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News Releases

Pembina third interim report for the nine months ended September 30, 2008

Steady results and new projects drive distribution rate sustainability

    
    CALGARY, Oct. 29 /CNW/ -

    -   The Fund distributed $0.38 per Trust Unit during the third quarter of
        2008 for total cash distributions of $50.7 million, a 10 percent
        increase over the same period of 2007. Since the Fund's inception,
        Pembina has distributed a total of $1.16 billion to Unitholders, or
        $11.88 per Trust Unit, on a $10.00 per Trust Unit original issue
        price.

    -   In June of 2007, the Canadian federal government enacted legislation
        that will result in the taxation of certain flow-through entities,
        including Pembina, commencing on January 1, 2011. During the third
        quarter, Pembina undertook a detailed review of its options post-2011
        and, at present, Pembina views conversion to corporate form as the
        most likely outcome. Preliminary analysis of Pembina's distribution
        policy indicate that, based on current conditions, Pembina's internal
        projections and certain assumptions (see "Forward-Looking Information
        and Statements" on page 12 of this report), the current distribution
        rate is sustainable through 2010. Pembina expects to be well-
        positioned to maintain this rate post-2010 and through 2013, when the
        payment of cash taxes will commence, based on the aforementioned
        conditions, projections and assumptions. See "New Developments and
        Outlook" located on page 10 of this report for further information
        concerning the expected sustainability and taxability of Pembina's
        distributions.

    -   Pembina generated net earnings of $48.1 million during the quarter
        and $122.8 million year-to-date, representing increases of 27 and 14
        percent, respectively, over the comparable periods in 2007. This
        increase is mainly attributable to a $42.9 million gain on the sale
        of Syncrude linefill. See "Expenses" on page 5 of this report and
        "Selected Quarterly Information" on page 11 for further detail.

    -   All three of Pembina's business segments contributed to strong third
        quarter results, generating an aggregate of $77.0 million in net
        operating income during the third quarter and $220.1 million year-to-
        date, a 15 percent and 13 percent increase, respectively, over the
        comparable periods of the prior year.

    -   During the third quarter, Pembina announced that it would proceed
        with the construction of the Nipisi and Mitsue Pipelines. Pembina
        currently expects these pipelines to have a combined estimated
        capital cost of $400 million. Both of these pipelines are contracted
        under long-term Transportation Services Agreements with Canadian
        Natural Resources Limited ("CNRL") and EnCana Corporation ("EnCana").
        See "New Developments and Outlook" for further information.

    Management's Discussion and Analysis

    This Management's Discussion and Analysis ("MD&A") is dated October 29,
2008 and is supplementary to, and should be read in conjunction with, the
unaudited comparative interim financial statements and notes of Pembina
Pipeline Income Fund as at and for the three and nine months ended September
30, 2008, along with the Fund's Management's Discussion and Analysis and
audited financial statements and notes for the year ended December 31, 2007.
This MD&A has been reviewed and approved by both the Audit Committee of the
Board of Directors and by the Board of Directors. All amounts are listed in
Canadian dollars unless otherwise specified. References to "mbbls/d", "bbls/d"
and "$/bbl" mean thousands of barrels per day, barrels per day and dollars per
barrel, respectively. See "Non-GAAP Measures" relating to footnoted non-GAAP
measures reflected in this document. This MD&A contains certain
forward-looking statements and information: see "Forward-Looking Information
and Statements".

    Fund Description

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

    Fund Strategy

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

    Results from Operations

    -------------------------------------------------------------------------
    HIGHLIGHTS(1)      3 Months  3 Months         9 Months  9 Months
    (in millions of       Ended     Ended            Ended     Ended
     dollars, except   Sept. 30, Sept. 30,    %   Sept. 30, Sept. 30,    %
     where noted)          2008      2007  Change     2008      2007  Change
    -------------------------------------------------------------------------
    Average throughput
     - conventional
     (mbbls/d)            430.5    435.4     (1.1)   440.9    446.1     (1.2)
    Contracted capacity
     - oil sands
     (mbbls/d)            775.0    525.0     47.6    775.0    525.0     47.6
    Total throughput and
     contracted volumes
     (mbbls/d)          1,205.5    960.4     25.5  1,215.9    971.1     25.2
    Capital
     expenditures       $  14.6  $  62.4    (76.6) $ 197.8  $ 214.9     (8.0)
    Revenue               201.3    131.5     53.1    525.5    370.8     41.7
    Product purchases      84.2     32.8    156.7    196.9     82.3    139.2
    Operating expenses     40.1     31.8     26.1    108.5     93.7     15.8
    Net operating
     income(2)             77.0     66.9     15.1    220.1    194.8     13.0
    General &
     administrative
     expense                9.6      7.4     29.7     28.7     22.0     30.5
    Interest expense
     on long-term debt     11.5      7.7     49.4     28.0     22.0     27.3
    Net earnings           48.1     37.9     26.9    122.8    107.3     14.4
    Cash flow from
     operations            50.4     51.7     (2.5)   156.4    140.8     11.1
    Cash distributed
     to Unitholders        50.7     46.2      9.7    146.4    131.2     11.6
      $ Per Trust Unit  $0.3800  $0.3500      8.6  $1.1000  $1.0100      8.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) This third quarter 2008 Interim Report to Unitholders reports
        unaudited results of the Fund for the three and nine months ended
        September 30, 2008.

    (2) 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)          2008      2007  Change     2008      2007  Change
    -------------------------------------------------------------------------
    Average throughput
     (mbbls/d)            430.5    435.4     (1.1)   440.9    446.1     (1.2)
    Revenue             $  67.7  $  60.9     11.2  $ 197.7  $ 183.1      8.0
    Operating expenses     29.7     22.5     32.0     82.2     69.5     18.3
    Net operating
     income(1)             38.0     38.4     (1.0)   115.5    113.6      1.7
    Capital
     expenditures          18.0     16.1     11.8     43.1     59.9    (28.0)
    Operating expenses
     ($/bbl)               0.71     0.53     34.0     0.64     0.54     18.5
    Average revenue
     ($/bbl)               1.61     1.43     12.6     1.54     1.41      9.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.

    Pembina's extensive network of conventional pipelines in Alberta and
British Columbia (BC) provides dependable, cost effective transportation
service to customers in western Canada and represents Pembina's legacy
pipeline business. These strategically located assets continue to generate
stable and predictable cash flows.
    During the third quarter and nine months ending September 30, 2008,
Pembina's conventional pipelines collectively transported an average of
430,493 bbls/d and 440,955 bbls/d, respectively. These volume levels are
consistent with the comparable periods of 2007.
    The Alberta pipeline systems transported an average of 408,441 bbls/d
during the third quarter, marginally lower than the third quarter of 2007.
This decline is primarily due to an outage on the Cremona system throughout
July and August due to a pipeline failure. Service on that pipeline was
restored in late August 2008. Volumes on the Peace, Drayton Valley and Swan
Hills systems remained relatively consistent as increased receipts from new
and existing connections were offset by slightly lower crude throughputs from
legacy connections.
    Throughput on Pembina's Western system averaged 22,052 bbls/d during the
third quarter and 22,327 bbls/d for the first nine months of 2008, down
8 percent from the same periods of 2007. These declines are due in part to
restrictions at a third party delivery point. The BC gathering pipelines also
posted slightly lower results, averaging 26,489 bbls/d over the third quarter
as compared to 28,863 bbls/d a year earlier.
    In total, Pembina's conventional systems generated aggregate revenue of
$67.7 million and $197.7 million during the third quarter of 2008 and first
nine months of 2008, respectively, up from $60.9 million and $183.1 million in
the same periods a year earlier. The conventional systems contributed
$115.5 million in operating income during the nine months ended September 30,
2008, 2 percent higher year-over-year. The Alberta systems recorded revenue of
$57.6 million during the quarter and $169.8 million for the first nine months
of the year which was 9 percent and 6 percent higher, respectively, than the
same periods of 2007. Revenues generated by the BC systems were up 22 percent
from the third quarter of 2007, primarily as a result of toll adjustments that
were negotiated and implemented on these systems in January and February of
2008. Average revenue per barrel on the Alberta systems of $1.53 during the
third quarter was up 14 cents per barrel from the average for the same period
of 2007. On the BC systems, average revenue per barrel during the third
quarter increased 33 percent from the same period of 2007 to $2.25 per barrel.
The increase on the provincially regulated BC systems was primarily
attributable to the above mentioned toll adjustments.

