Oil Sands Pipelines and New Gas Facilities Boost Pembina's Net Operating
Income

    
    All financial figures are unaudited and in Canadian dollars unless noted
    otherwise. Certain financial measures referred to in this document are
    not prescribed by Canadian generally accepted accounting principles
    (GAAP). For a description of these measures, see section entitled "Non-
    GAAP Financial Measures" below.
    

CALGARY , Oct. 28 /CNW/ - Pembina Pipeline Income Fund ("Pembina" or the "Fund"), (TSX: PIF.UN, PIF.DB.B), announced today its financial and operating results for the three and nine months ended September 30, 2009 . A summary of results is noted below:

    
    -   The Fund distributed $0.39 per Trust Unit during the third quarter of
        2009 for total cash distributions of $60.2 million, a 19 percent
        increase over the same period in 2008. Pembina expects, based on its
        current projections, estimates and assumptions, to maintain this
        level of cash distribution through 2013 by continuing to provide
        Unitholders $0.13 per unit per month, or $1.56 per unit per year. The
        Fund plans on converting to a corporation in late 2010 and expects to
        distribute $1.56 per unit per year to shareholders as a dividend once
        the new structure is in place (see "Forward-Looking Information,
        Statements and Assumptions" below).

    -   Pembina generated net earnings of $44.7 million during the third
        quarter of 2009, compared to $48.1 million during the third quarter
        of 2008. For the first nine months of 2009, Pembina's net earnings
        were $109.2 million, compared to $122.8 million during the first nine
        months of 2008. Excluding the after tax gain on sale of linefill of
        $15.2 million included in the third quarter of 2008 and $30 million
        included in the first nine months of 2008, net earnings have
        increased 35.9 percent and 17.7 percent, respectively, during the
        quarter and nine months ended September 30, 2009.

    -   Net operating income during the third quarter was $91.5 million,
        compared to $77 million during the third quarter of 2008. Year-to-
        date, Pembina has generated net operating income of $248.7 million,
        compared to $220.1 million during the first nine months of 2008.

    -   Strong returns were generated by the Oil Sands & Heavy Oil
        Infrastructure business unit, which realized increases in both third
        quarter and year-to-date net operating income (compared to the same
        periods in 2008) due primarily to contribution from the Horizon
        Pipeline, which commenced operations in November 2008. The Cutbank
        Complex gas gathering and processing facility, acquired in June,
        introduced a new source of revenue for the Midstream & Marketing
        business unit, while lower operating expenses helped maintain margins
        on Pembina's Conventional Pipeline systems. Combined, these positive
        factors largely offset the impact of reduced commodity prices and
        associated lower pipeline throughputs during the quarter.

    -   Pembina's major growth projects, the Nipisi and Mitsue Pipelines, are
        proceeding on schedule and on budget. Detailed engineering is nearing
        completion, stakeholder and Aboriginal consultation is ongoing and
        Pembina has submitted all required regulatory applications. The
        Nipisi and Mitsue Pipeline projects were initiated in response to
        industry demand for reliable diluent supply to, and diluted heavy oil
        take-away capacity from, the region north of Slave Lake, Alberta. The
        combined capital cost estimate for both pipelines is approximately
        $440 million and Pembina currently expects the pipelines to be placed
        into service in mid-2011.

    -   Subsequent to quarter end, the Fund entered into an agreement for the
        issuance by way of private placement of $267 million in Senior
        Unsecured Notes, Series D (the "Series D Notes") by its wholly-owned
        subsidiary Pembina Pipeline Corporation. Subject to Pembina and the
        purchasers of the Series D Notes satisfying all of the conditions to
        closing, Pembina expects the Series D Notes will be issued in a
        single tranche on November 18, 2009 with a 10-year bullet maturity
        and a fixed interest rate of 5.91 percent.

