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News Releases

Pembina second interim report for the six months ended June 30, 2007

PEMBINA INCREASES DISTRIBUTION FOR THE SECOND TIME IN 2007

   
    CALGARY, Aug. 1 /CNW/ -

    -   Pembina has announced a further 9 percent increase in its
        distribution to 12 cents per Trust Unit effective for the August 2007
        distribution to be paid in September 2007 to Unitholders of record on
        August 31, 2007. This follows a 10 percent increase in the monthly
        distribution rate of January this year. Significant growth in the
        distribution rate over the past two years demonstrates the solid
        performance of Pembina's premium asset base and the ongoing growth
        and development across its key business units.

    -   The Fund distributed $0.33 per Trust Unit during the second quarter
        of 2007 for total cash distributions of $42.9 million. Since
        inception of the Fund in October 1997, Pembina has distributed a
        total of $915 million to Unitholders, or $10.08 per Trust Unit, on a
        $10.00 per Trust Unit original issue price.

    -   Pembina generated net earnings of $30.9 million for the second
        quarter and $60.3 million year-to-date in 2007. This represents a
        substantial increase of 83 percent and 63 percent respectively over
        the comparable periods of 2006.

    -   The conventional pipelines contributed $60 million in revenue and
        $37 million in net operating income during the second quarter of
        2007, up by 10 percent and 16 percent, respectively, from the same
        quarter of 2006.

    -   Pembina's oil sands business segment contributed $15 million in
        revenue and $10 million in net operating income during the second
        quarter of 2007, a 12 percent and 4 percent increase from the same
        quarter of 2006. Construction activities on the Horizon Pipeline
        proceeded on schedule to meet Pembina's targeted mid-2008 completion.

    -   The midstream business unit contributed $18 million in revenue and
        $15 million in net operating income during the second quarter of
        2007, resulting in increases of 41 and 33 percent respectively over
        the same quarter of 2006.


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    HIGHLIGHTS(1)      3 Months 3 Months          6 Months 6 Months
    (in millions of       Ended    Ended             Ended    Ended
     dollars, except    June 30, June 30,     %    June 30, June 30,     %
     where noted)          2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
    Average throughput
     - conventional
     (mbbls/d)            443.8    443.5      0.1    451.6    448.9      0.6
    Contracted
     capacity
     - oil sands
     (mbbls/d)            525.0    389.0     35.0    525.0    389.0     35.0
    Total throughput
     and contracted
     volumes              968.8    832.5     16.4    976.6    837.9     16.6
    Capital
     expenditures          63.7     41.5     53.5    152.4     80.4     89.6
    Revenue(2)             93.4     80.9     15.5    189.8    162.4     16.9
    Operating
     expenses              30.7     27.7     10.8     61.9     57.3      8.0
    Net operating
     income(3)             62.7     53.2     17.9    127.9    105.1     21.7
    General &
     administrative
     expense                7.9      7.3      8.2     14.6     14.0      4.3
    Interest expense
     on long-term
     debt                   7.1      5.4     31.5     14.3     11.2     27.7
    Net earnings           30.9     16.9     82.8     60.3     37.1     62.5
    Cash flow from
     operations            42.2     26.1     61.7     89.1     70.3     26.7
    Cash distributed
     to Unitholders        42.9     34.6     24.0     85.0     68.1     24.8
      $ Per Trust
       Unit             $0.3300  $0.2850     15.8  $0.6600  $0.5700     15.8
    -------------------------------------------------------------------------
    (1) This second quarter 2007 Interim Report to Unitholders reports
        unaudited results of the Fund for the three and six months ended
        June 30, 2007.
    (2) Net of product purchases of $32.9 million in the second quarter of
        2007 ($2.6 million in the second quarter of 2006) and $49.5 million
        year-to-date ($2.6 million year-to-date 2006).
    (3) Refer to "Non-GAAP Measures" below.

    Management's Discussion and Analysis

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

    Fund Description

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

    Fund Strategy

    Pembina's principal objective is to provide a stable stream of
distributions to Unitholders that are sustainable over the long-term while
pursuing opportunities for enhancement through accretive growth. Pembina
believes the most prudent manner to achieve this objective is to maintain and
to develop assets around our hydrocarbon-liquids services business within
western Canada. Pembina plans to further develop this business through the
continuous improvement and ongoing expansion of its asset base and the
acquisition of quality energy infrastructure assets. To Pembina, "quality"
means assets that are imbued with inherent competitive advantages, which are
under long-term contract with credit-worthy customers, and either service or
are in close proximity to long-life and economic hydrocarbon reserves. This
strategy is intended to generate stable or increasing per-unit cash
distributions to Pembina's Unitholders over the long-term.
    Pembina's business is structured in three key segments: Conventional
Pipelines, Oil Sands Infrastructure and Midstream.
    The primary objective for Pembina's conventional pipeline assets is the
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 by asset rationalization. By offering
cost-effective, competitively positioned and reliable transportation services
to our customers, Pembina strives to attract new business to its conventional
pipeline systems.
    Pembina has leveraged its uniquely positioned infrastructure and
operating knowledge in the oil sands sector to pursue future opportunities in
this key development area. Pembina's existing oil sands assets, and those
currently under development, offer fully contracted and long-term returns
which provide a secure stream of stable cash flow to the Fund. The further
expansion of Pembina's business interests in this area is a priority.
    The ongoing expansion of Pembina's midstream business is a strategic
objective. Pembina continues to initiate new terminalling, storage and hub
services over segments of its conventional pipeline systems. Pembina
anticipates that this integration strategy will produce significant benefits
to both pipeline customers and to Unitholders of the Fund, by expanding the
range of services offered, extending the economic life of Pembina's
conventional asset base and by providing substantial revenue enhancement
potential.

    Results from Operations

    Conventional Pipelines

    -------------------------------------------------------------------------
                       3 Months 3 Months          6 Months 6 Months
    (in millions of       Ended    Ended             Ended    Ended
     dollars, except    June 30, June 30,     %    June 30, June 30,     %
     where noted)          2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
    Average throughput
     (mbbls/d)            443.8    443.5      0.1    451.6    448.9      0.6
    Revenue             $  60.2  $  54.7     10.1  $ 122.2  $ 111.1     10.0
    Operating expenses     22.8     22.5      1.3     47.0     45.3      3.8
    Net operating
     income(1)             37.4     32.2     16.1     75.2     65.8     14.3
    Capital
     expenditures(2)       20.8     14.9     39.6     43.8     26.9     62.8
    Operating
     expenses ($/bbl)      0.53     0.52      1.9     0.54     0.52      3.8
    Average revenue
     ($/bbl)               1.40     1.26     11.1     1.40     1.27     10.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.
    (2) Maintenance capital in 2006 has been reclassified to development
        capital for comparative purposes.

