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News Releases

Pembina Pipeline Income Fund fourth interim report for the twelve months ended December 31, 2005

PEMBINA REPORTS A RECORD BREAKING QUARTER, A RECORD BREAKING YEAR

    -   Pembina achieved its highest ever level of quarterly revenue and net
        operating income in the fourth quarter of 2005. Fourth quarter 2005
        revenue of $77.2 million was up 7 percent from the $71.8 million
        generated in the fourth quarter of 2004. Net operating income of
        $48.7 million for the fourth quarter, and $184.2 million for the
        twelve months of 2005, were 5 percent and 6 percent higher,
        respectively, than the same periods of 2004. The year over year
        increase resulted from improved operating margins on Pembina's
        conventional pipeline systems and the positive impact of the new
        midstream business initiatives.

    -   The Fund distributed $0.2625 per Trust Unit ($0.0875 per month)
        during the fourth quarter for total cash distributions of
        $29.7 million. For the twelve months ending December 31, 2005, cash
        distributions totaled $113.5 million, a 7 percent increase over the
        same period of 2004.

    -   During the fourth quarter, Pembina announced that it will increase
        its distribution rate, effective January 2006, by 9 percent to
        9.5 cents per month, or $1.14 annually, up from the 8.75 cents per
        month, or $1.05 annually paid since 2001. The announcement came
        following the favourable resolution of the tax-related tolling
        dispute with AOSPL shippers. Strong operating results from Pembina's
        conventional pipelines, together with incremental revenue generated
        by new midstream business initiatives and ongoing expansion of
        Pembina's oil sands related assets, has generated a significant and
        sustainable increase in cash flow that will support the new level of
        cash distribution.

    -   In 2005, receipts on Pembina's conventional pipelines, for the first
        time in several years, showed no decline. Pembina successfully offset
        natural production declines on the conventional systems as
        incremental volumes at several new connections came onstream and
        facility upgrades enhanced pipeline receipts. Pembina's conventional
        pipelines transported an average of 441,200 barrels per day during
        the fourth quarter of 2005, a slight increase over the 439,700
        barrels per day transported during the same period of 2004. The AOSPL
        system earned revenue based on contracted capacity of 389,000 barrels
        per day during the quarter, and transported an average of 230,700
        barrels per day.

    -   During the quarter, Pembina announced a project created to oversee
        the potential development and construction of the Spirit Pipeline,
        designed to transport up to 100,000 barrels per day of imported
        condensate from Kitimat, British Columbia to Edmonton, Alberta. The
        proposed project, estimated to cost $1 billion, would make extensive
        use of existing infrastructure and could be ready for service by late
        2008.

    <<
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    HIGHLIGHTS(1)
                                            ---------------------------------
    ($ millions except where noted)               2005       2004   % Change
    -------------------------------------------------------------------------

    Three months ended December 31

    Average Throughput - Conventional
     (mbbls/day)                                 441.2      439.7        0.3
    Contracted Capacity - AOSPL
     (mbbls/day)(2)                              389.0      389.0          -
    Revenue                                       77.2       71.8        7.5
    Operating Expenses                            28.5       25.3       12.8
    Net Operating Income(2)                       48.7       46.6        4.5
    General & Administrative Expense               4.0        3.6       13.4
    Interest Expense                               5.2        6.5      (19.0)
    Distributed Cash(3)                           29.7       26.9       10.2
      $ Per Trust Unit                         $0.2625    $0.2625          -
    -------------------------------------------------------------------------

    Year ended December 31

    Average Throughput - Conventional
     (mbbls/day)                                 435.4      435.0        0.1
    Contracted Capacity - AOSPL
     (mbbls/day)(2)                              389.0      303.7       28.1
    Revenue                                      286.9      278.3        3.1
    Operating Expenses                           102.7      105.0       (2.2)
    Net Operating Income(2)                      184.2      173.3        6.3
    General & Administrative Expense              16.8       14.2       18.4
    Interest Expense                              23.9       24.1       (1.1)
    Distributed Cash(3)                          113.5      106.2        6.9
      $ Per Trust Unit                           $1.05      $1.05          -
    -------------------------------------------------------------------------
    (1) This fourth quarter 2005 Interim Report to Unitholders reports
        unaudited results of the Fund for the quarter and twelve months ended
        December 31, 2005. Pembina expects to release the 2005 audited
        results in mid-March 2006 and expects no material variation from the
        unaudited results presented herein.
    (2) AOSPL contracted capacity increased from 275 mbbls/day to
        389 mbbls/day at September 30, 2004. The 2004 value represents a
        weighted average available capacity for the year.
    (3) Refer to "Non-GAAP Measures" below.


    Management's Discussion and Analysis

This Management's Discussion and Analysis (MD&A) is dated February 1, 2006 and is supplementary to, and should be read in conjunction with, the unaudited comparative interim financial statements and notes of Pembina Pipeline Income Fund (the Fund) as at and for the three and twelve months ended December 31, 2005, along with the Fund's Management's Discussion and Analysis and audited financial statements and notes for the years ended December 31, 2004 and 2003.

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.

Fund Description

Pembina Pipeline Income Fund is among the predominant issuers in the Canadian energy infrastructure trust sector. Pembina's extensive network of conventional liquids feeder pipelines, oil sands transportation infrastructure and midstream operations provide an integral service to the western Canadian energy industry.

Pembina Pipeline Income Fund, an unincorporated open-ended trust, pays monthly cash distributions to Unitholders. Pembina's publicly-traded securities trade on the Toronto Stock Exchange under the symbols: PIF.UN - Trust Units; PIF.DB, PIF.DB.A, and PIF.DB.B - convertible debentures. Pembina's corporate head office is located in Calgary, Alberta.

Fund Strategy

Pembina's principal objective is to provide stable distributions to Unitholders that are sustainable over the long term while pursuing opportunities for accretive growth. Pembina employs a portfolio strategy and has, over the past eight years, developed a diversified base of long-life energy infrastructure in distinct segments: conventional pipeline systems, contract-based oil sands infrastructure and midstream business. The targeted balance of contract-based and flexible toll-based revenue, along with even exposure across the light end of the petroleum liquids spectrum, supports the stability and sustainability of results that characterizes Pembina's operations.

