Quantcast
Last updated on April 20, 2014 at 8:28 EDT

Pembina Pipeline Corporation 2012 first quarter results

May 3, 2012

Existing operations demonstrate continued improved performance;
acquisition of Provident Energy Ltd. complete

All financial figures are in Canadian dollars unless noted otherwise.
This report contains forward-looking statements and information that
are based on Pembina Pipeline Corporation’s current expectations,
estimates, projections and assumptions in light of its experience and
its perception of historical trends. Actual results may differ
materially from those expressed or implied by these forward-looking
statements. Please see “Forward-Looking Statements & Information” for
more details. This report also refers to financial measures that are
not defined by Canadian Generally Accepted Accounting Principles. For
more information about the measures which are not defined by Canadian
Generally Accepted Accounting Principles see “Non-GAAP Measures.”

CALGARY, May 3, 2012 /PRNewswire/ – Pembina Pipeline Corporation (“Pembina” or
the “Company”) achieved strong first quarter 2012 results, driven by increased performance in all four
of the Company’s businesses.

“Our first quarter 2012 results are a clear reflection of the progress
we are continuing to make on our growth strategy,” said Bob Michaleski,
Pembina’s Chief Executive Officer. “Each of our businesses have
progressed their expansion plans while simultaneously reporting higher
operating and financial metrics in their existing operations. All of
this gives us tremendous confidence in our ability to enhance
shareholder value in 2012 and beyond.”

Acquisition of Provident Energy Ltd. (“Provident”)

On April 2, 2012, subsequent to the end of the first quarter, Pembina
completed its acquisition of Provident Energy Ltd. (“Provident”) by way
of a plan of arrangement pursuant to Section 193 of the Business
Corporations Act (Alberta) (the “Arrangement”). This transaction
positions Pembina as a leader in the North American energy
infrastructure sector with more highly integrated operations, a full
suite of complementary services and an estimated total enterprise value
of approximately $10 billion (total enterprise value is a Non-GAAP
Measure, see “Non-GAAP Measures”). Following the closing of the
Arrangement, Pembina has implemented its previously announced plan to
increase its monthly dividend from $0.13 per share per month ($1.56
annualized) to $0.135 per share per month ($1.62 annualized),
representing a 3.8 percent increase and reflecting management’s
confidence in the significant operational and financial strength of the
combined entity going forward (see “Forward-Looking Statements &
Information”).

In conjunction with the closing of the Arrangement, Pembina also
announced a new credit facility of $1.5 billion and its common shares
began trading on the New York Stock Exchange (“NYSE”) under the symbol
“PBA.”

First Quarter Highlights

        --  Pembina realized strong consolidated volume growth of 15
            percent, with first quarter 2012 aggregate volumes of 1,379
            thousand barrels of oil equivalent per day ("mboe/d") compared
            to 1,203 mboe/d in the first quarter of 2011.

        --  Adjusted EBITDA was $111.6 million ($0.66 per share) in the
            first quarter of 2012 compared to $87.2 million ($0.52 per
            share) in the first quarter of 2011.(1)

        --  Cash flow from operating activities was $65.3 million ($0.39
            per share) during the first quarter of 2012 compared to $74.5
            million ($0.45 per share) during the first quarter of 2011.

        --  Adjusted cash flow from operating activities was $98.8 million
            ($0.59 per share) for the first quarter of 2012 compared to
            $75.9 million ($0.45 per share) for the same period in 2011.(1)

        --  Earnings were $32.6 million ($0.19 per share) during the first
            quarter of 2012 compared to $42.5 million ($0.25 per share) for
            the same period in 2011. Excluding expenses related to the
            acquisition of Provident (net of tax), earnings were $48.4
            million ($0.29 per share) for the first quarter of 2012.

        --  Adjusted earnings were $65.4 million ($0.39 per share) during
            the first quarter of 2012 compared to $52.7 million ($0.32 per
            share) in the first quarter of 2011.(1)

        --  Dividends declared were $65.7 million during the first quarter
            of 2012, representing $0.39 per share ($0.13 per common share
            per month), compared to $65.1 million in the first quarter of
            2011 (no change in per share dividend payments during these
            periods, as the recent dividend increase was implemented
            subsequent to quarter end).

Revenue, net of product purchases, increased approximately 26 percent
during the first quarter of 2012 to $176.4 million compared to $140.6
million in the first quarter of 2011. This was driven by strong
performance in each of Pembina’s four businesses, particularly the Oil
Sands & Heavy Oil business which realized revenue of $43.1 million in
the first quarter of 2012 compared to $30.6 million in the first
quarter of 2011. This 41 percent increase was due to contributions from
the Nipisi and Mitsue pipelines, which began generating returns in the
third quarter of 2011. Pembina’s Gas Services business also generated
higher revenue, contributing $19.1 million during the first quarter of
2012, an increase of 27 percent compared to $15 million in the first
quarter of 2011. This increase primarily reflects higher processing
volumes at Pembina’s Cutbank Complex. In the Midstream & Marketing
business, revenue, net of product purchases, grew to $32.0 million
during the first quarter of 2012 from $25.8 million during the first
quarter of 2011. This 24 percent increase was primarily due to higher
volumes and activity on Pembina’s Peace Pipeline and Drayton Valley
Pipeline systems, stronger commodity prices for the majority of liquid
hydrocarbon products and wider margins. During the first quarter of
2012 and as a result of higher volumes on the majority of Conventional
Pipelines’ largest pipeline systems, this business generated revenue of
$82.2 million which represents an increase of approximately 19 percent
from the $69.2 million in the same quarter of 2011.

Operating margin grew by more than 30 percent during the quarter from
$97.4 million during the first quarter of 2011 to $127.9 million during
the first quarter of 2012 as a result of increases in all four
businesses.((1)) The Oil Sands & Heavy Oil business generated operating margin of $30.1
million in the first quarter of 2012 compared to $19.3 million in the
first quarter of 2011 due to contributions from the Nipisi and Mitsue
pipelines. Operating margin was also positively impacted by the
Company’s Gas Services business which saw an average processing volume,
net to Pembina, at the Cutbank Complex during the quarter of 250.4
million cubic feet per day (“MMcf/d”), approximately 10 percent higher
than the 228.3 MMcf/d processed during the first quarter of 2011. As a
result, this business contributed operating margin of $13.0 million
during the quarter compared to $10.3 million during the first quarter
of 2011. The Midstream & Marketing business contributed $29.6 million
to operating margin compared to $23.7 million during the first quarter
of 2011, while the Conventional Pipelines business realized operating
margin for the first quarter of 2012 of $54.6 million compared to $44.1
million during the same period of 2011. During the first quarter of
2012 and as a result of increased industry activity on the Conventional
Pipelines’ major pipeline systems, throughput averaged 466.9 thousands
of barrels per day (“mbpd”) which is approximately 20 percent higher
than the same period in 2011.

Growth initiatives in the first quarter included beginning construction
at the plant sites for both the Resthaven and Saturn gas plants.

“This was a strong quarter for Pembina and marks a major milestone in
the Company’s history,” said Mr. Michaleski. “Not only did we achieve
exceptional financial and operating results during the quarter, but we
also closed our acquisition of Provident shortly thereafter. We know we
have lots of work ahead of us to bring our two companies together, but
we are already beginning to see some of the benefits we had predicted
from the transaction because of the services we can now provide our
customers.”

Provident First Quarter Highlights((2)())

Provident delivered strong 2012 first quarter results which were in line
with its first quarter of 2011, despite softening propane pricing. 
Adjusted EBITDA((3)) was approximately $61 million for the first quarter of 2012, consistent
with the first quarter of 2011. Natural gas liquids (“NGL”) sales
volumes averaged approximately 126 mbpd, a seven percent increase over
the first quarter of 2011.

Adjusted funds flow from operations((4)) was also comparable to the first quarter of 2011 at approximately $53
million for both the first quarter of 2012 and 2011.

Total debt at March 31, 2012 was $532 million compared to $510 million
at December 31, 2011. Capital expenditures were $37 million in the
first quarter of 2012 and were primarily directed towards cavern
development at the Redwater facility.

Market frac spread, which is the value received on the market for the
sale of a standard natural gas liquids (“NGL”) barrel less the cost of
the natural gas from which the NGL was extracted, increased by 10
percent during the first quarter of 2012 over the first quarter of 2011
and reflects the reduced cost of natural gas which more than offset
reduced propane sales prices.

Hedging Information

Pembina has posted updated hedging information on its website,
www.pembina.com, under “Investor Centre – Hedging”.

Conference Call & Webcast

Pembina will host a conference call Friday, May 4, at 9:00 a.m. MT
(11:00 a.m. ET) to discuss details related to the first quarter of
2012. The conference call dial-in numbers for Canada and the U.S. are
647-427-7450 or 888-231-8191. A live webcast of the conference call can
be accessed on Pembina’s website under “Investor Centre – Presentation
& Events,” or by entering http://event.on24.com/r.htm?e=453896&s=1&k=2C8C2F59CCA01EA3C57985701E6AA180 in your web browser.

____________________________


    (1)  EBITDA, adjusted cash flow from operating activities, adjusted
         earnings and operating margin are non-GAAP measures, see "Non-GAAP
         Measures".

    (2)  As Pembina did not own Provident during the first quarter of 2012,
         these results are not consolidated with Pembina's for this period
         and the results provided are for information purposes only.
         Provident's results will be consolidated with Pembina commencing
         in the second quarter of 2012.

    (3)  Adjusted EBITDA for the Provident results is earnings before
         interest, taxes, depreciation, amortization, and other non-cash
         items, and excludes hedge buy-out, non-controlling interest and
         acquisition-related expenses.

    (4)  Adjusted funds flow from operations for the Provident results
         excludes changes in non-cash operating working capital,
         acquisition-related expenses, hedge buy-out and non-controlling
         interest.

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following management’s discussion and analysis (“MD&A”) of the
financial and operating results of Pembina Pipeline Corporation
(“Pembina” or the “Company”) is dated May 3, 2012 and is supplementary
to, and should be read in conjunction with, Pembina’s condensed
consolidated unaudited interim financial statements for the period
ended March 31, 2012 (“Interim Financial Statements”) as well as
Pembina’s consolidated audited annual financial statements and MD&A for
the year ended December 31, 2011 (the “Consolidated Financial
Statements”).

Management is responsible for preparing the MD&A. This MD&A has been
reviewed and recommended by the Audit Committee of Pembina’s Board of
Directors and approved by its Board of Directors.

This MD&A contains forward-looking statements (see “Forward-Looking
Statements & Information”) and refers to financial measures that are
not defined by Canadian Generally Accepted Accounting Principles
(“GAAP”). For more information about the measures which are not defined
by Canadian Generally Accepted Accounting Principles, see “Non-GAAP
Measures.”

About Pembina

With nearly 60 years experience, Calgary-based Pembina Pipeline
Corporation is a leading transportation and service provider to North
America’s energy industry. Pembina has leveraged its strong record of
profitable growth to expand beyond its core business of operating
conventional crude oil and natural gas liquids (“NGL”) feeder
pipelines. Today, Pembina owns and operates pipelines that transport
crude oil, NGL, diluent and synthetic crude produced in western Canada;
offers a full spectrum of midstream and marketing services; and, has a
strong presence in the gas services sector. Pembina also owns an NGL
infrastructure and logistics business, with facilities strategically
located in western Canada and in the premium NGL markets in eastern
Canada and the United States. Pembina’s integrated assets and
commercial operations enable it to offer services needed by the energy
sector along each step of the hydrocarbon value chain.

Pembina is a trusted member of the communities in which it operates and
is committed to generating value for its investors through operational
excellence: running its businesses in a safe, environmentally
responsible manner that is respectful of community stakeholders.

Strategy

Pembina’s goal is to provide highly competitive and reliable returns to
investors through monthly dividends while enhancing the long-term value
of its common shares. To achieve this, Pembina’s strategy is to:

        --  Generate value by providing customers with safe,
            cost-effective, reliable services.