    An average of 443,800 bbls/d were transported on Pembina's conventional
pipeline systems during the second quarter of 2007 and an average of
451,600 bbls/d year-to-date 2007, marginally higher than the same periods in
2006. The Alberta pipeline systems transported an average of 421,100 bbls/d
during the second quarter of 2007 and 427,200 bbls/d year-to-date 2007,
consistent with volumes transported year-over-year. The provincially regulated
British Columbia (BC) gathering pipelines transported volumes of 30,100 bbls/d
during the second quarter of 2007 and 30,600 bbls/d year-to-date 2007, down
from 31,400 bbls/day and 32,600 bbls/d for the comparable periods of 2006.
During the second quarter of 2007 the Western system transported 22,700 bbls/d
and 24,400 bbls/d year-to-date 2007, up 32 percent and 11 percent
respectively, when compared to the same periods of 2006.
    During the second quarter, Pembina completed three new pipeline
connections and one facility upgrade on its Alberta pipeline systems. These
growth opportunities and ongoing industry development of some of Pembina's
mature service areas have offset the natural declines in conventional receipts
in recent years. Receipts on Pembina's Peace, Drayton Valley and Swan Hills
pipeline systems were lower than expected during the second quarter of 2007
due to a fire at an Edmonton refinery, the delayed startup of new connections,
seasonal road bans and scheduled maintenance. The Calven pipeline connection
and the three Nisku battery connections, which produced volumes closer to
their targeted levels, contributed to improved receipts late in the second
quarter of 2007.
    Construction of the $32 million product segregation facilities on the
Drayton Valley pipeline is nearing completion and Pembina expects this new
service to come on stream during the third quarter of this year. Pembina also
progressed work on the $25 million Peace product segregation project, which is
expected to come into service in early 2008. These product segregation
facilities will enable Pembina to maintain or enhance the stream quality and
associated product pricing.
    Shippers elected to transport a larger portion of product west on the
Western system rather than east on Pembina's Peace system which, during the
first half of 2007, contributed to the large year-over-year increases in
transported volumes on the Western system for the second quarter 2007 and
year-to-date periods. The British Columbia Utilities Commission (BCUC)
accepted, on an interim basis, Pembina's toll application effective July 1,
2007. Pembina is in discussions with shippers with respect to the interim
tolls and expects a recalculation in the third quarter. The interim tolls are
calculated in accordance with the established BCUC tolling methodology for the
Western system and Pembina expects that revenue will increase on this system
over the last half of 2007.
    The conventional systems generated revenue of $60.2 million during the
second quarter of 2007 and $122.2 million year-to-date up from $54.7 million
and $111.1 million, respectively, a year earlier. The Alberta systems earned
revenue of $53.4 million during the second quarter which was 10 percent higher
than the second quarter of 2006. Year-to-date revenue generated by the Alberta
systems was 11 percent higher than the first six months of 2006. Average
revenue per barrel on the Alberta systems of $1.39 during the first six months
of 2007 was up 14 cents per barrel from the average for the same period of
2006. Toll adjustments were implemented on certain systems at the beginning of
the year in response to higher operating and maintenance costs.

    Oil Sands Infrastructure

    -------------------------------------------------------------------------
                       3 Months 3 Months          6 Months 6 Months
    (in millions of       Ended    Ended             Ended    Ended
     dollars, except    June 30, June 30,     %    June 30, June 30,     %
     where noted)          2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
    Average throughput
     (mbbls/d)(1)         525.0    389.0     35.0    525.0    389.0     35.0
    Revenue             $  15.4  $  13.7     12.4  $  29.9  $  28.4      5.3
    Operating expenses      5.5      4.2     31.0     10.5      9.9      6.1
    Net operating
     income(2)              9.9      9.5      4.2     19.4     18.5      4.9
    Capital expenditures   42.3     16.2    161.1    107.7     42.7    152.2
    Operating expenses
     ($/bbl)(3)            0.23     0.19     21.1     0.20     0.24    (16.7)
    Average revenue
     ($/bbl)(3)            0.63     0.62      1.6     0.58     0.69    (15.9)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Contracted capacity. Actual average throughput was 268,200 bbls/d in
        the second quarter of 2007.
    (2) Refer to "Non-GAAP Measures" below.
    (3) Calculation uses actual average throughput.

    Pembina's oil sands infrastructure consists of: the Syncrude Pipeline
which provides dedicated service to Syncrude, the world's largest crude oil
producer from oil sands; the Cheecham Lateral pipeline which delivers
synthetic crude oil to a facility near Cheecham Alberta; and, the Horizon
Pipeline which is currently under construction and will provide dedicated
service to Canadian Natural Resource Limited's Horizon Project beginning
mid-2008.
    Pembina's fully contracted Syncrude Pipeline generated revenue of
$14.3 million during the second quarter of 2007, 4 percent higher than the
same quarter of the prior year. Year-to-date 2007 revenue of $27.9 million was
slightly lower than the first six months of the prior year, reflecting lower
flow-through operating costs than in 2006. Actual throughputs on the Syncrude
Pipeline averaged 268,200 bbls/d during the second quarter, 9 percent higher
than the second quarter of 2006. The Syncrude Pipeline has a transportation
capacity of 389,000 bbls/d and is fully contracted to the Syncrude owners.
Revenue on this pipeline is contracted to recover operating costs and earn a
return on invested capital, therefore is not impacted by actual pipeline
receipts.
    The Cheecham Lateral pipeline was filled and became operational during
the month of April 2007. This pipeline generated $1.2 million of revenue
during the second quarter of 2007 and has generated $2.1 million year-to-date.
    The Cheecham Lateral has a capacity of 136,000 bbls/d and is fully
contracted to shippers therefore, returns on this pipeline are not throughput
dependent.
    Construction and planning activities for the Horizon Pipeline continued
on schedule during the second quarter of 2007. Pembina began the second phase
of construction on this new pipeline service during the quarter, following
completion of the initial phase earlier in the year. Pembina is committed to
working collaboratively with its customer, Canadian Natural Resources Ltd., on
this project to ensure that the project continues on schedule. Pembina expects
completion of the second phase of construction this summer and the final phase
of construction is expected to be completed during the upcoming winter season.
Final completion is targeted for July 1, 2008. The Horizon Pipeline will have
a capacity of 250,000 bbls/d and will provide fully-contracted, exclusive
transportation service to Canadian Natural Resources Limited's Horizon Oil
Sands project, located 70 kilometres north of Fort McMurray, to Edmonton,
Alberta. Returns generated by this fully-contracted service will be
independent of actual throughput and operating costs.

    Midstream Business

    -------------------------------------------------------------------------
                       3 Months 3 Months          6 Months 6 Months
    (in millions of       Ended    Ended             Ended    Ended
     dollars, except    June 30, June 30,     %    June 30, June 30,     %
     where noted)          2007     2006   Change     2007     2006   Change
    -------------------------------------------------------------------------
    Revenue(1)          $  17.8  $  12.6     41.3  $  37.7  $  22.9     64.6
    Operating expenses      2.4      1.0    140.0     4.4       2.1    114.3
    Net operating
     income(2)             15.4     11.6     32.8    33.3      20.8     59.6
    Capital
     expenditures(3)        0.6     10.4    (94.2)    0.9      10.8    (91.7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Net of $32.9 million in product purchase expense for the second
        quarter 2007 ($2.6 million in the second quarter of 2006) and
        $49.5 million year-to-date ($2.6 million year-to-date 2006).
    (2) Refer to "Non-GAAP Measures" below.
    (3) Maintenance capital in 2006 has been reclassified to development
        capital for comparative purposes.

    Pembina's midstream business segment exploits the value inherent in our
extensive high-quality asset base while enhancing the services offered to
customers. The midstream business consists of Pembina's 50 percent
non-operated interest in the Fort Saskatchewan Ethylene Storage Facility and
the wholly-owned terminalling, storage and hub services operated across
segments of Pembina's conventional pipeline systems.
    Pembina's 50 percent interest in the Fort Saskatchewan Ethylene Storage
Facility generates fixed contracted returns over the term of an agreement that
extends through June 2023. Along with stable, long-term cash flow, this asset
provides diversification of Pembina's business into the petrochemical sector
without corresponding commodity price exposure.
    Midstream services are now offered on Pembina's Swan Hills, Cremona and
Drayton Valley pipeline systems. Substantial growth in this business segment
over the past 18 months has resulted in another material year-over-year
increase in cash flow contribution. During the second quarter of 2007,
Pembina's midstream business generated revenue and net operating income of
$18 million and $15 million respectively, representing a 41 percent and
33 percent increase over the same quarter of the prior year. Pembina expects
this upward trend in results to continue as midstream operations on the
Drayton Valley system progress to full potential over the next few months and
new projects are developed.