    Oil Sands & Heavy Oil 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)          2008      2007  Change     2008      2007  Change
    -------------------------------------------------------------------------
    Average throughput
     (mbbls/d)(1)         775.0    525.0     47.6    775.0    525.0     47.6
    Revenue             $  21.1  $  17.1     23.4  $  51.5  $  47.0      9.6
    Operating expenses      8.3      7.3     13.7     20.1     17.8     12.9
    Net operating
     income(2)             12.8      9.8     30.6     31.4     29.2      7.5
    Capital
     expenditures(3)      (14.0)    43.7   (132.0)   125.4    151.5    (17.2)
    Operating expenses
     ($/bbl)(4)            0.29     0.22     31.8     0.26     0.21     23.8
    Average revenue
      ($/bbl)(4)           0.74     0.52     42.3     0.66     0.56     17.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Contracted capacity. Actual average throughput was 310,934 bbls/d in
        the third quarter of 2008 and 354,400 bbls/d in the third quarter of
        2007.
    (2) Refer to "Non-GAAP Measures" below.
    (3) In the third quarter, linefill originally capitalized for the
        commissioning of the Horizon Pipeline was sold and hence removed from
        capitalized expenditures.
    (4) Calculation uses actual average throughput.

    Pembina has 775,000 bpd of fully contracted synthetic crude oil
transportation capacity in three distinct pipelines serving customers in the
Athabasca oil sands region; the Syncrude Pipeline which provides dedicated
service to Syncrude, the world's largest crude oil producer from oil sands;
the Cheecham Pipeline which delivers synthetic crude oil from the Syncrude
Pipeline to a facility near Cheecham, Alberta; and, the recently completed
Horizon Pipeline which provides dedicated service to CNRL's Horizon oil sands
project. Revenue generated by these fully contracted pipelines is independent
of throughput and provides for the full recovery of operating expenses.
    Throughput on the Syncrude Pipeline averaged 310,934 bbls/d during the
third quarter and 284,382 bbls/d during the first nine months of 2008,
slightly below results posted during the comparable periods of 2007. The
Syncrude Pipeline has a transportation capacity of 389,000 bbls/d and is fully
contracted to the Syncrude owners. Net operating income generated by the
Syncrude Pipeline during the quarter of $8.4 million is consistent
year-over-year.
    The Cheecham Pipeline, which has a capacity of 136,000 bbls/d and is
fully contracted to shippers, generated net operating income of $1.1 million
and $3.4 million during the third quarter and first nine months of 2008.
    Pembina's Horizon Pipeline began generating revenue under the
Transportation Service Agreement with CNRL during the third quarter of 2008.
Under the interim tolling arrangement, the pipeline contributed $3.9 million
in revenue and $3.2 million in net operating income to the period ended
September 30, 2008. The interim tolling arrangement expires October 31, 2008,
prior to the November 1, 2008 in-service date, at which time the Horizon
Pipeline will begin to contribute approximately $3.8 million in net operating
income to Pembina each month.

    Midstream & Marketing 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)          2008      2007  Change     2008      2007  Change
    -------------------------------------------------------------------------
    Revenue             $ 112.5  $  53.4    110.7  $ 276.3  $ 140.6     96.5
    Product purchases      84.2     32.8    156.7    196.9     82.3    139.2
    Operating expenses      2.2      2.0     10.0      6.2      6.4     (3.1)
    Net operating
     income(1)             26.1     18.7     39.6     73.2     52.0     40.8
    Capital
     expenditures          10.6      2.6    307.7     29.3      3.5    737.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.

    Pembina's Midstream & Marketing business segment is comprised of its
50 percent non-operated interest in the Fort Saskatchewan Ethylene Storage
Facility and its wholly-owned terminalling, storage and hub services operated
on several of its conventional pipeline systems.
    The Midstream & Marketing business continues to exhibit strong aggregate
performance, recording net revenue and net operating income of $28.3 million
and $26.1 million during the third quarter of 2008, representing a 37 percent
and 40 percent increase, respectively, over the same quarter of 2007.
Pembina's 50 percent interest in the fully contracted Fort Saskatchewan
Ethylene Storage Facility generated $5.5 million in revenue and $4.3 million
in net operating income during the quarter.
    Variables that have the potential to impact certain elements of this
business segment 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 streams from this unit to ensure stability in results.
See "Risk Factors" on page 10 of this report and "Forward Looking Statements
and Information" on page 12 of this report.

    Expenses

    During the third quarter and first nine months of 2008, operating
expenses totaled $40.1 million and $108.5 million, up from $31.8 million and
$93.7 million over the same periods of 2007. Pembina's conventional pipelines
incurred operating costs of $29.7 million during the third quarter of 2008, up
from $22.5 million incurred during the comparable period in 2007. On a per
barrel of throughput basis, operating expenses on the conventional systems
averaged 0.71 cents for the quarter compared to 0.53 cents during the same
quarter of 2007. This increase is primarily related to an increase in one time
maintenance work completed in the third quarter 2008 versus 2007.
    General and administrative expenses (G&A) of $9.6 million were recorded
during the third quarter of 2008, $2.2 million higher than the prior year.
Year-to-date G&A totaled $28.7 million compared to $22 million incurred in
2007. G&A expenses have risen in response to a substantial increase in
competitive employment pressures, and to an overall increase in staffing
levels to support both ongoing business and growth opportunities. Pembina
expects G&A expenditures to be approximately 12.2 percent of net operating
income in 2008, slightly higher than the 11.8 percent incurred in 2007.
    A $42.9 million gain on the sale of Syncrude linefill has been recorded
as revenue for the nine months ended September 30, 2008. Prior to the
scheduled in-service date for Horizon, Pembina purged and sold 385,000 barrels
of excess linefill on the 22" Syncrude Pipeline for total estimated proceeds
of $54.8 million and a gain on the sale of $42.9 million. The after tax
proceeds from the sale of excess linefill on the Syncrude Pipeline will reduce
the Syncrude Pipeline rate base and reduce annual net earnings by $1.5 million
pursuant to an agreement with the Syncrude shippers.

    Cash Distributions

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

    -------------------------------------------------------------------------
                                3 Months    3 Months    9 Months    9 Months
    (in thousands of               Ended       Ended       Ended       Ended
     dollars, except            Sept. 30,   Sept. 30,   Sept. 30,   Sept. 30,
     where noted)                   2008        2007        2008        2007
    -------------------------------------------------------------------------
    Cash flow from operations  $  50,445   $  51,666   $ 156,400   $ 140,752
    Add/(deduct):
      Employee future
       benefits expense           (1,083)     (1,282)     (3,244)     (3,841)
      Employee future
       benefits contributions      1,890         732       3,788       3,791
      Changes in non-cash
       working capital             1,477        (337)     (4,662)      3,792
      Other                         (350)       (823)       (914)     (1,709)
    -------------------------------------------------------------------------
    Distributable cash(1)      $  52,379   $  49,956   $ 151,368   $ 142,785
    (Increase) decrease in
     distribution reserve      $  (1,647)  $  (3,758)  $  (4,921)  $ (11,599)
    -------------------------------------------------------------------------
    Distributed cash(1)        $  50,732   $  46,198   $ 146,447   $ 131,186
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributable cash(1)
     per Trust Unit before
     reserve                   $  0.3923   $  0.3785   $  1.1370   $  1.0995
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributed cash per
     Trust Unit(1)             $  0.3800   $  0.3500   $  1.1000   $  1.0100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted distributed cash
     to Unitholders Per Trust
     Unit                         0.3729      0.3393      1.0781      0.9639
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.