    Results from Operations
    -------------------------------------------------------------------------
                                                   Oil
                                 Conventional     Sands      Mid-
    ($ millions except            Pipelines       Pipe-    stream(3)
     where noted)             Alberta     BC(1)  lines(2)  Business    Total
    -------------------------------------------------------------------------
    Three months ended December 31
    2005
    Throughput (mbbls/day)     417.1      24.1     389.0         -     830.2
    Revenue                  $  46.6   $   6.5   $  15.3   $   8.8   $  77.2
    Operating expenses          17.8       3.8       5.6       1.3      28.5
    Net operating income(4)     28.9       2.7       9.6       7.5      48.7
    Capital expenditures        17.9       3.8       2.7       2.6      27.0
    Operating expenses
     ($/bbl)(5)                 0.46      0.77      0.27         -      0.42
    Average revenue
     ($/bbl)(5)                 1.21      1.30      0.72         -      1.06
    -------------------------------------------------------------------------
    2004
    Throughput (mbbls/day)     415.5      24.2     389.0         -     828.7
    Revenue                  $  46.4   $   7.5   $  12.8   $   5.1   $  71.8
    Operating expenses          16.4       4.7       3.4       0.8      25.3
    Net operating income(4)     30.1       2.8       9.3       4.4      46.6
    Capital expenditures         9.9       2.5       2.6       0.2      15.2
    Operating expenses
     ($/bbl)(5)                 0.43      0.89      0.16         -      0.38
    Average revenue
     ($/bbl)(5)                 1.21      1.43      0.60         -      1.03
    -------------------------------------------------------------------------
    Twelve months ended December 31
    2005
    Throughput (mbbls/day)     411.6      23.8     389.0         -     824.4
    Revenue                  $ 180.4   $  25.3   $  55.5   $  25.7   $ 286.9
    Operating expenses          65.4      15.0      18.5       3.8     102.7
    Net operating income(4)    115.0      10.3      37.0      21.9     184.2
    Capital expenditures        44.1      11.3       7.0      17.1      79.5
    Operating expenses
     ($/bbl)(5)                 0.44      0.74      0.23         -      0.40
    Average revenue
     ($/bbl)(5)                 1.20      1.24      0.69         -      1.04
    -------------------------------------------------------------------------
    2004
    Throughput (mbbls/day)     409.5      25.5     303.7         -     738.7
    Revenue                  $ 174.8   $  28.3   $  54.1   $  21.1   $ 278.3
    Operating expenses          65.8      17.6      18.1       3.5     105.0
    Net operating income(4)    109.1      10.7      35.9      17.6     173.3
    Capital expenditures        18.8       8.8      30.1       0.3      58.0
    Operating expenses
     ($/bbl)(5)                 0.44      0.80      0.20         -      0.39
    Average revenue
     ($/bbl)(5)                 1.17      1.29      0.61         -      0.99
    -------------------------------------------------------------------------
    (1) Represents volume transported on the Western system only. BC
        production transported east is included in Alberta pipelines' total.
        All other metrics include both Western and BC gathering system
        results.
    (2) Results include only AOSPL with the exception of capital expenditures
        which includes $0.8 million for Cheecham in the fourth quarter 2005
        and $2.2 million in 2005; and $1.1 million for Horizon in both the
        fourth quarter and the full year 2005. AOSPL contracted capacity is
        reported as results are independent of throughput. AOSPL throughput
        averaged 230.7 mbbls/day for the three months ending December 31,
        2005 and 218.7 mbbls/day for the twelve months ending December 31,
        2005. The 2004 value represents the weighted average available
        capacity for the year.
    (3) Revenue generated by the terminalling, storage and hub services was
        included in Alberta pipelines for the third quarter of 2005, as the
        amount was not material. Beginning in the fourth quarter 2005,
        midstream business results includes both the ethylene storage
        facility and the terminalling, storage and hub services.
    (4) Refer to "Non-GAAP Measures" below.
    (5) Excludes midstream business results. Based on AOSPL actual throughput
        rather than contracted capacity.

    Conventional Systems

Pembina transported an average of 441,200 barrels per day (bpd) on its conventional pipeline systems during the fourth quarter of 2005, up from 435,200 bpd during the third quarter of 2005 and 439,700 bpd during the fourth quarter of 2004. Conventional throughput averaged 435,400 bpd for 2005, up slightly from the 435,000 transported during 2004. Some maintenance programs on connected facilities which normally occur in the second quarter extended into the beginning of the third quarter in 2005 due to unusually wet summer weather. These seasonal factors that had continued to limit production somewhat during the beginning of the third quarter were alleviated as cooler fall weather set in, contributing to higher throughput levels during the last quarter of the year. The conventional systems generated revenue of $53.1 million during the fourth quarter of 2005, down slightly compared to the same period of 2004, due to lower operating costs and capital expenditures on the BC systems which flow through to revenue. During 2005, the conventional systems generated revenue of $205.7 million, compared to the $203.1 million earned in 2004. Pembina employs a combination of toll management, asset rationalization and cost control to maintain operating margins on its conventional systems. Further, Pembina endeavors to offset natural production declines in its service areas by offering reliable and cost-effective transportation service to attract new volumes to its conventional pipeline systems.

Alberta Pipelines

During the fourth quarter of 2005, Pembina's Alberta pipeline systems transported an average of 417,100 bpd, up from the 409,700 bpd shipped during the third quarter of 2005, and the 415,500 bpd during the fourth quarter of 2004. Average daily throughput for the full year 2005 was 411,600 bpd compared to 409,500 bpd transported during the same period of 2004. Volumes increased over the third quarter of 2005 as lingering seasonal issues abated and expected new volumes came on stream. The Alberta systems generated $46.6 million in revenue during the quarter, consistent with the $46.4 million recorded in the fourth quarter of 2004. Total revenue generated by the Alberta systems for 2005 of $180.4 million was 3 percent higher than 2004 revenue of $174.8 million. Fourth quarter average revenue of $1.21 per barrel on the Alberta systems remained flat compared to the same quarter 2004. The average for the twelve months ended December 31, 2005 was $1.20 per barrel, up from $1.17 per barrel in 2004.

The last of three new connections on the Pembina system was mechanically completed by the end of the fourth quarter. These three receipt points, connecting production derived from renewed industry development of the Nisku zone, have been sized to meet the producer-requested handling capacity of up to 36,000 bpd. Certain operational delays in the commissioning of these connections and regional issues surrounding the handling of high sulfur product delayed first receipt of product from two of these facilities to early 2006.

A new natural gas liquids pipeline interconnection between the Peace and Northern pipelines was completed and commissioned late in the fourth quarter of 2005. This new pipeline enables the movement of product off of the Peace system onto the Northern system, freeing-up 25,000 bpd of carrying capacity on the south leg of the Peace system. This capacity will be available to transport NGL production that is projected to increase in northwestern Alberta in 2006.

Several major facility upgrades are currently under development on the Peace system with the combined potential to add incremental volume of 5,000 bpd by mid-2006. Included in these developments is a new connection with potential to add 2,500 bpd that is expected to be on stream by early 2006. Connection of the Calven Pipeline is now scheduled for completion in early 2006, revised from the original late 2005 schedule as a result of operational delays. This connection is estimated to add an incremental 18,000 to 20,000 bpd on start-up with another 3,500 bpd in the latter half of 2006.