    Expenses

    Operating expenses totaled $30.7 million during the second quarter of
2007 and $61.9 million for the first half of the year, up from operating
expenses incurred during the same periods of 2006 of $27.7 million and
$57.3 million, respectively. Operating costs on the conventional pipeline
systems totaled $47 million during the first half of 2007, up from
$45.3 million incurred during the first half of 2006. On a per barrel of
throughput basis, operating expenses on the conventional systems averaged
53 cents for the quarter compared to 52 cents during the same quarter of 2006.
    General and administrative expenses (G&A) of $14.6 million were recorded
during the first half of 2007, $0.6 million higher than the previous year.
Market-based salary increases together with higher short-term incentives and
the introduction of a company-wide long-term incentive program in 2006 reflect
Pembina's response to competitive employment pressures. Pembina expects G&A
expenditures to approximate 11 percent of net operating income in 2007
compared to 11.8 percent in 2006.

    Cash Distributions

    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.
    The Fund declared distributions of $0.33 per Trust Unit, or $42.9 million
in aggregate during the second quarter of 2007, compared to $0.2850 per Trust
Unit, or $34.6 million in aggregate, paid in the second quarter of 2006. Under
Canadian tax laws, a component of the Fund's cash distributions are taxable in
the hands of the Unitholder, with the remaining portion a return of capital,
unless held in a tax-deferred account. Pembina estimates that 85 percent of
the distributions declared in 2007 will be taxable and 15 percent will be a
return of capital for Canadian tax purposes. For purposes of calculating the
capital gains upon disposition of the Trust Units, the amount considered a
return of capital will reduce the Unitholders' adjusted cost base of each
Trust Unit for Canadian tax purposes. Pembina's distributions are subject to
current domestic tax laws which require a withholding tax from distribution
income to non-residents of Canada.

    Cash Distributions to Unitholders

    -------------------------------------------------------------------------
                                      3 Months  3 Months  6 Months  6 Months
                                         Ended     Ended     Ended     Ended
    (in thousands of dollars,          June 30,  June 30,  June 30,  June 30,
     except where noted)                  2007      2006      2007      2006
    -------------------------------------------------------------------------
    Cash flow from operations         $ 42,180  $ 26,055  $ 89,087  $ 70,319
    Add/(deduct):
      Maintenance capital
       expenditures                                 (934)             (1,356)
      Employee future benefits
       expense                          (1,211)   (2,899)   (2,559)   (3,241)
      Employee future benefits
       contributions                     3,059     1,675     3,059     3,350
      Changes in non-cash working
       capital                           1,545     7,868     4,128    (1,574)
      Other                               (409)      (91)     (886)     (181)
    -------------------------------------------------------------------------
    Distributable cash(1)             $ 45,164  $ 31,674  $ 92,829  $ 67,317
    (Increase) decrease in
     distribution reserve             $ (2,274) $  2,893  $ (7,841) $    820
    -------------------------------------------------------------------------
    Cash distributions to
     Unitholders                      $ 42,890  $ 34,567  $ 84,988  $ 68,137
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash distributions to
     Unitholders per Trust Unit       $ 0.3300  $ 0.2850  $ 0.6600  $ 0.5700
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted cash distributions to
     Unitholders per Trust Unit       $ 0.3272  $ 0.2803  $ 0.6321  $ 0.5498
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.

    Pembina maintains a notional distribution reserve in order to ensure
stability over economic and industry cycles and to absorb the impact of
material one-time events. Therefore, not all available cash is distributed to
Unitholders but instead a portion of the Fund's distributable cash is used to
reduce bank indebtedness. Pembina's business operations and interests during
the second quarter of 2007 generated a $2.3 million increase in the
distribution reserve, resulting in a notional balance of $28.9 million at
June 30, 2007. The payout ratio for the six months ended June 30, 2007 was
92 percent, comparable to the same period of the prior year excluding the
impact of the management internalization. Pembina estimates that the full year
payout ratio will approximate 92 percent, as compared to 96 percent in 2006.
Pembina calculates the payout ratio as the percentage of distributable cash,
prior to distribution reserve adjustments, that is distributed to Unitholders.
See "Non-GAAP Measures".

    Liquidity and Capital Resources

    Pembina's bank facilities as at June 30, 2007 consisted of an unsecured
$230 million revolving credit facility and a $30 million operating line of
credit. At June 30, 2007, Pembina had $97.7 million drawn, leaving
$162.3 million of undrawn capacity on the $260 million of established
facilities. There are no repayments due over the term. Borrowings bear
interest at either prime lending rates or are based on bankers acceptances
plus applicable margins. The margins are based on the credit rating of the
senior unsecured debt of Pembina Pipeline Corporation and range from
0.50 percent to 1.50 percent. Other debt includes $89.7 million in Senior
Secured Notes due 2017, $175 million in Senior Unsecured Notes due 2014,
$75 million of Floating Rate Senior Unsecured Notes due 2009 and $200 million
in Senior Unsecured Notes due 2021. At June 30, 2007, Pembina had long-term
debt of $637.5 million (excluding transaction costs), compared to
$598.9 million (excluding transaction costs) at March 31, 2007 and
$553.4 million (excluding transaction costs) at December 31, 2006. This
long-term debt, together with $57.9 million of outstanding convertible
debentures, resulted in a ratio of debt to total enterprise value of 25
percent. This compares to a ratio of 24 percent at the end of 2006.
    Subsequent to the end of the second quarter, on July 24, 2007 the
revolving credit facilities were increased from $230 million to $500 million
for a period of five years to July 24, 2012. In addition, the $30 million
operating facility was extended to July 24, 2008.
    Net debt financing costs of $7.1 million were recorded during the second
quarter of 2007, and $14.3 million for the first half of 2007 compared with
$5.4 million and $11.2 million during the same periods of 2006. Interest rate
exposure on Pembina's floating rate debt is managed utilizing interest rate
swap instruments. At June 30, 2007, Pembina had an interest rate swap in place
on a principal amount of $60 million at an average rate of 5.2 percent and an
average term to maturity of 0.9 years, maturing in June 2008. The
mark-to-market value of the swap represented an unrealized gain of $0.3
million at June 30, 2007. Pembina has fixed interest on approximately 82
percent of its long-term debt as at the end of the second quarter of 2007 in
order to minimize exposure to rising interest rates.
    Pembina considers the maintenance of investment grade credit agency
ratings as critical to its ongoing ability to access capital markets on
attractive terms. The rating systems employed by the agencies referenced below
recognize the stable profile of Pembina's assets and financial results and the
sustainability of the per Trust Unit distributions of the Fund. The Dominion
Bond Rating Service Ltd. (DBRS) stability rating system measures the
volatility and sustainability of distributions per Trust Unit. DBRS has
assigned Pembina Pipeline Income Fund a STA-2 (low) stability rating. DBRS's
stability rating scale is from STA-1 to STA-7, with STA-1 representing the
highest rating possible, and STA-7 the lowest. Pembina Pipeline Corporation,
the Fund's primary operating subsidiary, is also rated by DBRS, which has
assigned a senior secured debt rating of 'BBB High' and a 'BBB' senior
unsecured debt rating. Standard & Poor's (S&P) rates Pembina Pipeline
Corporation as follows: 'BBB' long-term corporate credit with a stable
outlook, 'BBB plus' senior secured debt and 'BBB' senior unsecured debt. S&P
also rates the Fund and has a current rating of SR-2. According to S&P's
rating system, which rates distributable cash on a scale of SR-1 to SR-7, SR-2
rated funds are considered to have very high stability and debt instruments
rated BBB have adequate protection parameters.