        --  Diversify Pembina's asset base to enhance profitability. A
            diverse portfolio provides Pembina with the ability to respond
            to market conditions, reduce risk and increase opportunities to
            leverage existing businesses. A priority is placed on
            developing businesses that support Pembina's core competency -
            operating crude oil and NGL transportation systems, and gas
            gathering and processing infrastructure - which allow for
            expansion, vertical integration and accretive growth.

        --  Implement growth and conduct operations in a safe and
            environmentally responsible manner. Growth is expected to occur
            through expansion of existing businesses, acquisitions and the
            development of new services. Pembina's investment criteria
            include pursuing projects or assets that are expected to
            generate increased cash flow per share and capture long-life,
            economic hydrocarbon reserves.

        --  Maintain a strong balance sheet through the application of
            prudent financial management to all business decisions.

Pembina is structured in four businesses: Conventional Pipelines, Oil
Sands & Heavy Oil, Gas Services and Midstream & Marketing, which are
described in their respective sections of this MD&A.

Acquisition of Provident Energy Ltd. (“Provident”)

On April 2, 2012, Pembina completed its acquisition of Provident by way
of a plan of arrangement pursuant to Section 193 of the Business
Corporations Act (Alberta) (the “Arrangement”). Provident shareholders
received 0.425 of a Pembina share for each Provident share held (the
“Provident Exchange Ratio”). In addition, Pembina has assumed all of
the rights and obligations of Provident relating to the 5.75 percent
convertible unsecured subordinated debentures of Provident maturing
December 31, 2017 (“Series E Debentures”) (TSX Trading Symbol:
PPL.DB.E), and the 5.75 percent convertible unsecured subordinated
debentures of Provident maturing December 31, 2018 (“Series F
Debentures”) (TSX Trading Symbol: PPL.DB.F). On closing of the
acquisition, Pembina listed its common shares, including those issued
under the Arrangement, on the New York Stock Exchange (“NYSE”) under
the symbol “PBA”. Pursuant to the Arrangement, Provident amalgamated
with a wholly-owned subsidiary of Pembina and was continued under the
name “Pembina NGL Corporation.”

Common Abbreviations

The following is a list of abbreviations that may be used in this MD&A:


    Measurement        

    bbl               barrel

    bpd               barrels per day

    mbpd              thousands of barrels per day

    boe               barrels of oil equivalent

    boe/d             barrels of oil equivalent per day

    mboe              thousands of barrels of oil equivalent

    mboe/d            thousands of barrels of oil equivalent per day

    MMcf              millions of cubic feet

    MMcf/d            millions of cubic feet per day

    GJ                gigajoule

    km                Kilometre

    Other              

    WCSB              Western Canadian Sedimentary Basin

    WTI               West Texas Intermediate (crude oil benchmark price)

    AECO              Alberta gas trading price

    USD               United States dollars

    DRIP              Premium Dividend(TM) and Dividend Reinvestment
                      Plan

    TSX               Toronto Stock Exchange

    IFRS              International Financial Reporting Standards

Financial & Operating Overview
(unaudited)


    ($ millions, except where                            3 MonthsEnded
    noted)                                                  March31

                                                   2012                2011

    Revenue                                       475.3               394.3

    Operations                                     48.5                43.2

    Product purchases                             298.9               253.7

    Operating margin(1)                           127.9                97.4

    Depreciation and
    amortization included in
    operations                                     21.7                14.9

    Gross profit                                  106.2                82.5

    Deduct/(add)                                                           

      General and
      administrative expenses                      17.6                14.7

      Acquisition-related and
      other                                        22.1                    

      Net finance costs                            23.2                14.0

      Share of profit of
      investments in equity
      accounted investee, net
      of tax                                      (0.2)               (2.2)

      Deferred income tax
      expense                                      10.9                13.5

    Earnings for the period                        32.6                42.5

    Earnings per share - basic
    and diluted (dollars)                          0.19                0.25

    Adjusted EBITDA(1)                            111.6                87.2

    Cash flow from operating
    activities                                     65.3                74.5

    Adjusted cash flow from
    operating activities(1)                        98.8                75.9

    Dividends declared                             65.7                65.1

    Dividends per common share
    (dollars)                                      0.39                0.39

    Capital expenditures                           54.9               223.3

    Total enterprise value(1)($
    millions)                                   6,492.9             5,453.1

    Total assets ($ millions)                   3,351.9             3,153.3

    Average throughput -
    conventional (mbpd)                           466.9               390.3

    Contracted capacity - oil
    sands (mbpd)                                  870.0               775.0

    Average processing volume -
    gas services (mboe/dnet to
    Pembina)(2)                                    41.7                38.1

    Aggregate volumes (mboe/d)
    (2)                                         1,378.6             1,203.4

    (1)  Refer to "Non-GAAP Measures."

    (2)  Gas Services processing volumes converted to mboe/d from MMcf/d at
         a 6:1 ratio.

Revenue, net of product purchases, increased approximately 26 percent
during the first quarter of 2012 to $176.4 million compared to $140.6
million in the first quarter of 2011. This was driven by strong
performance in each of Pembina’s four businesses, particularly the Oil
Sands & Heavy Oil business which realized revenue of $43.1 million in
the first quarter compared to $30.6 million in the first quarter of
2011. This 41 percent increase was due to contributions from the Nipisi
and Mitsue pipelines, which began generating returns in the third
quarter of 2011. Pembina’s Gas Services business also generated higher
revenue, contributing $19.1 million during the first quarter of 2012,
which is an increase of 27 percent compared to $15 million during in
the first quarter of 2011. This increase reflects higher processing
volumes at Pembina’s Cutbank Complex. In the Midstream & Marketing
business, revenue, net of product purchases, grew to $32.0 million
during the first quarter of 2012, from $25.8 million during the first
quarter of 2011. This 24 percent increase was primarily due to higher
volumes and activity on Pembina’s Peace Pipeline and Drayton Valley
Pipeline systems, stronger commodity prices for the majority of liquid
hydrocarbon products and wider margins. During the first quarter of
2012 and as a result of higher volumes on the majority of Conventional
Pipelines’ largest pipeline systems, this business generated revenue of
$82.2 million which represents an increase of approximately 19 percent
from the $69.2 million in the same quarter of 2011.

Operating expenses were $48.5 million during the first quarter of 2012
compared to $43.2 million in the first quarter of 2011. The 12 percent
increase was primarily due to increased variable costs associated with
higher volumes and new assets which are now in service.

Operating margin totaled $127.9 million during the first quarter of 2012
compared to $97.4 million during the first quarter of 2011 (operating
margin is a Non-GAAP measure, see “Non-GAAP Measures”). This increase
was primarily due to higher revenue, as discussed above.

The increases in revenue and operating margin contributed to gross
profit of $106.2 million during the first quarter of 2012 compared to
$82.5 million during the first quarter of 2011.

General and administrative expenses (“G&A”) of $17.6 million were
incurred during the first quarter of 2012 compared to $14.7 million
during the first quarter of 2011 due to an increase in salaries and
benefits for existing and new employees and increased rent for new and
expanded office space. Every $1 change in share price is expected to
change Pembina’s annual share-based incentive expense by $0.5 million.

Pembina generated earnings before interest, taxes, depreciation and
amortization, and acquisition-related expenses (“Adjusted EBITDA”) of
$111.6 million during the first quarter of 2012 compared to $87.2
million during the first quarter of 2011 (Adjusted EBITDA is a Non-GAAP
measure, see “Non-GAAP Measures”). The increase in quarterly Adjusted
EBITDA was due to strong operating results from each business, new
assets having been brought on-stream and new services being offered
during this period in 2012 compared to the same period of 2011.

Depreciation and amortization (operational) increased to $21.7 million
during the first quarter of 2012 compared to $14.9 million during the
same period in 2011 which reflects depreciation on new capital
additions including the Nipisi and Mitsue pipeline assets which began
operating in the third quarter of 2011.

The Company’s earnings were $32.6 million ($0.19 per share) during the
first quarter of 2012 compared to $42.5 million ($0.25 per share)
during the first quarter of 2011. Earnings were impacted by $15.8
million (net of tax) of expenses related to the acquisition of
Provident, included in acquisition-related and other expenses. Adjusted
earnings were $65.4 million ($0.39 per share) during the first quarter
of 2012 compared to $52.7 million ($0.32 per share) during the first
quarter of 2011 (adjusted earnings is a Non-GAAP measure, see “Non-GAAP
Measures”).

Cash flow from operating activities was $65.3 million ($0.39 per share)
during the first quarter of 2012 compared to $74.5 million ($0.45 per
share) during the first quarter of 2011. The decrease in cash flow from
operating activities is primarily related to acquisition-related
expenses of $21.1 million, higher interest expenses and an increase in
working capital during the first quarter of 2012.

Adjusted cash flow from operating activities was $98.8 million ($0.59
share) during the first quarter of 2012 compared to $75.9 million
($0.45 per share) during the first quarter of 2011 (adjusted cash flow
from operating activities is a Non-GAAP measure, see “Non-GAAP
Measures”).

Operating Results
(unaudited)


                                     3 MonthsEnded                 3 Months Ended
                                    March 31, 2012                 March 31, 2011

    ($ millions)           Net Revenue       Operating     Net Revenue     Operating
                                   (1)       Margin(2)             (1)     Margin(2)

    Conventional                  82.2            54.6            69.2          44.1
    Pipelines

    Oil Sands &                   43.1            30.1            30.6          19.3
    Heavy Oil

    Gas Services                  19.1            13.0            15.0          10.3

    Midstream &                   32.0            29.6            25.8          23.7
    Marketing

    Corporate                                      0.6                              

    Total                        176.4           127.9           140.6          97.4

    (1)  Midstream & Marketing revenue is net of $298.9 million in product
         purchase expense for three months ended March 31, 2012 (three
         months ended March 31, 2011: $253.7 million).

    (2)  Refer to "Non-GAAP Measures."

Conventional Pipelines


                                                          3 MonthsEnded
                                                            March 31

    ($ millions, except where
    noted)                                           2012              2011

    Revenue                                          82.2              69.2

    Operations                                       27.6              25.1

    Operating margin(1)                              54.6              44.1

    Depreciation and
    amortization included in
    operations                                       11.9               9.7

    Gross profit                                     42.7              34.4

    Capital expenditures                             11.1              16.7

    Average throughput (mbpd)                       466.9             390.3

    Average revenue
    (dollar/bbl)                                     1.94              1.97

    Operating expenses
    (dollar/bbl)                                     0.62              0.69

    (1)  Refer to "Non-GAAP Measures."

Business Overview

Pembina’s Conventional Pipelines business comprises a well-maintained
and strategically located 7,500 km pipeline network that extends across
much of Alberta and British Columbia, and transports approximately half
of Alberta’s conventional crude oil production and approximately twenty
percent of the NGL produced in western Canada. The Conventional
Pipelines business’ primary objective is to generate sustainable
operating margins while pursuing opportunities for increased throughput
and revenue. Pembina endeavors to maintain and/or improve operating
margins by capturing incremental volumes, expanding its pipeline
systems, managing revenues and adopting strong discipline over
operating expenses.

Operational Performance: Throughput

During the first quarter of 2012, Conventional Pipelines throughput
averaged 466.9 mbpd, consisting of an average of 281.4 mbpd of crude
oil, 60.3 mbpd of condensate and 125.2 mbpd of NGL. This is
approximately 20 percent higher than the same period of 2011 when
average throughput was 390.3 mbpd, primarily due to continued
production growth from regional resource play development in the
Cardium (oil), Deep Basin Cretaceous (NGL), Montney (oil/NGL) and
Beaverhill Lake (oil) formations. Pipeline receipts during the first
quarter of 2012 increased on all of Pembina’s major conventional
pipeline systems including the Drayton Valley, Peace, Swan Hills and
Northern systems.

Financial Performance

During the first quarter of 2012, Conventional Pipelines generated
revenue of $82.2 million, representing an increase of 19 percent from
the $69.2 million in the same quarter of 2011. This is due to higher
volumes on Pembina’s larger pipeline systems as discussed in more
detail above.