BC Pipelines

Throughput on the BC pipelines during both the fourth quarter and the twelve months ended December 31, 2005 was down slightly compared to the same periods of 2004 due largely to natural production decline in the service areas. During the fourth quarter of 2005, throughput on the BC gathering systems averaged 30,300 bpd, 8 percent lower than the 32,800 bpd shipped during the same period of 2004, and 3 percent lower than the 31,200 bpd shipped during the third quarter of this year. The BC gathering systems averaged 32,000 bpd of throughput during 2005, compared to 34,600 bpd during the same period of 2004. Returns on the provincially regulated BC gathering systems are independent of volume transported. Throughput on the Western system averaged 24,100 bpd during the fourth quarter of 2005, consistent with the 24,200 bpd in the same period of 2004, but down compared to the 25,500 bpd transported during the third quarter of this year. Throughput was somewhat restricted in the fourth quarter of 2005, due to a 10 day planned maintenance on the Western system. Pembina utilized storage capacity and diversion of volumes to its Alberta pipelines to minimize the impact of this work. During the outage, the northern half of the pipeline was internally inspected, and upgrade work at the Taylor hub was completed. The Western system averaged 23,800 bpd of throughput during 2005, compared to 25,500 bpd during the same period of 2004.

Revenues on the provincially regulated BC gathering systems are based on a cost of service methodology with tolls designed to recover operating costs and earn a return on capital invested. Average revenue on the BC systems was $1.30 per barrel during the fourth quarter, up compared to $1.10 per barrel during the third quarter of the year but lower than the $1.43 per barrel generated during the fourth quarter of 2004 when recoveries of significant one-time maintenance projects temporarily inflated the average. For the year ending December 31, 2005, average revenue was $1.24 per barrel, compared to $1.29 per barrel during 2004.

    Oil Sands Pipelines

    AOSPL

AOSPL generated revenues of $15.3 million during the fourth quarter of 2005, consistent with the $15.0 million generated during the third quarter of this year, and up 19 percent from the $12.8 million during the fourth quarter of 2004. During 2005, AOSPL generated revenue of $55.5 million, compared to $54.1 million during 2004. AOSPL contract-based revenue recovers operating costs and earns a return on the capital invested to provide the contracted capacity, therefore is not impacted by throughput levels. 2005 was the first full year of operations since the completion of the AOSPL expansion in September 2004 that increased the contracted capacity from 275,000 bpd to 389,000 bpd. AOSPL throughput volumes averaged 230,700 bpd and 218,700 bpd during the fourth quarter and the full year of 2005, respectively. This compares to throughput of 232,400 bpd during the fourth quarter of 2004 and 243,600 bpd for the full year of 2004.

    Midstream Business Unit

    Ethylene Storage

The ethylene storage facility continued to generate stable returns throughout 2005, contributing revenue of $5.5 million during the fourth quarter of 2005, and $21.5 million during the twelve months ended December 31, 2005. This compares to $5.1 million and $21.1 million during the same periods of 2004, respectively. Pembina's 50 percent interest in the Fort Saskatchewan Ethylene Storage Facility generates fixed contracted returns over the term of the 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.

Terminalling, Storage and Hub Services

Pembina continued to develop its terminalling, storage and hub services during the fourth quarter of 2005. The Joint Venture with Keyera Energy, announced earlier this year, is expected to be fully operational in the first quarter of 2006. Under this Joint Venture, Pembina has facilitated the development of terminalling, storage and hub services on the Swan Hills system. In addition, Pembina initiated similar services on the Cremona system during the fourth quarter. These combined activities contributed $3.8 million in operating income during 2005.

Expenses

Operating expenses totaled $28.5 million during the fourth quarter of 2005, compared to $25.3 million incurred during the fourth quarter of 2004. For 2005, operating costs were 2 percent lower than the previous year, at $102.7 million and $105.0 million, respectively. The decrease is primarily attributable to lower operating costs on the BC pipelines and to a 2004 inspection expense related to the Peace 12 inch NGL pipeline. On a per barrel of throughput basis, operating costs on Pembina's conventional pipeline systems averaged 50 cents per barrel for the fourth quarter of 2005, up slightly compared to 48 cents per barrel during the same period of 2004. On a full year basis however, these per barrel costs were slightly lower at 47 cents per barrel and 49 cents per barrel, in 2005 and 2004, respectively. Higher costs during the fourth quarter were mainly attributable to the completion of a third internal inspection. This program utilizes new crack detection technology and will be run on eight pipelines over a four year period, at an estimated cost of $16 million. Three of these pipeline inspections had been completed by year end at a cost of $7.0 million, with another three planned for 2006. The initial program is scheduled to be completed in 2007, with the final two inspections. The crack tool program augments Pembina's regularly scheduled preventative maintenance and pipeline integrity and provides further assurance of safe, reliable pipeline operations.

General and administrative expenditures for the last quarter of 2005 were $4.0 million compared to $3.6 million a year earlier. For the twelve months of 2005, general and administrative expenditures of $16.8 million compared to $14.2 million for the same period of 2004. The increase is attributable to an increase in staffing levels related to growth in business operations and to market-based salary increases.

    Distributed Cash

    -------------------------------------------------------------------------
                                      3 Months  3 Months 12 Months 12 Months
                                         Ended     Ended     Ended     Ended
                                       Dec. 31,  Dec. 31,  Dec. 31,  Dec. 31,
                                          2005      2004      2005      2004
    -------------------------------------------------------------------------
    Net earnings                      $ 21,705  $ 15,374  $ 70,409  $ 60,423
    Add (deduct):
      Depreciation and amortization     22,019    20,943    85,270    83,695
      Accretion on asset retirement
       obligations                         269       238     1,015       952
      Future income tax reduction       (7,345)   (6,200)  (29,377)  (33,300)
      Maintenance capital expenditures  (1,258)     (469)   (3,923)   (1,254)
      Increase in distribution reserve  (5,723)   (2,947)   (9,912)   (4,324)
    -------------------------------------------------------------------------
    Distributed cash(1)               $ 29,667  $ 26,939  $113,482  $106,192
    -------------------------------------------------------------------------
    Distributed cash per Trust
     Unit(1)                          $ 0.2625  $ 0.2625  $ 1.0500  $ 1.0500
    -------------------------------------------------------------------------
    Diluted distributed cash per
     Trust Unit(1)                    $ 0.2542  $ 0.2581  $ 0.9846  $ 1.0060
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.