    Contractual Obligations

    The Fund is committed to annual payments as follows:

    -------------------------------------------------------------------------
    ($ thousands)                           Payments Due By Period
    -------------------------------------------------------------------------
                                          Less
                                          than     1 - 3     4 - 5     After
    Contractual Obligations    Total    1 year     years     years   5 years
    -------------------------------------------------------------------------
    Office and vehicle
     leases                 $ 12,992  $  3,012  $  4,659  $  3,402  $  1,919
    Long-term debt           637,465     6,193    96,515    74,868   459,889
    Convertible debentures    57,882              57,882
    Construction
     commitments             203,647    91,262   112,385
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total contractual
     obligations            $911,986  $100,467  $271,441  $ 78,270  $461,808
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Pembina is contractually committed to the construction and the operation
of the Horizon Pipeline. Construction of the Horizon Pipeline is underway and
is currently projected to cost $350 million, with $146.4 million of that
amount expended to June 30, 2007. Pembina expects to utilize its undrawn bank
facilities to finance the remaining costs of the Horizon Pipeline.

    -------------------------------------------------------------------------
                                      3 Months  3 Months  6 Months  6 Months
                                         Ended     Ended     Ended     Ended
                                       June 30,  June 30,  June 30,  June 30,
    Capital Expenditures ($ millions)     2007      2006      2007      2006
    -------------------------------------------------------------------------
    Development capital(1)
      Conventional pipelines           $  20.8   $  14.9   $  43.8   $  26.9
      Oil Sands infrastructure            42.3      16.2     107.7      42.7
      Midstream business                   0.6      10.4       0.9      10.8
    -------------------------------------------------------------------------
    Total development capital(1)       $  63.7   $  41.5   $ 152.4   $  80.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Maintenance capital in 2006 has been reclassified to development
        capital for comparative purposes.

    During the second quarter of 2007, Pembina expended $63.7 million on
capital projects, up from $41.5 million in the same quarter last year.
Year-to-date 2007 capital spending of $152.4 million was up significantly from
$80.4 million expended during the same period of the previous year. Capital
expenditures of $20.8 million on the conventional systems during the quarter
related to new connections, system and instrumentation upgrades as well as the
Drayton Valley product segregation facilities. Oil sands spending totaled
$42.3 million in the second quarter and $107.7 million for the first half of
2007, up significantly from the $16.2 million and $42.7 million expended
during the same periods of 2006. Of the oil sands related capital expenditures
during the second quarter of 2007, $39.4 million was related to Horizon
Pipeline construction, $2.8 million was spent on the Cheecham Lateral and
$1.7 million was invested in upgrades on the Syncrude Pipeline. These
expenditures were offset by a reclassification to "other expenses" on the
statement of earnings related to the condensate project. Spending in the
midstream business segment of $0.9 million year-to-date related mainly to
operations equipment. Capital expenditures are financed utilizing Pembina's
existing credit facilities. With respect to capital expenditures on the
Cheecham Lateral pipeline, under the terms of the contract governing the
project, all capital expended over the contracted project cost of
$36.5 million is recoverable. Pembina anticipates that the Cheecham capital
recovery will be approximately $10 million. Pembina has also recovered
$5.6 million from the proposed condensate pipeline customers.

    Trust Unit and Convertible Debenture Information

    The Fund's Premium Distribution, Distribution Reinvestment and Optional
Cash Purchase Plan (DRIP) raised $24.1 million during the second quarter of
2007 through the issuance of 1,590,145 Trust Units, compared with
$20.5 million in the second quarter of 2006 through the issuance of 1,286,970
Trust Units. DRIP proceeds totaled $47.2 million through the issuance of
3,114,798 Trust Units for the first six months of 2007, up from the same
period of last year when $33.8 million was raised under the DRIP through the
issuance of 2,118,527 Trust Units. As of June 30, 2007, Pembina has prorated
its DRIP to zero as it prefers not to raise further equity investment at this
time given the increase in bank facilities offers a lower cost of financing
for the Fund. Pembina has sufficient bank facilities to fund current projects
and may resume the plan in the future should it desire to raise new equity.
    The Fund's Trust Units, together with the one remaining series of
convertible debentures, are traded on the Toronto Stock Exchange. Pembina's
7.50 percent convertible debentures matured on June 30, 2007. The remaining
balance of $0.4 million convertible debentures were converted into Trust Units
at $15.26 per Trust Unit.

    -------------------------------------------------------------------------
                                           July 30,     June 30,     June 30,
                                              2007         2007         2006
    -------------------------------------------------------------------------
    Trust Units Outstanding            131,915,247  131,388,042  122,029,824
    Average Daily Volume (Units per
     day)(1)                               191,966      251,200      240,000
    Unit Trading Price ($/Unit)         $    16.68   $    15.96   $    16.25

    Principal Amount of Debentures
     Outstanding ($millions)            $     54.6   $     60.5   $     96.1

    7.35% Convertible Debentures
     Trading Price(2)                   $   134.57   $   126.55   $   149.65
    Total Market Value of Securities
     Outstanding ($millions)            $ 2,892.40   $ 2,173.40   $  2,111.0
    -------------------------------------------------------------------------
    Pembina's convertible debentures are convertible to Trust Units at
    conversion prices of ($/Unit):
      7.35% Convertible Debentures
       maturing December 31, 2010                    $    12.50
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Based on the 20 trading days from July 1 to July 30, 2007, inclusive.
    (2) Full conversion to Trust Units of the remaining principal amount of
        the debenture issue as at July 30, 2007 would result in the issuance
        of 4.4 million Trust Units.

    As at June 30, 2007, non-resident holdings in the Fund totaled
approximately 18 percent. This level is within the 49 percent restriction on
non-resident ownership in the Fund imposed by Pembina's Declaration of Trust
and is consistent with the requirements of the Income Tax Act (Canada).

    Critical Accounting Estimates and Changes in Accounting Principles and
    Practices

