1 PEMBINA DELIVERS SOLID OPERATING RESULTS FOR THE FIRST QUARTER OF 2006

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1 1 PEMBINA DELIVERS SOLID OPERATING RESULTS FOR THE FIRST QUARTER OF First Quarter Revenue ($ millions) Pembina achieved record quarterly revenue and net operating income in the first quarter of Revenue of $81.5 million and net operating income of $51.9 million were up 17 percent and 16 percent, respectively, from the same periods in The Fund distributed $ per Trust Unit during the first quarter ($ per month) for total cash distributions of $33.6 million. Per Unit distributions increased 9 percent over the first quarter 2005 level First Quarter Net Operating Income ($ millions) During the quarter, Pembina delivered increasing throughputs on its conventional pipelines. These pipelines transported an average of 454,300 barrels per day during the first quarter of 2006, an increase of 3 percent over the previous quarter and 2 percent over the same quarter of First Q uarter Total Throughput (mmbpd) Conventional Oil Sands Pembina recently announced that it has entered into a Development Support Agreement with a syndicate of shippers for a proposed project which would involve transporting 100,000 barrels per day of imported condensate from Kitimat, British Columbia for delivery to Pembina's Western system near Prince George, British Columbia. The condensate would then be transported to market on Pembina s network of provincial and interprovincial pipelines. The $300 million Horizon Pipeline is proceeding as expected, with formal agreements nearing execution and construction expected to commence later this year. Pembina recently placed an order for $50 million of pipe in anticipation of commencing construction on this project.

2 HIGHLIGHTS 1 3 Months Ended 3 Months Ended ($ millions except where noted) March 31, 2006 March 31, 2005 % Change Average Throughput - Conventional (mbbls/day) Contractual Capacity - Oil Sands (mbbls/day) Total Volumes Capital Expenditures Revenue Operating Expenses Net Operating Income General & Administrative Expense Interest Expense (11.2) Distributed Cash $ Per Trust Unit $ $ This first quarter to Unitholders reports unaudited results of the Fund for the three months ended March 31, Refer to Non-GAAP Measures below. Management s Discussion and Analysis This Management s Discussion and Analysis (MD&A) is dated April 26, 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 months ended March 31, 2006, along with the Fund s Management s Discussion and Analysis and audited financial statements and notes for the year ended December 31, 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, and growing presence in the oil sands and midstream sectors, provide an integral service to the western Canadian energy industry. This balanced portfolio of high quality, 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. Pembina s publicly traded securities trade on the Toronto Stock Exchange under the symbols: PIF.UN - Trust Units; PIF.DB.A % convertible debentures, 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 a stable stream of distributions to Unitholders that are sustainable over the long term while pursuing opportunities for enhancement through accretive growth. We believe the most prudent manner to achieve this objective is to maintain and to develop assets around our hydrocarbon-liquids services business within western Canada. We plan to develop this business through the continuous improvement and ongoing expansion of our 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 designed to generate stable or increasing per-unit cash distributions to Pembina s Unitholders over the long term. 2