To ensure stability over economic and industry cycles and to absorb the impact of material one-time events, not all available cash is distributed to Unitholders. The notional accumulation of these funds is referred to as the distribution reserve. During the fourth quarter and the twelve months of 2005, $5.7 million and $9.9 million, respectively, was added to the distribution reserve, resulting in a notional amount of $15.1 million at December 31, 2005. The 2005 payout ratio of 92 percent is consistent with Management's objective, and it is estimated that the payout ratio will remain near the 90 percent level for 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 $0.2625 per Trust Unit, or $29.7 million in aggregate, in the fourth quarter and $1.05 per Trust Unit, or $113.5 million for the twelve months of 2005. The per Trust Unit distribution of $1.05 paid in 2005 is consistent with the per Trust Unit distribution paid in 2004. A component of the Fund's cash distributions is taxable in the hands of the Unitholder, with the remaining portion a return of capital, unless held in a tax-deferred account. In 2005, Pembina estimates that 85 percent of the distributions declared will be taxable and 15 percent will be a return of capital. For purposes of calculating the capital gains upon disposition of the Trust Units, for most Unitholders, the amount considered a return of capital will reduce the Unitholders' adjusted cost base of each Trust Unit.

Liquidity and Capital Resources

Pembina's bank facilities include an unsecured $230 million revolving credit facility and a $30 million operating line of credit. At December 31, 2005, Pembina had $116 million drawn, leaving $144 million of undrawn capacity on the $260 million in established bank facilities. These facilities are extendible annually by the lenders for 365 day periods, and have been extended to July 24, 2006. Should the lenders not extend these facilities in the future, the outstanding amounts will be repayable over three years with 25 percent of the principal due in equal quarterly payments over three years, and the balance due at the end of the term. Other debt includes $100 million in Secured Senior Notes due 2017, $175 million in Unsecured Senior Notes due 2014 and $75 million of Floating Rate Senior Notes due 2009. Beginning in September 2005, Pembina began making monthly payments on the principal of approximately $1.0 million on the $100 million Secured Senior Notes. Pembina's 2005 year end long-term debt of $463 million, together with $220 million market value of outstanding convertible debentures, resulted in a ratio of debt to total enterprise value of 27 percent at December 31, 2005. This compares to a ratio of 28 percent at the end of the third quarter of 2005 and 34 percent at the end of 2004.

Net debt financing costs of $5.2 million were recorded during the fourth quarter of 2005 and $23.9 million for the twelve months of 2005, compared with $6.5 million during the fourth quarter of 2004 and $24.1 million for the twelve months of 2004. Interest rate exposure on Pembina's floating rate debt is managed utilizing interest rate swap instruments. At December 31, 2005, Pembina had interest rate swaps in place on a principal amount of $85 million at an average rate of 5.4 percent and an average term to maturity of 1.9 years. The mark-to-market value of these instruments represented an unrealized loss of $1.0 million at December 31, 2005. Pembina has fixed interest on approximately 80 percent of its long-term debt in order to minimize exposure to rising interest rates.

Pembina's success is supported by favourable credit agency ratings. These rating systems recognize the stable profile of the Fund's assets and financial results, as well as the sustainability of the per Trust Unit distributions. The Dominion Bond Rating Service Ltd. (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. DBRS's rating system measures the volatility and sustainability of distributions per Trust Unit. 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. Pembina Pipeline Corporation is also rated by Standard & Poor's (S&P) as follows: 'BBB' long-term corporate credit with a stable outlook, 'BBB plus' senior secured debt and 'BBB' senior unsecured debt. According to S&P's rating system, debt instruments rated BBB have adequate protection parameters.

    -------------------------------------------------------------------------
                                      3 Months  3 Months 12 Months 12 Months
                                         Ended     Ended     Ended     Ended
    Capital Expenditures               Dec. 31,  Dec. 31,  Dec. 31,  Dec. 31,
     ($ millions)                         2005      2004      2005      2004
    -------------------------------------------------------------------------
    Development capital
      Conventional Pipelines
        Alberta                       $   17.1  $    9.8  $   42.4  $   18.3
        BC                                 3.7       2.4      10.7       8.4
      Oil Sands                            2.7       2.6       7.0      30.1
      Midstream                            2.3         -      15.5         -
    -------------------------------------------------------------------------
    Total development capital         $   25.8  $   14.8  $   75.6  $   56.8
    -------------------------------------------------------------------------
    Maintenance capital
      Conventional Pipelines
        Alberta                       $    0.8  $    0.1  $    1.7  $    0.5
        BC                                 0.1       0.1       0.6       0.4
      Oil Sands                              -         -         -         -
      Midstream                            0.3       0.2       1.6       0.3
    -------------------------------------------------------------------------
    Total maintenance capital         $    1.2  $    0.4  $    3.9  $    1.2
    -------------------------------------------------------------------------
    Total capital expenditures        $   27.0  $   15.2  $   79.5  $   58.0
    -------------------------------------------------------------------------

Capital expenditures during 2005 totaled $79.5 million, $27.0 million of which was incurred in the fourth quarter. This compares to $58.0 million and $15.2 million during the same periods of 2004. A significant portion of the year over year increase was attributable to costs associated with the establishment of the new midstream business, as $15.5 million was expended in 2005 to acquire line fill to facilitate midstream operations on two pipeline systems. Of the total development capital expended during the year, $42.4 million was incurred on the Alberta systems, including $14.2 million for the NGL pipeline interconnection between the Peace and Northern systems, $2.7 million for a new NGL connection to the Peace system, and $2.7 million for three new battery connections to the Pembina system. A total of $10.7 million of development capital was spent on the B.C. systems during 2005, including the major upgrade of the Taylor terminal. Total development capital expended in oil sands infrastructure during 2005 was $7.0 million, including $2.2 million on the Cheecham Lateral project and $1.0 million on the Horizon Pipeline project. Maintenance capital of $1.2 million was recorded during the fourth quarter of 2005, and $3.9 million during the full year. This compares to $0.4 million and $1.2 million during the same periods of 2004, respectively. The higher level of maintenance capital in 2005 was due to periodic costs relating to the ethylene storage facility, the cost of which is flow-through under the contract. Development capital is currently financed utilizing existing credit facilities and Pembina's distribution reinvestment program, whereas maintenance capital is financed from the Fund's operating cash flow. New credit facilities are expected to be put in place to finance major new capital projects.

    Contractual Obligations

    The Fund is committed to annual payments as follows:

    -------------------------------------------------------------------------
    ($ thousands)                            Payments Due By Period
    -------------------------------------------------------------------------
                                      Less than
                                        1 year   1 - 3     4 - 5     After
    Contractual Obligations   Total      year    years     years    5 years
    -------------------------------------------------------------------------
    Office and Vehicle
     Leases                 $ 14,461  $  3,022  $  4,689  $  3,094  $  3,656
    Long Term Debt           463,614     7,968   207,712    15,404   232,530
    Convertible Debentures   158,040     8,000    23,842   126,198         -
    -------------------------------------------------------------------------
    Total Contractual
     Obligations            $636,115  $ 18,990  $236,243  $144,696  $236,186
    -------------------------------------------------------------------------


    Trust Unit and Convertible Debenture Information

The Fund's Premium Distribution, Distribution Reinvestment and Optional Cash Purchase Plan raised $9.4 million during the fourth quarter through the issuance of 653,222 Trust Units and $31.3 million during the year through the issuance of 2,286,319 Trust Units, compared with $29.8 million in the prior year through the issuance of 2,541,645 Trust Units. The plan continues to attract significant Unitholder interest, and targeted plan proceeds for 2006 have been adjusted to $47 million. Plan proceeds will be directed towards debt repayment and funding Pembina's 2006 capital program.