    During the third quarter of 2008, the Fund declared distributions of
$0.38 per Trust Unit, or $50.7 million in aggregate, compared to $0.35 per
Trust Unit, or $46.2 million in aggregate, paid in the third quarter of 2007.
Under Canadian tax laws, a component of the Fund's cash distributions are
taxable in the hands of the Unitholder, with the remaining portion a return of
capital, unless held in a tax-deferred account. Pembina estimates that
80 percent of the distributions declared in 2008 will be taxable and 20
percent will be a return of capital for Canadian tax purposes. For purposes of
calculating the capital gains upon disposition of the Trust Units, the amount
considered a return of capital will reduce the Unitholders' adjusted cost base
of each Trust Unit for Canadian tax purposes. Pembina's distributions are
subject to current domestic tax laws which require a withholding tax from
distribution income to non-residents of Canada.
    Pembina generated $0.3923 per Trust Unit in distributable cash (before
reserve) during the third quarter of 2008.
    The table below shows the Fund's cash distributions paid relative to cash
flow from operations and net earnings for the periods indicated. See also "New
Developments and Outlook", "Risk Factors" and "Forward-Looking Statements and
Information" below for further information regarding the sustainability of
cash distributions.

    -------------------------------------------------------------------------
                        3 Months   9 Months
    (in thousands of       Ended      Ended
     dollars, except    Sept. 30,  Sept. 30,        Year Ended December 31
     where noted)           2008       2008       2007       2006       2005
    -------------------------------------------------------------------------
    Cash flow from
     operations        $  50,445  $ 156,400  $ 189,540  $ 143,860  $ 112,360
    Net earnings          48,131    122,825    142,305     88,885     70,409
    Distributed cash      50,732    146,447    178,870    142,285    113,482
    -------------------------------------------------------------------------
    Excess (shortfall)
     of cash flow from
     operations over
     distributed cash       (287)     9,953     10,670      1,575     (1,122)
    Excess (shortfall)
     of net earnings
     over distributed
     cash                 (2,601)   (23,622)   (36,565)   (53,400)   (43,073)
    -------------------------------------------------------------------------
    Cumulative notional
     reserve(1)        $  35,973  $  35,973  $  31,052  $  21,022  $  15,128
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.

    Pembina maintains a notional reserve designed to ensure stability over
economic and industry cycles and to absorb the impact of material one-time
events. Therefore, not all available cash is distributed to Unitholders but
instead, a portion of the Fund's distributable cash is used to reduce bank
indebtedness. Historical cash distributions compared to cash flow from
operations shows excess cash flow in every period except for the third quarter
of 2008 and the year 2005. The shortfall in 2005 was due to a prepaid pension
contribution made by the Fund in the amount of $13.3 million and due to
changes in non-cash working capital. The shortfall in the third quarter of
2008 was due to changes in non-cash working capital. As at September 30, 2008
and December 31, 2005, a cumulative notional reserve of $36 million and
$15.1 million, respectively, remained after funding the shortfall. Cash
distributions to Unitholders are greater than net earnings as the Fund does
not consider it necessary to retain non-cash depreciation that has been
deducted in the determination of net earnings. Pembina generally does not
expect the earning capacity of the Fund's existing assets to erode or to be
replaced provided they are properly maintained, such maintenance costs are
deducted in determining net earnings. Asset additions increase the earning
capacity of the Fund and have historically been financed in either the debt or
equity markets and are not dependent on cash flow from existing assets.
    The Fund's payout ratio for the nine months ended September 30, 2008 was
97 percent, 5 percent higher than the same period in the prior year. Pembina
estimates that the full year payout ratio in 2008 will approximate 90 percent,
lower than the full year payout ratio of 95 percent in 2007. Pembina
calculates the payout ratio as the percentage of distributable cash, prior to
distribution reserve adjustments, that is distributed to Unitholders. See
"Non-GAAP Measures" below.

    Liquidity and Capital Resources

    At September 30, 2008, Pembina's bank facilities consisted of an
unsecured $500 million revolving credit facility and a $30 million operating
line of credit. On July 24, 2007, the revolving credit facilities were
increased from $230 million to $500 million for a period of five years to July
24, 2012. There are no repayments due over this term. In addition, the
$30 million operating facility was extended one year to July 23, 2009 during
the third quarter of 2008. At September 30, 2008, Pembina had $390 million
drawn leaving $140 million of undrawn capacity on the $530 million of
established bank facilities. Borrowings bear interest at either prime lending
rates or are based on bankers acceptances plus applicable margins. The margins
are based on the credit rating of the senior unsecured debt of Pembina
Pipeline Corporation and range from 0.50 percent to 1.50 percent. Other debt
includes $81.9 million in fixed rate Senior Secured Notes due 2017,
$175 million in fixed rate Senior Unsecured Notes due 2014, $75 million of
Floating Rate Senior Unsecured Notes due 2009 and $200 million in fixed rate
Senior Unsecured Notes due 2021. At September 30, 2008, Pembina had long-term
debt (excluding deferred financing fees) of $921.9 million. This long-term
debt, together with $41.6 million of outstanding convertible debentures,
resulted in a ratio of total debt to total enterprise value of 30.2 percent
compared to a ratio of 29 percent at June 30, 2008 and a ratio of 26.2 percent
at December 31, 2007.
    During the third quarter, $6.9 million in net debt financing costs were
recorded, comparable to 2007.
    Pembina expects to refinance the $75 million in notes that mature in June
2009 by either extending with existing lenders or refinancing with an
increased bank facility. However, given the current uncertainty in financial
markets, Pembina's financing costs may increase.
    Pembina considers the maintenance of investment grade credit agency
ratings as critical to its ongoing ability to access capital markets on
attractive terms. The rating systems employed by the agencies referenced below
recognize the stable profile of Pembina's assets and financial results and the
sustainability of the per Trust Unit distributions of the Fund. The Dominion
Bond Rating Service Ltd. (DBRS) stability rating system measures the
volatility and sustainability of distributions per Trust Unit. DBRS has
assigned Pembina Pipeline Income Fund a STA-2 (low) stability rating. DBRS's
stability rating scale is from STA-1 to STA-7, with STA-1 representing the
highest rating possible, and STA-7 the lowest. Pembina Pipeline Corporation,
the Fund's primary operating subsidiary, is also rated by DBRS, which has
assigned a senior secured debt rating of 'BBB High' and a 'BBB' senior
unsecured debt rating. On July 24, 2008, Standard & Poor's (S&P) upgraded its
long-term corporate credit and bank loan ratings on Pembina Pipeline
Corporation to "BBB+" from "BBB", and its senior secured debt rating on the
company to "A-" from "BBB+", with a stable outlook. S&P also rates the Fund
and has a current rating of SR-2. According to S&P's rating system, which
rates distributable cash on a scale of SR-1 to SR-7, SR-2 rated funds are
considered to have very high stability and debt instruments rated BBB have
adequate protection parameters.

    Contractual Obligations

    The Fund is committed to annual payments as follows:

    -------------------------------------------------------------------------
    ($ millions)                         Payments Due By Period
    -------------------------------------------------------------------------
    Contractual                    Less than   1 - 3      4 - 5      After
     Obligations          Total     1 year     years      years     5 years
    -------------------------------------------------------------------------
    Office and vehicle
     leases            $    16.3  $     4.2  $    10.0  $     2.1  $
    Long-term debt         921.9       81.8      413.5      193.8      232.8
    Convertible
     debentures             41.6                  41.6
    Construction
     commitments           433.0       60.6      355.9       16.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total contractual
     obligations       $ 1,412.8  $   146.6  $   821.0  $   212.4  $   232.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Pembina is, subject to certain conditions, contractually committed to the
construction and the operation of the Nipisi and Mitsue Pipelines. Pembina
currently projects the cost to be $400 million, with $2 million of that amount
expended to September 30, 2008, $60.6 million expected to be spent within one
year and the balance by mid-2011. Pembina expects to utilize its undrawn bank
facilities to finance the initial costs of the pipelines and increase its
established bank facilities or access the debt and equity markets, or a
combination thereof, to finance commitments beyond the one year time frame.
See "Forward-Looking Statements and Information" on page 12 of this report.