3 Pembina structures its business in three segments: conventional pipelines, oil sands infrastructure and midstream business. Pembina s primary objective for its conventional assets is 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 control of operating costs and asset rationalization. By offering costeffective, competitively positioned and reliable transportation services to our customers, we strive to continue to attract new business. Pembina will continue to use its uniquely positioned oil sands infrastructure and operating knowledge to pursue future opportunities. The fully contracted and long term returns generated by these assets provide a secure stream of stable cash flow to the Fund, and further expansion of Pembina s business interests in this area is considered a key objective. In its midstream business, Pembina will continue to roll out new services over certain conventional pipeline systems. Pembina anticipates that this integration strategy will produce significant benefits to both our customers and Unitholders of the Fund, by expanding the range of services offered, extending the economic life of our asset base and providing substantial revenue enhancement potential. Results from Operations Conventional Pipelines 3 Months Ended 3 Months Ended March 31, 2006 March 31, 2005 % Change Throughput (mmbls/day) Revenue $ 56.4 $ Operating expenses Net operating income Capital expenditures Operating expenses ($/bbl) Average revenue ($/bbl) $ 1.28 $ Pembina transported an average of 454,300 barrels per day (bpd) on its conventional pipeline systems during the first quarter of 2006, up 3 percent from the 441,200 bpd transported during the previous three months and up 2 percent over the 445,700 bpd transported during the first quarter of Pembina s Alberta pipeline systems transported an average of 427,600 bpd during the first quarter, an increase of almost 3 percent compared to the 417,100 bpd shipped during the previous three months, and up slightly from the 423,000 bpd shipped during the first quarter of On the British Columbia (BC) systems, volumes of 26,700 bpd transported on the Western system during the first quarter of 2006 were higher than both the previous three months, at 24,100 bpd, and the first quarter of 2005 at 22,700 bpd. Pembina s conventional pipelines have continued to benefit from record levels of oil and gas industry activity and increased production levels in some of its service areas. Several new connections and facility upgrades on the conventional systems brought incremental volumes that more than offset the natural production declines in these mature areas, continuing the upward trend in throughputs on the conventional systems which began in In particular, the connection of three new Nisku zone production facilities to the Pembina system increased throughputs in the first quarter of 2006, resulting in a significant year over year increase on that system and pushing throughputs to higher levels than seen in several years. By the end of the first quarter, throughput derived from these three new connections was approaching 10,000 bpd and the newly constructed facilities have been sized to meet producerrequested handling capacity of up to 36,000 bpd. 3

4 The conventional systems generated revenue of $56.4 million during the first three months of 2006, a 10 percent increase over the same period of Revenue earned by the Alberta systems during the first quarter of 2006 was 8 percent higher than the first quarter of 2005, at $48.3 million and $44.7 million, respectively. Average revenue on the Alberta systems of $1.26 per barrel during the first three months of the year was up 9 cents compared to the same period in Higher revenue on the Alberta systems was partially attributable to tariff increases that were effected on certain systems at the end of 2005 and during the first quarter of this year. The BC systems generated $8.1 million in revenue during the quarter, an increase of 23 percent over the $6.6 million generated during the first three months of Average revenue on the BC systems was $1.49 per barrel during the first quarter of 2006, compared to $1.28 per barrel during the same period of Increased revenue on the BC systems is attributable to increased volume transported on the Western system. Pembina continued work on new connections and facility upgrades on the Alberta systems during the first quarter of 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-year. Included in these developments is a new connection that commenced production late in the first quarter which Pembina believes has the potential to add 2,500 bpd of throughput. The Calven Pipeline connection to the Peace system is now mechanically complete and start up is scheduled for the second quarter of Pembina estimates that this connection will add an incremental 18,000 to 20,000 bpd with another 3,500 bpd in the fourth quarter of Oil Sands Infrastructure 3 Months Ended 3 Months Ended March 31, 2006 March 31, 2005 % Change Contracted capacity (mmbls/day) Revenue $ 14.8 $ Operating expenses Net operating income Capital expenditures Operating expenses ($/bbl) Average revenue ($/bbl) $ 0.78 $ 0.83 (6.0) During the first quarter of 2006, AOSPL generated revenue of $14.8 million on its contracted capacity of 389,000 bpd. Revenue was down slightly compared to the $15.3 million earned during the previous three months, but up over 20 percent compared to the $12.2 million generated during the first quarter of 2005 due to the flow through of higher operating costs. AOSPL revenue is contracted to recover operating costs and earn a return on the capital invested to provide the contracted capacity, and is therefore not impacted by throughput levels. AOSPL throughput volumes averaged 209,500 bpd during the first quarter, compared to 230,700 during the previous quarter and 162,400 bpd during the same period of Pembina's two new oil sands infrastructure investments, the Cheecham Lateral and the Horizon Pipeline, are proceeding as expected. The Cheecham Lateral is under construction and is scheduled to be in service by the end of Negotiations on formal documentation for the Horizon Pipeline continued in the first quarter of 2006, and are nearing completion. Pembina recently placed an order for approximately $50 million of pipe in anticipation of commencing construction on this project (see "New Developments and Outlook"). 4