The Fund's Trust Units, together with each of the three series of convertible debentures, are traded on the Toronto Stock Exchange.

    -------------------------------------------------------------------------
                                       Jan. 25,      Dec. 31,      Dec. 31,
                                         2006          2005          2004
    -------------------------------------------------------------------------
    Trust Units Outstanding          114,762,073   113,897,002   102,933,221
    Average Daily Volume
     (Units per day)                   218,449(1)      227,362       195,928
    Unit Trading Price ($/Unit)(3)   $     16.42   $     15.95   $     13.65

    Principal Amount of Debentures
     Outstanding ($millions)         $   158.1(2)  $     164.8   $     262.5

    8.25% Convertible Debentures
     Trading Price(3)                $    179.99   $    172.21   $    152.00
    7.50% Convertible Debentures
     Trading Price(3)                $    156.50   $    151.50   $    129.00
    7.35% Convertible Debentures
     Trading Price(3)                $    131.00   $    127.35   $    108.00

    Total Market Value of Securities
     Outstanding ($millions)(3)      $   2,101.0   $   2,036.0   $   1,700.0
    -------------------------------------------------------------------------
    Pembina's convertible debentures
     are convertible to Trust Units
     at conversion prices of ($/Unit):
      8.25% Convertible Debentures
       maturing March 31, 2006                     $      9.00
      7.50% Convertible Debentures
       maturing June 30, 2007                      $     10.50
      7.35% Convertible Debentures
       maturing December 31, 2010                  $     12.50
    -------------------------------------------------------------------------
    (1) Based on the 17 trading days from January 3 to January 25, 2006,
        inclusive.
    (2) Full conversion to Trust Units of the remaining principal amount of
        the three debenture issues as at January 25, 2006 would result in the
        issuance of 13.3 million Trust Units.
    (3) Based on closing values as at January 25, 2006, December 31, 2005 and
        December 31, 2004.

    New Developments and Outlook

Pembina achieved record results in 2005, reporting its highest ever level of revenue and net operating income. Pembina's business operations resulted in a $9.9 million increase in the distribution reserve over the course of the year, enabling the Fund to announce a 9 percent increase in Unitholder distributions effective January, 2006. Strong operating results produced by the conventional assets, together with the establishment of the new midstream business initiatives and the growth in its oil sands infrastructure, have generated a significant and sustainable increase in cash flow that will support the new level of cash distribution.

Pembina's conventional pipeline business continued to benefit from the tremendous level of oil and natural gas industry activity in many of its service areas, resulting in stronger aggregate operating performance. Renewed industry development of the Nisku zone in south-central Alberta has resulted in a material increase in projected receipts on the Pembina system. An additional 36,000 bpd of capacity at three new battery locations was mechanically complete by year end, and ongoing industry investment in this region indicates significant potential for further growth in pipeline transportation demand. Regional concerns surrounding the procedures for handling high sulfur product have resulted in delays in bringing new production on stream, however it is expected that receipts will continue to ramp up through 2006 as industry works through and resolves these issues.

In addition to the 2005 expansion of a truck unloading facility on the Peace system, Pembina completed the new natural gas liquids (NGL) interconnection between the Peace and Northern pipelines during the fourth quarter. This interconnection creates an incremental 25,000 bpd of carrying capacity on the Peace system which will be available to transport NGL production that is projected to increase in northwestern Alberta in the coming year. Several additional projects are currently under development on the Peace system, with the combined potential to add incremental throughput volume of 5,000 bpd by mid-2006.

Several producer CO2 pilot projects currently underway in Alberta are supported by continuing high oil prices and federal government incentives. Miscible CO2 flooding, a method of enhanced oil recovery, has the potential to significantly increase the ultimate recovery of oil in place. This longer- term prospect has potential to significantly increase production in the Pembina and Swan Hills fields, as these fields are considered to be highly amenable to this technology. Pembina may have opportunities to participate in the construction of CO2 pipelines through use of its extensive network of right-of-ways.

Pembina continued to develop terminalling, storage and hub services operations within the midstream business established in 2005. Pembina projects that returns from midstream related activities have considerable potential and is actively evaluating opportunities for similar new business on several of our other pipeline systems as resources and expertise are developed. As the business is rolled out across our conventional asset base, this unit is forecasted to become a significant source of revenue. Leveraging existing infrastructure assets and market position to create these new revenue streams further diversifies Pembina's business and extends the economic life of our conventional asset base.

Pembina has, over the past several months, announced two new investments in oil sands infrastructure that will significantly expand its footprint in this important long-life production region. The Horizon Pipeline will provide exclusive transportation to Canadian Natural Resources Limited's Horizon Oil Sands project, located 70 kilometers north of Ft. McMurray, Alberta. The Cheecham Lateral Pipeline will provide 136,000 barrels per day of capacity for the transportation of diluent from Pembina's existing AOSPL system to a new terminalling facility near Cheecham, Alberta. The Horizon Pipeline is scheduled to be completed by mid 2008, at an estimated cost of $300 million. Construction has commenced on the $42 million Cheecham Lateral which is scheduled to be in service by the end of 2006. Together, the Horizon Pipeline and Cheecham Lateral initiatives will elevate Pembina to among the largest of the oil sands infrastructure players and position Pembina to capture further growth in this area. Based on current estimates, Pembina believes these projects have the potential to deliver 12 percent accretion to the 2005 level of distributed cash.

During the fourth quarter, Pembina announced a project to develop a proposed $1.0 billion import condensate pipeline which could potentially be placed into service by late 2008. The Spirit Pipeline would make extensive use of existing infrastructure in the transport of 100,000 bpd of condensate from Kitimat, British Columbia to Edmonton, Alberta. Preliminary engineering and design of the pipeline is complete and discussions with potential shippers are ongoing. Pembina believes that the Spirit Pipeline could represent an attractive transportation solution for shippers seeking to satisfy demand for diluent required in the transportation of heavy oil sands production, demand that is forecasted to increase significantly over the next several years. Pembina views this project as an opportunity to leverage existing investment and to enhance both the level of service offered to its customers and value created for its Unitholders.