During the first quarter, operating expenses were slightly higher at
$27.6 million compared to $25.1 million in the first quarter of 2011 as
a result of increased variable costs associated with higher volumes and
new assets which are now in service.

Operating margin for the first quarter of 2012 was $54.6 million
compared to $44.1 million during the same period of 2011. This 24
percent increase was primarily due to higher revenue and realized
operating efficiencies.

Depreciation and amortization included in operations increased from $9.7
million during the first quarter of 2011 to $11.9 million during the
first quarter of 2012 reflecting capital additions in this business.

For the three months ended March 31, 2012, gross profit was $42.7
million compared to $34.4 million during the same period in 2011 and is
due to higher revenue generated during the quarter, for the reasons
discussed above.

Capital expenditures for the first quarter 2012 totaled $11.1 million
compared to $16.7 million during the first quarter 2011. The majority
of this spending relates to the expansion of certain pipeline assets as
described below.

New Developments: Conventional Pipelines

Liquids-Rich Natural Gas: Expansion of Peace and Northern Pipelines

Pembina is progressing plans to expand its NGL throughput capacity on
its Peace and Northern pipelines (together the “Northern NGL System”)
by 55 mbpd (the “NGL Expansion”) to accommodate increased customer
demand following strong drilling results and increased field liquids
extraction by area producers.

The NGL Expansion will require Pembina to install five new pump stations
and upgrade five existing pump stations.  Pembina expects the NGL
Expansion will cost approximately $100 million and is subject to
reaching long-term commercial arrangements with its customers and
receiving regulatory and environmental approvals. Assuming the
commercial agreements and regulatory approvals are achived in a timely
manner, Pembina expects 20 mbpd of the NGL Expansion can be brought
into service by the end of 2012 and the remaining 35 mbpd by the end of
2013.

Pembina’s Northern NGL System is strategically located across
liquids-rich natural gas production areas in the WCSB and serves
producers in the Deep Basin, Montney, Cardium and emerging Duvernay
Shale plays. Currently, the Northern NGL System’s capacity is 115 mbpd.
As at the end of March 2012, average daily throughput on the Northern
NGL System was approximately 104 mbpd. Once complete, the proposed NGL
Expansion will increase capacity on the Northern NGL System by 48
percent to 170 mbpd.

Pembina has existing long-term contracts in place for a portion of the
capacity on its Northern NGL System and continues to consult with its
customers to increase the volumes under long-term, firm service
incentive contracts to underpin the NGL Expansion.

Drayton Valley Area

In the area of the Cardium formation of west central Alberta, Pembina
continues to actively work with producers on numerous connection and
expansion opportunities.

As of the end of March 2012, the Company’s Drayton Valley Pipeline
system was operating at over 90 percent capacity, transporting 130 mbpd
with a capacity of 145 mbpd under its existing configuration. Pembina
expects to complete the refurbishment of its Calmar booster station in
May, 2012 to add 50 mbpd of capacity to the Drayton Valley mainline and
bring the total capacity of the system to 195 mbpd.

Supporting Gas Services’ Saturn and Resthaven Projects

Pembina is committed to its integrated strategy. To this end, the
Conventional Pipelines business is working closely with Gas Services to
construct the  pipeline portions of the Saturn and Resthaven gas plant
projects. The two pipeline projects will gather NGL from the gas plants
for delivery to Pembina’s Peace Pipeline system. During the first
quarter of 2012, Pembina continued its consultation activities related
to the right-of-way and pipeline routing for both of these projects
with First Nations, community stakeholders and the appropriate
regulators, and ordered long-lead equipment for the pipeline and pump
stations for both projects.

Oil Sands & Heavy Oil


                                                        3 MonthsEnded
                                                           March31

    ($ millions, except where
    noted)                                         2012              2011

    Revenue                                        43.1              30.6

    Operations                                     13.0              11.3

    Operating margin(1)                            30.1              19.3

    Depreciation and
    amortization included in
    operations                                      4.9               1.9

    Gross profit                                   25.2              17.4

    Capital expenditures                            5.8              99.8

    Capacity under contract
    (mbpd)                                        870.0             775.0

    (1)  Refer to "Non-GAAP Measures."

Business Overview

With five pipelines in this business, Pembina plays an important role in
supporting Alberta’s oil sands and heavy oil industry. Pembina is the
sole transporter of crude oil for Syncrude Canada Ltd. (via the
Syncrude Pipeline) and Canadian Natural Resources Ltd.’s Horizon
Project (via the Horizon Pipeline) to delivery points near Edmonton,
Alberta. Pembina also owns and operates the Cheecham Lateral, which
transports product to oil sands producers operating southeast of Fort
McMurray, Alberta. Pembina has expanded its Oil Sands & Heavy Oil
business by bringing the Nipisi and Mitsue pipeline projects on-stream
in June and July of 2011, which provide transportation for producers
operating in the Pelican Lake and Peace River heavy oil regions of
Alberta. The Mitsue Pipeline is the sole provider of diluent by
pipeline to this region. The Oil Sands & Heavy Oil business operates
approximately 1,650 km of pipeline and accounts for about 30 percent of
the total take-away capacity from the Athabasca oil sands region. These
assets operate under long-term, extendible contracts that provide for
the flow-through of operating expenses to customers. As a result,
operating margin from this business is primarily related to invested
capital and is not sensitive to fluctuations in operating expenses or
actual throughputs.

Operating Margin

Syncrude Pipeline

The Syncrude Pipeline has a capacity of 389 mbpd and is fully contracted
to the owners of Syncrude Canada Ltd. under an extendible agreement
that expires in 2035. Operating margin generated by the Syncrude
Pipeline during the first quarter 2012 was $6.7 million, virtually
unchanged from $6.5 million during the same period in 2011.

Cheecham Lateral

Pembina’s Cheecham Lateral has a capacity of 136 mbpd and is fully
contracted to shippers under an agreement that expires in 2032.
Operating margin generated by the Cheecham Lateral during the first
quarter of 2012 was $1.1 million, consistent with the results for the
same period in 2011.

Horizon Pipeline

The Horizon Pipeline has an ultimate capacity of 250 mbpd and is fully
contracted to Canadian Natural Resources Ltd. under an extendible
agreement that expires in 2033. Operating margin generated by the
Horizon Pipeline during the first quarter of 2012 was $11.2 million
compared to $11.4 million during the same period in 2011.

Nipisi & Mitsue Pipelines

In June and July of 2011, Pembina completed construction of its Nipisi
and Mitsue pipelines. Pembina is in the process of installing two
remaining pump stations which will bring the combined capacity to
approximately 120 mbpd. Operating margin generated by these assets in
the first quarter of 2012 was $10.5 million.

Financial Performance

The Oil Sands & Heavy Oil business realized revenue of $43.1 million in
the first quarter compared to $30.6 million in the first quarter of
2011. This 41 percent increase can largely be attributed to the
contributions from the Nipisi and Mitsue pipelines, which began
generating returns in the third quarter of 2011.

Operating expenses in Pembina’s Oil Sands & Heavy Oil business were
$13.0 million during the first quarter of 2012 compared to $11.3
million during the first quarter of 2011.  This increase primarily
reflects the addition of the Nipisi and Mitsue pipelines.

For the three months ended March 31, 2012, gross profit was $25.2
million compared to $17.4 million during the same period in 2011,
primarily due to results generated by the Nipisi and Mitsue pipelines
as discussed above.

Depreciation and amortization included in operations during the first
quarter of 2012 totaled $4.9 million compared to $1.9 million during
the same period of the prior year. This increase is largely due to the
addition of the Nipisi and Mitsue pipelines.

As of March 31, 2012, capital expenditures within the Oil Sands & Heavy
Oil business totaled $5.8 million compared to $99.8 million during
2011. The majority of Pembina’s 2011 investment in this business
related to completing the Nipisi and Mitsue pipeline projects.

Gas Services


                                                          3 MonthsEnded
                                                            March 31

    ($ millions, except where
    noted)                                            2012             2011

    Revenue                                           19.1             15.0

    Operations                                         6.1              4.7

    Operating margin(1)                               13.0             10.3

    Depreciation and amortization
    included in operations                             3.2              2.3

    Gross profit                                       9.8              8.0

    Capital expenditures                              34.0             15.6

    Average processing volume
    (mboe/d)(2)                                       41.7             38.1

    (1)  Refer to "Non-GAAP Measures."

    (2)  Average processing volume converted to mboe/d from MMcf/d at a 6:1
         ratio.

Business Overview

Pembina’s operations include a growing natural gas gathering and
processing business. Located approximately 100 km south of Grande
Prairie, Alberta, Pembina’s key revenue-generating Gas Services assets
– the Cutbank Complex – include 300 km of gathering lines and ownership
in three sweet gas processing plants with 360 million cubic feet per
day (“MMcf/d”) of processing capacity (305 MMcf/d net to Pembina). The
Cutbank Complex is connected to Pembina’s Peace Pipeline system and
serves an active exploration and production area in the WCSB.
Construction of Pembina’s Musreau Deep Cut Facility, a new 205 MMcf/d
ethane extraction facility and the related 10 km pipeline, was
completed and the facility became operational in mid-February 2012.
Pembina is also expanding this business to meet the growing needs of
producers throughout west central Alberta who are looking to capture
the higher prices associated with NGL. See below for more details.

Financial Performance

Gas Services recorded an increase in revenue of approximately 27 percent
during the first quarter of 2012, contributing $19.1 million compared
to $15.0 million in the first quarter of 2011. This increase primarily
reflects higher processing volumes at Pembina’s Cutbank Complex.
Average processing volume, net to Pembina, was 250.4 MMcf/d during the
first quarter of 2012, nine percent higher than the 228.3 MMcf/d
processed during the first quarter of 2011.

During the first quarter of 2012, operating expenses were $6.1 million,
an increase from the $4.7 million spent in the first quarter of 2011.
This increase was primarily due to variable costs incurred to process
more volume at the Cutbank Complex.

Gas Services realized operating margin of $13.0 million compared to
$10.3 million during the same period of the prior year, primarily as a
result of handling more volume at the Cutbank Complex.

Depreciation and amortization included in operations during the first
quarter of 2012 totaled $3.2 million compared to $2.3 million during
the same period of the prior year, primarily due to higher in-service
capital balances from the completion of the Musreau Deep Cut Facility.

For the three months ended March 31, 2012, gross profit was $9.8 million
compared to $8.0 million during the same period in 2011.

For the three months ended March 31, 2012, capital expenditures within
Gas Services totaled $34.0 million compared to $15.6 million during the
same period of 2011 as a result of spending to complete the Musreau
Deep Cut Facility, the expansion of the shallow cut facility at the
Cutbank Complex combined with capital expenditures incurred on the
Saturn and Resthaven enhanced NGL extraction facilities. For more
information about these and other new Gas Services projects, see
discussion below.

Musreau Deep Cut Facility

Pembina completed construction and began operations at its Musreau Deep
Cut Facility, a 205 MMcf/d ethane extraction facility, mid-February
2012. The Musreau Deep Cut Facility is currently experiencing an
unplanned outage. Pembina continues to process natural gas at its
Musreau gas plant, and as such, no producers have been shut-in as a
result of the outage.

New Developments: Gas Services

Pembina continues to see significant growth opportunities resulting from
the trend towards liquids-rich gas drilling and the extraction of
valuable NGL from gas in the WCSB. The three expansions detailed below
are expected to bring Pembina’s gas processing capacity to 890 MMcf/d
(net), including enhanced NGL extraction capacity of approximately 535
MMcf/d (net) which would be processed largely on a contracted,
fee-for-service basis and result in approximately 45 mbpd of
incremental NGL to be transported for additional toll revenue on
Pembina’s conventional pipelines by the end of 2013.

Expansion at the Cutbank Complex: Musreau Shallow Cut Expansion

Pembina is expanding Musreau’s shallow cut gas processing capability by
50 MMcf/d at an estimated cost of $17 million. The expansion is
expected to be in-service in July 2012. Once complete, the Cutbank
Complex is expected to have an aggregate raw gas processing capacity of
410 MMcf/d (355 MMcf/d net to Pembina), an increase of 16 percent net
to Pembina. In respect of this expansion, Pembina has entered into
contracts with a minimum term of five years with area producers for the
entire capacity of the expansion on a fee-for-service basis.