5 Midstream Business 3 Months Ended 3 Months Ended March 31, 2006 March 31, 2005 % Change Revenue $ 10.3 $ Operating expenses Net operating income Capital expenditures $ 0.4 $ Pembina s midstream business unit consists of its 50 percent interest in the Fort Saskatchewan Ethylene Storage Facility as well as the terminalling, storage and hub services. 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 Along with stable, long-term cash flow, this asset provides diversification of Pembina s business into the petrochemical sector without corresponding commodity price exposure. Pembina continued to develop its terminalling, storage and hub services activities during the first quarter of 2006, as these services were implemented on the Swan Hills and Cremona systems. In addition, Pembina is continuing to develop similar services elsewhere on certain of the conventional systems. The midstream business unit contributed revenue of $10.3 million during the first three months of 2006, a 67 percent increase over the first quarter of 2005 revenue of $6.2 million for this segment. The significant increase in revenue was mainly attributable to activities under the joint venture with Keyera Energy becoming fully operational during the first quarter of Expenses Operating expenses totaled $29.6 million during the first quarter of 2006, compared to $25.0 million incurred during the same period of Over one-half of the increase in total operating costs during the quarter is attributable to AOSPL, where a routine internal inspection resulted in higher maintenance costs. Also, power costs on AOSPL increased significantly year over year, due to increased throughputs coupled with higher power rates. On a unit of throughput basis, operating costs on Pembina s conventional pipeline systems averaged 52 cents per barrel for the first quarter of 2006, compared to 48 cents per barrel during the same period of Increased costs on the conventional systems were partly attributable to the BC systems, where internal inspection and repair work increased maintenance expenses during the quarter. Increased volumes on some of the conventional pipeline systems resulted in higher power requirements. The enhanced internal pipeline inspection program, which commenced in 2004, continued into 2006 with one of the three pipeline inspections planned for this year complete, with no critical issues identified. 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. The program is scheduled for completion in The crack tool program augments Pembina s regularly scheduled preventative maintenance and pipeline integrity and is designed to provide further assurance of safe, reliable pipeline operations. During the first quarter of 2006, general and administrative expenditures were $6.7 million, compared to $4.1 million in the first quarter of The increase is attributable to an increase in staffing levels related to growth in business operations, market-based salary increases, and an increase in short term and long term incentives, as Pembina responds to an increasingly competitive employment market. 5

6 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. In late 2005 Pembina announced a 9 percent increase in its distribution objective, to an annual rate of $1.14 per Trust Unit commencing in January In the first quarter of 2006, the Fund declared distributions of $ per Trust Unit, or $33.6 million in aggregate, compared to $ per Trust unit, or $27.2 million in aggregate, paid in the first quarter of Under Canadian tax laws, a component of the Fund s cash distributions are taxable in the hands of the Unitholder, with the remaining portion a return of capital, unless held in a tax-deferred account. Pembina estimates that 75 percent of the distributions declared in 2006 will be taxable and 25 percent will be a return of capital for Canadian tax purposes. For purposes of calculating the capital gains upon disposition of the Trust Units, the amount considered a return of capital will reduce the Unitholders adjusted cost base of each Trust Unit for Canadian tax purposes. Distributed Cash 3 Months Ended 3 Months Ended March 31, 2006 March 31, 2005 Net earnings $ 20,150 $ 14,553 Add (deduct): Depreciation and amortization 21,567 20,568 Accretion on asset retirement obligations Future income tax reduction (6,003) (7,344) Maintenance capital expenditures (422) (418) Increase in distribution reserve (2,073) (371) Distributed cash 1 $ 33,570 $ 27,242 Distributed cash per Trust Unit 1 $ $ Diluted distributed cash per Trust Unit 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. During the first quarter of 2006, $2.1 million was added to the distribution reserve, resulting in a notional amount of $17.2 million at March 31, The payout ratio during the first quarter of 2006 of 94 percent compares to 99 percent for the same period of Pembina estimates a full year payout ratio of approximately 90 percent in 2006, compared to 92 percent in 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 March 31, 2006, Pembina had $142 million drawn, leaving $118 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, 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 $97 million in Secured Senior Notes due 2017, $175 million in Unsecured Senior Notes due 2014 and $75 million of Floating Rate Senior Notes due At March 31, 2006, Pembina had long-term debt of $489 million, compared to $465 million at December 31, This long-term debt, together with $158 million market value of outstanding convertible debentures, resulted in a ratio of debt to total enterprise value of 23 percent. This compares to a ratio of 27 percent at the end of Net debt financing costs of $5.8 million were recorded during the first quarter of 2006, compared with $6.5 million during the first quarter of Interest rate exposure on Pembina s floating rate debt is managed utilizing interest rate swap instruments. At March 31, 2006, Pembina had interest rate swaps in place on a principal amount of $85 million at an average rate of 5.5 percent and an average term to maturity of 1.7 years. The mark-to-market value of 6

