a principal amount of $60 million at an average rate of
5.2 percent and an average term to maturity of 0.7 years, maturing in June
2008. The mark-to-market value of the swap represented an unrealized gain of
$0.1 million at September 30, 2007. Pembina has fixed interest on
approximately 75 percent of its long-term debt as at the end of the third
quarter of 2007 in order to minimize exposure to rising interest rates.
    Pembina considers the maintenance of investment grade credit agency
ratings as critical to its ongoing ability to access capital markets on
attractive terms. The rating systems employed by the agencies referenced below
recognize the stable profile of Pembina's assets and financial results and the
sustainability of the per Trust Unit distributions of the Fund. The Dominion
Bond Rating Service Ltd. (DBRS) stability rating system measures the
volatility and sustainability of distributions per Trust Unit. DBRS has
assigned Pembina Pipeline Income Fund a STA-2 (low) stability rating. DBRS's
stability rating scale is from STA-1 to STA-7, with STA-1 representing the
highest rating possible, and STA-7 the lowest. Pembina Pipeline Corporation,
the Fund's primary operating subsidiary, is also rated by DBRS, which has
assigned a senior secured debt rating of 'BBB High' and a 'BBB' senior
unsecured debt rating. Standard & Poor's (S&P) rates Pembina Pipeline
Corporation as follows: 'BBB' long-term corporate credit with a stable
outlook, 'BBB plus' senior secured debt and 'BBB' senior unsecured debt. S&P
also rates the Fund and has a current rating of SR-2. According to S&P's
rating system, which rates distributable cash on a scale of SR-1 to SR-7, SR-2
rated funds are considered to have very high stability and debt instruments
rated BBB have adequate protection parameters.
    
    Contractual Obligations

    The Fund is committed to annual payments as follows:

    -------------------------------------------------------------------------
    ($ thousands)                         Payments Due By Period
    -------------------------------------------------------------------------
    Contractual                   Less than    1 - 3      4 - 5      After
     Obligations          Total     1 year     years      years     5 years
    -------------------------------------------------------------------------
    Office and vehicle
     leases            $  12,271  $   2,966  $   4,429  $   3,368  $   1,508
    Long-term debt       693,594      6,306     96,908    172,840    417,540
    Convertible
     debentures           50,902          -     50,902          -          -
    Construction
     commitments         211,589     69,304    142,285          -          -
    -------------------------------------------------------------------------
    Total contractual
     obligations       $ 968,356  $  78,576  $ 294,524  $ 176,208  $ 419,048
    -------------------------------------------------------------------------
    

    Pembina is contractually committed to the construction and the operation
of the Horizon Pipeline. Construction of the Horizon Pipeline is underway and
Pembina currently projects the cost to be $400 million, with $188.4 million of
that amount expended to September 30, 2007, $69.3 million expected to be spent
in the fourth quarter of 2007 and $142.3 million expected to be spent in later
years. Pembina expects to utilize its undrawn bank facilities to finance the
remaining costs of the Horizon Pipeline.

    
    -------------------------------------------------------------------------
                                   3 Months   3 Months   9 Months   9 Months
                                      Ended      Ended      Ended      Ended
    Capital Expenditures           Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,
    ($ millions)                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Development capital(1)
      Conventional pipelines      $    16.1  $     9.7  $    59.9  $    36.6
      Oil Sands infrastructure         43.7        6.7      151.5       49.4
      Midstream business                2.6        5.4        3.5       16.2
    -------------------------------------------------------------------------
    Total development capital(1)  $    62.4  $    21.8  $   214.9  $   102.2
    -------------------------------------------------------------------------
    (1) Maintenance capital in 2006 has been reclassified to development
        capital for comparative purposes.
    

    Pembina expended $62.4 million on capital projects during the third
quarter of 2007, up from $21.8 million expended during the third quarter of
2006. Year-to-date 2007 capital spending of $214.9 million was up
significantly from $102.2 million expended during the same period of the
previous year. Capital expenditures for the conventional systems of
$16.1 million during the quarter related to $8.4 million for new connections
and upgrades, $3.5 million for the Peace system product segregation facilities
and $4.2 million for Drayton Valley system product segregation facilities. Oil
sands infrastructure spending totaled $43.7 million in the third quarter and
$151.5 million for the first nine months of 2007, up significantly from the
$6.7 million and $49.4 million expended during the same periods of 2006. Of
the oil sands related capital expenditures during the third quarter of 2007,
$43.5 million was related to Horizon Pipeline construction and $0.2 million
was invested in upgrades on the Syncrude Pipeline. Spending in the midstream
business segment of $3.5 million year-to-date related mainly to operations
equipment. Capital expenditures are financed utilizing Pembina's existing
credit facilities.