    Results from Operations

    -------------------------------------------------------------------------
    HIGHLIGHTS(1)      3 Months  3 Months         9 Months  9 Months
    (in millions of       Ended     Ended            Ended     Ended
     dollars, except   Sept. 30, Sept. 30,    %   Sept. 30, Sept. 30,    %
     where noted)          2009      2008  Change     2009      2008  Change
    -------------------------------------------------------------------------
    Average throughput
     - conventional
     (mbbls/d)            389.3     430.5    (9.6)   397.9     440.9    (9.8)
    Contracted capacity
     - oil sands
     (mbbls/d)            775.0     775.0       -    775.0     775.0       -
    Total throughput
     and contracted
     volumes (mbbls/d)  1,164.3   1,205.5    (3.4) 1,172.9   1,215.9    (3.5)
    Average Cutbank
     Complex
     throughput (mmcf/d)  200.5         -   100.0    200.2         -   100.0
    Capital
     expenditures          23.1      14.6    58.2    364.2     197.8    84.1
    Revenue               211.9     201.3     5.3    555.4     525.5     5.7
    Product purchases      80.8      84.2    (4.0)   187.2     196.9    (4.9)
    Operating expenses     39.6      40.1    (1.2)   119.5     108.5    10.1
    Net operating
     income(2)             91.5      77.0    18.8    248.7     220.1    13.0
    General &
     administrative
     expense               11.1       9.6    15.6     34.5      28.7    20.2
    Interest expense
     on long-term debt     13.0      11.5    13.0     34.8      28.0    24.3
    Net earnings           44.7      48.1    (7.1)   109.2     122.8   (11.1)
    Cash flow from
     operations            62.2      50.4    23.4    152.6     156.4    (2.4)
    EBITDA(2)              77.8      85.0    (8.5)   207.8     221.1    (6.0)
    Cash distributions
     to Unitholders        60.2      50.7    18.7    170.9     146.4    16.7
      $ Per Trust Unit    $0.39     $0.38     2.6    $1.17     $1.10     6.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) This third quarter 2009 Interim Report to Unitholders reports
        unaudited results of the Fund for the three and nine months ended
        September 30, 2009 and comparative to unaudited results for the three
        and nine months ended September 30, 2008.
    (2) Refer to "Non-GAAP Measures" below.
    

Conventional Pipelines

Pembina's extensive network of pipelines in Alberta and British Columbia ("BC") provides safe, dependable and cost-effective transportation service to customers in Western Canada . These strategically located pipeline assets are expected to generate stable and predictable cash flows.

During the three months ended September 30, 2009 , Pembina's Conventional Pipelines business transported an average of 389,282 bbls/d, compared to 430,493 bbls/d during the same three month period in 2008. The decline in aggregate throughput was primarily the result of year-over-year changes in drilling and production associated with changes in the Alberta royalty regime, softer commodity prices through much of 2009 and difficult access to credit for many smaller exploration and production companies. Pembina expects that as commodity prices and market fundamentals stabilize, drilling and production activity should improve thereby assisting the normalization of throughputs.

Pembina's Conventional Pipelines generated revenue of $62.2 million during the third quarter of 2009, compared to $67.7 million generated over the same period in 2008. Revenues were down primarily as a result of decreased aggregate throughput, discussed above. Year-to-date revenues were $192 million in 2009, compared to $197.7 million the year before. Average revenue totaled $1.61 per barrel during the third quarter and $1.64 per barrel during the first nine months of 2009, consistent with the first quarter of 2008, but up 10 cents per barrel from the first nine months of 2008.

Pembina's continued focus on operating cost discipline and steady operations helped reduce operating expenses for the Conventional Pipelines business during the third quarter of 2009. During the quarter, operating expenses were $24 million , compared to the third quarter of 2008 when operating expenses totaled $29.7 million . Year-to-date operating expenses of $81.6 million compare favourably to $82.2 million the year before.

Lower operating expenses helped maintain net operating income margins, partially offsetting the decrease in revenue. Conventional Pipelines contributed $38.2 million in net operating income during the third quarter of 2009, compared to $38 million for the same quarter of the prior year. Net operating income totaled $110.4 million for the first nine months of 2009 and $115.5 million for the comparable period in 2008.

Pembina continues to invest capital in its assets to help enhance safety and reliability while at the same time providing for the possibility of future growth. During the third quarter of 2009, Pembina invested capital of approximately $15.4 million , which was primarily focused on upgrading the reliability of the Conventional Pipelines.

Oil Sands & Heavy Oil Infrastructure

Pembina has 775,000 bbls/d of fully contracted crude oil transportation capacity in three distinct pipelines serving customers in the Athabasca oil sands region. Pembina's oil sands assets, the Syncrude Pipeline, Cheecham Lateral, and Horizon Pipeline, operate under long-term, extendible contracts that provide for the flow through of Pembina's operating costs to shippers. Operating income generated by these assets is related to invested capital and is not sensitive to fluctuations in costs or capacity utilization.