    -------------------------------------------------------------------------
                                3 Months    3 Months    9 Months    9 Months
                                   Ended       Ended       Ended       Ended
    Capital Expenditures        Sept. 30,   Sept. 30,   Sept. 30,   Sept. 30,
    ($ millions)                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Development capital
      Conventional pipelines   $    18.0   $    16.1   $    43.1   $    59.9
      Oil Sands infrastructure     (14.0)       43.7       125.4       151.5
      Midstream business            10.6         2.6        29.3         3.5
    -------------------------------------------------------------------------
    Total development capital  $    14.6   $    62.4   $   197.8   $   214.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Pembina expended $14.6 million on capital projects during the third
quarter of 2008, down from $62.4 million expended during the third quarter of
2007, largely due to greater capital expenditures for the Horizon Pipeline
project. Capital expenditures for the conventional systems of $18 million
during the quarter related to $3.2 million for new connections and upgrades,
$1.9 million for repairs to the Cremona system, $9 million for linefill on the
Bonnie Glen system as Pembina assumed operatorship of this system, $1 million
for the Peace system product segregation facilities, $0.9 million for the
condensate portion of the Mitsue pipeline project, $0.7 million for the
Western system corrosion and pipeline inspection programs and upgrades and
$0.2 million for Drayton Valley system product segregation facilities. Oil
sands infrastructure spending was credited by $16 million during the third
quarter due to the sale of test linefill originally purchased in the first
half of the year in order to commission the Horizon Pipeline. This was offset
by $0.8 million invested in Syncrude Pipeline upgrades and $1.2 million
invested in the Nipisi project. Spending in the midstream business segment of
$10.6 million for the third quarter related mainly to operations equipment
purchases. Capital expenditures are financed utilizing Pembina's existing
credit facilities.

    Trust Unit and Convertible Debenture Information

    Pembina offers a Premium Distribution, Distribution Reinvestment and
Optional Unit Purchase Plan ("DRIP").  Pembina expects to reinstate the DRIP,
which has been discontinued over the past five quarters, effective with the
October 31, 2008 record date.  DRIP proceeds will be directed to fund current
projects and future capital undertakings.
    The Fund's Trust Units, together with the one remaining series of
convertible debentures, are traded on the Toronto Stock Exchange.

    -------------------------------------------------------------------------
                                     Oct. 27,       Sept. 30,       Sept. 30,
                                      2008(1)           2008            2007
    -------------------------------------------------------------------------
    Trust Units Outstanding      133,598,864     133,568,526     132,065,211
    Average Daily Trading
     Volume (Units per day)          428,661         253,141         187,800
    Unit Trading Price
     ($/Unit)(2)               $       16.54   $       16.11   $       17.73

    Principal Amount of
     Debentures Outstanding
     ($millions)               $        43.1   $        43.5   $        53.7

    7.35% Convertible
     Debentures Trading
     Price(3)                  $      131.18   $      131.53   $      140.34
    Total Market Value of
     Securities Outstanding
     ($millions)               $    2,280.96   $    2,221.07   $    2,416.13
    -------------------------------------------------------------------------
    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 18 trading days from October 1 to October 27, 2008,
        inclusive.
    (2) End of Period.
    (3) Full conversion to Trust Units of the remaining principal amount of
        the debenture issue as at October 27, 2008 would result in the
        issuance of 3.5 million Trust Units.

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

    Critical Accounting Estimates and Changes in Accounting Principles and
    Practices

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

    New Developments and Outlook

    During the third quarter, Pembina maintained its focus on growth
opportunities and further diversification of its revenue sources and business
segments.
    On August 12, 2008, Pembina announced that it has entered into
Transportation Services Agreements with founding customers, CNRL and EnCana
to, subject to certain conditions, construct the Mitsue and Nipisi pipelines
at an estimated capital cost of $400 million. Both of these pipelines are
contracted under long term agreements. The Mitsue Pipeline, which will offer
22,000 bpd of condensate delivery capacity and the Nipisi Pipeline, which will
provide 100,000 bpd of diluted heavy oil take-away capacity from the Nipisi
Lake and Seal region, are expected to be in-service in mid-2011. Plans to
exploit under and un-utilized infrastructure for these pipelines will reduce
Pembina's operating footprint, minimize the impact on communities, land and
the environment, and allow Pembina to offer customers dedicated service at
attractive commercial terms with lower project completion and execution risk.
As of mid-September, Pembina has commenced public consultation and is seeking
feedback on the proposed pipeline routing, traditional land use, environmental
impacts and other aspects of the project. Information gathered through this
process will be incorporated into project planning. Further, Pembina intends
to work with communities potentially impacted by the project to explore
employment and business opportunities arising from this project. In response
to significant development activity in the Nipisi Lake and Seal area, Pembina
continues to assess shipper demand to determine the feasibility of expanding
the planned capacity of these pipelines to better serve customers in this
region.
    Pembina's reputation for consistent results and growing distributions is
supported by its continued success in developing new services and executing on
opportunities. Pembina's established record of accomplishment reflects the
quality of its strategically located assets, prudent expansions and additions
to its asset portfolio, the introduction of new and innovative services and
strong stakeholder relationships. The quality of our current asset portfolio
and the breadth of tangible and prospective growth opportunities presently
under development across all of our business segments lend confidence in our
continuing ability to maintain and grow future distributions.
    In view of the impending taxation of certain flow-through "specified
investment" ("SIFT") entities in Canada, including Pembina, commencing in
2011, Pembina has undertaken a detailed review to determine the best path
forward for the Fund and its stakeholders. At present, Pembina views
conversion to corporate form during the latter half of 2010 as the most likely
outcome. Based on current conditions, and on certain assumptions and internal
projections, preliminary analysis indicates that Pembina can maintain its
current per unit level of cash distributions to equity holders in the years
immediately following corporate conversion (in a form of a dividend),
including through the 2013 time horizon when Pembina expects to commence
payment of cash taxes. Solid, sustainable results generated by all three of
Pembina's business units, together with anticipated significant incremental
cash flow contribution from capital projects presently underway, lend
confidence in Pembina's ability to maintain the distribution rate through
corporate conversion and the onset of taxable status. Further, Pembina
believes that the more favourable tax treatment afforded to dividends, as
compared to distributions of income, under current Canadian tax law, may
result in more attractive after-tax returns for certain taxable Canadian
investors, depending on individual circumstances. Pembina believes this level
of dividends post conversion can be continued while maintaining a prudent
capital structure and continuing to fund its planned growth initiatives. See
"Risk Factors" and "Forward-Looking Statements and Information" below for a
discussion of the assumptions made and risks associated with these
forward-looking statements.