    Trust Unit and Convertible Debenture Information

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

    
    -------------------------------------------------------------------------
                                       Oct. 29,      Sept. 30,      Sept. 30,
                                          2007           2007           2006
    -------------------------------------------------------------------------
    Trust Units Outstanding        132,350,725    132,065,211    124,261,992
    Average Daily Volume
     (Units per day)(1)                188,900        187,800        190,000
    Unit Trading Price ($/Unit)  $       17.65  $       17.73  $       17.35

    Principal Amount of Debentures
     Outstanding ($millions)     $        51.4  $        53.7  $        85.9

    7.35% Convertible Debentures
     Trading Price(2)            $      141.78  $      140.34  $      134.47
    Total Market Value of Securities
     Outstanding ($millions)     $    2,408.81  $    2,416.13  $     2,276.5
    -------------------------------------------------------------------------
    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 20 trading days from October 1 to October 29, 2007,
        inclusive.
    (2) Full conversion to Trust Units of the remaining principal amount of
        the debenture issue as at October 29, 2007 would result in the
        issuance of 4.1 million Trust Units.
    

    As at September 30, 2007, non-resident holdings in the Fund totaled
approximately 20 percent. This level is within the 49 percent restriction on
non-resident ownership in the Fund imposed by Pembina's Declaration of Trust
and is consistent with the requirements of the Income Tax Act (Canada).

    Critical Accounting Estimates and Changes in Accounting Principles and
    Practices

    Newly issued accounting standards by the Canadian Institute of Chartered
Accountants relating to financial instruments, hedges and comprehensive income
were adopted by the Fund effective January 1, 2007. As a result of these new
standards, a new category, accumulated other comprehensive income, forms part
of Unitholders' Equity and certain unrealized gains or losses on derivatives
designated as cash flow hedges are reported in accumulated other comprehensive
income until realization.
    At September 30, 2007, accumulated other comprehensive income totaled
$10.8 million and consisted of an unrealized gain of $10.7 million, net of
future income taxes, related to a 16 MW per hour power swap with an expiry
date of December 31, 2010. The Fund also has an interest rate swap of
$60 million as at September 30, 2007 with a fair value of $0.1 million, net of
future income taxes. The new accounting standard related to hedges requires
the Fund to fair value the hedging item, with the changes recorded through
comprehensive income for any hedges designated as cash flow hedges. Hence,
there is no impact on net earnings. The Fund's interest rate and power swaps
have been designated as cash flow hedges as at September 30, 2007. The
commodity swaps have been designated as fair value hedges with changes in fair
value recognized in net earnings. As at September 30, 2007, the effect to net
earnings is negligible.
    There were no changes in Pembina's other critical accounting estimates
and practices that affected the disclosure of or the accounting for its
operations for the quarter ended September 30, 2007. Such critical accounting
estimates are presented in Management's Discussion and Analysis for the year
ended December 31, 2006.
    The recent enactment of Bill C-52 relating to trust tax has no additional
impact on the future income tax liability. The Fund has no timing differences
other than those of its subsidiaries that are fully reflected in the future
income tax liability and, as the tax basis of the Fund's investment in its
subsidiaries far exceeds the cost basis, it is not appropriate to record the
benefit of a future tax asset of this nature.

    New Developments and Outlook

    Pembina has a number of new connections and facility upgrades under
development for the conventional pipeline systems. Pembina advanced the
development of a proposed pipeline project during the third quarter targeting
Nipisi Lake and Seal area heavy oil producers, in response to industry demand
for reliable diluent and take-away capacity from this region. Pembina
anticipates that this project could cost approximately $325 million and could
include a 22,000 bbls/d diluent pipeline and a 100,000 bbls/d heavy oil
diluent pipeline. Pembina expects to use a combination of existing
infrastructure and new facilities to provide competitive transportation
services to and from these areas. Pembina is working towards obtaining firm
shipper commitments by the end of 2007, and targets a potential start-up date
in 2010. The timing of this project depends on the outcome of the Alberta
Royalty Review Panel, as discussed in more detail below.
    In September, the Government of Alberta received the final report and
recommendations from the Alberta Royalty Review Panel. Pembina joined its
customers in expressing concern regarding the sweeping changes the Panel
recommended and the potential consequences to oil and gas investment in
Alberta should the recommendations be adopted in full. On October 25, 2007,
Alberta Premier Ed Stelmach announced the Province's New Royalty Framework,
which, while not adopting Panel recommendations in full, entails
across-the-board increases to the royalty structure governing conventional oil
and gas and oil sands production. While the new Framework has price and cost
sensitive provisions, Pembina's customers and partners have suggested that
their investment programs could be modified and in some cases curtailed as a
result of the proposed changes. At the time of writing, we continue to review
the implications of the announcement internally and with our customers to
determine the potential impact on Pembina's opportunities for further capital
investments and operations.
    Pembina has an established reputation for stable operations and a record
of consistent and growing distributions. Pembina's objective over the past 10
years has been focused on providing a stable stream of distributions to
Unitholders that are sustainable over the long term while pursuing
opportunities for enhancement through accretive growth. Continuing growth in
all three of our business segments has enabled increases in our distribution
rate and, the breadth of tangible and prospective growth opportunities
currently under development across all of our business segments lend
confidence in our continuing ability to meet our objectives.