7 these instruments represented an unrealized loss of $0.1 million at March 31, As at the end of the first quarter of 2006, Pembina has fixed interest on approximately 73 percent of its long-term debt in order to minimize exposure to rising interest rates. To finance committed capital projects, Pembina has arranged a private debt placement of $200 million, as described below, that will be drawn in September This, together with capacity available on the existing bank facilities and additional equity raised through the DRIP, will be sufficient to finance these projects. Subsequent to the end of the first quarter of 2006, Pembina Pipeline Corporation, the Fund's primary operating subsidiary, announced that it has entered into an agreement with institutional investors in the United States and Canada providing for the private placement of $200 million of Senior Unsecured Notes. The notes will mature September 30, 2021 and will have a fixed interest rate of 5.58 percent. Closing of the placement is expected to occur on September 30, Pembina s objective is to maintain favourable credit agency ratings. These rating systems recognize the stable profile of the Fund s assets and financial results, as well as the sustainability of the per Trust Unit distributions. The Dominion Bond Rating Service Ltd. (DBRS) has assigned Pembina Pipeline Income Fund a STA-2 (low) stability rating. DBRS s stability rating scale is from STA-1 to STA-7, with STA-1 representing the highest rating possible, and STA-7 the lowest. DBRS s rating system measures the volatility and sustainability of distributions per Trust Unit. Pembina Pipeline Corporation, the Fund s primary operating subsidiary, is also rated by DBRS, which has assigned a senior secured debt rating of BBB High and a BBB senior unsecured debt rating. Standard & Poor s (S&P) rates Pembina Pipeline Corporation as follows: BBB long-term corporate credit with a stable outlook, BBB plus senior secured debt and BBB senior unsecured debt. According to S&P s rating system, debt instruments rated BBB have adequate protection parameters. Contractual Obligations The Fund is committed to annual payments as follows: ($ thousands) Payments Due By Period Contractual Obligations Total Less than 1 year 1-3 years 4-5 years After 5 years Office and vehicle leases $ 12,308 $ 2,932 $ 4,467 $ 2,967 $ 1,942 Long term debt 489,096 11, ,937 15, ,891 Convertible debentures 102,527 20,652 81,875 Total contractual obligations $ 603,931 $ 14,514 $ 256,056 $ 100,528 $ 232,833 3 Months 3 Months Ended Ended Capital Expenditures ($ millions) March 31, 2006 March 31, 2005 Development capital Conventional Pipelines $ 11.6 $ 7.5 Oil Sands Midstream 0.4 Total development capital $ 38.5 $ 7.7 Maintenance capital Conventional Pipelines $ 0.3 $ 0.3 Oil Sands Midstream Total maintenance capital $ 0.4 $ 0.4 Total capital expenditures $ 38.9 $ 8.1 7