Resthaven Facility

Pembina is developing a combined shallow cut and deep cut NGL extraction
facility (the “Resthaven Facility”) by modifying and expanding an
existing gas plant and is also constructing a pipeline to transport the
extracted NGL from the Resthaven Facility to Pembina’s Peace Pipeline
System at an estimated cost of $230 million. Once complete, Pembina
will own approximately 65 percent of the Resthaven Facility and will
own 100 percent of the NGL pipeline. Pembina expects the initial phase
of the Resthaven Facility will have a gross capacity of 200 MMcf/d and
13 mbpd of liquids extraction capability, with ultimate processing
capacity of 300 MMcf/d and 18 mbpd of liquids extraction capability.
Subject to regulatory and environmental approvals, Pembina expects
these new assets to be in-service in late 2013.

As of the beginning of May 2012, Pembina has executed a Construction
Agreement, ordered long-lead equipment and begun plant site
construction for the project. Other activities related to the project
include pipeline stakeholder consultation, environmental planning,
route selection, engineering, and right-of-way surveying.

Saturn Facility

Pembina is developing a $200 million 200 MMcf/d enhanced NGL extraction
facility (the “Saturn Facility”) and associated NGL and gas gathering
pipelines in the Berland area of west central Alberta. Once
operational, Pembina expects the Saturn Facility will have the capacity
to extract up to 13.5 mbpd of NGL. Subject to regulatory and
environmental approval, Pembina expects the Saturn Facility and
associated pipelines to be in-service in the fourth quarter of 2013.

As of the beginning of May 2012, Pembina has ordered 80 percent of the
major, long-lead equipment for the project and begun plant site
construction. Pipeline environmental field assessments have been
completed, stakeholder consultation is ongoing, final routing and work
space requirements are being evaluated and regulatory meetings are
underway.

Midstream & Marketing


                                                       3 MonthsEnded
                                                        March 31(2)

    ($ millions)                                  2012              2011

    Revenue                                      331.0             279.5

    Operations                                     2.5               2.1

    Product purchases                            298.9             253.7

    Operating margin(1)                           29.6              23.7

    Depreciation and
    amortization included in
    operations                                     1.7               0.9

    Gross profit                                  27.9              22.8

    Capital expenditures                           2.3              90.3

    (1)  Refer to "Non-GAAP Measures."

    (2)  Share of profit from equity accounted investees not included
         inresults above.

Business Overview

Pembina’s Midstream & Marketing business consists of a network of
terminals, pipeline-connected storage and hub locations situated at key
sites across the Company’s conventional pipeline system. This includes
the development of the Pembina Nexus Terminal (as discussed below) as
well as a 50 percent non-operated interest in both the Fort
Saskatchewan Ethylene Storage Facility and the LaGlace Full Service
Terminal. By providing integrated services along the crude oil and NGL
value chains, this business has increased the range of services Pembina
provides to customers and contributes throughput to the Company’s
Conventional Pipelines and Oil Sands & Heavy Oil businesses. The value
potential associated with terminal, storage and hub assets is dependent
on Pembina’s ability to: provide connections to both downstream
pipelines and end-use markets; understand the value of the commodities
transported and terminalled; and provide flexibility and a variety of
storage options – all in an environment of a liquid, dynamic, forward
commodity market. Pembina actively monitors market conditions to target
revenue opportunities.

Performance

In the Midstream & Marketing business, revenue, net of product
purchases, grew 24 percent to $32.0 million during the first quarter of
2012 from $25.8 million during the first quarter of 2011. This increase
was primarily due to higher volumes and activity on Pembina’s pipeline
systems, stronger commodity prices for the majority of liquid
hydrocarbon products and wider margins.

Operating expenses during the first quarter of 2012 were $2.5 million,
up slightly from the $2.1 million in operating expenses incurred in the
first quarter of 2011.

Operating margin was $29.6 million during the first quarter of 2012
compared to $23.7 million during the first quarter of 2011. This
increase was largely due to the same factors that contributed to the
increase in revenue, net of product purchases, as discussed above.

For the three months ended March 31, 2012, gross profit in this business
increased to $27.9 million from $22.8 million during the same period in
2011. This increase was a result of the higher operating margin
realized during the first quarter of 2012.

For the three months ended March 31, 2012, capital expenditures within
the Midstream & Marketing business totaled $2.3 million compared to
$90.3 million during the same period of 2011. Capital spending in the
first quarter of 2011 had included the acquisition of a terminalling
and storage facility near Edmonton, Alberta and the acquisition of
linefill for the Peace Pipeline.

New Developments: Midstream & Marketing

The Company continues to develop the Pembina Nexus Terminal (“PNT”),
which has been designed to connect key infrastructure in the Edmonton -
Fort Saskatchewan – Namao, Alberta area. The assets that comprise PNT
are interconnected via pipelines to other Pembina infrastructure as
well as refineries and downstream terminals, and will enable Pembina to
create tailored products and services for customers while facilitating
growth opportunities for its other business units. During the first
quarter of 2012, Pembina increased the interconnectivity of PNT by
commissioning a connection to the Enbridge Southern Lights diluent
pipeline. Pembina anticipates undertaking additional activities to
further increase connectivity to the terminal which would be completed
over time, based on market demand and customer needs.

Pembina is also moving forward on its plans to expand services at a
number of its existing truck terminals and construct new full-service
terminals that focus on emulsion treating (separating oil from
impurities to meet shipping quality requirements), produced water
handling and water disposal. In addition to earning fees for these
services, Pembina’s truck terminals will secure volumes for its
pipeline systems and generate additional pipeline toll revenue.

Fort Saskatchewan Ethylene Storage Facility

Three of the five ethylene storage caverns in Pembina’s Storage Facility
in Fort Saskatchewan are currently out of service and it is unlikely
those caverns will be put back into ethylene storage service. While
alternative uses are being considered, no assurance that future
economic benefits from such out-of-service caverns (or their disposal)
can be given at this time. Pembina has entered into agreements to wash
a new ethylene storage cavern and does not expect a reduction in cash
flow.

During the quarter, Pembina provided a guarantee for its 50 percent
share of Fort Saskatchewan Ethylene Storage Limited Partnership’s
(“FSESLP”) credit facility of $43 million. On March 28, 2012, the loan
receivable from FSESLP of $18.8 million was repaid in full.

Business Environment

The first quarter of 2012 saw a 3.7 percent increase in the S&P TSX
Composite; however, the value of the Index is down 12.2 percent since
the same time a year ago. The benchmark WTI oil price trended downward
for most of January and recovered through mid-February to March, but
exited the quarter at USD $96 which is comparable to early January
prices. Canadian crude (both light and heavy) suffered from
higher-than-average price differentials in the first quarter of 2012
due to increasing crude supply, refinery downtime and export
constraints. Furthermore, low natural gas prices persisted as a result
of strong natural gas supply across North America and a relatively warm
winter. The opening AECO price in January was $2.59 per GJ, which
declined 34 percent during the quarter to exit at $1.70 per GJ.

The outlook for the energy infrastructure sector in the WCSB remains
positive for all of Pembina’s businesses. Strong activity levels within
the oil sands region represent opportunities for the Company to
leverage existing assets to capitalize on additional growth
opportunities. Pembina also continues to benefit from the combination
of relatively high oil prices and low natural gas prices which has
resulted in oil and gas producers extracting the liquids value from
their natural gas production and favouring liquids-rich natural gas
plays over dry natural gas. Pembina’s Conventional Pipelines and Gas
Services businesses are well-positioned to capitalize on the increased
activity levels in key NGL-rich producing basins. Oil and NGL plays
being developed in the vicinity of its pipelines include Cardium,
Montney, Cretaceous, Duvernay and Swan Hills.

Non-Operating Expenses

G&A

G&A expenses of $17.6 million were incurred during the first quarter of
2012 compared to $14.7 million during the first quarter of 2011 due to
an increase in salaries and benefits for existing and new employees and
increased rent for new and expanded office space. Every $1 change in
share price is expected to change Pembina’s annual share-based
incentive expense by $0.5 million.

Depreciation & Amortization (Operational)

Depreciation and amortization (operational) increased to $21.7 million
during the first quarter 2012 compared to $14.9 million during the same
period of 2011 which reflects depreciation on new capital additions
including the Nipisi and Mitsue pipeline assets which began operating
in the third quarter of 2011.

Acquisition-Related and Other

Acquisition-related expenses of $21.1 million include acquisition
expenses of $13.1 million and $8.0 million on account of the required
make whole payment for the redemption of the senior secured notes. See
“Liquidity and Capital Resources.”

Net Finance Costs

Net finance costs in the first quarter of 2012 were $23.2 million
compared to $14.0 million in the first quarter of 2011. The net
increase of $9.2 million relates primarily to a $4.2 million increase
in loans and borrowings interest expense due to higher debt balances
combined with a $4.8 million change in the fair value of financial
derivatives. See Note 5 to the Interim Financial Statements for the
period ended March 31, 2012.

Deferred Income Tax Expense

Deferred income taxes arise from differences between the accounting and
tax basis of assets and liabilities. An income tax expense of $10.9
million was recorded in the first quarter of 2012 compared to $13.5
million in the first quarter of 2011. The change in income tax expense
is consistent with the change in earnings before income tax and equity
accounted investees.

Liquidity & Capital Resources


    ($ millions)                                               December 31,
                                           March31, 2012               2011

    Working Capital                            (42.0)(1)         (343.7)(1)

    Variable rate debt(2)                                                  

        Bank debt                                  379.9              313.8

        Variable rate debt
    swapped to fixed                             (200.0)            (200.0)

    Total variable rate
    debt outstanding
    (average rate of
    1.66%)                                         179.9              113.8

    Fixed rate debt(2)                                                     

        Senior secured
    notes                                           55.9               58.0

        Senior unsecured
    notes                                          642.0              642.0

        Senior unsecured
    term debt                                       75.0               75.0

        Senior unsecured
    medium term note                               250.0              250.0

        Variable rate debt
    swapped to fixed                               200.0              200.0

    Total fixed rate debt
    outstanding (average
    rate of 5.65%)                               1,222.9            1,225.0

    Convertible debentures
    (2)                                            299.8              299.8

    Finance lease
    liability                                        5.5                5.6

    Total debt and
    debentures outstanding                       1,708.1            1,644.2

    Cash and unutilized
    debt facilities(3)                             449.1              235.1

    (1) As at March 31, 2012, working capital includes senior secured notes
        of $55.9 million. As at December 31,
        2011, working capital includes $310 million of current,
        non-revolving unsecured credit facilities.

    (2) Face value.

    (3) Based on the $800 million credit facility.

Pembina anticipates cash flow from operating activities will be more
than sufficient to meet its short-term operating obligations and fund
its targeted dividend level. On March 20, 2012, Pembina successfully
negotiated a new unsecured $800 million credit facility and
subsequently cancelled its previous $500 million credit facility. In
connection with the closing of the Arrangement on April 2, 2012,
Pembina increased the $800 million facility to $1.5 billion for a term
of five years. Upon closing of the Arrangement, Pembina used the
facility, in part, to repay Provident’s revolving term credit facility
of $205 million. Further, Pembina re-negotiated its operating facility
to $30 million from $50 million. In the medium-term, funds required for
capital projects are expected to be sourced from cash and unutilized
debt facilities totaling $449.1 million as at March 31, 2012 and
Pembina believes, based on its successful access to financing in the
debt and equity markets during the past several years, that it would
likely continue to have access to funds at attractive rates.
Additionally, Pembina has reinstated its DRIP as of the January 25,
2012 record date to help fund its ongoing capital program (see “Common
Share Information” for further details). Management remains satisfied
that the leverage employed in Pembina’s capital structure is sufficient
and appropriate given the characteristics and operations of the
underlying asset base.

Management may make adjustments to Pembina’s capital structure as a
result of changes in economic conditions or the risk characteristics of
the underlying assets. To maintain or modify Pembina’s capital
structure in the future, Pembina may renegotiate new debt terms, repay
existing debt and seek new borrowing and/or issue equity.