    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, 2006, and in the Fund's Annual Information Form
for the year ended December 31, 2006. 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

    
    -------------------------------------------------------------------------
    (in thousands
     of dollars,           2007                          2006
     except where -----------------------------------------------------------
     noted)        Q3      Q2       Q1       Q4       Q3       Q2       Q1
    -------------------------------------------------------------------------

    Revenue(1)   98,716  93,426   96,359   88,062   85,326   80,924   81,506
    Operating
     expenses    31,833  30,718   31,192   32,534   29,171   27,733   29,572
    EBITDA(2)    58,660  53,676   56,271   49,626   50,261   39,554   44,732
    Cash flow
     from
     operations  51,666  42,180   46,907   41,111   32,430   26,055   44,264
    Net
     earnings    33,362  30,951   29,388   27,231   24,563   16,940   20,150

    Net earnings
     per Trust
     Unit ($/Unit):
      Basic and
       diluted     0.25    0.24     0.23     0.22     0.20     0.14     0.17

    Cash distri-
     butions to
     Unit-
     holders     46,198  42,890   42,098   37,687   36,461   34,567   33,570

    Cash distri-
     butions to
     Unitholders
     per Trust Unit
      Basic      0.3500  0.3300   0.3300   0.3000   0.2950   0.2850   0.2850
      Diluted    0.3426  0.3272   0.3219   0.2954   0.2902   0.2803   0.2786

    Trust Units
     outstanding
     (thousands):
      Weighted
       average
       (basic)  131,994 129,966  127,568  125,625  123,576  121,289  117,784
      Weighted
       average
      (diluted) 136,850 135,274  135,206  132,842  131,501  130,033  129,664
      End of
       period   132,065 131,388  128,247  126,218  124,262  122,030  119,816
    -------------------------------------------------------------------------

    ------------------------------
    (in thousands
     of dollars,       2005
     except where ----------------
     noted)        Q4       Q3
    ------------------------------

    Revenue(1)    77,644   73,100
    Operating
     expenses     28,520   24,480
    EBITDA(2)     45,027   44,558
    Cash flow
     from
     operations   17,517   34,259
    Net
     earnings     21,705   19,778

    Net earnings
     per Trust
     Unit ($/Unit):
      Basic and
       diluted      0.19     0.18

    Cash distri-
     butions to
     Unit-
     holders      29,667   29,099

    Cash distri-
     butions to
     Unitholders
     per Trust Unit
      Basic       0.2625   0.2625
      Diluted     0.2527   0.2599

    Trust Units
     outstanding
     (thousands):
      Weighted
       average
       (basic)   113,019  110,845
      Weighted
       average
      (diluted)  128,226  128,621
      End of
       period    113,897  111,938
    ------------------------------
    (1) Net of product purchases.
    (2) Refer to "Non-GAAP Measures" below.
    

    Net earnings of $33.4 million were recorded during the third quarter of
2007, compared to $24.6 million and $19.8 million over the same periods in
2006 and 2005, representing a substantial increase of 36 percent and 69
percent, respectively, due to the addition of midstream operations as well as
toll increases on conventional pipeline systems.
    Pembina's stable operations typically produce limited variability in
quarterly results. However, continued growth in Pembina's underlying asset
base and business operations has generally resulted in increased revenues,
expenses and cash flows over the last nine quarters. Variations in this trend
result from one-time events and expected seasonal factors which impact
pipeline receipts and operating expenses, occurring most frequently during the
second quarter of each year. Such events and factors include, but are not
limited to, regularly scheduled facilities maintenance, road bans and
weather-related impact on receipts and spending patterns.

    Non-GAAP Measures

    Throughout this MD&A the Fund and Pembina use the term "distributable
cash" to refer to the amount of cash that is to be available for distribution
to the Fund's Unitholders. Distributable cash is used as a financial measure
as it adjusts 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 from operating activities or
other measures of financial performance calculated in accordance with GAAP as
an indicator of the Fund's performance.
    Further, the use of terms "EBITDA" (earnings before interest, taxes,
depreciation and amortization), "net operating income" (revenues less
operating expenses), "payout ratio" (the Fund's cash distributions to
Unitholders divided by its distributable cash), "notional reserve" (the
difference between the Fund's distributable cash and the cash distributions to
Unitholders in a given period) and "enterprise value" (the Fund's market
capitalization plus long-term debt) are not recognized under Canadian GAAP.
Management believes that in addition to earnings, EBITDA, net operating
income, payout ratio and enterprise value are useful measures. They provide an
indication of the results generated by the Fund's business activities prior to
consideration of how activities were financed, how the results are taxed and
measured and, in the case of enterprise value, the aggregate value of the
Fund. Investors should be cautioned, however, that 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 Information and Statements