Uncertainty in the trust sector created by the Government of Canada's decision to postpone all advance tax rulings for income trust conversions was resolved during the fourth quarter of 2005. On November 23, 2005, the Government of Canada announced a reduction in personal income taxes on dividends, which is intended to level the playing field between corporations and income trusts and other flow-through entities.

S&P named the 72 trusts selected for inclusion in the S&P/TSX Composite Index. These issuers, including Pembina, were added to the index at a 50 percent weighting after the market close on December 16th. S&P has indicated that index inclusion at full weighting will occur in March 2006. We view the index inclusion of the Fund as a very positive development for Unitholders.

During the fourth quarter of 2005, Pembina marked its eighth year as a publicly traded income fund. Over that period Pembina has established an enviable reputation for stable operations, prudent management, sound corporate governance and a solid track record of consistent and growing distributions to Unitholders. Since our initial public offering in October 1997, Pembina has distributed a total of $688 million, or $8.25 per Trust Unit, on a $10 per unit original issue price. We have met our targets and objectives in each year of our public history and, during the most recently completed year, Pembina generated a total return of 25 percent, the highest amongst our peer group in the pipeline trust sector. Ongoing growth in both our conventional and oil sands pipeline divisions and the creation of a new midstream business unit has enabled a 9 percent increase in our distribution rate effective January, 2006. Further, the breadth of tangible and prospective growth opportunities currently under development across all of our business segments lend confidence in our continuing ability to provide leadership and superior performance.

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, 2004, and in the Fund's Annual Information Form for the year ended December 31, 2004. See "Additional Information" below.

    Selected Quarterly Information

    -------------------------------------------------------------------------
    (unaudited)                                         2005
    -------------------------------------------------------------------------
    ($ thousands, except where noted)     Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Revenue                             77,197    72,382    68,215    69,103
    Operating expenses                  28,520    24,480    24,763    24,973
    EBITDA(1)                           45,027    44,558    40,207    39,738
    Net earnings                        21,705    19,778    14,373    14,553

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

    Distributed cash(1)                 29,667    29,099    27,474    27,242

    Distributed cash per Trust Unit
     ($/Unit):(1)
      Basic                             0.2625    0.2625    0.2625    0.2625
      Diluted                           0.2542    0.2625    0.2558    0.2554

    Trust Units outstanding (thousands):
      Weighted average (basic)         113,019   110,845   104,669   103,776
      Weighted average (diluted)       127,445   126,427   126,003   125,376
      End of period                    113,897   111,938   104,949   104,127
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    (unaudited)                                         2004
    -------------------------------------------------------------------------
    ($ thousands, except where noted)     Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Revenue                             71,840    70,142    67,283    69,026
    Operating expenses                  25,279    25,481    27,727    26,541
    EBITDA(1)                           42,490    40,694    36,386    38,432
    Net earnings                        15,374    15,112    11,336    18,601

    Net earnings per Trust Unit ($/Unit):
      Basic and diluted                   0.15      0.15      0.11      0.19

    Distributed cash(1)                 26,939    26,645    26,420    26,188

    Distributed cash per Trust Unit
     ($/Unit):(1)
      Basic                             0.2625    0.2625    0.2625    0.2625
      Diluted                           0.2550    0.2533    0.2543    0.2543

    Trust Units outstanding (thousands):
      Weighted average (basic)         102,622   101,502   100,647    99,764
      Weighted average (diluted)       125,236   124,360   123,541   122,688
      End of period                    102,933   101,874   100,902   100,115
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" below.

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 eight quarters. Variations in this trend result from one-time events and expected seasonal factors which impact oil and gas production, occurring most frequently during the second quarter of each year.

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 "distributed cash" to refer to the amount of cash that has been or is to be available for distribution to the Fund's Unitholders. "Distributed cash" is not a measure recognized by Canadian generally accepted accounting principles (GAAP). Therefore, distributed cash of the Fund may not be comparable to similar measures presented by other issuers, and investors are cautioned that distributed 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) and "net operating income" are not recognized under Canadian GAAP. Management believes that in addition to earnings, net operating income and EBITDA 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 or how the results are taxed. Investors should be cautioned, however, that net operating income and EBITDA 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.

Forward-Looking Information and Statements

The information contained in this Management's Discussion and Analysis contains certain forward-looking information and statements that are based on the Fund's current expectations, estimates, projections and assumptions in light of its experience and its perception of historical trends. In some cases, forward-looking statements and information can be identified by terminology such as "may", "will", "should", "expects", "projects", "plans", "anticipates", "targets", "believes", "estimates", "continue" and similar expressions. 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 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 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, except as required by applicable laws.

    consolidated balance sheets

    (In thousands of dollars)
    -------------------------------------------------------------------------
                                                       Dec. 31       Dec. 31
                                                          2005          2004
                                                    (Unaudited)     (Audited)
    -------------------------------------------------------------------------

    Assets
    Current assets:
      Accounts receivable                          $    30,564   $    26,432
    -------------------------------------------------------------------------
                                                        30,564        26,432
    Property, plant and equipment                    1,161,691     1,160,613
    Goodwill and other                                 366,416       361,855
    -------------------------------------------------------------------------
                                                   $ 1,558,671   $ 1,548,900
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Unitholders' Equity
    Current liabilities:
      Bank indebtedness                            $     7,311   $     2,971
      Accounts payable and accrued liabilities          18,489        12,792
      Distributions payable to Unitholders               9,966         9,007
      Current portion of long-term debt                  7,968         3,522
      Current portion of convertible debentures          8,000
    -------------------------------------------------------------------------
                                                        51,734        28,292
    Long-term debt                                     455,646       430,866
    Convertible debentures                             150,040       251,663
    Asset retirement obligations                        19,716        15,729
    Future income taxes                                137,923       167,300
    -------------------------------------------------------------------------
                                                       815,059       893,850
    -------------------------------------------------------------------------
    Unitholders' equity:
      Trust Units (note 3)                           1,073,537       941,902
      Earnings to date                                 358,144       287,735
      Distributions to date                           (688,069)     (574,587)
    -------------------------------------------------------------------------
                                                       743,612       655,050
    -------------------------------------------------------------------------

                                                   $ 1,558,671   $ 1,548,900
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



    consolidated statements of earnings
    (Unaudited)