Syncrude Pipeline

The Syncrude Pipeline has a transportation capacity of 389,000 bbls/d and is fully contracted to the owners of Syncrude Canada Ltd. under a long-term agreement, which expires in 2035. Net operating income generated by the Syncrude Pipeline during the third quarter and first nine months of 2009 was $7.3 million and $23.6 million , respectively. This compares to $8.4 million and $24.8 million of net operating income generated over the comparable periods in 2008.

Cheecham Pipeline

The Cheecham Pipeline has a capacity of 136,000 bbls/d and is fully contracted to shippers under the terms of a 25-year agreement, which expires in 2032. Net operating income generated by this asset was $1.1 million and $3.5 million during the third quarter and first nine months of 2009. This compares to $1.1 million and $3.4 million of net operating income generated over the comparable periods in 2008.

Horizon Pipeline

The Horizon Pipeline is fully contracted to Canadian Natural Resources Ltd. ("CNRL") and has an ultimate capacity of 250,000 bbls/d. The pipeline is operated under the terms of a 25-year extendible transportation agreement providing Pembina a fixed return on invested capital and full recovery of operating expenses. The Horizon Pipeline contributed $11.7 million in net operating income during the third quarter of 2009 and $34.8 million in net operating income year-to-date. No comparisons can be made, as the Horizon Pipeline began earning revenue in November, 2008.

Midstream & Marketing Business

Pembina's Midstream & Marketing business unit is comprised of its 50 percent non-operated interest in the Fort Saskatchewan Ethylene Storage Facility, the Cutbank Complex gas gathering and processing facilities, and its wholly-owned terminals, storage and hub services operated on several of its Conventional Pipeline systems.

The Midstream & Marketing business recorded revenue, net of product purchases, of $40.4 million during the third quarter of 2009, compared to $28.3 million during the same period in 2008. For the first nine months of 2009, this business generated $90.4 million in revenue, net of product purchases, compared to $79.4 million for the same period the prior year. Factors influencing revenues include energy market conditions, the volume of product receipts on Pembina's single shipper assets and gas production volumes. During the third quarter of 2009, the impact of throughput decline on the pipeline systems on which midstream activities are conducted offset incremental revenue contributed by expanded service offerings at two truck terminals on the Peace system. However, Midstream & Marketing results were bolstered by new revenues generated by the Cutbank Complex, a gas gathering and processing facility acquired in June 2009 . The Cutbank Complex generated revenues of $14.9 million during the third quarter and $19.3 million year-to-date.

During the quarter, Midstream & Marketing operating expenses were $7.2 million , compared to the third quarter of 2008 when operating expenses totaled $2.2 million . The $7.2 million in operating expenses includes $4.6 million of Cutbank Complex operating expenses, which flow through to customers under various service agreements. Excluding operating expenses related to the Cutbank Complex, operating expenses for this business were comparable quarter-over-quarter. Year-to-date operating expenses of $14 million compares to $6.2 million during the first nine months of 2008. This increase in year-over-year operating expenses reflects the ongoing expansion of the Midstream & Marketing business and the inclusion of $6.2 million in Cutbank Complex expenses.

The Midstream & Marketing business contributed $33.2 million in net operating income during the third quarter of 2009, compared to $26.1 million for the same quarter of the prior year. Net operating income totaled $76.4 million for the first nine months of 2009 and $73.2 million for the comparable period in 2008. Of these totals, the Cutbank Complex generated $10.3 million and $13.1 million in net operating income for the third quarter and year-to-date, respectively.

On October 1, 2009 , Pembina began a planned maintenance shutdown on portions of its Cutbank Complex. Management originally expected the maintenance work to last a total of 30 days; however, the work was completed ahead of schedule. Thorough, advance planning and excellent on-site coordination of tradespeople resulted in timelines being reduced; in some cases by more than half. As a result, Pembina expects production volumes at Cutbank during October to be down by only ten percent, with minimal impact on revenue. The Cutbank Complex is comprised of three gas plants (the Cutbank, Musreau and Kakwa gas plants) and related assets. The Cutbank gas plant and the Musreau gas plant are 100 percent and 86 percent owned and operated by Pembina, and the Kakwa gas plant, in which Pembina has a 50 percent interest, is operated by a third party. During the third quarter and first nine months of 2009, average throughput at the Cutbank Complex was 200.5 mmcf/d and 200.2 mmcf/d, respectively.