    The information contained in this press release contains certain
forward-looking statements and information that are based on the Fund's
current expectations, estimates, projections and assumptions in light of its
experience and its perception of historical trends. In some cases,
forward-looking statements and information can be identified by terminology
such as "may", "will", "should", "expects", "projects", "plans",
"anticipates", "targets", "believes", "strives", "estimates", "continue",
"designed", "objective", "maintain", "schedule", "endeavor" and similar
expressions. In particular, this MD&A contains forward-looking statements with
respect to: future stability and sustainability of cash distributions to
Unitholders; ongoing expansions of and additions to our asset base; future
growth and growth potential in Pembina's conventional pipelines, oil sands
infrastructure and midstream operations; potential revenue enhancement;
maintenance of operating margins; continued high levels of oil and gas
activity and increased oil and gas production in proximity to our pipelines
and other assets (which could be affected by, among other things, possible
changes to applicable royalty and tax regimes); additional throughput
potential on additional connections and other initiatives on our conventional
system; expected project start-up and construction dates; future
distributions, payout ratios and taxation of distributions; the future
development of the condensate projects; the expansion of midstream services;
and the future tax treatment of the Fund and income trusts. These statements
are not guarantees of future performance and are subject to a number of known
and unknown risks and uncertainties, including but not limited to, the impact
of competitive entities and pricing, reliance on key alliances and agreements,
the strength and operations of the oil and natural gas production industry and
related commodity prices, regulatory environment, tax laws and treatment,
fluctuations in operating results, the ability of Pembina to raise sufficient
capital to complete future projects and satisfy future commitments,
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.

    
    consolidated balance sheets

    (In thousands of dollars)
    -------------------------------------------------------------------------
                                                     Sept. 30        Dec. 31
                                                         2007           2006
                                                   (Unaudited)
    -------------------------------------------------------------------------

    Assets
    Current assets:
      Cash                                      $              $       1,861
      Accounts receivable                              55,363         44,947
    -------------------------------------------------------------------------
                                                       55,363         46,808
    Property, plant and equipment                   1,436,445      1,257,729
    Goodwill and other                                360,317        371,667
    Derivative financial instruments (note 1)          15,103
    -------------------------------------------------------------------------
                                                $   1,867,228  $   1,676,204
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Unitholders' Equity
    Current liabilities:
      Bank indebtedness                         $         287  $
      Accounts payable and accrued liabilities         46,745         37,411
      Distributions payable to Unitholders             15,848         12,622
      Current portion of long-term debt                 6,306          5,973
      Current portion of convertible debentures                       15,133
    -------------------------------------------------------------------------
                                                       69,186         71,139
    Long-term debt                                    679,091        547,396
    Convertible debentures                             50,902         61,679
    Asset retirement obligations                       61,332         29,889
    Future income taxes                               102,282        113,617
    -------------------------------------------------------------------------
                                                      962,793        823,720
    -------------------------------------------------------------------------
    Unitholders' equity:
      Trust Units (note 3)                          1,314,448      1,235,809
      Deficit                                        (420,810)      (383,325)
      Accumulated other comprehensive income
       (note 1)                                        10,797
    -------------------------------------------------------------------------
                                                      904,435        852,484
    -------------------------------------------------------------------------
                                                $   1,867,228  $   1,676,204
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



    consolidated statements of earnings and deficit
    (Unaudited)

    (In thousands of dollars, except Trust Unit amounts)
    -------------------------------------------------------------------------
                                   3 Months   3 Months   9 Months   9 Months
                                      Ended      Ended      Ended      Ended
                                   Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------

    Revenues:
      Conventional pipelines      $  60,936  $  53,926  $ 183,111  $ 165,020
      Oil Sands infrastructure       17,114     16,118     47,042     44,529
      Midstream business             53,427     15,675    140,645     41,693
    -------------------------------------------------------------------------
                                    131,477     85,719    370,798    251,242
    -------------------------------------------------------------------------

    Expenses:
      Operations                     31,833     29,171     93,743     86,476
      Product purchases              32,761        393     82,297      3,486
      General and administrative      7,407      5,892     22,003     19,876
      Management fee                                                   1,027
      Depreciation and amortization  21,418     20,428     62,964     63,932
      Accretion on asset retirement
       obligations                      759        349      1,761      1,047
      Internalization of management
       contract                       1,219                 2,558      6,000
      Other                            (403)         2      1,590       (171)
    -------------------------------------------------------------------------
                                     94,994     56,235    266,916    181,673
    -------------------------------------------------------------------------
    Earnings before interest
     and taxes                       36,483     29,484    103,882     69,569
    Interest on long-term debt        7,688      6,510     22,003     17,684
    Interest on convertible
     debentures                       1,016      1,700      3,819      6,140
    -------------------------------------------------------------------------
    Earnings before taxes            27,779     21,274     78,060     45,745
    Income tax reduction             (5,583)    (3,289)   (15,641)   (15,908)
    -------------------------------------------------------------------------
    Net earnings                     33,362     24,563     93,701     61,653
    Deficit, beginning of period   (407,974)  (360,972)  (383,325)  (329,925)
    Cash distributed to Unitholders (46,198)   (36,461)  (131,186)  (104,598)
    -------------------------------------------------------------------------
    Deficit, end of period        $(420,810) $(372,870) $(420,810) $(372,870)
    -------------------------------------------------------------------------
    Earnings per Trust Unit
      Basic and diluted           $    0.25  $    0.20  $    0.72  $    0.51
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



    consolidated statement of comprehensive income
    (Unaudited)