    Newly issued accounting standards by the Canadian Institute of Chartered
Accountants relating to financial instruments, hedges and comprehensive income
were adopted by the Fund effective January 1, 2007. As a result of these new
standards, a new category, accumulated other comprehensive income, forms part
of Unitholders' Equity and certain unrealized gains or losses on derivatives
designated as cash flow hedges are reported in accumulated other comprehensive
income until realization.
    At June 30, 2007, accumulated other comprehensive income totaled
$14.4 million and consisted of an unrealized gain of $14.2 million, net of
future income taxes, related to a 16 MW per hour power swap with an expiry
date of December 31, 2010. The Fund also has an interest rate swap of
$60 million as at June 30, 2007 with a fair value of $0.2 million, net of
future income taxes. The new accounting standard related to hedges requires
the Fund to fair value the hedging item, with the changes recorded through
comprehensive income for any hedges designated as cash flow hedges. Hence,
there is no impact on net earnings. The Fund's interest rate and power swaps
have been designated as cash flow hedges as at June 30, 2007. The commodity
swaps have been designated as fair value hedges with changes in fair value
recognized in net earnings. As at June 30, 2007, the effect to net earnings is
negligible.
    In the second quarter of 2007, Management reviewed its estimated net
present value of its asset retirement obligations based on the potential
future liability adjusted for inflation.
    Management recognizes the fair value of an estimated asset retirement
obligation in the period in which it is incurred, when an estimate can
reasonably be made and industry practice or regulation requires removal of the
asset upon retirement. The estimated fair value is recorded as a long-term
liability with a corresponding increase in the carrying value of the property,
plant and equipment. The liability is accumulated over time through charges to
period earnings and is reduced by the actual costs incurred upon settlement.
Any difference between the actual cost incurred upon settlement and the
recorded liability is recognized as a gain or loss in the Fund's earnings.
    The total future liability (adjusted for 5 percent inflation per annum;
previously 3 percent) was revised to $346 million (2006 - $187 million)
increasing the asset retirement obligation and corresponding long-lived assets
by $29 million to a total estimated obligation of $60 million as at June 30,
2007. The increase in undiscounted future costs primarily reflects an increase
in projected above-ground facilities removal and abandonment costs and an
increase in potential environmental costs. In the second quarter of 2007,
management increased these costs to reflect an increase in demolition and
labour costs associated with preparing a facility for removal. Additionally,
potential environmental costs were also increased to reflect a more detailed
site by site analysis.
    The obligations are expected to be paid over the next 50 years with
substantially all being paid after 30 years. The fund used credit adjusted
risk free rates ranging from 5.95 percent to 7.4 percent to calculate the
present value of the asset retirement obligation.
    The recent enactment of Bill C-52 relating to trust tax has no additional
impact on the Future income tax liability. The Fund has no timing differences
other than those of its subsidiaries that are fully reflected in the Future
income tax liability and, as the tax basis of the Fund's investment in its
subsidiaries far exceeds the cost basis it is not appropriate to record the
benefit of a future tax asset of this nature.
    There were no changes in Pembina's other critical accounting estimates
and practices that affected the disclosure of or the accounting for its
operations for the quarter ended June 30, 2007. Such critical accounting
estimates are presented in Management's Discussion and Analysis for the year
ended December 31, 2006.

    New Developments and Outlook

    Pembina has been successful in attracting new business opportunities on
its conventional pipeline systems and has a number of new projects under
development on these systems. Three new pipeline connections became
operational during the second quarter and Pembina expects an additional four
new connections to come on-stream in the coming months.
    During the second quarter of 2007, Pembina began preliminary work on a
proposed pipeline project targeting Nipisi Lake and Seal area heavy oil
producers, in response to industry demand for reliable diluent and take-away
capacity from this region. The project could include a 22,000 bbls/d diluent
pipeline and a 100,000 bbls/d heavy oil diluent pipeline. The total new
capital is estimated at approximately $325 million. Should Pembina receive
shipper commitments and proceed with the project, Pembina expects to use a
combination of existing infrastructure and new facilities to provide
transportation service to and from these areas. Pembina expects to seek firm
commitments by the end of 2007, and targets a potential start-up date in 2009.
    Pembina anticipates that its midstream business will continue to
contribute significant operating income and present further opportunities for
expansion in the coming quarters. Plans to offer new services, including full
service terminals, are being explored on various pipeline systems. Pembina has
also recently executed a joint venture agreement for the construction of a
treatment and disposal facility with a partner.
    During the second quarter of 2007, Pembina continued its efforts to
effect positive amendment of the proposed trust tax legislation. In its role
as primary spokesperson for the Canadian Energy Infrastructure Group (CEIG),
Pembina made presentations before both the House of Commons Standing Committee
on Finance and the Senate. Despite the disappointing outcome, with the
legislation implementing the trust tax (Bill C-52) passed without amendment on
June 22, 2007, Pembina expects to continue to deliver on its business plan and
is reviewing options to mitigate the effect of the trust tax in 2011.
    Pembina's ability to deliver reliable distributions to its Unitholders,
which have increased historically, is supported by its stable operations and
its success at profitably developing its business. In January 2007, Pembina
implemented a 10 percent increase in its monthly distribution rate from
9.5 cents per Trust Unit to 11 cents per Trust Unit, or $1.32 on an annualized
basis. Effective with the August 2007 distribution (which is to be paid in
September 2007 to Unitholders of record on August 31, 2007), Pembina will
again increase its distribution rate by a further 9 percent to 12 cents per
Trust Unit per month, or a total of $1.44 per Trust Unit on an annual basis.
    Since our initial public offering in October 1997, Pembina has
distributed a total of $915 million, or $10.075 per Trust Unit, on a $10.00
per unit original issue price. We have met our distribution objective in each
year of our public history. Pembina has an established reputation for stable
operations and a record of consistent and growing distributions. Continuing
growth in all three of our business segments has enabled the above referenced
increase in our distribution rate and, the breadth of tangible and prospective
growth opportunities currently under development across all of our business
segments lend confidence in our continuing ability to meet our objectives.

    Risk Factors

    Management has identified the primary risk factors that could potentially
have a material impact on the financial results and operations of the Fund.
Such risk factors are presented in Management's Discussion and Analysis for
the year ended December 31, 2006, and in the Fund's Annual Information Form
for the year ended December 31, 2006. See "Additional Information" below.

    Selected Quarterly Information

    -------------------------------------------------------------------------
                                2007                       2006
    -------------------------------------------------------------------------
    (in thousands of
     dollars, except
     where noted)            Q2       Q1       Q4       Q3       Q2       Q1
    -------------------------------------------------------------------------
    Revenue(1)           93,426   96,359   88,062   85,326   80,924   81,506
    Operating expenses   30,718   31,192   32,534   29,171   27,733   29,572
    EBITDA(2)            53,676   56,271   49,626   50,261   39,554   44,732
    Cash flow from
     operations          42,180   46,907   41,111   32,430   26,055   44,264
    Net earnings         30,951   29,388   27,231   24,563   16,940   20,150

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

    Cash distributions
     to Unitholders      42,890   42,098   37,687   36,461   34,567   33,570

    Cash distributions
     to Unitholders per
     Trust Unit
      Basic              0.3300   0.3300   0.3000   0.2950   0.2850   0.2850
      Diluted            0.3272   0.3219   0.2954   0.2902   0.2803   0.2786

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


    ----------------------------------------------
                                    2005
    ----------------------------------------------
    (in thousands of
     dollars, except
     where noted)            Q4       Q3       Q2
    ----------------------------------------------
    Revenue(1)           77,644   73,100   70,120
    Operating expenses   28,520   24,480   24,763
    EBITDA(2)            45,027   44,558   40,207
    Cash flow from
     operations          17,517   34,259   23,984
    Net earnings         21,705   19,778   14,373

    Net earnings per
     Trust Unit ($/Unit):
      Basic and diluted    0.19     0.18     0.14

    Cash distributions
     to Unitholders      29,667   29,099   27,474

    Cash distributions
     to Unitholders per
     Trust Unit
      Basic              0.2625   0.2625   0.2625
      Diluted            0.2527   0.2599   0.2556

    Trust Units
     outstanding
     (thousands):
      Weighted average
       (basic)          113,019  110,845  104,660
      Weighted average
       (diluted)        128,226  128,621  126,104
      End of period     113,897  111,938  104,949
    ----------------------------------------------
    (1) Net of product purchases.
    (2) Refer to "Non-GAAP Measures" below.

    Net earnings of $30.9 million were recorded during the second quarter of
2007, compared to $16.9 million and $14.4 million over the same periods in
2006 and 2005 representing a substantial increase of 83 percent and
115 percent, respectively.
    Pembina's stable operations typically produce limited variability in
quarterly results. However, continued growth in Pembina's underlying asset
base 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.

    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.

