DBRS Confirms Pembina Pipeline Income Fund at STA-2 (low)

Dominion Bond Rating Service (“DBRS”) has today confirmed the stability rating of Pembina Pipeline Income Fund (the “Fund”) at STA-2 (low).

The Fund continues to benefit from three core operations underpinned by long-lived assets with low-maintenance capex. The Alberta Oil Sands Pipeline (“AOSPL”) and Fort Saskatchewan Storage Limited Partnership, both supported by long-term contracts effectively on a cost-of-service basis, add to stability. These operations’ share of operating income should rise from the current 27% with the recent higher throughput commitment at AOSPL (estimated at over 40% of total volumes). The Fund’s superior growth is driven by numerous growth initiatives. The largest of these is the Horizon Pipeline (“Horizon”) – estimated cost of $290 million – in support of Canadian Natural Resources Limited’s mega oil sands project, which is expected to add to firm contracted revenues for 25 years beginning in 2008. Potential development of a condensate pipeline may arise in partnership with Terasen Inc. Other potential developments include construction of the Cheecham Lateral and reversal of Plains Marketing, L.P.’s Calven pipeline. The Fund’s conventional feeder pipelines will continue to be the largest contributor to earnings and cash flow (70% of operating income in the nine months to September 30, 2005) in a very active drilling environment.

The growing synthetic crude oil pipeline assets should support incremental increases in per-unit cash distributions over time. Cash distributions have been held constant at Cdn$1.05/unit payout since 2000. The Fund’s financial ratios have remained relatively stable, with cash payout to cash available for distributions falling below 100% in 2004 and to date in 2005.

The Fund’s biggest challenge is its ability to mitigate the throughput risk associated with natural decline in the mature oil fields in Alberta and northeast British Columbia. Tolls must rise over time in order to compensate for declining volumes, reducing the competitiveness of the pipelines. The foregoing is partly offset by the rising contribution from AOSPL as well as strong exploration activity encouraged by the high crude oil prices. Prospects for new connections, as evident in the past two to three years, should continue, at least near-term. The Fund’s pipeline systems offer the most economic means of shipping oil to the market as the tolls charged are only a fraction of the wellhead price of crude oil.

While balance sheet leverage may rise in 2007 and 2008 during construction of Horizon, DBRS expects the capital structure to remain near current levels, over time. Equity issuance, supplemented by debenture conversions and the dividend reinvestment plan (DRIP) (which represented about 27% of the equity base at September 30, 2005), should support the balance sheet, if required.