Pembina’s credit facilities at March 31, 2012 consisted of an unsecured
$800 million revolving credit facility due March 2017 and an operating
facility of $30 million due July 2013. Borrowings on the revolving
credit facility bear interest at prime lending rates plus nil percent
to 1.25 percent or Bankers’ Acceptances rates plus 1.00 percent to 2.25
percent. Margins on the Bankers’ Acceptances rate are based on the
credit rating of Pembina’s senior unsecured debt. Current borrowings on
the operating facility bear interest at prime lending rates plus nil
percent to 1.25 percent or Bankers’ Acceptances rates plus 1.00 percent
to 2.25 percent. There are no repayments due over the term of these
facilities. As at March 31, 2012, Pembina had $379.9 million drawn on
bank debt and $3.2 million in letters of credit and $2.2 million in
cash, leaving $449.1 million of unutilized debt facilities on the
$830.0 million of established bank facilities. Other debt includes
$55.9 million in fixed rate senior secured notes due 2017; $75 million
in senior unsecured term debt due 2014; $175 million in senior
unsecured notes due 2014; $267 million in senior unsecured notes due
2019; $200 million in senior unsecured notes due 2021; and, $250
million in medium term notes due 2021. On March 27, 2012, a redemption
notice for the senior secured notes was distributed for a redemption
date of April 30, 2012. Pembina has recognized an estimated $8.0
million on account of the make whole payment, which has been included
in acquisition-related and other expenses. At March 31, 2012, Pembina
had loans and borrowing (excluding amortization, letters of credit and
finance lease liabilities) of $1,402.8 million. Pembina’s senior debt
to total capital at March 31, 2012 was 53 percent.

Pembina considers the maintenance of an investment grade credit rating
as important to its ongoing ability to access capital markets on
attractive terms. On March 30, 2012, DBRS lowered the BBB (high)
ratings of the senior unsecured notes and the 7.38 percent senior
secured notes of Pembina to ‘BBB’. On April 3, 2012, subsequent to the
end of the first quarter, Standard & Poor’s lowered its ratings,
including its ‘BBB+’ long-term corporate credit rating on Pembina to
‘BBB’ following closing of the Arrangement (see “Acquisition of
Provident Energy Ltd.”). These ratings are not recommendations to
purchase, hold or sell the securities in as much as such ratings do not
comment as to market price or suitability for a particular investor.
There is no assurance any rating will remain in effect for any given
period of time or that any rating will not be revised or withdrawn
entirely by a rating agency in the future if, in its judgment,
circumstances so warrant.

Assumption of rights related to the Provident Debentures

On closing of the Arrangement on April 2, 2012 (subsequent to the end of
the first quarter), Pembina assumed all of the rights and obligations
of Provident relating to the 5.75 percent convertible unsecured
subordinated debentures of Provident maturing December 31, 2017 (TSX:
PPL.DB.E), and the 5.75 percent convertible unsecured subordinated
debentures of Provident maturing December 31, 2018 (TSX: PPL.DB.F).
Outstanding Provident debentures at April 2, 2012 were $345 million.

Capital Expenditures


                                                                3 MonthsEnded
                                                                   March 31

    ($ millions)                                           2012              2011

    Development
    capital

          Conventional                                     11.1              16.7
    Pipelines

          Oil Sands &                                       5.8              99.8
    Heavy Oil

          Gas Services                                     34.0              15.6

          Midstream &                                       2.3              90.3
    Marketing

    Corporate/other                                         1.7               0.9
    projects

    Total development                                      54.9             223.3
    capital

During the first quarter of 2012, capital expenditures were $54.9
million compared to $223.3 million during the same three month period
in 2011. Capital expenditures in the first quarter of 2011 were
significantly higher than the first quarter of 2012 due to construction
of the Nipisi and Mitsue pipelines and the acquisition of midstream
assets in the Edmonton, Alberta area (related to PNT) and linefill for
the Peace Pipeline system. The majority of the capital expenditures in
the first quarter of 2012 were in Gas Services as a result of spending
to complete the Musreau Deep Cut Facility, the expansion of the shallow
cut facility at the Cutbank Complex combined with capital expenditures
incurred on the Saturn and Resthaven enhanced NGL extraction
facilities.

Contractual Obligations at March 31, 2012


    ($
    thousands)                                                         PaymentsDue ByPeriod

    Contractual                                Less than                                               After
    Obligations                  Total            1 year        1 - 3years        4 - 5years         5 years

    Office and
    vehicle
    leases                      71,906             8,575            11,979             8,015          43,337

    Loans and
    borrowings
    (1)                      1,784,726           122,038           385,850           458,329         818,509

    Convertible
    debentures
    (1)                        449,280            17,250            51,750            34,500         345,780

    Construction
    commitments                386,378           300,033            86,345                                  

    Provisions                 414,078             3,666             2,749               503         407,160

    Total
    contractual
    obligations              3,106,368           451,562           538,673           501,347       1,614,786

    (1)  Excluding deferred financing costs and finance leases included
         under "office and vehicle leases".

Pembina is, subject to certain conditions, contractually committed to
the construction and operation of the Musreau Deep Cut Facility at its
Cutbank Complex, the Musreau Shallow Cut Expansion, the Saturn Facility
and the Resthaven Facility and the remaining capital expenditure
associated with the Nipisi and Mitsue pipelines. See “Forward-Looking Statements & Information.”

Critical Accounting Estimates

The preparation of the Interim Financial Statements in conformity with
IFRS requires management to make judgments, estimates and assumptions
that are based on the circumstances and estimates at the date of the
financial statements and affect the application of accounting policies
and the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates.

Judgments, estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in any future periods
affected.

Please refer to the “Critical Accounting Estimates” section of Pembina’s
MD&A for the year ended December 31, 2011 for more information.

Changes in Accounting Principles and Practices

For a discussion of future changes to Pembina’s IFRS accounting
policies, see Pembina’s MD&A for the year ended December 31, 2011.

Common Share Information( (1))


                                                    As at and for the 3
                                                       months ended

    ($ thousands,
    except where                                 March 31,       March 31,
    noted)                   May 1,2012(2)            2012            2011

    Trading volume
    and value                                                             

          Total
    volume
    (shares)                    23,866,463      59,689,803      17,781,372

          Average
    daily volume
    (shares)                     1,136,498         947,601         286,796

          Value
    traded                         700,109       1,648,021         390,673

    Shares
    outstanding
    (shares)                   286,146,286     169,029,860     167,122,897

    Closing share
    price
    (dollars)                        29.73           28.18           22.94

    Market value                                                          

          Shares                 8,507,121       4,763,266       3,833,802

          5.75%
    convertible
    debentures
    (PPL.DB.C)                  331,257(3)      326,760(4)      308,250(5)

          5.75%
    convertible
    debentures
    (PPL.DB.E)(6)               210,002(7)                                

          5.75%
    convertible
    debentures
    (PPL.DB.F)(6)               190,181(8)                                

    Market
    capitalization               9,238,560       5,090,026       4,142,052

    Senior debt                  1,622,549       1,402,890       1,311,017

    Total
    enterprise
    value(9)                    10,861,109       6,492,916       5,453,069

    (1)  Trading information in this table reflects the activity of Pembina
         securities on the TSX.

    (2)  Based on 21 trading days from April 1, 2012 to May 1, 2012
         inclusive.

    (3)  $299.8 million principal amount of 5.75 percent convertible
         debentures (PPL.DB.C) outstanding at a market
         price of $110.50 at May 1, 2012 and with a conversion price of
         $28.55.

    (4)   $299.8 million principal amount of 5.75 percent convertible
         debentures (PPL.DB.C) outstanding at a market
         price of $109.00 at March 31, 2012.

    (5)   $300 million principal amount of 5.75 percent convertible
         debentures (PPL.DB.C) outstanding at a market
         price of $102.75 at March 31, 2011.

    (6)  Pursuant to the Arrangement, Pembina assumed the rights and
         obligations of Provident debentures, which
         are listed on the TSX under PPL.DB.E and PPL.DB.F.

    (7)  $172.5 million principal amount of 5.75 percent convertible
         debentures (PPL.DB.E) outstanding at a market
         price of $121.74 at May 1, 2012 and with a conversion price of
         $24.94.

    (8)  $172.5 million principal amount of 5.75 percent convertible
         debentures (PPL.DB.F) outstanding at a market
         price of $110.25 at May 1, 2012 and with a conversion price of
         $29.53.

    (9)  Refer to "Non-GAAP Measures."

As indicated in the table above, the total market value of Pembina’s
outstanding securities was $5.1 billion at March 31, 2012 and issued
and outstanding shares of Pembina rose to 169.0 million by the end of
the first quarter 2012, compared to 167.1 million in the same period of
2011.

Dividends

Pembina announced on January 16, 2012 that following closing of the
Arrangement it would increase its monthly dividend rate 3.8 percent
from $0.13 per share per month (or $1.56 annualized) to $0.135 per
share per month (or $1.62 annualized). Pembina is committed to
providing increased shareholder returns over time by providing stable
dividends and, where appropriate, further increases in Pembina’s
dividend, subject to compliance with applicable laws and the approval
of Pembina’s Board of Directors. Pembina has a history of delivering
dividend increases once supportable over the long term by the
underlying fundamentals of Pembina’s businesses as a result of, among
other things, accretive growth projects or acquisitions (see
“Forward-Looking Statements & Information”).

Dividends are payable if, as, and when declared by Pembina’s Board of
Directors. The amount and frequency of dividends declared and payable
is at the discretion of the Board of Directors, which will consider
earnings, capital requirements, the financial condition of Pembina and
other relevant factors.

Eligible Canadian investors may benefit from an enhanced dividend tax
credit afforded to the receipt of dividends, depending on individual
circumstances. Dividends paid to eligible U.S. investors should qualify
for the reduced rate of tax applicable to long-term capital gains but
investors are encouraged to seek independent tax advice in this regard.

DRIP

Pembina has reinstated the DRIP as of January 25, 2012. Beginning with
the dividend payable on February 15, 2012, eligible Pembina
shareholders have the opportunity to receive, by reinvesting the cash
dividends declared payable by Pembina on their shares, either: (i)
additional common shares at a discounted subscription price equal to 95
percent of the Average Market Price (as defined in the DRIP), pursuant
to the “Dividend Reinvestment Component” of the DRIP, or (ii) premium
cash payment (the “Premium Dividend(TM)”) equal to 102 percent of the
amount of reinvested dividends, pursuant to the “Premium Dividend(TM)
Component” of the DRIP. Additional information about the terms and
conditions of the DRIP can be found at www.pembina.com.

Participation in the DRIP for March 2012 was 65 percent of common shares
outstanding for proceeds of approximately $14.4 million.

Listing on the NYSE

On April 2, 2012, Pembina listed its common shares, including those
issued under the Arrangement, on the NYSE under the symbol “PBA”.

Risk Factors

Management has identified the primary risk factors that could
potentially have a material impact on the financial results and
operations of Pembina. Such risk factors are presented in the MD&A for
the year ended December 31, 2011 and in Pembina’s Annual Information
Form for the year ended December 31, 2011. These documents are
available on www.pembina.com and in Canada under Pembina’s company profile on www.sedar.com.