    (In thousands of dollars, except per Trust Unit amounts)
    -------------------------------------------------------------------------
                                   3 Months   3 Months  12 Months  12 Months
                                      Ended      Ended      Ended      Ended
                                    Dec. 31,   Dec. 31,   Dec. 31,   Dec. 31,
                                       2005       2004       2005       2004
    -------------------------------------------------------------------------
    Revenues
      Pipeline transportation     $  68,381  $  66,710  $ 261,182  $ 257,217
      Midstream                       8,816      5,130     25,715     21,074
    -------------------------------------------------------------------------
                                     77,197     71,840    286,897    278,291
    -------------------------------------------------------------------------
    Expenses:
      Operations                     28,520     25,279    102,736    105,028
      General and administrative      4,044      3,565     16,808     14,200
      Management fee                    344        312      1,165      1,076
      Depreciation and amortization  22,019     20,943     85,270     83,695
      Accretion on asset retirement
       obligations                      269        238      1,015        952
      Other                            (738)       194     (3,342)       (15)
    -------------------------------------------------------------------------
                                     54,458     50,531    203,652    204,936
    -------------------------------------------------------------------------
    Earnings before interest and
     taxes                           22,739     21,309     83,245     73,355
    Interest on long-term debt        5,230      6,458     23,877     24,131
    Interest on convertible
     debentures                       2,730      4,996     16,599     19,890
    -------------------------------------------------------------------------
    Earnings before taxes            14,779      9,855     42,769     29,334

      Capital and income taxes          419        681      1,737      2,211
      Future income tax reduction    (7,345)    (6,200)   (29,377)   (33,300)
    -------------------------------------------------------------------------
    Net earnings                     21,705     15,374     70,409     60,423
    Earnings to date, beginning of
     period                         336,439    272,361    287,735    227,312
    -------------------------------------------------------------------------
    Earnings to date, end of
     period                       $ 358,144  $ 287,735  $ 358,144  $ 287,735
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per Trust Unit
      Basic and diluted           $    0.19  $    0.15  $    0.65  $    0.60
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       See accompanying notes to the consolidated financial statements



    consolidated statement of cash flows
    (Unaudited)

    (In thousands of dollars)
    -------------------------------------------------------------------------
                                   3 Months   3 Months  12 Months  12 Months
                                      Ended      Ended      Ended      Ended
                                    Dec. 31,   Dec. 31,   Dec. 31,   Dec. 31,
                                       2005       2004       2005       2004
    -------------------------------------------------------------------------

    Cash provided by (used in):
    Operating activities:
    Net earnings                  $  21,705  $  15,374  $  70,409  $  60,423
    Items not involving cash:
      Depreciation and
       amortization                  22,019     20,943     85,270     83,695
      Accretion on asset retirement
       obligations                      269        238      1,015        952
      Future income tax reduction    (7,345)    (6,200)   (29,377)   (33,300)
      Employee future benefits
       expense                          472        571      3,034      3,609
      Other                              90        152        362        584
    Employee future benefits
     contributions                   (7,333)    (1,429)   (13,000)    (4,436)
    Change in non-cash working
     capital                         (7,235)       494      2,689      8,638
    -------------------------------------------------------------------------
    Cash flow from operations        22,642     30,143    120,402    120,165

    Financing activities:
      Bank borrowings                19,899      1,869     31,438     18,277
      Issue of private notes
       (net of costs)                                                247,125
      Repayment of AOSPL expansion
       facility                                                     (139,600)
      Repayment of bank facilities                                  (110,400)
      Repayment of senior unsecured
       notes                         (1,775)               (2,212)
      Issue of Trust Units on
       exercise of options            1,627      1,358      6,762      3,030
      Issue of Trust Units            9,375      7,500     31,250     29,750
      Distributions to Unitholders
       - current year               (29,495)   (26,846)  (103,516)   (97,185)
      Distributions to Unitholders
       - prior year                                        (9,007)    (8,642)
    -------------------------------------------------------------------------
                                       (369)   (16,119)   (45,285)   (57,645)
    Investing activities:
      Capital expenditures          (27,030)   (14,825)   (79,457)   (58,007)
      Change in non-cash working
       capital                                    (361)              (10,750)
    -------------------------------------------------------------------------
                                    (27,030)   (15,186)   (79,457)   (68,757)
    Change in cash                   (4,757)    (1,162)    (4,340)    (6,327)
    (Bank indebtedness) cash,
     beginning of period             (2,554)    (1,809)    (2,971)     3,266
    -------------------------------------------------------------------------
    Bank indebtedness, end of
     period                       $  (7,311) $  (2,971) $  (7,311) $  (2,971)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Other cash disclosures:
      Interest on long-term debt
       paid                       $  (6,943) $  (5,492) $ (23,327) $ (22,906)
      Interest on convertible
       debentures paid            $  (5,768) $  (9,245) $ (15,606) $ (19,741)
      Taxes paid                  $     (14) $    (495) $    (928) $  (1,980)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

       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 accounting principles generally accepted in Canada.
        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, 2004. 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 consolidated financial statements and the notes
        thereto in the Fund's annual report for the year ended December 31,
        2004.

    2.  Business segments:

        The Fund conducts its operations through two operating segments:
        Pipeline and Midstream.

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

        Midstream consist of the Fund's direct and indirect interest in the
        Fort Saskatchewan Ethylene Storage Partnership (the "Partnership")
        and terminalling, storage and hub services.

        The financial results of the business segments are as follows:

                                          2005                          2004
                  Pipeline  Midstream    Total  Pipeline  Midstream    Total
    -------------------------------------------------------------------------
    Three months
     ended Dec. 31
    Pipeline
     transportation
     revenue      $ 68,381  $      -  $ 68,381  $ 66,710  $      -  $ 66,710
    Storage revenue      -     5,464     5,464         -     5,130     5,130
    Terminalling,
     storage and
     hub services        -     3,352     3,352         -         -         -
    -------------------------------------------------------------------------
    Revenue before
     expenses       68,381     8,816    77,197    66,710     5,130    71,840
    -------------------------------------------------------------------------

    Expenses
      Operations    27,379     1,141    28,520    24,513       766    25,279
      General and
       adminis-
       trative       4,044         -     4,044     3,565         -     3,565
      Management fee   344         -       344       312         -       312
      Depreciation
       and
       amortization 19,725     2,294    22,019    18,513     2,430    20,943
      Accretion on
       asset
       retirement
       obligations     269         -       269       238         -       238
      Other           (738)        -      (738)      194         -       194
    -------------------------------------------------------------------------
                    51,023     3,435    54,458    47,335     3,196    50,531
    -------------------------------------------------------------------------
    Earnings before
     interest and
     taxes        $ 17,358   $ 5,381  $ 22,739  $ 19,375   $ 1,934  $ 21,309
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Year ended
     Dec. 31
    Pipeline
     transportation
     revenue      $261,182   $     -  $261,182  $257,217   $     -  $257,217
    Storage revenue      -    21,543    21,543         -    21,074    21,074
    Terminalling,
     storage and
     hub services        -     4,172     4,172         -         -         -
    -------------------------------------------------------------------------
    Revenue before
     expenses      261,182    25,715   286,897   257,217    21,074   278,291
    -------------------------------------------------------------------------

