News Release

Pembina Internalizes Management

CALGARY, Jul 4, 2006 (Canada NewsWire via COMTEX News Network) -- Pembina Pipeline Corporation ("Pembina"), a wholly-owned subsidiary of Pembina Pipeline Income Fund (TSX: PIF.UN) (the "Fund"), is pleased to announce the acquisition of Pembina Management Inc. ("PMI"), and the cancellation of future management fees under the Management Agreement (the "Agreement") between Pembina and PMI. Prior to closing this transaction, PMI was wholly-owned by Pembina's executive officers and PMI has managed Pembina since the inception of the Fund in 1997. The Agreement between Pembina and PMI governs the provision of management, advisory and administrative services for Pembina.

The internalization of PMI and restructuring of executive compensation was undertaken at the request of Pembina's Board of Directors (the "Board"), recognizing the need to address a projected significant increase in future management fees payable to PMI under the Agreement. Given Pembina's strong projected organic growth profile, the Board determined that internalization of PMI in 2006 would be beneficial to cost effectively extinguish the internalization liability and mitigate the impact of an increasing liability arising from escalating management fees. The Human Resources and Compensation Committee, which is comprised of independent Directors, examined various alternatives with respect to executive management compensation and retained the services of Scotia Capital Inc. as financial advisor, and Mercer Human Resource Consulting in connection with the restructuring of management compensation.

Pembina acquired all of the shares of PMI for an initial purchase price of $6 million cash consideration payable at closing and a contingent deferred payment. The deferred amount, payable in 2009, is linked to future growth in distributable cash per unit of the Fund. If the future cumulative distributable cash in the period from January 1, 2006 to December 31, 2008 does not exceed $3.42 per unit ($1.14 per unit per year), the deferred amount is zero. Every approximate 10cents per unit increase in cumulative distributable cash over $3.42 per unit results in a $1 million increase in purchase price to a maximum of $15 million. The purchase price will also be adjusted by the actual distributed cash on the notional trust units issued under the agreement from January 1, 2006 to December 31, 2008 and the change in the value of Pembina units from the weighted average price of the units for the 20 trading days prior to June 30, 2006 of $15.87. A copy of the share purchase agreement is available online on the Fund's SEDAR profile at

As a result of the purchase of these shares, all fees payable by Pembina to PMI are eliminated effective June 30, 2006. This includes base and incentive management fees along with fees payable for acquisitions and divestments, eliminating the incentive to pursue acquisitions over organic growth. Pembina's executive officers have entered into new employment contracts with Pembina and will continue to perform the services previously performed by PMI. The restructured, market based executive compensation is designed to encourage management to continue growing distributable cash flow and facilitates internal promotion and the new hiring of senior executives at Pembina.

Both tangible and intangible benefits to Unitholders are expected as a result of the restructuring, and include:

- The newly implemented market based executive compensation structure
strengthens alignment between management and Unitholders by rewarding
sustainable growth in cash distributions; and, is better aligned with
industry practice;
- the restructuring provides Pembina with stronger executive retention
tools through the implementation of incentive reward programs that
incorporate transparent performance measurement criteria and vesting
- the contingent deferred payment feature further aligns the interests
of management and Unitholders;
- the management internalization was completed on a cost-effective
basis that compares favorably to precedent internalizations and
extinguishes a potentially escalating liability;

Lorne Gordon, Chairman of Pembina's Board, commented, "The Board and its advisors believe that Unitholder interests are best served by this internalization, which will result in an ongoing benefit resulting from the elimination of fees payable under the former Management Agreement."

Bob Michaleski, President and CEO of Pembina, concurred, stating, "The executive team is committed to the ongoing profitable expansion of Pembina's operations and views this arrangement as a mutually beneficial method of achieving that objective."

Pembina Pipeline Income Fund (TSX: PIF.UN, PIF.DB.A, PIF.DB.B) is among the leading issuers in the Canadian energy infrastructure trust sector. Pembina's extensive network of conventional liquids feeder pipelines, and growing presence in the oil sands and midstream sectors, provide an integral service to the Western Canadian energy industry. This balanced portfolio of premium, long-life energy infrastructure assets supports the stability and sustainability of the Fund. Information on the Fund is available on the Company's website at

This document contains forward-looking statements that involve risks and uncertainties. Such information, although considered reasonable by Pembina at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated in the statements made. For this purpose, any statements that are contained herein that are not statements of historical fact may be forward-looking statements. Such risks and uncertainties include, but are not limited to risks associated with operations, loss of market, regulatory matters, environmental risks, industry competition, pipeline design and construction, and ability to access sufficient capital from internal and external sources.

%SEDAR: 00008906E

SOURCE: Pembina Pipeline Income Fund

Ms. Glenys Hermanutz, Manager, Corporate Development, Pembina Pipeline Corporation,


(403) 231-7500, 1-888-428-3222, e-mail: [email protected]