Pembina expects the stability of results generated by its Midstream & Marketing business to benefit from cash flow contributed by contracted assets such as the Cutbank Complex and its 50 percent interest in the fully contracted Fort Saskatchewan Ethylene Storage Facility. Pembina anticipates the Cutbank Complex to contribute additional fee-for-service revenue and the Fort Saskatchewan Ethylene Storage Facility to continue to generate stable, long-term returns that are independent of capacity utilization and operating expenses. The Fund intends to pursue additional contracted opportunities in this business unit to assist in further diversifying and stabilizing revenues going forward.

Cash Distributions

During the third quarter of 2009, the Fund declared distributions of $0.39 per Trust Unit, or $60.2 million in aggregate, compared to $0.38 per Trust Unit, or $50.7 million in aggregate paid in the third quarter of 2008. 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 75 percent of the distributions declared in 2009 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 return of capital will reduce the Unitholders' adjusted cost base of each Trust Unit for Canadian tax purposes. Pembina's distributions are subject to current domestic tax laws which require a withholding tax from distribution income to non-residents of Canada .

Pembina generated $0.4293 per Trust Unit in distributable cash during the third quarter of 2009, compared to $0.3923 during the third quarter of 2008.

Pembina believes it is well positioned to maintain its current level of cash distributions to Unitholders through 2013, despite becoming a taxable entity in 2011. Attractive fundamentals within each of Pembina's three business units combined with a strong inventory of organic growth opportunities continue to support this positive outlook.

Liquidity and Capital Resources

The Fund's credit facilities at September 30, 2009 consisted of an unsecured $500 million revolving credit facility due July 2012 and an unsecured $150 million non-revolving credit facility due December 2010 , which was used to partially fund the Cutbank Complex transaction in the second quarter. In addition, Pembina has an operating facility of $50 million , which matures July 2010 . There are no repayments due over the term of either facility. At September 30, 2009 , Pembina had $569.2 million drawn leaving $130.8 million of undrawn capacity on the $700 million of established bank facilities. Borrowings bear interest at either prime lending rates or bankers' acceptances, plus applicable margins. The margins are based on the credit rating of the senior unsecured debt of Pembina Pipeline Corporation and range from zero percent to 2.75 percent. Other debt includes $75.2 million in fixed rate Senior Secured Notes due 2017, $175 million in fixed rate Senior Unsecured Notes due 2014, $200 million in fixed rate Senior Unsecured Notes due 2021 and $75 million in fixed rate term debt due 2014. At September 30, 2009 , Pembina had long-term debt (excluding deferred financing fees) of $1,086 million . This long-term debt, together with $38.8 million of outstanding convertible debentures, resulted in a ratio of total debt to total enterprise value of 32.2 percent, compared to a ratio of 32.1 percent at December 31, 2008 . See "Non-GAAP Measures" below.

During the third quarter, $8.8 million in net debt financing costs were recorded, compared to $6.9 million in the third quarter of 2008.

Pembina initiated several significant financial events in the third quarter and subsequent to quarter end to further strengthen its financial position. In July, the Fund announced it filed a Short Form Base Shelf Prospectus with Canadian regulatory authorities in each of the provinces of Canada . Under provisions detailed in the Short Form Base Shelf Prospectus, the Fund may offer and issue, from time to time: (i) Trust Units; (ii) any bonds, debentures, notes or other evidences of indebtedness of any kind, nature or description of the Fund ("Debt Securities"); (iii) warrants to purchase Trust Units and warrants to purchase Debt Securities; and (iv) subscription receipts of the Fund (collectively, the "Securities") of up to $1 billion aggregate initial offering price of Securities during the 25 month period that the shelf prospectus is valid. Securities may be offered separately or together, in amounts, at prices and on terms to be determined based on market conditions at the time of sale and set forth in one or more shelf prospectus supplements.

Subsequent to quarter end, the Fund entered into an agreement for the issuance by way of private placement of $267 million in Senior Unsecured Notes, Series D (the "Series D Notes") by its wholly-owned subsidiary Pembina Pipeline Corporation. Subject to Pembina and the purchasers of the Series D Notes satisfying all of the conditions to closing, Pembina expects the Series D Notes will be issued in a single tranche on November 18, 2009 with a 10-year bullet maturity and a fixed interest rate of 5.91 percent.