Selected Quarterly Financial Information


                             2012                                      2011                                                2010

    ($ millions,
    except where
    noted)                      Q1           Q4           Q3           Q2           Q1           Q4           Q3           Q2           Q1

    Revenue                  475.3        468.0        302.9        511.5        394.3        290.2        266.6        386.4        289.0

    Operations                48.5         55.1         55.9         37.8         43.2         42.3         40.0         37.2         36.4

    Product purchases        298.9        308.2        146.6        363.4        253.7        161.7        148.4        261.9        163.1

    Operating margin         127.9        104.7        100.4        110.3         97.4         86.2         78.2         87.3         89.5

    Depreciation and
    amortization
       Included in
    operations                21.7         19.5         17.8         15.8         14.9         15.6         15.3         15.3         15.5

    Gross profit             106.2         85.2         82.6         94.5         82.5         70.6         62.9         72.0         74.0

    Adjusted EBITDA
    (1)                      111.6         87.0         86.8        103.1         87.2         79.1         68.1         78.0         85.6

    Cash flow from
    operating
    activities                65.3         74.3         88.0         50.4         74.5         54.6         66.6         69.6         66.5

    Cash flow from
    operating
    activities
    per common share
    ($ per share)             0.39         0.44         0.53         0.30         0.45         0.33         0.41         0.43         0.41

    Adjusted cash
    flow from
    operating
    activities(1)             98.8         57.3         90.8         81.8         75.9         62.6         67.6         63.0         73.3

    Adjusted cash
    flow from
    operating
    activities per
    common share(1)
        ($ per share)         0.59         0.34         0.54         0.49         0.45         0.39         0.41         0.38         0.44

    Earnings for the
    period                    32.6         45.1         30.1         48.0         42.5         55.2         28.6         37.7         52.2

    Earnings per
    common share
          ($ per
    share):                                                                                                                               

          Basic               0.19         0.27         0.18         0.29         0.25         0.34         0.19         0.23         0.32

          Diluted             0.19         0.27         0.18         0.29         0.25         0.33         0.19         0.23         0.32

    Common shares
    outstanding
    (millions):                                                                                                                           

          Weighted
    average (basic)          168.3        167.4        167.6        167.3        167.0        165.0        164.0        163.2        161.8

          Weighted
    average (diluted)        168.9        168.2        168.2        168.0        167.6        171.7        166.9        166.2        165.2

          End of
    period                   169.0        167.9        167.7        167.5        167.1        166.9        164.5        163.6        162.2

    Dividendsdeclared         65.7         65.4         65.4         65.3         65.1         64.6         64.0         63.8         62.8

    Dividends per
    common share
          ($ per
    share):                   0.39         0.39         0.39         0.39         0.39         0.39         0.39         0.39         0.39

    (1)  Refer to "Non-GAAP measures."

Selected Quarterly Operating Information


                          2012                                      2011                                                2010

                             Q1           Q4           Q3           Q2           Q1           Q4           Q3           Q2           Q1

    Average
    throughput

    (thousands
    of bpd)                                                                                                                            

    Total
    Conventional
    Throughput            466.9        422.8        430.4        411.4        390.3        375.0        361.4        370.4        389.3

    Oil Sands &
    Heavy Oil(1)          870.0        870.0        775.0        775.0        775.0        775.0        775.0        775.0        775.0

    Gas Services
    Processing
    (mboe/d)(2)            41.7         44.0         41.3         39.6         38.1         38.0         36.0         36.9         36.2

    Aggregate
    volumes
    (mboe/d)            1,378.6      1,336.8      1,246.7      1,226.0      1,203.4      1,188.0      1,172.4      1,182.3      1,200.5

    (1)  Oil Sands & Heavy Oil throughput refers to contracted capacity.

    (2)  Converted to mboe/d from MMcf/d at a 6:1 ratio.

Additional Information

Additional information relating to Pembina, including its Annual
Information Form, Management Information Circular and financial
statements can be found at www.pembina.com or at www.sedar.com.

Non-GAAP Measures

Throughout this MD&A, Pembina has used the following terms that are not
defined by GAAP but are used by management to evaluate performance of
Pembina and its business. Since certain Non-GAAP financial measures may
not have a standardized meaning, securities regulations require that
Non-GAAP financial measures are clearly defined, qualified and
reconciled to their nearest GAAP measure.

Earnings before interest, taxes, depreciation and amortization
(“EBITDA”)

EBITDA is commonly used by management, investors and creditors in the
calculation of ratios for assessing leverage and financial performance
and is calculated as results from operating activities plus share of
profit from equity accounted investees (before tax) plus depreciation
and amortization (included in operations and general and administrative
expense). Adjusted EBITDA is EBITDA excluding acquisition-related
expenses in connection with the Arrangement.


                                                           3 Months Ended
                                                              March 31

    ($ millions, except per share amounts)                  2012       2011

    Results from operating activities                       66.5       67.8

    Add:                                                                   

    Share of profit from equity accounted investees          1.5        4.3
    (before tax, depreciation and amortization)

    Depreciation and amortization                           22.5       15.1

    EBITDA                                                  90.5       87.2

    Add:                                                                   

    Acquisition-related expenses                            21.1           

    Adjusted EBITDA                                        111.6       87.2

    EBITDA per common share - basic (dollars)               0.54       0.52

    Adjusted EBITDA per common share - basic                0.66       0.52
    (dollars)

Adjusted earnings

Adjusted earnings is commonly used by management for assessing and
comparing financial performance each reporting period and is calculated
as earnings before tax excluding unrealized hedging activities and
acquisition-related expenses in connection with the Arrangement plus
share of profit from equity accounted investees (before tax).


                                                          3 Months Ended
                                                             March 31

    ($ millions, except per share amounts)                2012        2011

    Earnings before income tax and equity accounted       43.3        53.8
    investees

    Add (deduct):                                                         

    Change in fair value of derivatives                    0.7       (4.0)

    Share of profit of investments in equity               0.2         2.2
    accounted investees (after tax)

    Tax on share of profit of investments in equity        0.1         0.7
    accounted investees

    Acquisition-related expenses                          21.1            

    Adjusted earnings                                     65.4        52.7

    Adjusted earnings per common share - basic            0.39        0.32
    (dollars)

Adjusted cash flow from operating activities

Adjusted cash flow from operating activities is commonly used by
management for assessing financial performance each reporting period
and is calculated as cash flow from operating activities plus the
change in non-cash working capital and excluding acquisition-related
expenses.


                                                          3 Months Ended
                                                             March 31

    ($ millions, except per share amounts)                 2012       2011

    Cash flow from operating activities                    65.3       74.5

    Add (deduct):                                                         

    Change in non-cash working capital                     12.4        1.4

    Acquisition-related expenses                           21.1           

    Adjusted cash flow from operating activities           98.8       75.9

    Adjusted cash flow from operating activities per       0.59       0.45
    common share - basic (dollars)

Operating margin

Operating margin is commonly used by management for assessing financial
performance and is calculated as gross profit less operating expense
and product purchases.


    Reconciliation of operating margin to gross
    profit:

                                                      3 Months Ended
                                                         March 31

    ($ millions)                                       2012        2011

    Revenue                                           475.3       394.3

    Cost of sales:                                                     

      Operations                                       48.5        43.2

      Product purchases                               298.9       253.7

    Operating margin                                  127.9        97.4

    Depreciation and amortization included in          21.7        14.9
    operations

    Gross profit                                      106.2        82.5

Total enterprise value

Total enterprise value, in combination with other measures, is used by
management and the investment community to assess the overall market
value of the business. Total enterprise value is calculated based on
the market value of common shares and convertible debentures at a
specific date plus senior debt.

Management believes these supplemental Non-GAAP measures facilitate the
understanding of Pembina’s results from operations, leverage, liquidity
and financial positions. Investors should be cautioned that EBITDA,
Adjusted EBITDA, adjusted earnings, adjusted cash flow from operating
activities, operating margin and total enterprise value should not be
construed as alternatives to net earnings, cash flow from operating
activities or other measures of financial results determined in
accordance with GAAP as an indicator of Pembina’s performance.
Furthermore, these Non-GAAP measures may not be comparable to similar
measures presented by other issuers.

Forward-Looking Statements & Information

In the interest of providing our shareholders and potential investors
with information regarding Pembina, including management’s assessment
of our future plans and operations, certain statements contained in
this MD&A constitute forward-looking statements or information
(collectively, “forward-looking statements”) within the meaning of the
“safe harbour” provisions of applicable securities legislation .
Forward-looking statements are typically identified by words such as
“anticipate”, “continue”, “estimate”, “expect”, “may”, “will”,
“project”, “should”, “believe”, “plan”, “intend”, “design”, “target”,
“undertake”, “view”, “indicate”, “maintain”, “explore”, “entail”,
“schedule”, “objective”, “strategy”, “likely”, “potential”, “envision”,
“aim”, “outlook”, “propose” and similar expressions suggesting future
events or future performance.

By their nature, such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause actual
results or events to differ materially from those anticipated in such
forward-looking statements. Pembina believes the expectations reflected
in those forward-looking statements are reasonable but no assurance can
be given that these expectations will prove to be correct and such
forward-looking statements included in this MD&A should not be unduly
relied upon. These statements speak only as of the date of the MD&A.

In particular, this MD&A contains forward-looking statements, including
certain financial outlook, pertaining to the following:

        --  the future levels of cash dividends that Pembina intends to pay
            to its shareholders;

        --  capital expenditure estimates, plans, schedules, rights and
            activities and the planning, development, construction,
            operations and costs of pipelines, gas service facilities,
            terminalling, storage and hub facilities and other facilities
            or energy infrastructure, including, but not limited to, in
            relation to the Pembina Nexus Terminal, the expansions at the
            Cutbank Complex's Musreau Gas Plant, the proposed Resthaven
            Facility and the proposed Saturn Facility, the proposed
            expansion plans to strengthen Pembina's transportation service
            options that it provides to producers developing the Cardium
            oil formation located in Central Alberta, the expansion of
            throughput capacity on the Northern NGL System and the proposed
            expansion of a number of existing truck terminals and
            construction of new full service terminals;

        --  future expansion of Pembina's pipelines and other
            infrastructure;

        --  pipeline, processing and storage facility and system operations
            and throughput levels;

        --  oil and gas industry exploration and development activity
            levels;

        --  Pembina's strategy and the development of new business
            initiatives;

        --  expectations regarding Pembina's ability to raise capital and
            to carry out acquisition, expansion and growth plans;

        --  treatment under governmental regulatory regimes including
            environmental regulations and related abandonment and
            reclamation obligations;

        --  future results of operations from Provident's business
            following the completion of the Arrangement;

        --  future G&A expenses at Pembina;

        --  increased throughput potential due to increased activity and
            new connections and other initiatives on Pembina's pipelines;

        --  future cash flows, potential revenue and cash flow enhancements
            across Pembina's businesses and the maintenance of operating
            margins;

        --  tolls and tariffs and transportation, storage and services
            commitments and contracts;

        --  cash dividends and the tax treatment thereof;

        --  operating risks (including the amount of future liabilities
            related to pipeline spills and other environmental incidents)
            and related insurance coverage and inspection and integrity
            systems;

        --  the expected capacity of the proposed Resthaven Facility and
            the proposed Saturn Facility;

        --  expectations regarding in-service dates for new developments,
            including the Resthaven Facility, the Saturn Facility and the
            Northern NGL System;

        --  expectations regarding incremental NGL volumes to be
            transported on Pembina's conventional pipelines by the end of
            2013 as a result of new developments in Pembina's Gas Services
            business;

        --  the possibility of renegotiating debt terms, repayment of
            existing debt, seeking new borrowing and/or issuing equity;

        --  expectations regarding participation in Pembina's DRIP; and

        --  competitive conditions.