    Non-GAAP Measures

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

    Forward-Looking Information and Statements

    The information contained in this press release contains certain
forward-looking statements and information that are based on the Fund's
current expectations, estimates, projections and assumptions in light of its
experience and its perception of historical trends. In some cases,
forward-looking statements and information can be identified by terminology
such as "may", "will", "should", "expects", "projects", "plans",
"anticipates", "targets", "believes", "strives", "estimates", "continue",
"designed", "objective", "maintain", "schedule" and similar expressions. In
particular, this press release contains forward-looking statements with
respect to: future stability and sustainability of cash distributions to
Unitholders; ongoing expansions of and additions to our asset base; future
growth and growth potential in Pembina's conventional pipelines, oil sands
infrastructure and midstream operations; potential revenue enhancement;
maintenance of operating margins; continued high levels of oil and gas
activity and increased oil and gas production in proximity to our pipelines
and other assets; additional throughput potential on additional connections
and other initiatives on our conventional system; expected project start-up
and construction dates; future distributions, payout ratios and taxation of
distributions; the future development of the condensate projects; the
expansion of midstream services; and the future tax treatment of the Fund and
income trusts. These statements are not guarantees of future performance and
are subject to a number of known and unknown risks and uncertainties,
including but not limited to, the impact of competitive entities and pricing,
reliance on key alliances and agreements, the strength and operations of the
oil and natural gas production industry and related commodity prices,
regulatory environment, tax laws and treatment, fluctuations in operating
results, the ability of Pembina to raise sufficient capital to complete future
projects and satisfy future commitments, construction delays and labour and
material shortages, and certain other risks detailed from time to time in the
Fund's public disclosure documents. The Fund believes the expectations
reflected in these forward-looking statements and information are reasonable
as of the date hereof but no assurance can be given that these expectations
will prove to be correct. Undue reliance should not be placed on these
forward-looking statements and information as both known and unknown risks and
uncertainties, including those business risks stated above, may cause actual
performance and financial results in future periods to differ materially from
any projections of future performance or results expressed or implied by such
forward-looking statements and information. Accordingly, readers are cautioned
that events or circumstances could cause results to differ materially from
those predicted. Such forward-looking statements and information are expressly
qualified by the above statements. The Fund does not undertake any obligation
to publicly update or revise any forward-looking statements or information
contained herein, except as required by applicable laws.

    consolidated balance sheets

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

    Assets
    Current assets:
      Cash                                        $              $     1,861
      Accounts receivable                              48,974         44,947
    -------------------------------------------------------------------------
                                                       48,974         46,808
    Property, plant and equipment                   1,394,201      1,257,729
    Goodwill and other                                361,705        371,667
    Derivative financial instruments (note 1)          20,097
    -------------------------------------------------------------------------
                                                  $ 1,824,977    $ 1,676,204
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Unitholders' Equity
    Current liabilities:
      Bank indebtedness                           $     4,358    $
      Accounts payable and accrued liabilities         37,329         37,411
      Distributions payable to Unitholders             14,453         12,622
      Current portion of long-term debt                 6,193          5,973
      Current portion of convertible debentures                       15,133
    -------------------------------------------------------------------------
                                                       62,333         71,139
    Long-term debt                                    623,016        547,396
    Convertible debentures                             57,882         61,679
    Asset retirement obligations                       60,265         29,889
    Future income taxes                               109,291        113,617
    -------------------------------------------------------------------------
                                                      912,787        823,720
    -------------------------------------------------------------------------
    Unitholders' equity:
      Trust Units (note 3)                          1,305,799      1,235,809
      Deficit                                        (407,974)      (383,325)
      Accumulated other comprehensive income
       (note 1)                                        14,365
    -------------------------------------------------------------------------
                                                      912,190        852,484
    -------------------------------------------------------------------------
                                                  $ 1,824,977    $ 1,676,204
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



    consolidated statements of earnings and deficit
    (Unaudited)

    (In thousands of dollars, except per Trust Unit amounts)
    -------------------------------------------------------------------------
                                3 Months    3 Months    6 Months    6 Months
                                   Ended       Ended       Ended       Ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Revenues:
      Conventional pipelines   $  60,190   $  54,685   $ 122,175   $ 111,094
      Oil Sands infrastructure    15,450      13,660      29,928      28,411
      Midstream business          50,733      15,154      87,218      25,500
    -------------------------------------------------------------------------
                                 126,373      83,499     239,321     165,005
    -------------------------------------------------------------------------

    Expenses:
      Operations                  30,718      27,733      61,910      57,305
      Product purchases           32,947       2,575      49,536       2,575
      General and administrative   7,875       7,264      14,596      13,984
      Management fee                             519                   1,027
      Depreciation and
       amortization               20,999      21,937      41,546      43,504
      Accretion on asset
       retirement obligations        594         347       1,002         698
      Internalization of
       management contract           781       6,000       1,339       6,000
      Other                          376        (146)      1,993        (173)
    -------------------------------------------------------------------------
                                  94,290      66,229     171,922     124,920
    -------------------------------------------------------------------------
    Earnings before interest
     and taxes                    32,083      17,270      67,399      40,085
    Interest on long-term debt     7,134       5,371      14,315      11,174
    Interest on convertible
     debentures                    1,378       1,880       2,803       4,440
    -------------------------------------------------------------------------
    Earnings before taxes         23,571      10,019      50,281      24,471
    Income tax reduction          (7,380)     (6,921)    (10,058)    (12,619)
    -------------------------------------------------------------------------
    Net earnings                  30,951      16,940      60,339      37,090
    Deficit, beginning
     of period                  (396,035)   (343,345)   (383,325)   (329,925)
    Distributed cash             (42,890)    (34,567)    (84,988)    (68,137)
    -------------------------------------------------------------------------
    Deficit, end of period     $(407,974)  $(360,972)  $(407,974)  $(360,972)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per Trust Unit
      Basic                    $    0.24   $    0.14   $    0.47   $    0.31
      Diluted                  $    0.24   $    0.14   $    0.45   $    0.31
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



    consolidated statement of comprehensive income
    (Unaudited)

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

    Net earnings for the period                    $   30,951     $   60,339
    Other comprehensive income:
      Unrealized gain on derivative instruments
       designated as cash flow hedges, net of
       tax of $0.5 million and $3.3 million,
       respectively                                     1,535          9,317
    -------------------------------------------------------------------------
      Total comprehensive income                   $   32,486     $   69,656
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other comprehensive income
     (note 1):
      Opening balance (net of tax of $5.2 million
       and $2.4 million)                           $   12,830     $    5,048
      Unrealized gain on derivative instruments
       designated as cash flow hedges, net of
       tax of $0.5 million and $3.3 million,
       respectively                                     1,535          9,317
    -------------------------------------------------------------------------
      Balance, end of period, net of tax of
       $5.7 million                                $   14,365     $   14,365
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



    consolidated statements of cash flows
    (Unaudited)