8 During the first three months of 2006, capital expenditures totaled $38.9 million, versus $8.1 million incurred during the same period of Essentially all of the capital spent during the first quarter was development capital, with $0.4 million in maintenance capital incurred on the conventional pipelines and midstream business. Of the $38.5 million in total development capital expended during the quarter, $26.5 million was incurred in oil sands infrastructure, including $24.0 million on the construction of the Cheecham Lateral and $2.3 million on the Horizon Pipeline. A total of $11.6 million of development capital was incurred on the conventional pipelines, which included $4.7 million on the Peace system and $4.0 million on the Western system in BC. Major costs on the Peace system included completion of the natural gas liquids pipeline interconnection between the Peace and Northern systems, and several major facility upgrades that are underway. In BC, the Western system Pine River crossing project, which was at risk of becoming exposed after the record rainfalls of 2005, is underway and accounted for $1.9 million. Development capital is currently financed utilizing existing credit facilities and Pembina s distribution reinvestment plan, whereas maintenance capital is financed from Pembina's operating cash flow. Committed capital expenditures will be financed utilizing existing credit facilities and proceeds from the DRIP. Trust Unit and Convertible Debenture Information The Fund s Premium Distribution, Distribution Reinvestment and Optional Cash Purchase Plan raised $13.3 million during the first quarter of 2006 through the issuance of 831,000 Trust Units, compared with $5.0 million in first quarter of 2005 through the issuance of 385,766 Trust Units. The plan continues to attract significant Unitholder interest, and targeted plan proceeds for 2006 have been adjusted to $75 million. Plan proceeds will be directed towards debt repayment and funding Pembina s 2006 capital program. The Fund s Trust Units, together with both of the two remaining series of convertible debentures, are traded on the Toronto Stock Exchange. Apr. 24, 2006 March 31, 2006 March 31, 2005 Trust Units Outstanding 120,239, ,816, ,127,174 Average Daily Volume (Units per day) 254, , ,400 Unit Trading Price ($/Unit) 3 $ $ $ Principal Amount of Debentures Outstanding ($millions) $ $ $ % Convertible Debentures Trading Price 3 $ 0 $ 0 $ % Convertible Debentures Trading Price 3 $ $ $ % Convertible Debentures Trading Price 3 $ $ $ Total Market Value of Securities Outstanding ($millions) 3 $ 2,250.2 $ 2,322.0 $ 1,660.0 Pembina s convertible debentures are convertible to Trust Units at conversion prices of ($/Unit): 7.50% Convertible Debentures maturing June 30, 2007 $ % Convertible Debentures maturing December 31, 2010 $ Based on the 15 trading days from April 3 to April 24, 2006, inclusive. Full conversion to Trust Units of the remaining principal amount of the two remaining debenture issues as at April 24, 2006 would result in the issuance of 8.9 million Trust Units. Based on closing values as at April 24, 2006, March 31, 2006 and March 31, The 8.25% Convertible Debentures matured on March 31,

9 Critical Accounting Estimates and Changes in Accounting Principles and Practices There were no changes in Pembina's critical accounting estimates or principles and practices that affected the disclosure of or the accounting for its operations for the quarter ended March 31, Such critical accounting estimates are presented in Management's Discussion and Analysis for the year ended December 31, New Developments and Outlook Pembina continued to reverse the historical trend of declining throughputs on its conventional pipelines during the first quarter of 2006, as new connections and facility upgrades brought incremental volumes which more than offset the natural production declines in these mature producing regions. Pembina expects that strong operating results produced by the conventional assets, together with the growth in oil sands infrastructure and the continued development of midstream business initiatives, will result in improved results in Pembina s conventional pipeline business continued to benefit from the record setting level of oil and natural gas industry activity in many of its service areas, contributing to Pembina's stronger aggregate operating performance during the quarter. Renewed industry development of the Nisku zone in south-central Alberta has resulted in a material increase in projected receipts on the Pembina system for 2006 and beyond. 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 of 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 during 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 Further development of Pembina s terminalling, storage and hub services operations are ongoing. Pembina is actively evaluating opportunities to establish these services across our conventional pipeline systems as resources and expertise are developed. As this new business is rolled out, Pembina anticipates the midstream unit 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. The two new investments in oil sands infrastructure announced in 2005 continue to progress. Construction of the $42 million Cheecham Lateral is well underway and the project is scheduled to be in service by the end of Once complete, the Cheecham Lateral will have the capacity to transport 136,000 bpd of synthetic crude oil from Pembina s existing AOSPL system to a new terminalling facility near Cheecham, Alberta. The Horizon Pipeline is proceeding as expected, with formal agreements nearing execution and construction expected to commence later this year. The Horizon Pipeline will provide exclusive transportation to Canadian Natural Resources Limited s Horizon Oil Sands project, located 70 kilometers north of Fort McMurray, Alberta. This service is scheduled to be operational by mid 2008, at an estimated cost of $300 million. 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. Pembina recently announced that it has entered into a Development Support Agreement ( DSA ) for a Condensate project with a syndicate of shippers. The proposed project involves the establishment of a marine terminal in Kitimat, British Columbia and construction and operation of a proposed pipeline and related facilities capable of transporting 100,000 bpd of imported condensate from Kitimat, British Columbia for delivery to Pembina's Western system near Prince George, British Columbia, where the condensate can access Pembina s network of provincial and interprovincial pipelines. Pembina believes that this project could represent an attractive transportation solution for shippers seeking to satisfy demand for diluent required in the transportation of heavy oil sands production. 9