    Risk Factors

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

    Additional Information

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

    Selected Quarterly Information

    -------------------------------------------------------------------------
    (in thousands
    of dollars,                2008                          2007
    except where ------------------------------------------------------------
    noted)            Q3        Q2        Q1        Q4        Q3        Q2
    -------------------------------------------------------------------------
    Revenue        201,289   181,484   142,735   133,990   131,477   126,373
    Product
     purchases      84,243    76,215    36,451    32,756    32,761    32,947
    Operating
     expenses       40,136    33,262    35,095    35,885    31,833    30,718
    EBITDA(1)       86,293    78,640    59,916    54,518    58,660    53,676
    Cash flow
     from
     operations     50,445    46,921    59,034    48,788    51,666    42,180
    Net
     earnings       48,131    42,122    32,572    34,981    37,903    35,492

    Net earnings
     per Trust
     Unit ($/Unit):
      Basic           0.36      0.32      0.25      0.26      0.29      0.27
      Diluted         0.35      0.31      0.24      0.26      0.28      0.27

    Distributed
     cash(1)        50,732    47,922    47,793    47,684    46,198    42,890

    Distributed
     cash per
     Trust Unit(1)
      Basic         0.3800    0.3600    0.3600    0.3600    0.3500    0.3300
      Diluted       0.3729    0.3528    0.3530    0.3521    0.3393    0.3211

    Trust Units
     outstanding
     (thousands):
      Weighted
       average
       (basic)     133,504   133,117   132,758   132,454   131,994   129,966
      Weighted
       average
      (diluted)    137,595   137,564   137,196   137,243   136,850   135,274
      End of
       period      133,569   133,278   132,816   132,542   132,065   131,388
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    --------------------------------------------
    (in thousands
    of dollars,      2007            2006
    except where -------------------------------
    noted)            Q1        Q4        Q3
    --------------------------------------------
    Revenue        112,948    89,636     85,719
    Product
     purchases      16,589     1,574        393
    Operating
     expenses       31,192    32,933     29,570
    EBITDA(1)       56,271    49,626     50,261
    Cash flow
     from
     operations     46,907    41,111     32,430
    Net
     earnings       33,929    27,231     24,563

    Net earnings
     per Trust
     Unit ($/Unit):
      Basic           0.27      0.22       0.20
      Diluted         0.26      0.22       0.20

    Distributed
     cash(1)        42,098    37,687     36,461

    Distributed
     cash per
     Trust Unit(1)
      Basic         0.3300    0.3000     0.2950
      Diluted       0.3219    0.2956     0.2902

    Trust Units
     outstanding
     (thousands):
      Weighted
       average
       (basic)     127,568   125,625   123,576
      Weighted
       average
      (diluted)    135,206   132,789   131,502
      End of
       period      128,247   126,218   124,262
    -------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.

    Net earnings of $48.1 million were recorded during the third quarter of
2008, compared to $37.9 million and $24.6 million over the same periods in
2007 and 2006. The 26.9 percent increase in net earnings over the same period
in 2007 relates in large measure to a $42.9 million gain on sale of linefill,
of which $21.6 million was recorded in the third quarter, associated with the
completion of the Horizon Pipeline. Net operating income continues to grow at
$76.9 million in the third quarter of 2008, compared to $66.9 million and
$55.8 million over the same periods in 2007 and 2006. This represents a
substantial increase of 14.9 percent and 37.8 percent, respectively, due to
the expansion of midstream operations as well as to toll increases and strong
performance on conventional pipeline systems.
    Pembina's stable operations typically produce limited variability in
quarterly results. However, continued growth in Pembina's underlying asset
base and business operations has generally resulted in increased revenues,
expenses and cash flows over the last nine quarters. Variations in this trend
result from one-time events and expected seasonal factors which impact
pipeline receipts and operating expenses, occurring most frequently during the
second quarter of each year. Such events and factors include, but are not
limited to, regularly scheduled facilities maintenance, road bans and
weather-related impact on receipts and spending patterns.

    Non-GAAP Measures

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

    Forward-Looking Information and Statements

    The information contained in this MD&A contains certain forward-looking
statements and information that are based on the Fund's current expectations,
estimates, projections and assumptions in light of its experience and its
perception of historical trends. In some cases, forward-looking statements and
information can be identified by terminology such as "may", "will", "should",
"expects", "projects", "plans", "anticipates", "targets", "believes",
"strives", "intends", "estimates", "continue", "designed", "objective",
"maintain", "schedule", "endeavor" and similar expressions.
    In particular, this document contains forward-looking statements,
including certain financial outlook, regarding (i) the possible conversion of
Pembina to a corporate form in the latter half of 2010 and the ability of
Pembina to maintain its current level of cash distributions to its equity
holders both prior to and for the foreseeable future after conversion (in the
form of dividends after conversion); (ii) the future net operating income of
Pembina in relation to the Horizon Pipeline; and (iii) the proposed
construction of the Mitsue and Nipisi Pipelines. These forward-looking
statements are being made by Pembina based on certain assumptions that Pembina
has made in respect thereof as at the date of this document. These assumptions
include, in respect of the possible corporate conversion of Pembina and future
cash distributions or dividends to equity holders, that Pembina's internal
cash flow and tax projections are correct; that Pembina can obtain all
necessary approvals in respect of the corporate conversion; that favourable
growth parameters continue to exist in respect of current and future projects
of Pembina (including in respect of the ability to finance such projects on
favourable terms); that there will be no changes to current tax laws governing
the taxation of SIFT entities and the treatment distributions from such
entities; that the draft legislation related to the conversion of SIFT
entities into corporations, as introduced on July 14, 2008, will be enacted in
the form proposed; and the continued sustainable results of all three of
Pembina's business segments. In respect of the forward-looking statements made
in relation to the Horizon and Mitsue and Nipisi Pipelines, Pembina has
assumed that the in-service date for the Horizon Pipeline will be November 1,
2008 and that the in-service date for the Mitsue and Nipisi Pipelines will be
in mid-2011; that future tolls in respect of such pipelines will be consistent
with internal projections; that counterparties will comply with contracts in a
timely manner; that there are no unforeseen events preventing the performance
of contracts by Pembina; that Pembina is able to obtain financing on
favourable terms in respect of the costs associated with the Mitsue and Nipisi
Pipelines; that there are no unforeseen construction costs related to the
Mitsue and Nipisi Pipelines; and that there are no unforeseen material costs
relating to the pipeline systems which are not recoverable from shippers.
    Further, this MD&A contains forward-looking statements and information
with respect to: future stability and sustainability of cash distributions to
Unitholders; ongoing utilization and expansions of and additions to Pembina's
asset base; the amount of future liabilities related to environmental
incidents; the availability of coverage under Pembina's insurance policies
(including in respect of Pembina's business interruption insurance policy);
future acquisitions, growth and growth potential in Pembina's conventional
pipelines, oil sands & heavy oil infrastructure and midstream & marketing
operations; potential revenue and cash flow enhancement; future cash flows;
maintenance of operating margins; continued high levels of oil and gas
activity and increased oil and gas production in proximity to Pembina's
pipelines and other assets (which could be affected by, among other things,
possible changes to applicable royalty and tax regimes); additional throughput
potential on additional connections and other initiatives on the conventional
system; expected project start-up and construction dates; future
distributions, payout ratios and taxation of distributions; future financing
capability and sources; negative credit rating adjustments; the expansion of
midstream services; and the future tax treatment of the Fund and income
trusts.
    None of the forward-looking statements described above are guarantees of
future performance and they are all subject to a number of known and unknown
risks and uncertainties, including but not limited to: the impact of
competitive entities and pricing, approvals by industry partners, reliance on
key alliances and agreements, non-performance of the transportation agreements
in accordance with their terms, the strength and operations of the oil and
natural gas production industry and related commodity prices, the regulatory
environment and decisions and the inability to obtain required regulatory
approvals (including in respect of the Mitsue and Nipisi pipelines), tax laws
and treatment, fluctuations in operating results, the ability of Pembina to
raise sufficient capital (or to raise capital on favourable terms) to complete
future projects and satisfy future commitments (including in respect of the
proposed construction of the Mitsue and Nipisi pipelines and related
facilities), construction costs of the Mitsue and Nipisi Pipelines,
construction delays and labour and material shortages, and certain other risks
detailed from time to time in the Fund's public disclosure documents. The Fund
believes the expectations reflected in these forward-looking statements and
information are reasonable as of the date hereof but no assurance can be given
that these expectations will prove to be correct. Undue reliance should not be
placed on these forward-looking statements and information as both known and
unknown risks and uncertainties, including those business risks stated above,
may cause actual performance and financial results in future periods to differ
materially from any projections of future performance or results expressed or
implied by such forward-looking statements and information. Accordingly,
readers are cautioned that events or circumstances could cause results to
differ materially from those predicted. Such forward-looking statements and
information are expressly qualified by the above statements. The Fund does not
undertake any obligation to publicly update or revise any forward-looking
statements or information contained herein, except as required by applicable
laws.
    Management of the Fund approved the financial outlook contained herein as
of the date of this document. The purpose of the financial outlook contained
herein is to give the reader an indication of the value to Pembina of the
Horizon Pipeline as well as the potential effects to Unitholders of a possible
conversion of Pembina to a corporate form. Readers should be aware that the
information contained in the financial outlook contained herein may not be
appropriate for other purposes.