    (In thousands of dollars)
    -------------------------------------------------------------------------
                                                         3 Months  9 Months
                                                            Ended      Ended
                                                         Sept. 30,  Sept. 30,
                                                             2007       2007
    -------------------------------------------------------------------------

    Net earnings for the period                         $  33,362  $  93,701
    Other comprehensive income:
      Unrealized gain on derivative instruments
       designated as cash flow hedges, net of tax of
       $1.4 million and $1.9 million, respectively         (3,568)     5,749
    -------------------------------------------------------------------------
      Total comprehensive income                        $  29,794  $  99,450
    -------------------------------------------------------------------------
    Accumulated other comprehensive income (note 1):
      Opening balance (net of tax of $5.7 million and
       $2.4 million)                                    $  14,365  $   5,048
      Unrealized gain on derivative instruments
       designated as cash flow hedges, net of tax of
       $1.4 million and $1.9 million, respectively         (3,568)     5,749
    -------------------------------------------------------------------------
      Balance, end of period, net of tax of
       $4.3 million                                     $  10,797  $  10,797
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



    consolidated statements of cash flows
    (Unaudited)

    (In thousands of dollars)
    -------------------------------------------------------------------------
                                   3 Months   3 Months   9 Months   9 Months
                                      Ended      Ended      Ended      Ended
                                   Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------

    Cash provided by (used in):
    Operating activities:
    Net earnings                  $  33,362  $  24,563  $  93,701  $  61,653
    Items not involving cash:
      Depreciation and
       amortization                  21,418     20,428     62,964     63,932
      Accretion on asset
       retirement obligations           759        349      1,761      1,047
      Future income tax reduction    (5,583)    (3,289)   (15,641)   (15,908)
      Employee future benefits
       expense                        1,282      1,071      3,841      4,312
      Trust Unit based compensation
       expense                          397                   883
      Other                             426         91        826        272
    Employee future benefits
     contributions                     (732)    (5,650)    (3,791)    (9,000)
    Changes in non-cash working
     capital                            337     (5,133)    (3,792)    (3,559)
    -------------------------------------------------------------------------
    Cash flow from operations        51,666     32,430    140,752    102,749
    Financing activities:
      Bank borrowings                57,409      5,679    144,433     49,174
      Issue of senior unsecured
       notes, net of issue costs               198,807               195,073
      Repayment of long-term debt             (165,000)             (165,000)
      Repayment of senior secured
       notes                         (1,507)    (1,401)    (4,439)    (4,128)
      Issue of Trust Units on
       exercise of options            1,272        320      4,676      2,845
      Issue of Trust Units under
       Distribution Reinvestment
       Plan                                     21,389     47,170     55,167
      Distributions to Unitholders
       - current year               (44,804)   (35,627)  (115,339)   (92,171)
      Distributions to Unitholders
       - prior year                                       (12,622)    (9,966)
    -------------------------------------------------------------------------
                                     12,370     24,167     63,879     30,994
    Investing activities:
      Capital expenditures          (62,583)   (21,768)  (209,264)  (102,192)
      Changes in non-cash working
       capital                        2,618     (3,741)     2,485      2,467
    -------------------------------------------------------------------------
                                    (59,965)   (25,509)  (206,779)   (99,725)
    Change in cash                    4,071     31,088     (2,148)    34,018
    Cash (bank indebtedness),
     beginning of period             (4,358)    (4,381)     1,861     (7,311)
    -------------------------------------------------------------------------
    Bank indebtedness,
     end of period                $    (287) $  26,707  $    (287) $  26,707
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Other cash disclosures:
      Interest on long-term
       debt paid                  $  (9,377) $  (4,574) $ (28,411) $ (18,157)
      Interest on convertible
       debentures paid            $          $          $  (2,581) $  (3,786)
      Interest capitalized        $  (2,673) $    (773) $  (6,137) $  (3,487)
      Taxes paid                  $          $          $          $    (419)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       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, 2006 with the exception of
        accounting policies relating to newly issued accounting standards by
        the Canadian Institute of Chartered Accountants. The disclosure
        provided below is incremental to that included with the annual
        consolidated financial statements. The interim consolidated financial
        statements should be read in conjunction with the Fund's consolidated
        financial statements and the notes thereto for the year ended
        December 31, 2006. Certain of the prior period's comparative figures
        have been reclassified to conform with the current period's
        presentation.

        Effective January 1, 2007, the Fund adopted the new accounting
        policies relating to financial instruments, hedges and comprehensive
        income. At January 1, 2007, all of the derivative financial
        instruments in the Fund were designated as cash flow hedges or fair
        value hedges. Unrealized gains and losses in the fair value of cash
        flow hedging instruments are recorded in other comprehensive income,
        net of tax, until recognized in earnings. The fair value of these
        cash flow hedges are recorded on the Balance Sheet as assets with
        changes in the fair value of cash flow hedges reflected in
        accumulated comprehensive income in Unitholders' equity with no
        impact on net earnings for the period. The Fund has interest rate
        swap and power swap hedges that are all designated as cash flow
        hedges. The commodity swaps have an insignificant value that has been
        recorded in period earnings.