Various factors or assumptions are typically applied by Pembina in
drawing conclusions or making the forecasts, projections, predictions
or estimations set out in forward-looking statements based on
information currently available to Pembina. These factors and
assumptions include, but are not limited to:

        --  the success of Pembina's operations;

        --  prevailing commodity prices and exchange rates;

        --  the availability of capital to fund future capital requirements
            relating to existing assets and projects, including but not
            limited to future capital expenditures relating to expansion,
            upgrades and maintenance shutdowns;

        --  future operating costs;

        --  in respect of the proposed Resthaven Facility and the proposed
            Saturn Facility and their estimated in-service dates of late
            2013 and the fourth quarter of 2013, respectively; that all
            required regulatory and environmental approvals can be obtained
            on the necessary terms in a timely manner, that counterparties
            will comply with contracts in a timely manner; that there are
            no unforeseen events preventing the performance of contracts or
            the completion of such facilities; that such facilities will be
            fully supported by long-term firm service agreements accounting
            for the entire designed throughput at such facilities at the
            time of such facilities' completion, that there are no
            unforeseen construction costs related to the facilities; and
            that there are no unforeseen material costs relating to the
            facilities which are not recoverable from customers;

        --  in respect of the expansion of NGL throughput capacity on the
            Northern NGL System and the estimated in-service dates with
            respect to the same; that Pembina will receive regulatory
            approval; that Pembina will reach satisfactory long-term
            arrangements with customers with respect to the Northern NGL
            System; that counterparties will comply with contracts in a
            timely manner; that there are no unforeseen events preventing
            the performance of contracts by Pembina; that there are no
            unforeseen construction costs related to the expansion; and
            that there are no unforeseen material costs relating to the
            pipelines that are not recoverable from customers;

        --  in respect of the stability of Pembina's dividend; prevailing
            commodity prices, margins and exchange rates; that Pembina's
            future results of operations will be consistent with past
            performance and management expectations in relation thereto;
            that Provident's results will be consistent with past
            performance following the acquisition of Provident by Pembina,
            the continued availability of capital at attractive prices to
            fund future capital requirements relating to existing assets
            and projects, including but not limited to future capital
            expenditures relating to expansion, upgrades and maintenance
            shutdowns; the success of growth projects; future operating
            costs; that counterparties to material agreements will continue
            to perform in a timely manner; that there are no unforeseen
            events preventing the performance of contracts; and that there
            are no unforeseen material construction or other costs related
            to current growth projects or current operations;

        --  in respect of other developments, expansions and capital
            expenditures planned, including the proposed expansion of a
            number of existing truck terminals and construction of new full
            service terminals, the expectation of additional NGL volumes
            being transported on the convention pipelines, the proposed
            expansion of the Musreau Gas Plant's shallow cut gas processing
            capability and the proposed expansion plans to strengthen
            Pembina's transportation service options that it provides to
            producers developing the Cardium oil formation located in
            Central Alberta, that counterparties will comply with contracts
            in a timely manner; that there are no unforeseen events
            preventing the performance of contracts by Pembina; that there
            are no unforeseen construction costs; and that there are no
            unforeseen material costs relating to the developments,
            expansions and capital expenditures which are not recoverable
            from customers;

        --  the future exploration for and production of oil, NGL and
            natural gas in the capture area around Pembina's conventional
            and midstream and marketing assets, including new production
            from the Cardium formation in western Alberta, the demand for
            gathering and processing of hydrocarbons, and the corresponding
            utilization of Pembina's assets; and

        --  prevailing regulatory, tax and environmental laws and
            regulations.

The actual results of Pembina could differ materially from those
anticipated in these forward-looking statements as a result of the
material risk factors set forth below:

        --  the regulatory environment and decisions;

        --  the impact of competitive entities and pricing;

        --  labour and material shortages;

        --  reliance on key alliances and agreements;

        --  the strength and operations of the oil and natural gas
            production industry and related commodity prices;

        --  non-performance or default by counterparties to agreements
            which Pembina or one or more of its affiliates has entered into
            in respect of its business;

        --  actions by governmental or regulatory authorities including
            changes in tax laws and treatment, changes in royalty rates or
            increased environmental regulation;

        --  fluctuations in operating results;

        --  adverse general economic and market conditions in Canada, North
            America and elsewhere, including changes in interest rates,
            foreign currency exchange rates and commodity prices;

        --  the failure to realize the anticipated benefits of the
            Arrangement;

        --  the failure to integrate the businesses of Pembina and
            Provident; and

        --  the other factors discussed under "Risk Factors" in Pembina's
            Management's Discussion and Analysis for the year ended
            December 31, 2011 and in Pembina's current Annual Information
            Form available under Pembina's profile at
            www.sedar.com.

These factors should not be construed as exhaustive. Unless required by
law, Pembina does not undertake any obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise. Any forward-looking statements
contained herein are expressly qualified by this cautionary statement.

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION
(unaudited)


                                                 March 31       December 31
    ($ thousands)                     Note           2012              2011

    Assets                                                                 

    Current assets

      Cash and cash equivalents                     2,247                  

      Trade and other receivables                 150,770           148,267

      Derivative financial                          3,328             4,643
      instruments

      Inventory                                     2,451            21,235

                                                  158,796           174,145

    Non-current assets                                                     

      Property, plant and equipment      2      2,774,742         2,747,530

      Intangible assets                           248,730           243,904

      Investments in equity accounted             159,827           161,002
      investees

      Derivative financial                          1,765             1,807
      instruments

      Other receivables                             8,073            10,814

                                                3,193,137         3,165,057

    Total Assets                                3,351,933         3,339,202

    Liabilities and Shareholders'
    Equity

    Current liabilities

      Bank indebtedness                                                 676

      Trade payables and accrued                  116,174           166,646
      liabilities

      Dividends payable                            21,974            21,828

      Loans and borrowings               3         58,070           323,927

      Derivative financial                          4,593             4,725
      instruments

                                                  200,811           517,802

    Non-current liabilities                                                

      Loans and borrowings               3      1,340,084         1,012,061

      Convertible debentures                      289,657           289,365

      Derivative financial                         12,320            12,813
      instruments

      Employee benefits                            15,882            16,951

      Share-based payments                          5,633            14,060

      Deferred revenue                              2,367             2,185

      Provisions                                  409,377           405,433

      Deferred tax liabilities                    117,840           106,915

                                                2,193,160         1,859,783

    Total Liabilities                           2,393,971         2,377,585

    Shareholders' Equity                                                   

      Share capital                      4      1,841,235         1,811,734

      Deficit                                   (868,077)         (834,921)

      Accumulated other comprehensive            (15,196)          (15,196)
      income

                                                  957,962           961,617

    Total Liabilities and                       3,351,933         3,339,202
    Shareholders' Equity

See accompanying notes to consolidated financial statements

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME
(unaudited)


    3 Months Ended March 31                                                

    ($ thousands, except per share amounts)      Note       2012       2011

    Revenues                                             475,262    394,293

    Cost of sales                                        369,052    311,801

    Gross profit                                    6    106,210     82,492

           General and administrative                     17,577     14,646

           Acquisition-related and other                  22,131         80

                                                          39,708     14,726

    Results from operating activities                     66,502     67,766

           Finance income                                  (266)    (8,633)

           Finance costs                                  23,518     22,577

           Net finance costs                        5     23,252     13,944

    Earnings before income tax and equity                 43,250     53,822
    accounted investees

           Share of profit of investments in               (172)    (2,190)
           equity accounted investees, net of
           tax

           Deferred income tax expense                    10,870     13,520

    Earnings and total comprehensive income for           32,552     42,492
    the period

    Earnings per share                                                     

           Basic and diluted earnings per share             0.19       0.25
           (dollars)

See accompanying notes to consolidated financial statements

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
(unaudited)


    3 Months Ended March 31

    ($ thousands)                      Note            2012            2011

    Share Capital                                                          

      Balance, beginning of period                1,811,734       1,794,536

      Dividend reinvestment plan                     28,001                

      Share-based payment transactions                1,503           3,986

      Other                                             (3)             (5)

      Balance, end of period              4       1,841,235       1,798,517

    Deficit                                                                

      Balance, beginning of period                (834,921)       (739,351)

      Earnings for the period                        32,552          42,492

      Dividends declared                           (65,708)        (65,145)

      Balance, end of period                      (868,077)       (762,004)

    Other Comprehensive Income (Loss)                                      

      Balance, beginning of period                 (15,196)         (4,577)

      Balance, end of period                       (15,196)         (4,577)

    Total Shareholders'Equity                       957,962       1,031,936

See accompanying notes to consolidated financial statements

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(unaudited)


    3 Months Ended March 31

    ($ thousands)                                   Note     2012      2011

    Cash provided by (used in):                                            

    Operating activities:                                                  

    Earnings for the period                                32,552    42,492

    Adjustments for:                                                       

           Depreciation and amortization                   22,512    15,104

            Net finance costs                          5   23,252    13,944

           Share of profit of investments in                (172)   (2,190)
           equity accounted investees (net of tax)

           Deferred income tax expense                     10,870    13,520

           Share-based payments                             3,610     3,978

           Employee future benefits expense                 1,431     1,198

           Other                                              314        83

            Changes in non-cash working capital          (12,429)   (1,451)

           Distributions from investments in equity         4,145     1,448
           accounted investees

           Decommissioning liability expenditures         (1,057)   (1,036)

           Employer future benefit contributions          (2,500)   (2,000)

           Interest paid                                 (17,194)  (10,612)

    Cash flow from operating activities                    65,334    74,478

    Financing activities:                                                  

           Bank borrowings                                 66,861    40,000

            Repayment of senior secured notes             (2,087)   (1,942)

           Repayment of finance leases                      (635)     (570)

           Issuance of debt                                         250,000

           Financing fees                                 (2,791)   (1,702)

           Exercise of stock options                        1,036     3,820

           Issue of shares under Dividend                  28,001
           Reinvestment Plan

           Dividends paid                                (65,562)  (65,116)

    Cash flow from financing activities                    24,823   224,490

    Investing activities:                                                  

           Net capital expenditures                      (87,234) (207,578)

    Cash flow used in investing activities               (87,234) (207,578)

    Change in cash                                          2,923    91,390

    Cash (bank indebtedness), beginning of period           (676)   125,397

    Cash and cash equivalents, end of period                2,247   216,787

See accompanying notes to consolidated financial statements

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(unaudited)

1. REPORTING ENTITY

Pembina Pipeline Corporation (“Pembina” or the “Company”) is an energy
transportation and service provider domiciled in Canada. The condensed
consolidated interim financial statements (“Interim Financial
Statements”) include the accounts of the Company, its wholly owned
subsidiary companies, partnerships and any interests in associates and
jointly controlled entities as at and for the three months ending March
31, 2012. These Interim Financial Statements and the notes thereto have
been prepared in accordance with IAS 34 – Interim Financial Reporting.
They do not include all of the information required for full annual
financial statements and should be read in conjunction with the
consolidated financial statements of the Company as at and for the year
ended December 31, 2011. The Interim Financial Statements were
authorized for issue by the Board of Directors on May 3, 2012.

Pembina owns or has interests in pipelines and related facilities to
transport crude oil, condensate and natural gas liquids, gather and
process natural gas; and provide midstream services in Alberta and
British Columbia.

2. PROPERTY, PLANT AND EQUIPMENT


                    Land
                     and           Facilities Linefill       Assets
    ($              Land                  and      and        Under
    thousands)    Rights Pipelines  Equipment    Other Construction     Total

    Cost                                                                     

    Balance at    67,219 2,500,027    528,620  200,726      307,358 3,603,950
    December 31,
    2011

    Additions                3,452     91,254      829     (40,607)    54,928

    Transfers          1       795     41,886 (34,690)      (7,992)          

    Disposals    (5,000)     (324)       (20)    (294)                (5,638)
    and other

    Balance at    62,220 2,503,950    661,740  166,571      258,759 3,653,240
    March 31,
    2012

    Depreciation                                                             

    Balance at     4,088   707,095     92,998   52,239                856,420
    December 31,
    2011

    Depreciation      69    16,313      4,767    1,189                 22,338

    Transfers                3,935     21,915 (25,850)                       

    Disposals                 (14)        (8)    (238)                  (260)
    and other

    Balance at     4,157   727,329    119,672   27,340                878,498
    March 31,
    2012

    Carrying
    amounts

    At December   63,131 1,792,932    435,622  148,487      307,358 2,747,530
    31, 2011

    At March 31,  58,063 1,776,621    542,068  139,231      258,759 2,774,742
    2012

Leased asset

The Company leases vehicles under a finance lease agreement. At March
31, 2012 the net carrying amount of leased vehicles was $5.4 million
(December 31, 2011: $5.6 million).

Property, plant and equipment under construction

For the quarter ended March 31, 2012, capitalized borrowing costs
related to the construction of the new pipelines or facilities amounted
to $2.7 million (2011:  $3.4 million), with capitalization rates
ranging from 4.68 percent to 4.77 percent (2011: 5.14 percent to 5.29
percent).