    consolidated balance sheets
    (unaudited)

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

    Assets
    Current assets:
      Cash                                          $    11,201  $    16,736
      Accounts receivable and other                      65,703       56,177
    -------------------------------------------------------------------------
                                                         76,904       72,913
    Property, plant and equipment                     1,678,919    1,524,887
    Goodwill and other                                  356,020      358,212
    Derivative financial instruments                      9,372       10,796
    -------------------------------------------------------------------------
                                                    $ 2,121,215  $ 1,966,808
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Unitholders' Equity
    Current liabilities:
      Accounts payable and accrued liabilities      $    56,966  $    59,485
      Distributions payable to Unitholders               17,364       15,905
      Current portion of long-term debt                  81,780        6,422
    -------------------------------------------------------------------------
                                                        156,110       81,812
    Long-term debt                                      833,305      772,364
    Convertible debentures                               41,604       47,702
    Asset retirement obligations                         82,902       62,236
    Future income taxes                                 108,649       93,957
    -------------------------------------------------------------------------
                                                      1,222,570    1,058,071
    -------------------------------------------------------------------------
    Unitholders' equity:
      Trust Units (note 6)                            1,335,264    1,320,692
      Deficit                                          (443,512)    (419,890)
      Accumulated other comprehensive income              6,893        7,935
    -------------------------------------------------------------------------
                                                        898,645      908,737
    -------------------------------------------------------------------------
                                                    $ 2,121,215  $ 1,966,808
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



    consolidated statements of earnings and deficit
    (Unaudited)

    (In thousands of dollars, except per Trust Unit amounts)
    -------------------------------------------------------------------------
                                3 Months    3 Months    9 Months    9 Months
                                   Ended       Ended       Ended       Ended
                                Sept. 30,   Sept. 30,   Sept. 30,   Sept. 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Revenues:
      Conventional pipelines   $  67,666   $  60,936   $ 197,746   $ 183,111
      Oil Sands infrastructure    21,135      17,114      51,466      47,042
      Midstream & Marketing
       business                  112,488      53,427     276,296     140,645
    -------------------------------------------------------------------------
                                 201,289     131,477     525,508     370,798
    -------------------------------------------------------------------------

    Expenses:
      Operations                  40,136      31,833     108,493      93,743
      Product purchases           84,243      32,761     196,909      82,297
      General and
       administrative              9,623       7,407      28,700      22,003
      Depreciation and
       amortization               17,981      16,877      52,576      49,341
      Accretion on asset
       retirement obligations      1,256         759       3,766       1,761
      Internalization of
       management contract         2,504       1,219       8,842       2,558
      Other                      (21,510)       (403)    (42,285)      1,590
    -------------------------------------------------------------------------
                                 134,233      90,453     357,001     253,293
    -------------------------------------------------------------------------

    Earnings before interest
     and taxes                    67,056      41,024     168,507     117,505
    Interest on long-term debt    11,498       7,688      27,986      22,003
    Interest on convertible
     debentures                      828       1,016       2,599       3,819
    -------------------------------------------------------------------------
    Earnings before taxes         54,730      32,320     137,922      91,683
    Income tax expense
     (reduction)                   6,599      (5,583)     15,097     (15,641)
    -------------------------------------------------------------------------
    Net earnings                  48,131      37,903     122,825     107,324
    Deficit, beginning of
     period                     (440,911)   (398,892)   (419,890)   (383,325)
    Distributed cash             (50,732)    (46,198)   (146,447)   (131,186)
    -------------------------------------------------------------------------
    Deficit, end of period     $(443,512)  $(407,187)  $(443,512)  $(407,187)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per Trust Unit
      Basic                    $    0.36   $    0.29   $    0.92   $    0.83
      Diluted                  $    0.35   $    0.28   $    0.91   $    0.79
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



    consolidated statement of comprehensive income
    (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,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Net earnings for the
     period                    $  48,131   $  37,903   $ 122,825   $ 107,324

    Other comprehensive
     income:

      Change in unrealized gain
       on derivative
       instruments designated
       as cash flow hedges, net
       of tax of $1.1 million
       and $0.4 million           (2,996)     (3,568)     (1,042)      5,749
    -------------------------------------------------------------------------
    Total comprehensive income $  45,135   $  34,335   $ 121,783   $ 113,073
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other
     comprehensive income:

      Opening balance, net of
       tax of $3.6 million and
       $2.9 million            $   9,889   $  14,365    $  7,935   $   5,048

      Change in unrealized
       gain on derivative
       instruments designated
       as cash flow hedges,
       net of tax of $1.1
       million and $0.4
       million                    (2,996)     (3,568)     (1,042)      5,749
    -------------------------------------------------------------------------

      Balance, end of period,
       net of tax of $2.5
       million                 $   6,893   $  10,797   $   6,893   $  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,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Cash provided by (used in):
    Operating activities:
    Net earnings               $  48,131   $  37,903   $ 122,825   $ 107,324
    Items not involving cash:
      Depreciation and
       amortization               17,981      16,877      52,576      49,341
      Accretion on asset
       retirement obligations      1,256         759       3,766       1,761
      Future income tax
       expense (reduction)         6,599      (5,583)     15,097     (15,641)
      Linefill gain              (21,588)                (42,896)
      Employee future
       benefits expense            1,083       1,282       3,244       3,841
      Trust Unit based
       compensation expense          350         397         938         883
      Other                                      426         (24)        826
    Employee future benefits
     contributions                (1,890)       (732)     (3,788)     (3,791)
    Changes in non-cash
     working capital              (1,477)        337       4,662      (3,792)
    -------------------------------------------------------------------------
    Cash flow from operations     50,445      51,666     156,400     140,752

    Financing activities:
      Bank borrowings            (14,306)     57,409     141,070     144,433
      Repayment of senior
       secured notes              (1,619)     (1,507)     (4,772)     (4,439)
      Issue of Trust Units
       on exercise of options        925       1,272       7,536       4,676
      Issue of Trust Units
       under Distribution
       Reinvestment Plan                                              47,170
      Distributions to
       Unitholders - current
       year                      (49,362)    (44,804)   (129,083)   (115,339)
      Distributions to
       Unitholders - prior year                          (15,905)    (12,622)
    -------------------------------------------------------------------------
                                 (64,362)     12,370      (1,154)     63,879

    Investing activities:
      Capital expenditures       (15,873)    (62,583)   (198,839)   (209,264)
      Proceeds on sale of
       linefill                   27,558                  54,764
      Changes in non-cash
       working capital            20,922       2,618     (16,707)      2,485
    -------------------------------------------------------------------------
                                  32,607     (59,965)   (160,781)   (206,779)
    Change in cash                18,690       4,071      (5,535)     (2,148)
    Cash (bank indebtedness),
     beginning of period          (7,489)     (4,358)     16,736       1,861
    -------------------------------------------------------------------------
    Cash (bank indebtedness),
     end of period             $  11,201   $    (287)  $  11,201   $    (287)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Other cash disclosures:
      Interest on long-term
       debt paid               $ (13,585)  $  (9,377)  $ (34,451)  $ (28,411)
      Interest capitalized     $    (509)  $  (2,673)  $  (7,648)  $  (6,137)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