    Expenses
      Operations    98,911     3,825   102,736   101,505     3,523   105,028
      General and
       adminis-
       trative      16,808         -    16,808    14,200         -    14,200
      Management
       fee           1,165         -     1,165     1,076         -     1,076
      Depreciation
       and
       amortization 76,092     9,178    85,270    74,008     9,687    83,695
      Accretion on
       asset
       retirement
       obligations   1,015         -     1,015       952         -       952
      Other         (3,342)        -    (3,342)      (15)        -       (15)
    -------------------------------------------------------------------------
                   190,649    13,003   203,652   191,726    13,210   204,936
    -------------------------------------------------------------------------
    Earnings before
     interest and
     taxes        $ 70,533  $ 12,712  $ 83,245  $ 65,491  $  7,864  $ 73,355
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total fixed
     assets     $1,288,158 $231,107 $1,519,265 $1,309,530 $239,370 $1,548,900
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill and
     other        $226,944  $130,630  $357,574  $227,579  $134,276  $361,855
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    3.  Trust Units:

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

        ---------------------------------------------------------------------
                                                   Trust Units        Amount
        ---------------------------------------------------------------------
        Balance, January 1, 2004                    98,766,465    $  896,132
        Exercise of Trust Unit options                 309,020         3,030
        Debenture conversions                        1,316,091        12,990
        Distribution Reinvestment Plan               2,541,645        29,750
        ---------------------------------------------------------------------
        Balance, December 31, 2004                 102,933,221       941,902
        Exercise of Trust Unit options                 644,039         6,762
        Debenture conversions                        8,033,423        93,623
        Distribution Reinvestment Plan               2,286,319        31,250
        ---------------------------------------------------------------------
        Balance, December 31, 2005                 113,897,002    $1,073,537
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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 fourth quarter
        was $21.7 million (2004 - $15.4 million) and for the twelve months
        ended December 31, 2005 was $70.4 million (2004 - $60.4 million).
        The weighted average Trust Units outstanding for the fourth quarter
        were 113,019,000 Units (2004 - 102,622,000) and for the twelve months
        ended December 31, 2005 were 108,108,000 (2004 - 101,139,000).

        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 net earnings for the fourth quarter was $24.4 million (2004 -
        $20.4 million). In computing diluted earnings per Trust Unit,
        14,426,000 Trust Units (2004 - 22,614,000) were added to the weighted
        average Trust Units outstanding for the fourth quarter for the
        dilutive effect of convertible debentures and employee Trust Unit
        options. For the twelve months ended December 31, 2005, net earnings
        were $87.0 million (2004 - $80.3 million) and 24,010,000 Trust Units
        (2004 - 22,805,000) were added to the weighted average Units
        outstanding for the dilutive effect of convertible debentures and
        employee Unit options. Diluted earnings per Trust Unit are not
        disclosed as the amounts are anti-dilutive.

    4.  Unit based compensation plans:

        The Fund provides additional compensation to certain employees,
        officers and directors by issuing options under a Trust Unit Option
        Plan and restricted units under a Long Term Incentive Plan.

        At December 31, 2005, 1,205,325 options (December 31, 2004 -
        1,137,967) were outstanding and exercisable at a weighted average
        price of $12.02 (December 31, 2004 - $9.87) under the Trust Unit
        Option Plan.

        In 2005, a new unit-based compensation plan was implemented to grant
        awards to certain employees and directors. The new plan will result
        in participants receiving cash compensation based on the value of
        underlying notional trust units granted under the plan. The units
        vest over a three-year period and the cash payments will be based on
        the trading value of the Trust Units plus notional accrued
        distributions.

        Based on the ninety-day weighted average trading price of the Trust
        Units prior to the end of the period, the estimated intrinsic value
        of the notional trust units awarded at December 31, 2005 totaled $1.1
        million.  The Fund recorded compensation expense of $0.4 million in
        2005 relating to the trust units vested under the plan.

    -------------------------------------------------------------------------
    Pembina Pipeline Income Fund               INVESTOR INFORMATION
    -------------------------------------------------------------------------
    Exchange Listing and Trading       Premium Distribution, Distribution
    Symbols:                           Reinvestment and Optional Unit
                                       Purchase Plan:
    The Toronto Stock Exchange
    Trust Units Symbol: PIF.UN         Pembina offers a Premium Distribution,
    8.25% Convertible Debentures       Distribution Reinvestment and Optional
     Symbol: PIF.DB                    Unit Purchase Plan to eligible
    7.50% Convertible Debentures       Unitholders of Pembina Pipeline Income
     Symbol: PIF.DB.A                  Fund.
    7.35% Convertible Debentures
     Symbol: PIF.DB.B                  The Plan allows participants an
                                       opportunity to:
    Trustee, Registrar and Transfer
    Agent:                             - reinvest distributions into Trust
                                         Units at a 5 percent discount to a
    Computershare Trust                  weighted average market price,
    Company of Canada                    under the distribution reinvestment
    Shareholder Communications:          component of the Plan; or,
    1-888-267-6555
                                       - realize 2 percent more cash on
    Corporate Office:                    their distributions, under the
                                         premium distribution component of
    700 - 9th Avenue S.W.                the Plan;
    P.O. Box 1948
    Calgary, Alberta  T2P 2M7          - eligible Unitholders may also make
    Telephone: (403) 231-7500            optional Trust Unit purchases at
    Fax: (403) 237-0254                  the weighted average market price.

    Investor Information:              A brochure, detailing administration
                                       of the Plan and eligibility and
    e-mail:                            enrolment information, is available
    investor-relations@pembina.com  on-line on Pembina's web site located
                                       at www.pembina.com, or call
    Telephone: (403) 231-7500          call 1-888-428-3222 to receive a copy
               1-888-428-3222          by mail. Unitholders wishing to enroll
    Fax:       (403) 691-7356          in the Plan are asked to contact their
                                       broker, investment dealer, financial
    Website: www.pembina.com           institution or other nominee through
                                       which the Trust Units are held.
    Quarterly Results Webcast:

    A live internet broadcast of
    Pembina's Fourth Quarter 2005
    Results conference call is
    scheduled for February 2, 2006
    at 9:00 a.m. Calgary
    (11:00 a.m. Eastern,
    8:00 a.m. Pacific).
    Those wishing to access the
    webcast are invited to visit
    Pembina's website located at
    www.pembina.com, or the host
    site at www.newswire.ca/webcast.
    An archive of the call will be
    available on-line for 90 days
    following the broadcast date.
    -------------------------------------------------------------------------

This document contains forward-looking 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.

>>

%SEDAR: 00008906E

SOURCE: Pembina Pipeline Income Fund

Ms. Glenys Hermanutz, Manager, Corporate Development, Pembina Pipeline Corporation, (403) 231-7500, 1-888-428-3222, e-mail: investor-relations@pembina.com; To request a free copy of this organization's annual report, please go to http://www.newswire.ca and click on Tools for Investors.