10 Pembina is continuing to explore the potential associated with miscible carbon dioxide ("CO 2 ") flooding, a method of enhanced oil recovery. Several producer CO 2 pilot projects are currently underway in western Canada. This longerterm prospect has potential to significantly increase production in several of the crude oil producing fields delivering into Pembina s Alberta conventional pipelines. These fields, located in Pembina s Swan Hills, Redwater and Pembina service areas, have been identified by industry as being potentially amenable to the application of this technology. In addition to the potential for incremental volumes on our existing pipelines, Pembina may also have the opportunity to participate in the construction of new CO 2 pipelines utilizing its existing network of right of ways. During 2005, 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 in December 2005, and the remaining 50 percent market weight of income trusts was added to the Index following market close on March 17th. Over Pembina s eight years as a publicly traded income fund, Pembina has established a reputation for stable operations and a record of consistent and growing distributions to Unitholders. Since our initial public offering in October 1997, Pembina has distributed a total of $723 million, or $8.54 per Trust Unit, on a $10 per unit original issue price. We have met our distribution objective in each year of our public history. For the twelve months ended March 31, 2006, Pembina generated a total return of 45 percent. Growth in all three of our business units enabled a 9 percent increase in our distribution rate effective January 2006, and the breadth of tangible and prospective growth opportunities currently under development across all of our business segments lend confidence in our continuing ability to meet our objectives. Risk Factors Management has identified the primary risk factors that could potentially have a material impact on the financial results and operations of the Fund. Such risk factors are presented in Management s Discussion and Analysis for the year ended December 31, 2005, and in the Fund s Annual Information Form for the year ended December 31, See Additional Information below. Selected Quarterly Information (unaudited) ($ thousands, except where noted) Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Revenue 81,506 77,644 73,100 70,120 69,658 71,840 70,974 67,283 Operating expenses 29,572 28,520 24,480 24,763 24,973 25,279 25,481 27,727 EBITDA 1 44,732 45,027 44,558 40,207 39,738 42,490 40,694 36,386 Net earnings 20,150 21,705 19,778 14,373 14,553 15,374 15,112 11,336 Net earnings per Trust Unit ($/Unit): Basic and diluted Distributed cash 1 33,570 29,667 29,099 27,474 27,242 26,939 26,645 26,420 Distributed cash per Trust Unit ($/Unit): 1 Basic Diluted Trust Units outstanding (thousands): Weighted average (basic) 117, , , , , , , ,647 Weighted average (diluted) 129, , , , , , , ,581 End of period 119, , , , , , , ,902 1 Refer to Non-GAAP Measures below. 10

11 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 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), net operating income and enterprise value are not recognized under Canadian GAAP. Management believes that in addition to earnings, EBITDA, net operating income 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 or how the results are taxed and, in the case of enterprise value, the aggregate value of the Fund. Investors should be cautioned, however, that EBITDA, net operating income 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 Management s Discussion and Analysis 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, estimates, continue, " designed", objective and similar expressions. In particular, this Management's Discussion and Analysis 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 oil sands and midstream operations; potential revenue enhancement; 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; expected project start-up and construction dates; completion of formal documentation on the Horizon Project; future distribution, payout ratios and taxation of distributions; the completion of a private placement of Senior Notes; future capital expenditure requirements; the future development of the condensate project and CO 2 flooding. 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. 11

12 consolidated balance sheets (In thousands of dollars) March 31 Dec (Unaudited) (Audited) Assets Current assets: Cash $ 419 $ Accounts receivable 28,166 31,021 28,585 31,021 Property, plant and equipment 1,188,845 1,161,691 Goodwill and other 370, ,416 $ 1,587,759 $ 1,559,119 Liabilities and Unitholders Equity Current liabilities: Bank indebtedness $ $ 7,311 Accounts payable and accrued liabilities 22,802 18,489 Distributions payable to Unitholders 11,383 9,966 Current portion of long-term debt 11,582 7,968 Current portion of convertible debentures 8,000 45,767 51,734 Long-term debt 477, ,094 Convertible debentures 102, ,040 Asset retirement obligations 28,845 19,716 Future income taxes 131, , , ,507 Unitholders equity: Trust Units (note 3) 1,144,531 1,073,537 Earnings to date 378, ,144 Distributions to date (721,639) (688,069) 801, ,612 $ 1,587,759 $ 1,559,119 See accompanying notes to the consolidated financial statements 12