        The new rules require the recording of hedging derivatives at fair
        value. Prior to January 1, 2007, derivatives that qualified as
        accounting hedges were accounted for on an accrual basis.

        The types of hedging relationships that qualify for hedge accounting
        have not changed under the new rules. The Fund will continue to
        designate hedges as either cash flow hedges or fair value hedges and
        record the receivable or payable on the derivative as an adjustment
        to power costs, interest and fee income in the Consolidated
        Statements of Earnings over the life of the hedge.

        Cash flow hedges are used to manage the potential increase or
        decrease in the price of non-transmission power charges and interest
        expense on floating debt instruments.

        On January 1, 2007, cash flow hedge derivatives were measured at fair
        value. The portion of the fair value that offset the fair value of
        the hedged item totaled $7.5 million ($5.0 million after tax) and was
        recorded in opening accumulated other comprehensive income.

        At September 30, 2007, accumulated other comprehensive income totaled
        $10.8 million and consisted of an unrealized gain of $10.7 million,
        net of future income taxes, related to a 16 MW per hour power swap
        with an expiry date of December 31, 2010. The Fund also has an
        interest rate swap of $60 million as at September 30, 2007 with an
        unrealized gain of $0.1 million, net of future income taxes.

        Effective January 1, 2007, the Fund reclassified transaction costs
        (deferred financing fees) related to long-term debt previously
        disclosed in "goodwill and other" to "long-term debt". These
        reclassified costs amount to $8.2 million as at September 30, 2007.

    2.  Business segments:

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

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

        Oil sands infrastructure consists of the Syncrude Pipeline (formerly
        referred to as the Alberta Oil Sands Pipeline or "AOSPL"), the
        completed Cheecham Lateral and the Horizon Pipeline, which is
        currently under construction. As at September 30, 2007, the Syncrude
        Pipeline and the Cheecham Lateral were operational. This operating
        segment consists of pipelines and related facilities to deliver
        synthetic crude oil produced from oil sands under long-term cost of
        service arrangements.

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

        The financial results of the business segments are as follows:

        ---------------------------------------------------------------------
                                           Oil Sands
                            Conventional     Infras-   Midstream
                               Pipelines  tructure(1)   Business       Total
        ---------------------------------------------------------------------
        Three months ended
         September 30, 2007
        Revenues:
          Pipeline
           transportation     $   60,936  $   17,114  $           $   78,050
          Terminalling,
           storage and hub
           services                                       53,427      53,427
        ---------------------------------------------------------------------
          Revenue before
           expenses               60,936      17,114      53,427     131,477
        ---------------------------------------------------------------------

        Expenses:
          Operations              22,585       7,299       1,949      31,833
          Product purchases                               32,761      32,761
          General and
           administrative          7,081         326                   7,407
          Depreciation and
           amortization           16,102       3,063       2,253      21,418
          Accretion on asset
           retirement
           obligations               718          41                     759
          Internalization of
           management contract     1,219                               1,219
          Other                     (403)                               (403)
        ---------------------------------------------------------------------
                                  47,302      10,729      36,963      94,994
        ---------------------------------------------------------------------
        Earnings before
         interest and taxes   $   13,634  $    6,385  $   16,464  $   36,483
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Property, plant and
         equipment(1)         $  786,188  $  526,802  $  123,455  $1,436,445
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Goodwill and other    $  207,768  $   28,300  $  124,249  $  360,317
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------



        ---------------------------------------------------------------------
                                           Oil Sands
                            Conventional     Infras-   Midstream
                               Pipelines  tructure(1)   Business       Total
        ---------------------------------------------------------------------
        Nine months ended
         September 30, 2007
        Revenues:
          Pipeline
           transportation     $  183,111  $   47,042  $           $  230,153
          Terminalling,
           storage and hub
           services                                      140,645     140,645
        ---------------------------------------------------------------------
          Revenue before
           expenses              183,111      47,042     140,645     370,798
        ---------------------------------------------------------------------

        Expenses:
          Operations              69,547      17,795       6,401      93,743
          Product purchases                               82,297      82,297
          General and
           administrative         21,023         980                  22,003
          Depreciation and
           amortization           47,137       9,092       6,735      62,964
          Accretion on asset
           retirement
           obligations             1,666          95                   1,761
          Internalization of
           management contract     2,558                               2,558
          Other                    1,590                               1,590
        ---------------------------------------------------------------------
                                 143,521      27,962      95,433     266,916
        ---------------------------------------------------------------------
        Earnings before
         interest and taxes   $   39,590  $   19,080  $   45,212  $  103,882
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Property, plant and
         equipment(1)         $  786,188  $  526,802  $  123,455  $1,436,445
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Goodwill and other    $  207,768  $   28,300  $  124,249  $  360,317
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1)   Included in property, plant and equipment are assets under
              construction for the Horizon Pipeline of $188.4 million.