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

    1.  Significant accounting policies:

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

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

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

        International Financial Reporting Standards

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

    2.  Internalization of management contract:

        Effective June 30, 2006, the Fund acquired all of the outstanding
        common shares of Pembina Management Inc. (Manager), the manager of
        the Fund. Total consideration for the transaction consisted of an
        initial cash payment of $6 million and a contingent deferred payment
        payable in 2009 that is linked to future growth in distributable cash
        per Trust Unit of the Fund. If the future cumulative distributable
        cash in the period from January 1, 2006, to December 31, 2008 does
        not exceed $3.42 per Trust Unit ($1.14 per Trust Unit per year), the
        deferred amount is zero. Every approximate 10 cent per Trust Unit
        increase in cumulative distributable cash over $3.42 per Trust Unit
        results in a $1 million increase in purchase price to a maximum of
        $15 million, which is converted into notional Trust Units based on
        the weighted-average trading price of the Trust Units for the 20
        trading days prior to June 30, 2006 of $15.87 (the "closing price").
        The purchase price will also be adjusted by the distributions payable
        on the notional Trust Units for the period from January 1, 2006 to
        December 31, 2008, and the change in the value of the Fund's Trust
        Units from the closing price. No further payments under the share
        purchase agreement are payable until 2009, however assuming the total
        2008 distributable cash is similar to that for the nine months ended
        September 30, 2008, and using the September 30, 2008 closing price of
        $16.11 per Trust Unit on the TSX as the "closing price" and assuming
        monthly distributions for the remainder of 2008 remain at the level
        of distribution for the month of September 2008, the potential
        deferred payment would be $16.5 million, of which, $4.7 million has
        been expensed in 2007 and $8.8 million has been expensed at September
        30, 2008.

        3. Business segments:

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

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

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

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

        The financial results of the business segments are as follows:

    -------------------------------------------------------------------------
                               Oil Sands &
                     Convent   Heavy Oil   Midstream &
    (in thousands     -ional     Infras-   Marketing
     of dollars)   Pipelines    tructure    Business   Corporate       Total
    -------------------------------------------------------------------------
    Three months
     ended
     September 30,
     2008
    Revenues:
      Pipeline
       transport-
       ation      $   67,666  $   21,135  $            $          $   88,801
      Terminalling,
       storage and
       hub services                          112,488                 112,488
    -------------------------------------------------------------------------
      Revenue before
       expenses       67,666      21,135     112,488                 201,289
    -------------------------------------------------------------------------

    Expenses:
      Operations      29,738       8,266       2,132                  40,136
      Product
       purchases                              84,243                  84,243
      General and
       administrative                336                   9,287       9,623
      Depreciation
       and
       amortization   12,458       3,017       2,253         253      17,981
      Accretion on
       asset
       retirement
       obligations     1,095         161                               1,256
      Internalization
       of management
       contract                                            2,504       2,504
      Other(2)                   (21,588)                     78     (21,510)
    -------------------------------------------------------------------------
                      43,291      (9,808)     88,628      12,122     134,233
    -------------------------------------------------------------------------
    Earnings before
     interest and
     taxes        $   24,375  $   30,943  $   23,860  $  (12,122) $   67,056
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Property,
     plant and
     equipment(1) $  805,962  $  703,980  $  162,939  $    6,038  $1,678,919
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill and
     other        $  207,117  $   28,300  $  120,603  $           $  356,020
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                               Oil Sands &
                     Convent   Heavy Oil   Midstream &
    (in thousands     -ional     Infras-   Marketing
     of dollars)   Pipelines    tructure    Business   Corporate       Total
    -------------------------------------------------------------------------
    Nine months
     ended
     September 30,
     2008
    Revenues:
      Pipeline
       transport-
       ation      $  197,746  $   51,466  $           $           $  249,212
      Terminalling,
       storage and
       hub services                          276,296                 276,296
    -------------------------------------------------------------------------
      Revenue before
     expenses        197,746      51,466     276,296                 525,508
    -------------------------------------------------------------------------

    Expenses:
      Operations      82,238      20,093       6,162                 108,493
      Product
       purchases                             196,909                 196,909
      General and
       administrative              1,010                  27,690      28,700
      Depreciation
       and
       amortization   35,285       9,061       7,571         659      52,576
      Accretion on
       asset
       retirement
       obligations     3,283         483                               3,766
      Internalization
       of management
       contract                                            8,842       8,842
      Other(2)                   (42,896)                    611     (42,285)
    -------------------------------------------------------------------------
                     120,806     (12,249)    210,642      37,802     357,001
    -------------------------------------------------------------------------
    Earnings before
     interest and
     taxes        $   76,940  $   63,715  $   65,654  $  (37,802) $  168,507
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Property,
     plant and
     equipment(1) $  805,962  $  703,980  $  162,939  $    6,038  $1,678,919
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill and
     other        $  207,117  $   28,300  $  120,603  $           $  356,020
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Included in property, plant and equipment are assets under
        construction for the Horizon Pipeline of $390.7 million.

    (2) Included in other for Oilsands & Heavy Oil Infrastructure segment is
        a gain on sale of Syncrude linefill of $42.9 million. This represents
        the purging and sale of 385,000 barrels of excess linefill for total
        proceeds of $54.8 million.



    -------------------------------------------------------------------------
                     Convent   Oil Sands
                      -ional     Infras-   Midstream
                   Pipelines    tructure(1) Business   Corporate       Total
    -------------------------------------------------------------------------
    Three months
     ended
     September 30,
     2007
    Revenues:
      Pipeline
       transport-
       ation      $   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                326                   7,081       7,407
      Depreciation
       and
       amortization   11,375       3,063       2,253         186      16,877
      Accretion on
       asset
       retirement
       obligations       718          41                                 759
      Internalization
       of management
       contract                                            1,219       1,219
      Other                                                 (403)       (403)
    -------------------------------------------------------------------------
                      34,678      10,729      36,963       8,083      90,453
    -------------------------------------------------------------------------
    Earnings before
     interest and
     taxes        $   26,258  $    6,385  $   16,464  $   (8,083) $   41,024
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Property,
     plant and
     equipment(1) $  780,859  $  526,802  $  123,455  $    5,329  $1,436,445
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill and
     other        $  207,768  $   28,300  $  124,249  $           $  360,317
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                     Convent   Oil Sands
                      -ional     Infras-   Midstream
                   Pipelines    tructure(1) Business   Corporate       Total
    -------------------------------------------------------------------------
    Nine months
     ended
     September 30,
     2007
    Revenues:
      Pipeline
       transport-
       ation      $  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                980                  21,023      22,003
      Depreciation
       and
       amortization   32,995       9,092       6,735         519      49,341
      Accretion on
       asset
       retirement
       obligations     1,666          95                               1,761
      Internalization
       of management
       contract                                            2,558       2,558
      Other                                                1,590       1,590
    -------------------------------------------------------------------------
                     104,208      27,962      95,433      25,690     253,293
    -------------------------------------------------------------------------
    Earnings before
     interest and
     taxes        $   78,903  $   19,080  $   45,212  $  (25,690) $  117,505
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Property,
     plant and
     equipment(1) $  780,859  $  526,802  $  123,455  $    5,329  $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.

    4.  Financial Risk Management and Financial Instruments:

        Financial risk

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

        Credit risk

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

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

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

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

        Liquidity risk

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

        ---------------------------------------------------------------------
        (in thousands of dollars)         Outstanding Balances Due By Period
        ---------------------------------------------------------------------
                                          Carrying     6 months       6 - 12
                                            Amount      or less       months
        ---------------------------------------------------------------------
        Accounts payable and accrued
         liabilities                   $    56,966  $    41,994  $    13,777
        Distributions payable to
         Unitholders                        17,364       17,364
        Long-term debt (excluding
         financing fees)(1)                921,936        3,329       78,451
        Convertible debentures              41,604
        ---------------------------------------------------------------------
                                       $ 1,037,870  $    62,687  $    92,228
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        ---------------------------------------------------------------------
        (in thousands of dollars)         Outstanding Balances Due By Period
        ---------------------------------------------------------------------
                                                                    (greater
                                             1 - 2        2 - 5      than) 5
                                             years        years        years
        ---------------------------------------------------------------------
        Accounts payable and accrued
         liabilities                   $            $            $     1,195
        Distributions payable to
         Unitholders
        Long-term debt (excluding
         financing fees)(1)                 15,128      592,229      232,799
        Convertible debentures                           41,604
        ---------------------------------------------------------------------
                                       $    15,128  $   633,833  $   233,994
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1)   $75 million of floating rate Senior Unsecured Notes are due
              June 2009. The $390 million drawn on the revolving credit
              facilities is due in July 2012 and the $175 million in fixed
              rate Senior Unsecured Notes are due in June 2014 (2 - 5 years
              period). The $81.9 million balance in fixed rate Senior Secured
              Notes are due in August 2017 and the $200 million in fixed rate
              Senior Unsecured Notes is due September 2021 ((greater than)5
              years period).