13 consolidated statements of earnings (Unaudited) (In thousands of dollars, except per Trust Unit amounts) 3 Months 3 Months Ended Ended March 31, 2006 March 31, 2005 Revenues: Conventional pipelines $ 56,409 $ 51,287 Oil Sands 14,751 12,174 Midstream 10,346 6,197 81,506 69,658 Expenses: Operations 29,572 24,973 General and administrative 6,720 4,116 Management fee Depreciation and amortization 21,567 20,568 Accretion on asset retirement obligations Other (27) ,691 50,742 Earnings before interest and taxes 22,815 18,916 Interest on long-term debt 5,802 6,531 Interest on convertible debentures 2,560 4,776 Earnings before taxes 14,452 7,609 Capital and income taxes (305) (400) Future income tax reduction 6,003 7,344 Net earnings 20,150 14,553 Earnings to date, beginning of period 358, ,735 Earnings to date, end of period $ 378,294 $ 302,288 Earnings per Trust Unit Basic and diluted $ 0.17 $ 0.14 See accompanying notes to the consolidated financial statements 13

14 consolidated statement of cash flows (Unaudited) (In thousands of dollars) 3 Months 3 Months Ended Ended March 31, 2006 March 31, 2005 Cash provided by (used in): Operating activities: Net earnings $ 20,150 $ 14,553 Items not involving cash: Depreciation and amortization 21,567 20,568 Accretion on asset retirement obligations Future income tax reduction (6,003) (7,344) Employee future benefits expense Other Employee future benefits contributions (1,675) (1,167) Changes in non-cash working capital 9,442 8,791 Cash flow from operations 44,264 36,600 Financing activities: Bank borrowings 26,385 (4,388) Issue costs of senior secured notes (3,705) Repayment of senior secured notes (1,351) Issue of Trust Units on exercise of options 2,175 2,745 Issue of Trust Units 13,306 5,000 Distributions to Unitholders - current year (22,188) (18,131) Distributions to Unitholders - prior year (9,966) (9,007) 4,656 (23,781) Investing activities: Capital expenditures (38,907) (8,110) Changes in non-cash working capital (2,283) (554) (41,190) (8,664) Change in cash 7,730 4,155 Bank indebtedness, beginning of period (7,311) (2,971) Cash, end of period $ 419 $ 1,184 Other cash disclosures: Interest on long-term debt paid $ (4,602) $ (4,089) Interest on convertible debentures paid $ (240) $ (437) Taxes paid $ (215) $ (444) See accompanying notes to the consolidated financial statements 14

15 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, 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, 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, condensates and natural gas liquids in Alberta and British Columbia. Oil Sands Infrastructure consists of the AOSPL system, the partially completed Cheecham Lateral and the Horizon Pipeline. As at March 31, 2006, only the AOSPL system was operational. Midstream Business consists 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: Conventional Pipelines Oil Sands Infrastructure Midstream Business 2006 Total Three months ended March 31, 2006 Revenues: Pipeline transportation $ 56,409 $ 14,751 $ $ 71,160 Terminalling, storage and hub services 10,346 10,346 Revenue before expenses 56,409 14,751 10,346 81,506 Expenses: Operations 22,810 5,685 1,077 29,572 General and administrative 6, ,720 Management fee Depreciation and amortization 16,797 2,476 2,294 21,567 Accretion on asset retirement obligations Other (27) (27) 46,443 8,492 3,756 58,691 Earnings before interest and taxes $ 9,966 $ 6,259 $ 6,590 $ 22,815 Property, plant and equipment $ 746,152 $ 322,620 $ 120,073 $ 1,188,845 Goodwill and other $ 212,310 $ 28,300 $ 129,719 $ 370,329 15