Commitments

At March 31, 2012, the Company has contractual commitments for the
acquisition and or construction of property, plant and equipment of
$386.4 million (March 31, 2011: $255.5 million).

3. LOANS AND BORROWINGS

This note provides information about the contractual terms of the
Company’s interest-bearing loans and borrowings, which are measured at
amortized cost.

Carrying value terms and debt repayment schedule

Terms and conditions of outstanding loans were as follows:


                                                      March 31,  Dec. 31,
    ($ thousands)                                          2012      2011

                      Available      Nominal  Year of
                     facilities     interest maturity
                                        rate           Carrying amount(3)

                                prime + 0.50
    Operating                     or BA(2) +
    facility(1)          30,000         1.50     2013               3,139

    Revolving                   prime + 0.50
    unsecured credit              or BA(2) +
    facility         800,000(4)         1.50     2017   377,254   309,981

    Senior unsecured     75,000         6.16     2014    74,694    74,658
    term facility

    Senior unsecured    175,000         5.99     2014   174,516   174,462
    notes - Series A

    Senior unsecured    200,000         5.58     2021   196,724   196,638
    notes - Series C

    Senior unsecured    267,000         5.91     2019   265,453   265,403
    notes - Series D

    Senior secured       55,890         7.38     2017    55,434    57,499
    notes

    Senior unsecured    250,000         4.89     2021   248,597   248,558
    medium term
    notes

    Finance lease                                         5,482     5,650
    liabilities

    Total             1,852,890                       1,398,154 1,335,988
    interest-bearing
    liabilities

    Less current                                       (58,070) (323,927)
    portion

    Total                                             1,340,084 1,012,061
    non-current

((1)) Operating facility expected to be renewed on an annual basis.
((2)) Bankers Acceptance.
((3)) Deferred financing fees are all classified as non-current. Non-current
carrying amount of facilities are net of deferred financing fees.
((4)) Available facility increased to $1.5 billion effective April 2, 2012.

On March 27, 2012 a redemption notice for the senior secured notes was
distributed with a redemption date of April 30, 2012.

4. SHAREHOLDERS’ EQUITY

Shareholder‘s capital


    ($ thousands, except share               Number Shareholder'sCapital
    amounts)

    Balance December 31, 2011           167,908,271            1,811,734

    Exercise of stock options                61,919                1,503

    Dividend reinvestment plan            1,059,670               28,001

    Other                                                            (3)

    Balance March 31, 2012           169,029,860(1)            1,841,235

    (1)  Weighted average number of common shares outstanding for the three
         months ended March 31, 2012 is 168.3 million (March 31, 2011:
         167.0 million). On a fully diluted basis, the weighted average
         number of common shares outstanding for the three months ended
         March 31, 2012 is 168.9 million (March 31, 2011: 167.6 million).

Dividends 

The following dividends were declared and paid by the Company:


                                                    3 Months Ended
                                                       March 31

    ($ thousands)                                     2012    2011

    $0.39 per qualifying common share (2011: $0.39) 65,708  65,145

On April 12, 2012, Pembina’s Board of Directors declared a dividend for
April of $38.6 million, representing $0.135 per qualifying common share
($1.62 annualized) which is a 3.8 percent increase from the prior
dividend rate.

5. NET FINANCE COSTS


                                                          3 Months Ended
    ($ thousands)                                            March 31

                                                            2012    2011

    Interest income on:                                                 

         Loans to related parties(1)                         263     190

         Bank deposits                                         3     105

    Foreign exchange gains                                            80

    Change in fair value of derivatives                            8,258

    Finance income                                           266   8,633

    Interest expense on financial liabilities measured at
    amortized cost:

         Loans and borrowings                             15,416  11,165

         Convertible debentures                            4,605   4,567

         Finance leases                                      105      96

         Unwinding of discount                             2,474   2,512

    Realized loss on power derivatives                       156        

    Change in fair value of derivatives                      731   4,237

    Foreign exchange losses                                   31        

    Finance costs                                         23,518  22,577

    Net finance costs                                     23,252  13,944

    (1)  The Company was funding its share of the construction of new
         assets for its equity accounted investment and had recorded a
         $17.9 million receivable from related party as at December 31,
         2011. The loan was repaid in full on March 28, 2012.

6. OPERATING SEGMENTS


    3 Months Ended March 31,
    2012                                                      Oil                Midstream
                                     Conventional         Sands &      Gas               &
    ($ thousands)                    Pipelines(1)       Heavy Oil Services       Marketing       Corporate       Total

    Revenue from external
    customers:

           Pipeline                        82,171          43,097                                              125,268
           transportation

           Terminalling,                                                           330,943                     330,943
           storage and hub
           services

           Gas Services                                             19,051                                      19,051

    Total revenue                          82,171          43,097   19,051         330,943                     475,262

    Cost of sales:                                                                                                    

           Operations                      27,575          13,001    6,027           2,509           (635)      48,477

           Product purchases                                                       298,895                     298,895

    Operating margin                       54,596          30,096   13,024          29,539             635     127,890

           Depreciation and                11,945           4,892    3,162           1,681                      21,680
           amortization
           (operational)

    Gross profit                           42,651          25,204    9,862          27,858             635     106,210

           Depreciation and
           amortization
           included in
             general and
           administrative                                                                              832         832

           Other general and                  898             940      522           1,287          13,098      16,745
           administrative

           Acquisition-related              1,234           (131)       11             (1)          21,018      22,131
           and other

    Reportable segment results             40,519          24,395    9,329          26,572        (34,313)      66,502
    from operating activities

           Net finance costs                4,746             477      170             603          17,256      23,252

    Reportable segment                     35,773          23,918    9,159          25,969        (51,569)      43,250
    earnings before tax

    Share of profit of
    investments in equity
       accounted investees,
    net of tax                                                                         172                         172

    Reportable segment assets             669,512       1,115,434  514,453      413,335(2)         639,199   3,351,933

    Capital expenditures                   11,115           5,833   33,966           2,310           1,704      54,928

    Reportable segment                    311,805          96,328   52,937          10,241       1,922,660   2,393,971
    liabilities

    (1) 4.5 percent of Conventional Pipelines revenue is under regulated
    tolling arrangements.
    (2) Includes investments in equity accounted investees of $159,827.


    3 Months Ended March 31,                                Oil
    2011                                                 Sands&                Midstream
                                     Conventional         Heavy      Gas               &
    ($ thousands)                    Pipelines(1)           Oil Services       Marketing       Corporate       Total

    Revenue from external
    customers:

           Pipeline                        69,256        30,547                                               99,803
           transportation

           Terminalling,                                                         279,516                     279,516
           storage and hub
           services

           Gas Services                                           14,974                                      14,974

    Total revenue                          69,256        30,547   14,974         279,516                     394,293

    Cost of sales:                                                                                                  

           Operations                      25,214        11,206    4,690           2,094                      43,204

           Product purchases                                                     253,742                     253,742

    Operating margin                       44,042        19,341   10,284          23,680                      97,347

           Depreciation and                 9,757         1,943    2,288             867                      14,855
           amortization
           (operational)

    Gross profit                           34,285        17,398    7,996          22,813                      82,492

           Depreciation and
           amortization
           included in
             general and
           administrative                                                                            249         249

           Other general and                1,286           597    1,141           1,187          10,186      14,397
           administrative

           Acquisition-related                 42                      6              15              17          80
           and other

    Reportable segment results             32,957        16,801    6,849          21,611        (10,452)      67,766
    from operating activities

    Net finance costs                     (2,734)           316      313           4,238          11,811      13,944

    Reportable segment                     35,691        16,485    6,536          17,373        (22,263)      53,822
    earnings before tax

    Share of profit
    investments in equity
       accounted investees,
    net of tax                                                                     2,190                       2,190

    Reportable segment assets             878,882       891,068  386,616      385,102(2)         611,678   3,153,346

    Capital expenditures                   16,698        99,763   15,626          90,345             850     223,282

    Reportable segment                    236,302        75,296   45,123          20,434       1,744,255   2,121,410
    liabilities

    (1) 5.8 percent of Conventional Pipelines revenue is under regulated
    tolling arrangements.
    (2) Includes investments in equity accounted investees of $189,341.

7. RELATED PARTY TRANSACTIONS

During the quarter, Pembina provided a guarantee for its 50 percent
share of Fort Saskatchewan Ethylene Storage Limited Partnership’s
(“FSESLP”) credit facility of $43 million. On March 28, 2012, the loan
receivable from FSESLP of $18.8 million was repaid in full.

8. SUBSEQUENT EVENTS

On April 2, 2012, Pembina acquired all of the outstanding Provident
Energy Ltd. (“Provident”) common shares (the “Provident Shares”) in
exchange for Pembina common shares valued at approximately $3.3 billion
(“Provident Acquisition”) to create an integrated company that will be
a leading player in the North American energy infrastructure sector.
Provident shareholders received 0.425 of a Pembina common share for
each Provident Share held for a total of 116,535,750 Pembina common
shares. On closing, Pembina assumed all of the rights and obligations
of Provident relating to the 5.75 percent convertible unsecured
subordinated debentures of Provident maturing December 31, 2017, and
the 5.75 percent convertible unsecured subordinated debentures of
Provident maturing December 31, 2018 (collectively, the “Provident
Debentures”). Outstanding Provident Debentures at April 2, 2012 were
$345 million. Pursuant to the respective trust indenture, Pembina was
required to make a repurchase offer for the Provident Debentures at 100
percent of their principal values plus accrued and unpaid interest,
which took place on April 24, 2012. Should a holder of Provident
Debentures elect not to accept the repurchase offer, the debentures
will remain outstanding and mature as originally set out in their
respective indentures. Pursuant to the Arrangement, Provident
amalgamated with a wholly-owned subsidiary of Pembina and has continued
under the name “Pembina NGL Corporation”.

The preliminary purchase price allocation is estimated as follows:


    ($ billions)                       

    Property, plant and equipment   2.0

    Intangibles                     2.5

    Long-term debt                (0.5)

    Other long term liabilities   (0.7)

                                    3.3

The preliminary purchase price allocation for the Provident acquisition
is based upon preliminary information and will be adjusted for
information obtained subsequently. Upon finalization of the accounting
for the acquisition for Provident, the actual amounts assigned to the
fair values of the identifiable assets, liabilities and goodwill
acquired may differ materially from the preliminary purchase price
allocation.

In connection with the closing of the Arrangement, Pembina’s unsecured
revolving credit facility with a syndicate of Canadian banking
institutions was increased from $800 million to $1.5 billion for a term
of five years. Upon closing of the Provident acquisition, Pembina
repaid Provident’s revolving term credit facility of $205 million.

The Pembina Shares were listed and began trading on the New York Stock
Exchange under the symbol “PBA” on April 2, 2012.

On April 12, 2012, Pembina’s Board of Directors declared a dividend for
April of $38.6 million, representing $0.135 per qualifying common share
($1.62 annualized) which is a 3.8 percent increase from the prior
dividend rate.

CORPORATE INFORMATION


    HEAD OFFICE
    Pembina Pipeline Corporation
    Suite 3800, 525 - 8th Avenue S.W.
    Calgary, Alberta  T2P 1G1

    AUDITORS
    KPMG LLP
    Chartered Accountants
    Calgary, Alberta

    TRUSTEE, REGISTRAR & TRANSFER AGENT

    Computershare Trust Companyof Canada
    Suite 600, 530 - 8th Avenue SW
    Calgary, Alberta  T2P 3S8
    1-800-564-6253

    STOCK EXCHANGE

    Pembina Pipeline Corporation

    TSX listing symbols for:
    Common shares: PPL
    Convertible debentures: PPL.DB.C, PPL.DB.E, PPL.DB.F

    NYSE listing symbol for:
    Common shares: PBA

    ANNUAL GENERAL MEETING
    Shareholders are invited to attend Pembina's annual general meeting on
    Tuesday, May 22, 2012 at 2 pm (Calgary time). The meeting will be held
    in the Main Ballroom, The Metropolitan Centre, 333 - 4th Avenue SW
    Calgary, Alberta.

 

 

 

 

SOURCE Pembina Pipeline Corporation


Source: PR Newswire