    (In thousands of dollars)
    -------------------------------------------------------------------------
                                3 Months    3 Months    6 Months    6 Months
                                   Ended       Ended       Ended       Ended
                                 June 30,    June 30,    June 30,    June 30,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Cash provided by (used in):
    Operating activities:
    Net earnings               $  30,951   $  16,940   $  60,339   $  37,090
    Items not involving cash:
      Depreciation and
       amortization               20,999      21,937      41,546      43,504
      Accretion on asset
       retirement obligations        594         347       1,002         698
      Future income tax
       reduction                  (7,380)     (6,616)    (10,058)    (12,619)
      Employee future benefits
       expense                     1,211       2,899       2,559       3,241
      Trust Unit based
       compensation expense          209                     486
      Other                          200          91         400         181
    Employee future benefits
     contributions                (3,059)     (1,675)     (3,059)     (3,350)
    Changes in non-cash
     working capital              (1,545)     (7,868)     (4,128)      1,574
    -------------------------------------------------------------------------
    Cash flow from operations     42,180      26,055      89,087      70,319
    Financing activities:
      Bank borrowings             40,018      17,110      87,024      43,495
      Issue cost of senior
       unsecured notes                           (29)                 (3,734)
      Repayment of senior
       secured notes              (1,479)     (1,376)     (2,932)     (2,727)
      Issue of Trust Units on
       exercise of options         1,843         350       3,404       2,525
      Issue of Trust Units under
       Distribution Reinvestment
       Plan                       24,053      20,472      47,170      33,778
      Distributions to
       Unitholders -
       current year              (42,545)    (34,356)    (70,535)    (56,544)
      Distributions to
       Unitholders - prior year                          (12,622)     (9,966)
    -------------------------------------------------------------------------
                                  21,890       2,171      51,509       6,827
    Investing activities:
      Capital expenditures       (65,230)    (41,517)   (146,682)    (80,424)
      Changes in non-cash
       working capital            (1,176)      8,491        (133)      6,208
    -------------------------------------------------------------------------
                                 (66,406)    (33,026)   (146,815)    (74,216)
    Change in cash                (2,336)     (4,800)     (6,219)      2,930
    Cash (bank indebtedness),
     beginning of period          (2,022)        419       1,861      (7,311)
    -------------------------------------------------------------------------
    Bank indebtedness,
     end of period             $  (4,358)  $  (4,381)  $  (4,358)  $  (4,381)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Other cash disclosures:
      Interest on long-term
       debt paid               $  (9,083)  $  (8,980)  $ (19,034)  $ (13,582)
      Interest on convertible
       debentures paid         $  (2,581)  $  (3,547)  $  (2,581)  $  (3,786)
      Interest capitalized     $  (2,286)  $  (1,490)  $  (3,464)  $  (2,714)
      Taxes paid               $           $    (204)  $           $    (419)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



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

    1.  Significant accounting policies:

        The interim consolidated financial statements of Pembina Pipeline
        Income Fund ("the Fund") have been prepared by management in
        accordance with Canadian generally accepted accounting principles for
        non rate-regulated entities. The interim consolidated financial
        statements have been prepared following the same accounting policies
        and methods of computation as the consolidated financial statements
        for the fiscal year ended December 31, 2006 with the exception of
        accounting policies relating to newly issued accounting standards by
        the Canadian Institute of Chartered Accountants. The disclosure
        provided below is incremental to that included with the annual
        consolidated financial statements. The interim consolidated financial
        statements should be read in conjunction with the Fund's consolidated
        financial statements and the notes thereto for the year ended
        December 31, 2006. Certain of the prior period's comparative figures
        have been reclassified to conform with the current period's
        presentation.

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

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

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

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

        On January 1, 2007, cash flow hedge derivatives were measured at fair
        value. The portion of the fair value that offset the fair value of
        the hedged item totaled $7.4 million ($5.0 million after tax) and was
        recorded in opening accumulated other comprehensive income.

        At June 30, 2007, accumulated other comprehensive income totaled
        $14.4 million and consisted of an unrealized gain of $14.2 million,
        net of future income taxes, related to a 16 MW per hour power swap
        with an expiry date of December 31, 2010. The Fund also has an
        interest rate swap of $60 million as at June 30, 2007 with an
        unrealized gain of $0.2 million, net of future income taxes.

        Effective January 1, 2007, the Fund reclassified transaction costs
        (deferred financing fees) related to long-term debt previously
        disclosed in "goodwill and other" to "long-term debt". These
        reclassified costs amount to $8.3 million as at June 30, 2007.

    2.  Business segments:

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

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

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

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

        The financial results of the business segments are as follows:

        ---------------------------------------------------------------------
                                           Oil Sands
                            Conventional     Infras-   Midstream
                               Pipelines  tructure(1)   Business       Total
        ---------------------------------------------------------------------
        Three months ended
         June 30, 2007
        Revenues:
          Pipeline
           transportation     $   60,190  $   15,450  $           $   75,640
          Terminalling,
           storage and
           hub services                                   50,733      50,733
        ---------------------------------------------------------------------
          Revenue before
           expenses               60,190      15,450      50,733     126,373
        ---------------------------------------------------------------------

        Expenses:
          Operations              22,846       5,499       2,373      30,718
          Product purchases                               32,947      32,947
          General and
           administrative          7,548         327                   7,875
          Depreciation and
           amortization           15,711       3,045       2,243      20,999
          Accretion on asset
           retirement
            obligations              566          28                     594
          Internalization of
           management contract       781                                 781
          Other                      376                                 376
        ---------------------------------------------------------------------
                                  47,828       8,899      37,563      94,290
        ---------------------------------------------------------------------
        Earnings before
         interest and taxes   $   12,362  $    6,551  $   13,170  $   32,083
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Property, plant and
         equipment            $  785,583  $  487,777  $  120,841  $1,394,201
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Goodwill and other    $  208,244  $   28,300  $  125,161  $  361,705
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------



        ---------------------------------------------------------------------
                                           Oil Sands
                            Conventional     Infras-   Midstream
                               Pipelines  tructure(1)   Business       Total
        ---------------------------------------------------------------------
        Six months ended
         June 30, 2007
        Revenues:
          Pipeline
           transportation     $  122,175  $   29,928  $           $  152,103
          Terminalling,
           storage and hub
           services                                       87,218      87,218
        ---------------------------------------------------------------------
          Revenue before
           expenses              122,175      29,928      87,218     239,321
        ---------------------------------------------------------------------

        Expenses:
          Operations              46,962      10,496       4,452      61,910
          Product purchases                               49,536      49,536
          General and
           administrative         13,942         654                  14,596
          Depreciation and
           amortization           31,035       6,029       4,482      41,546
          Accretion on asset
           retirement
           obligations               948          54                   1,002
          Internalization of
           management contract     1,339                               1,339
          Other                    1,993                               1,993
        ---------------------------------------------------------------------
                                  96,219      17,233      58,470     171,922
        ---------------------------------------------------------------------
        Earnings before
         interest and taxes   $   25,956  $   12,695  $   28,748  $   67,399
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Property, plant
         and equipment        $  785,583  $  487,777  $  120,841  $1,394,201
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Goodwill and other    $  208,244  $   28,300  $  125,161  $  361,705
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Included in property, plant and equipment are assets under
            construction for the Horizon Pipeline of $146.4 million.



        ---------------------------------------------------------------------
                                           Oil Sands
                            Conventional     Infras-   Midstream
                               Pipelines    tructure    Business       Total
        ---------------------------------------------------------------------
        Three months ended
         June 30, 2006
        Revenues:
          Pipeline
           transportation     $   54,685  $   13,660  $           $   68,345
          Terminalling,
           storage and hub
           services                                       15,154      15,154
        ---------------------------------------------------------------------
          Revenue before
           expenses               54,685      13,660      15,154      83,499
        ---------------------------------------------------------------------

        Expenses:
          Operations              22,483       4,206       1,044      27,733
          Product purchases                                2,575       2,575
          General and
           administrative          6,474         314         476       7,264
          Management fee             519                                 519
          Depreciation and
           amortization           17,222       2,543       2,172      21,937
          Accretion on asset
           retirement
           obligations               330          17                     347
          Internalization
           of management
           contract                6,000                               6,000
          Other                     (146)                               (146)
        ---------------------------------------------------------------------
                                  52,882       7,080       6,267      66,229
        ---------------------------------------------------------------------
        Earnings before
         interest and taxes   $    1,803  $    6,580  $    8,887  $   17,270
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Property, plant
         and equipment        $  750,900  $  336,328   $ 122,124  $1,209,352
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Goodwill and other    $  211,758  $   28,300  $  128,807  $  368,865
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------