16 Conventional Pipelines Oil Sands Infrastructure Midstream Business 2005 Total Three months ended March 31, 2005 Revenues: Pipeline transportation $ 51,287 $ 12,174 $ $ 63,461 Terminalling, storage and hub services 6,197 6,197 Revenue before expenses 51,287 12,174 6,197 69,658 Expenses: Operations 20,939 3, ,973 General and administrative 3, ,116 Management fee Depreciation and amortization 15,762 2,512 2,294 20,568 Accretion on asset retirement obligations Other ,583 6,007 3,152 50,742 Earnings before interest and taxes $ 9,704 $ 6,167 $ 3,045 $ 18,916 Property, plant and equipment $ 749,728 $ 298,601 $ 103,774 $ 1,152,103 Goodwill and other $ 199,124 $ 28,300 $ 133,365 $ 360, Trust Units: The Fund is authorized to create and issue an unlimited number of Trust Units. Trust Units Amount Balance, January 1, ,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, ,897,002 1,073,537 Exercise of Trust Unit options 186,766 2,175 Debenture conversions 4,901,105 55,513 Distribution Reinvestment Plan 831,549 13,306 Balance, March 31, ,816,422 $ 1,144,531 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 first quarter was $20.2 million ( $14.6 million). The weighted average Trust Units outstanding for the first quarter were 117,784,000 Units ( ,776,000). 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 first quarter was $22.7 million ( $19.3 million). In computing diluted earnings per Trust Unit, 11,908,000 Trust Units ( ,903,000) were added to the weighted average Trust Units outstanding for the first quarter for the dilutive effect of convertible debentures and employee Trust Unit options. Diluted earnings per Trust Unit are not disclosed as the amounts are anti-dilutive. At March 31, 2006, 1,016,059 options (March 31, ,936) were outstanding and exercisable at a weighted average price of $12.07 (March 31, $9.76). 16

17 4. Subsequent Event On April 18, 2006, Pembina Pipeline Corporation, the principal operating subsidiary of the Fund, announced that it has entered into an agreement with institutional investors in the United States and Canada providing for the issuance, by way of private placement, of C$200 million of Senior Unsecured Notes. The Notes will mature September 30, 2021 and will bear interest at a fixed rate of 5.58%. Closing of the offering is anticipated to occur on or about September 30, 2006, and the net proceeds from the offering will be used to repay existing bank debt and for general corporate purposes. 17

18 INVESTOR INFORMATION Exchange Listing and Trading Symbols: The Toronto Stock Exchange Trust Units Symbol: PIF.UN 7.50% Convertible Debentures Symbol: PIF.DB.A 7.35% Convertible Debentures Symbol: PIF.DB.B Trustee, Registrar and Transfer Agent: Computershare Trust Company of Canada Shareholder Communications: Corporate Office: 700 9th Avenue S.W. P.O. Box 1948 Calgary, Alberta T2P 2M7 Telephone: (403) Fax: (403) Investor Information: Telephone: (403) Fax: (403) Website: Quarterly Results Webcast: Premium Distribution, Distribution Reinvestment and Optional Unit Purchase Plan: Pembina offers a Premium Distribution, Distribution Reinvestment and Optional Unit Purchase Plan to eligible Unitholders of Pembina Pipeline Income Fund. The Plan allows participants an opportunity to: reinvest distributions into Trust Units at a 5 percent discount to a weighted average market price, under the distribution reinvestment component of the Plan; or, realize 2 percent more cash on their distributions, under the premium distribution component of the Plan; eligible Unitholders may also make optional Trust Unit purchases at the weighted average market price. A brochure, detailing administration of the Plan and eligibility and enrolment information, is available online on Pembina s web site located at or call to receive a copy by mail. Unitholders wishing to enroll in the Plan are asked to contact their broker, investment dealer, financial institution or other nominee through which the Trust Units are held. A live internet broadcast of Pembina s First Quarter 2006 Results conference call is scheduled for April 27, 2006 at 2:00 p.m. Calgary (4:00 p.m. Eastern, 1:00 p.m. Pacific). Those wishing to access the webcast are invited to visit Pembina s website located at or the host site at 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. See "Forward-Looking Information and Statements" presented in the Management's Discussion and Analysis contained in this document for additional information. 18