        Market risk

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

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

        Contracts used to manage market risk generally consist of swap
        contracts. These contracts consist of interest rate swaps and power
        swap hedges designated as cash flow hedges (see Note 16 in the
        December 31, 2007 Annual Report). These cash flow hedges are used to
        manage the potential increase or decrease in the price of non-
        transmission power charges and interest expense on floating rate debt
        instruments. The $60 million interest rate swap matured on June 9,
        2008. The Fund entered into new interest rate swaps of $160 million
        during the third quarter.

        The Fund's credit facilities as at September 30, 2008 consisted of an
        unsecured $500 million revolving credit facility and a $30 million
        operating line of credit. Pembina had $390 million drawn leaving $140
        of undrawn capacity. At September 30, 2008, the Fund was exposed to
        changes in interest rates on $305 million of bank borrowings.

        ---------------------------------------------------------------------
        Liquidity and Capital Resources            September 30      Dec. 31
        (in thousands of dollars)                          2008         2007
        ---------------------------------------------------------------------
        Variable rate debt
          Bank debt                                 $   390,000  $   250,000
          Senior unsecured notes                         75,000       75,000
          Variable rate debt swapped to fixed          (160,000)     (60,000)
        ---------------------------------------------------------------------
        Total variable rate debt outstanding
         (average rate of 3.91%)                        305,000      265,000
        ---------------------------------------------------------------------
        Fixed rate debt
          Senior unsecured notes                        375,000      375,000
          Senior secured notes                           81,936       86,708
          Variable rate debt swapped to fixed           160,000       60,000
        ---------------------------------------------------------------------
        Total fixed rate debt outstanding (average
         rate of 5.34%)                                 616,936      521,708
        ---------------------------------------------------------------------
        Convertible debentures                           41,604       47,702
        Total debt and debentures outstanding           963,540      834,410
        Unutilized debt capacity                        140,000      280,000
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Fund has fixed the interest rate on $160 million of variable rate
        bank borrowings through interest rate swaps. The interest rate swaps
        had a fair value of $0.4 million unrealized gain as at September 30,
        2008 and are for terms of 5 to 10 years.

        Including the interest swaps, interest rates on $616.9 million in
        Senior Secured and unsecured notes have been fixed, leaving roughly
        33% of Pembina's outstanding debt exposed to interest rate
        fluctuations.

        The Fund is also exposed to changes in the cost of power. At
        September 30, 2008, the Fund has fixed the price of non-transmission
        power charges by way of price swap contracts which expire in 2010.
        The fair value of these contracts at September 30, 2008, was an
        unrealized gain of $9 million. The power swap hedges the first 16 MW
        of power consumption each day on the conventional pipeline systems.
        Pembina's current consumption is not greater than 16 MW a day and
        hence considers its power costs fully hedged. Power costs on our oil
        sands systems are not hedged and as revenue on these pipelines is
        contracted to recover operating costs, Pembina's net operating income
        from oil sands is not impacted by fluctuations in power costs.
        Assuming a portion of the power was not hedged, every $5 change in
        the Alberta pool price will increase operating expenses by
        approximately $0.7 million.

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

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

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

        Fair values

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

        ---------------------------------------------------------------------
        (in thousands
         of dollars)              September 30, 2008       December 31, 2007
        ---------------------------------------------------------------------
                                Carrying                Carrying
                                  Amount  Fair Value      Amount  Fair Value
        ---------------------------------------------------------------------
        Long-term debt
          Senior secured
           notes              $   81,936  $   87,350  $   86,708  $   93,659
          Senior unsecured
           notes                 450,000     408,729     450,000     441,893
        Convertible debenture     41,604      57,163      47,702      67,770
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    5.  Capital Risk Management:

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

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

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

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

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

    6.  Trust Units:

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

        ---------------------------------------------------------------------
                                                    Trust Units       Amount
        ---------------------------------------------------------------------
        Balance, January 1, 2008                    132,541,536    1,320,692
        Exercise of Trust Unit options                  517,310        7,852
        Debenture conversions                           509,680        6,099
        Contributed surplus                                              621
        ---------------------------------------------------------------------
        Balance, September 30, 2008                 133,568,526  $ 1,335,264
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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 2008 was $54.4 million (2007 - $37.9 million) and for the nine
        months ended September 30, 2008 was $129.1 million (2007 -
        $107.3 million). The weighted average Trust Units outstanding for the
        third quarter of 2008 were 133,504,000 Units (2007 - 131,994,000) and
        for the nine months ended September 30, 2008 were 133,128,000 (2007 -
        129,859,000).

        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 2008 were $54.9 million
        (2007 - $38.6 million). In computing diluted earnings per Trust Unit,
        4,044,000 Trust Units (2007 - 6,212,000) were added to the weighted
        average Trust Units outstanding for the third quarter of 2008 for the
        dilutive effect of both convertible debentures and employee Trust
        Unit options. Basic and diluted earnings per Trust Unit for the third
        quarter of 2008 are $0.41 and $0.40, respectively, compared to $0.29
        and $0.28 in the third quarter of 2007, respectively.

        The diluted net earnings for the nine months ended September 30, 2008
        were $130.9 million ($2007 - $109.9 million). In computing the nine
        months ended September 30, 2008 diluted earnings per Trust Unit,
        4,387,000 Trust Units (2007 - 8,930,000) were added to the weighted
        average Trust Units for the dilutive effect of both convertible
        debentures and employee Trust Unit options. Basic and diluted
        earnings per Trust Unit for the nine months ended September 30, 2008
        are $0.97 and $0.95, respectively, compared to $0.83 and $0.79,
        respectively, in the nine months period of 2007.

        At September 30, 2008, 3,723,941 options were outstanding, of which
        2,301,052 were exercisable (September 30, 2007 - 1,802,747) at a
        weighted average price of $14.83 (September 30, 2007 - $13.72).

    -------------------------------------------------------------------------
    Pembina Pipeline Income Fund                  INVESTOR INFORMATION
    -------------------------------------------------------------------------
    Exchange Listing and                    Premium Distribution,
    Trading Symbols:                        Distribution Reinvestment and
                                            Optional Unit Purchase Plan:
    The Toronto Stock Exchange
    Trust Units Symbol: PIF.UN              Pembina offers a Premium
    7.35% Convertible Debentures 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
    Website: www.pembina.com                   average market price.

    Quarterly Results Webcast:              A brochure, detailing
                                            administration of the Plan and
    A live internet broadcast of            eligibility and enrolment
    Pembina's Third Quarter 2008            information, is available on-line
    Results conference call is              on Pembina's web site located at
    scheduled for October 30, 2008          www.pembina.com, or call
    at 11:00 a.m. Calgary (1:00 p.m.        1-888-428-3222 to receive a copy
    Eastern, 10:00 a.m. Pacific).           by mail. Unitholders wishing to
    Those wishing to access the             enroll in the Plan are asked to
    webcast are invited to visit            contact their broker, investment
    Pembina's website located at            dealer, financial institution or
    www.pembina.com, or the host            other nominee through which the
    site at www.newswire.ca/webcast.        Trust Units are held.
    An archive of the call will be
    available on-line for 90 days
    following the broadcast date.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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