        ---------------------------------------------------------------------
                                           Oil Sands
                            Conventional     Infras-   Midstream
                               Pipelines    tructure    Business       Total
        ---------------------------------------------------------------------
        Three months ended
         September 30, 2006
        Revenues:
          Pipeline
           transportation     $   53,926  $   16,118  $           $   70,044
          Terminalling,
           storage and hub
           services                                       15,675      15,675
        ---------------------------------------------------------------------
          Revenue before
           expenses               53,926      16,118      15,675      85,719
        ---------------------------------------------------------------------

        Expenses:
          Operations              21,500       6,614       1,057      29,171
          Product purchases                                  393         393
          General and
           administrative          5,257         313         322       5,892
          Depreciation and
           amortization           15,661       2,524       2,243      20,428
          Accretion on asset
           retirement
           obligations               332          17                     349
          Other                        2                                   2
        ---------------------------------------------------------------------
                                  42,752       9,468       4,015      56,235
        ---------------------------------------------------------------------
        Earnings before
         interest and taxes   $   11,174  $    6,650  $   11,660  $   29,484
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Property, plant and
         equipment            $  747,109  $  340,530  $  124,028  $1,211,667
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Goodwill and other    $  216,468  $   28,300  $  127,896  $  372,664
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------



        ---------------------------------------------------------------------
                                           Oil Sands
                            Conventional     Infras-   Midstream
                               Pipelines    tructure    Business       Total
        ---------------------------------------------------------------------
        Nine months ended
         September 30, 2006
        Revenues:
          Pipeline
           transportation     $  165,020  $   44,529  $           $  209,549
          Terminalling,
           storage and hub
           services                                       41,693      41,693
        ---------------------------------------------------------------------
          Revenue before
           expenses              165,020      44,529      41,693     251,242
        ---------------------------------------------------------------------

        Expenses:
          Operations              66,793      16,505       3,178      86,476
          Product purchases                                3,486       3,486
          General and
           administrative         17,752         941       1,183      19,876
          Management fee           1,027                               1,027
          Depreciation and
           amortization           49,680       7,543       6,709      63,932
          Accretion on asset
           retirement
           obligations               996          51                   1,047
          Internalization of
           management contract     6,000                               6,000
          Other                     (171)                               (171)
        ---------------------------------------------------------------------
                                 142,077      25,040      14,556     181,673
        ---------------------------------------------------------------------
        Earnings before
         interest and taxes   $   22,943  $   19,489  $   27,137  $   69,569
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Property, plant and
         equipment            $  747,109  $  340,530  $  124,028  $1,211,667
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Goodwill and other    $  216,468  $   28,300  $  127,896  $  372,664
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    3.  Trust Units:

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

        ---------------------------------------------------------------------
                                                     Trust Units      Amount
        ---------------------------------------------------------------------
        Balance, January 1, 2006                     113,897,002  $1,073,537
        Exercise of Trust Unit options                   276,317       3,271
        Debenture conversions                          7,131,696      81,227
        Distribution Reinvestment Plan                 4,912,873      76,639
        Contributed surplus                                            1,135
        ---------------------------------------------------------------------
        Balance, December 31, 2006                   126,217,888   1,235,809
        Exercise of Trust Unit options                   355,434       4,676
        Debenture conversions                          2,377,091      25,910
        Distribution Reinvestment Plan                 3,114,798      47,170
        Contributed surplus                                              883
        ---------------------------------------------------------------------
        Balance, September 30, 2007                  132,065,211  $1,314,448
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The net earnings per Trust Unit are based on earnings available to
        Unitholders and the weighted average Trust Units outstanding for the
        period. The earnings available to Unitholders for the third quarter
        of 2007 was $33.4 million (2006 - $24.6 million) and for the nine
        months ended September 30, 2007 was $93.7 million (2006 -
        $61.7 million). The weighted average Trust Units outstanding for the
        third quarter of 2007 were 131,994,000 Units (2006 - 123,576,000) and
        for the nine months ended September 30, 2007 were 129,859,000 (2006 -
        120,904,000).