Conference Call & Webcast

Pembina will host a conference call and webcast on Thursday, October 29 , at 9:00 a.m. MT ( 11:00 a.m. ET ), for interested investors, analysts, brokers and media representatives to discuss the second quarter financial and operating results.

The conference call dial-in number is 416-644-3419 or 800-814-4860. A recording of the conference call will be available for replay until Thursday, November 5, 2009 at 11:59 PM ET . To access the replay, please dial either 416-640-1917 or 877-289-8525 and enter the passcode 4176850 followed by the pound key.

A live webcast of the conference call can be accessed on Pembina's website at www.pembina.com under "Investors", "Calendar of Events." Immediately following the call, an audio archive will be posted on the website for 90 days.

MD&A, Financial Statements & Notes

The Fund's management's discussion and analysis, consolidated financial statements and notes for the period ended September 30, 2009 , provide a detailed explanation of Pembina's operating results for the three and nine month periods ended September 30, 2009 as compared to the three and nine month periods ended September 30, 2008 . These documents will be available at www.pembina.com and at www.sedar.com.

Forward-Looking Information, Statements and Assumptions

This news release contains certain forward-looking information, statements and assumptions ("forward looking statements") that are based on the Fund's and Pembina's current expectations, estimates and projections in light of its experience and its perception of historical trends. In this news release, such forward-looking statements can be identified by terminology such as "will", "should", "expects", "planned", "believe", "estimate", "anticipates", "projects", "schedule", "continue", "expansion", "intends", and similar expressions.

In particular, this news release contains forward-looking statements, including certain financial outlook, regarding the possible conversion of Pembina to a corporate form in the latter half of 2010 and the ability of Pembina to maintain its current level of cash distributions to its equity holders both prior to and after conversion through 2013 (in the form of dividends after conversion), the proposed construction of the Nipisi and Mitsue Pipelines, the performance of the Cutbank Complex, the continued normalization of Pembina's results from operations, ongoing utilization and expansions of and additions to Pembina's asset base, growth and growth potential, potential revenue and cash flow enhancement, future cash flows, maintenance and operating margins, and the proposed issuance of the Series D Notes by the Fund's wholly owned subsidiary, Pembina Pipeline Corporation, (which remains subject to Pembina and the purchasers of the Series D Notes being able to satisfy the conditions to closing). These forward-looking statements are being made by Pembina based on certain assumptions that Pembina has made in respect thereof as at the date of this document including those discussed below.

None of the forward-looking statements described above are guarantees of future performance and they are all subject to a number of known and unknown risks and uncertainties, including but not limited to: the impact of competitive entities and pricing, approvals by industry partners, reliance on key alliances and agreements, activities of and decisions made by third parties, non-performance of the transportation agreements in accordance with their terms, the strength and operations of the oil and natural gas production industry and related commodity prices, the regulatory environment and decisions and the inability to obtain required regulatory approvals on satisfactory terms or at all, tax laws and treatment, fluctuations in operating results, the ability of Pembina to raise sufficient capital (or to raise capital on favourable terms) to complete future projects and satisfy future commitments, construction delays and labour and material shortages, and certain other risks detailed from time to time in the Fund's public disclosure documents including, among other things, those detailed under the heading "Risk Factors" in the Fund's annual information form for the year ended December 31, 2008 and the Fund's management's discussion and analysis for the year ended December 31, 2008 , each of which can be found under the Fund's SEDAR profile at www.sedar.com.

Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted, forecasted or projected. 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 contained herein, except as required by applicable laws. Management of the Fund approved the financial outlook contained herein as of the date of this news release. The purpose of the financial outlook contained herein is to give the reader an indication of the potential effects to Unitholders of a possible conversion of Pembina to corporate form. Readers should be aware that the information contained in the financial outlook contained herein may not be appropriate for other purposes.

All dollar values are expressed in Canadian dollars unless otherwise noted.

Non-GAAP Financial Measures

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

For further information: Glenys Hermanutz, Vice President, Corporate Affairs, Pembina Pipeline Corporation, [phone], 1-888-428-3222, e-mail: [email protected]