        ---------------------------------------------------------------------
                                           Oil Sands
                            Conventional     Infras-   Midstream
                               Pipelines    tructure    Business       Total
        ---------------------------------------------------------------------
        Six months ended
         June 30, 2006
        Revenues:
          Pipeline
           transportation     $  111,094  $   28,411  $           $  139,505
          Terminalling,
           storage and
           hub services                                   25,500      25,500
        ---------------------------------------------------------------------
          Revenue before
           expenses              111,094      28,411      25,500     165,005
        ---------------------------------------------------------------------

        Expenses:
          Operations              45,293       9,891       2,121      57,305
          Product purchases                                2,575       2,575
          General and
           administrative         12,495         628         861      13,984
          Management fee           1,027                               1,027
          Depreciation
           and amortization       34,019       5,019       4,466      43,504
          Accretion on asset
           retirement obligations    664          34                     698
          Internalization
           of management
           contract                6,000                               6,000
          Other                     (173)                               (173)
        ---------------------------------------------------------------------
                                  99,325      15,572      10,023     124,920
        ---------------------------------------------------------------------
        Earnings before
         interest and taxes   $   11,769  $   12,839  $   15,477  $   40,085
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Property, plant
         and equipment        $  750,900  $  336,328  $  122,124  $1,209,352
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Goodwill and other    $  211,758  $   28,300  $  128,807  $  368,865
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    3.  Trust Units:

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

        ---------------------------------------------------------------------
                                                     Trust Units      Amount
        ---------------------------------------------------------------------
        Balance, January 1, 2006                     113,897,002  $1,073,537
        Exercise of Trust Unit options                   276,317       3,271
        Debenture conversions                          7,131,696      81,227
        Distribution Reinvestment Plan                 4,912,873      76,639
        Contributed surplus                                            1,135
        ---------------------------------------------------------------------
        Balance, December 31, 2006                   126,217,888   1,235,809
        Exercise of Trust Unit options                   261,625       3,404
        Debenture conversions                          1,793,731      18,993
        Distribution Reinvestment Plan                 3,114,798      47,170
        Contributed surplus                                              423
        ---------------------------------------------------------------------
        Balance, June 30, 2007                       131,388,042  $1,305,799
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The net earnings per Trust Unit are based on earnings available to
        Unitholders and the weighted average Trust Units outstanding for the
        period. The earnings available to Unitholders for the second quarter
        of 2007 was $30.9 million (2006 - $16.9 million) and for the six
        months ended June 30, 2007 was $60.3 million (2006 - $37.1 million).
        The weighted average Trust Units outstanding for the second quarter
        of 2007 were 129,966,000 Units (2006 - 121,289,000) and for the six
        months ended June 30, 2007 were 128,774,000 (2006 - 123,576,000).

        The diluted earnings per Trust Unit are based on net earnings and the
        weighted average Trust Units outstanding adjusted for the dilutive
        effect of convertible debentures and employee Trust Unit options. The
        diluted net earnings for the second quarter of 2007 were
        $30.9 million (2006 - $16.9 million). In computing diluted earnings
        per Trust Unit, 468,000 Trust Units (2006 - 274,000) were added to
        the weighted average Trust Units outstanding for the second quarter
        of 2007 for the dilutive effect of employee Trust Unit options since
        the effect of convertible debentures was anti-dilutive. Both basic
        and diluted earnings per Trust Unit are $0.24 for the second quarter
        of 2007 and $0.14 in 2006. Year-to-date 2007, the diluted net
        earnings were $63.1 million (2006 - $37.1 million) as the effect on
        earnings of convertible debentures was dilutive (anti-dilutive for
        year-to-date 2006). In computing year-to-date diluted earnings per
        Trust Unit, 10,106,000 Trust Units (2006 - 349,000) were added to the
        weighted average Trust Units outstanding for the dilutive effect of
        convertible debentures and employee Trust Unit options (2006 - only
        the options were dilutive). Basic earnings per Trust Unit was $0.47
        for six months ended June 30, 2007 while diluted earnings per Trust
        Unit was $0.45. Both basic and diluted earnings per Trust Unit are
        $0.31 for the six months ended June 30, 2006. At June 30, 2007,
        4,077,989 options were outstanding, of which 1,804,056 were
        exercisable (June 30, 2006 - 989,350) at a weighted average price of
        $13.62 (June 30, 2006 - $12.06).

    4.  Internalization of management contract:

        Effective June 30, 2006, the Fund acquired all of the outstanding
        common shares of Pembina Management Inc. (Manager), the manager of
        the Fund. Total consideration for the transaction consisted of an
        initial cash payment of $6 million and a contingent deferred payment
        payable in 2009 that is linked to future growth in distributable cash
        per Trust Unit of the Fund. If the future cumulative distributable
        cash in the period from January 1, 2006, to December 31, 2008 does
        not exceed $3.42 per Trust Unit ($1.14 per Trust Unit per year), the
        deferred amount is zero. Every approximate 10 cent per Trust Unit
        increase in cumulative distributable cash over $3.42 per Trust Unit
        results in a $1 million increase in purchase price to a maximum of
        $15 million, which is converted into notional Trust Units based on
        the weighted-average trading price of the Trust Units for the 20
        trading days prior to June 30, 2006 of $15.87 (the closing price).
        The purchase price will also be adjusted by the distributions payable
        on the notional Trust Units for the period January 1, 2006 to
        December 31, 2008, and the change in the value of the Fund's Trust
        Units from the closing price. No further payments under the share
        purchase agreement are payable until 2009, however assuming the 2007
        and 2008 distributable cash is similar to the period January 1, 2006
        to June 30, 2007 levels, the potential deferred payment would be
        $5.4 million of which $1.3 million has been expensed at June 30,
        2007.

    5.  Subsequent event;

        On July 24, 2007, the revolving credit facilities of Pembina Pipeline
        Corporation were increased from $230 million to $500 million for a
        period of five years to July 24, 2012. There are no repayments due
        over the term. In addition, the $30 million operating facility was
        extended to July 24, 2008. Borrowings bear interest at either prime
        lending rates or 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.

    -------------------------------------------------------------------------
    Pembina Pipeline Income Fund                  INVESTOR INFORMATION
    -------------------------------------------------------------------------
    Exchange Listing and                   Premium Distribution,
    Trading Symbols:                       Distribution Reinvestment and
                                           Optional Unit Purchase Plan(1):
    The Toronto Stock Exchange
    Trust Units Symbol: PIF.UN             Pembina offers a Premium
    7.35% Convertible Debentures           Distribution, Distribution
     Symbol: PIF.DB.B                      Reinvestment and Optional Unit
                                           Purchase Plan to eligible
                                           Unitholders of Pembina Pipeline
                                           Income Fund.
    Trustee, Registrar and
     Transfer Agent:                       The Plan allows participants an
                                           opportunity to:
    Computershare Trust Company
     of Canada                             -   reinvest distributions into
    Shareholder Communications:                Trust Units at a 5 percent
    1-800-564-6253                             discount to a weighted
                                               average market price, under
    Corporate Office:                          the distribution
                                               reinvestment component of
    700 - 9th Avenue S.W.                      the Plan; or,
    P.O. Box 1948
    Calgary, Alberta T2P 2M7               -   realize 2 percent more cash
    Telephone: (403) 231-7500                  on their distributions,
    Fax: (403) 237-0254                        under the premium
                                               distribution component of
    Investor Information:                      the Plan;

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

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

    %SEDAR: 00008906E
For further information: Ms. Glenys Hermanutz, Vice President, Corporate
Affairs, Pembina Pipeline Corporation, (403) 231-7500, 1-888-428-3222, email:
investor-relations@pembina.com