        The diluted earnings per Trust Unit are based on net earnings and the
        weighted average Trust Units outstanding adjusted for the dilutive
        effect of convertible debentures and employee Trust Unit options. The
        diluted net earnings for the third quarter of 2007 were $34.1 million
        (2006 - $24.6 million). In computing diluted earnings per Trust Unit,
        4,856,000 Trust Units (2006 - 270,000) were added to the weighted
        average Trust Units outstanding for the third quarter of 2007 for the
        dilutive effect of both convertible debentures and employee Trust
        Unit options. In 2006, 270,000 Units represents the dilutive effect
        of employee Trust Unit options only as the convertible debentures
        were anti-dilutive. Both basic and diluted earnings per Trust Unit
        are $0.25 for the third quarter of 2007 and $0.20 in 2006. Year-to-
        date 2007, the diluted net earnings were $96.3 million (2006 -
        $61.7 million) as the effect on earnings of convertible debentures
        was dilutive (anti-dilutive for year-to-date 2006). In computing
        year-to-date diluted earnings per Trust Unit, 4,774,000 Trust Units
        (2006 - 345,000) were added to the weighted average Trust Units
        outstanding for the dilutive effect of convertible debentures and
        employee Trust Unit options (2006 - only the options were dilutive).
        Both basic and diluted earnings per Trust Unit were $0.72 for nine
        months ended September 30, 2007 ($0.51 for the nine months ended
        September 30, 2006). At September 30, 2007, 4,261,680 options were
        outstanding, of which 1,802,747 were exercisable (September 30, 2006
        - 967,573) at a weighted average price of $13.72 (September 30, 2006
        - $12.03).

    4.  Internalization of management contract:

        Effective June 30, 2006, the Fund acquired all of the outstanding
        common shares of Pembina Management Inc. (Manager), the manager of
        the Fund. Total consideration for the transaction consisted of an
        initial cash payment of $6 million and a contingent deferred payment
        payable in 2009 that is linked to future growth in distributable cash
        per Trust Unit of the Fund. If the future cumulative distributable
        cash in the period from January 1, 2006, to December 31, 2008 does
        not exceed $3.42 per Trust Unit ($1.14 per Trust Unit per year), the
        deferred amount is zero. Every approximate 10 cent per Trust Unit
        increase in cumulative distributable cash over $3.42 per Trust Unit
        results in a $1 million increase in purchase price to a maximum of
        $15 million, which is converted into notional Trust Units based on
        the weighted-average trading price of the Trust Units for the 20
        trading days prior to June 30, 2006 of $15.87 (the closing price).
        The purchase price will also be adjusted by the distributions payable
        on the notional Trust Units for the period January 1, 2006 to
        December 31, 2008, and the change in the value of the Fund's Trust
        Units from the closing price. No further payments under the share
        purchase agreement are payable until 2009, however assuming the 2007
        and 2008 distributable cash is similar to the period January 1, 2006
        to September 30, 2007 levels, the potential deferred payment would be
        $6.8 million of which $2.6 million has been expensed at September 30,
        2007.

    -------------------------------------------------------------------------
    Pembina Pipeline Income Fund                  INVESTOR INFORMATION
    -------------------------------------------------------------------------
    Exchange Listing and                    Premium Distribution,
    Trading Symbols:                        Distribution Reinvestment and
                                            Optional Unit Purchase Plan(1):
    The Toronto Stock Exchange
    Trust Units Symbol: PIF.UN              Pembina offers a Premium
    7.35% Convertible Debentures Symbol:    Distribution, Distribution
    PIF.DB.B                                Reinvestment and Optional Unit
                                            Purchase Plan to eligible
    Trustee, Registrar and Transfer Agent:  Unitholders of Pembina Pipeline
                                            Income Fund.
    Computershare Trust Company of Canada
    Shareholder Communications:             The Plan allows participants an
    1-800-564-6253                          opportunity to:

    Corporate Office:                       -  reinvest distributions into
                                               Trust Units at a 5 percent
    700 - 9th Avenue S.W.                      discount to a weighted average
    P.O. Box 1948                              market price, under the
    Calgary, Alberta T2P 2M7                   distribution reinvestment
    Telephone: (403) 231-7500                  component of the Plan; or,
    Fax: (403) 237-0254
                                            -  realize 2 percent more cash on
    Investor Information:                      their distributions, under the
                                               premium distribution component
    e-mail:                                    of the Plan;
    investor-relations@pembina.com
    Telephone: (403) 231-7500               -  eligible Unitholders may also
               1-888-428-3222                  make optional Trust Unit
    Fax:       (403) 691-7356                  purchases at the weighted
                                               average market price.
    Website: www.pembina.com
                                            A brochure, detailing
    Quarterly Results Webcast:              administration of the Plan and
                                            eligibility and enrolment
    A live internet broadcast of            information,is available on-line
    Pembina's Third Quarter 2007            on Pembina's web site located at
    Results conference call is              www.pembina.com, or call
    scheduled for November 1, 2007          1-888-428-3222 to receive a copy
    at 2:00 p.m. Calgary (4:00 p.m.         by mail. Unitholders wishing to
    Eastern, 1:00 p.m. Pacific).            enroll in the Plan are asked to
    Those wishing to access the             contact their broker, investment
    webcast are invited to visit            dealer, financial institution or
    Pembina's website located at            other nominee through which the
    www.pembina.com, or the host            Trust Units are held.
    site at www.newswire.ca/webcast.
    An archive of the call will be          (1)  As of June 30, 2007,
    available on-line for 90 days                Pembina has prorated its
    following the broadcast date.                DRIP to zero as it prefers
                                                 not to raise further equity
                                                 under this plan at this
                                                 time.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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

    %SEDAR: 00008906E




For further information:

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


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