Exhibit 99.3





MANAGEMENT'S REPORT



The audited Consolidated Financial Statements of Pembina Pipeline
Corporation (the "Company" or "Pembina") are the responsibility of Pembina's management. The financial statements
have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board, using management's best estimates and judgments, where appropriate.



Management is responsible for the reliability and integrity of the
financial statements, the notes to the financial statements and other financial information contained in this report. In the preparation
of these financial statements, estimates are sometimes necessary because a precise determination of certain assets and liabilities
is dependent on future events. Management believes such estimates have been based on careful judgments and have been properly reflected
in the accompanying financial statements.



Management's Assessment of Internal Controls over Financial Reporting



Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Rules 13a - 15(f) and 15d - 15(f) under the United States Securities Exchange
Act of 1934, as amended (the "Exchange Act") and under National Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings ("NI 52-109").



Management, including the Chief Executive Officer ("CEO")
and the Chief Financial Officer ("CFO"), has conducted an evaluation of Pembina's internal control over financial reporting
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).



Based on management's assessment as at December 31, 2016, management
has concluded that Pembina's internal control over financial reporting is effective.



Due to its inherent limitations, internal control over financial
reporting is not intended to provide absolute assurance that a misstatement of Pembina's financial statements would be prevented
or detected. Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific
date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate.



The Board of Directors of the Company (the "Board") is
responsible for ensuring management fulfils its responsibilities for financial reporting and internal control. The Board is assisted
in exercising its responsibilities through the Audit Committee, which consists of four non-management directors. The Audit Committee
meets periodically with management and the auditors to satisfy itself that management's responsibilities are properly discharged,
to review the financial statements and to recommend approval of the financial statements to the Board.



KPMG LLP, the independent auditors, have audited the Company's financial
statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States), and have also audited the effectiveness of Pembina's internal control over financial reporting
as of December 31, 2016 and has included an attestation report on management's assessment in their reports which follow. The
independent auditors have full and unrestricted access to the Audit Committee to discuss their audit and their related findings.



45







Changes in Internal Controls over Financial
Reporting



There has been no change in the Company's internal control over financial
reporting that occurred during the year covered by this Annual Report that has materially affected, or are reasonably likely to
materially affect, Pembina's internal control over financial reporting.



|/s/ M. H. Dilger                      |                                                     | /s/ J. Scott Burrows | 
|------------------------------------- | --------------------------------------------------- | -------------------- | 
|M. H. Dilger                          | J. Scott Burrows                                   
|President and Chief Executive Officer | Vice President, Finance and Chief Financial Officer
|Pembina Pipeline Corporation          | Pembina Pipeline Corporation                       



February 23, 2017



46









| | kpmg LLP                
| | ------------------------
| | 205 - 5th Avenue SW     
| | Suite 3100              
| | Calgary AB              
| | T2P 4B9                 
| | Telephone (403) 691-8000
| | Fax (403) 691-8008      
| | ww.kpmg.ca              



INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING
FIRM



To the Shareholders and Board of Directors
of Pembina Pipeline Corporation



We have audited the accompanying consolidated
financial statements of Pembina Pipeline Corporation, which comprise the consolidated statements of financial position as at December
31, 2016 and December 31, 2015, the consolidated statements of earnings and comprehensive income, changes in equity and cash
flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.



Management’s Responsibility
for the Consolidated Financial Statements

Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.



Auditors’ Responsibility

Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.



An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend
on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the
circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.







| | KPMG
    LLP is a Canadian limited liability partnership and a member firm of the KPMG network of     | 
| | ----------------------------------------------------------------------------------------------------- | 
| | independent
    member firms affiliated with KPMG International Cooperative (“KPMG International”), a | 
| | Swiss
    entity. KPMG Canada provides services to KPMG LLP.                                          | 











47











We believe that the audit evidence we have
obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.



Opinion

In our opinion, the consolidated financial
statements present fairly, in all material respects, the consolidated financial position of Pembina Pipeline Corporation as at
December 31, 2016 and December 31, 2015, and its consolidated financial performance and its consolidated cash flows for the years
then ended in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board.



Other Matter

We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States), Pembina Pipeline Corporation’s internal control
over financial reporting as of December 31, 2016, based on the criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February
23, 2017 expressed an unmodified (unqualified) opinion on the effectiveness of Pembina Pipeline Corporation’s internal control
over financial reporting.









Chartered Professional Accountants



February 23, 2017

Calgary, Canada







48













| | kpmg LLP                
| | ------------------------
| | 205 - 5th Avenue SW     
| | Suite 3100              
| | Calgary AB              
| | T2P 4B9                 
| | Telephone (403) 691-8000
| | Fax (403) 691-8008      
| | ww.kpmg.ca              





REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM



To the Shareholders and Board of Directors of Pembina Pipeline Corporation



We have audited Pembina Pipeline Corporation
(the "Corporation") internal control over financial reporting as at December 31, 2016, based on the criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Corporation's management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report.
Our responsibility is to express an opinion on the Corporation's internal control over financial reporting based on our audit.



We conducted our audit in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.



An entity's internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. An entity's internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the entity are being made only in accordance with authorizations
of management and directors of the entity; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the entity's assets that could have a material effect on the financial statements.





| | KPMG
    LLP is a Canadian limited liability partnership and a member firm of the KPMG network of     | 
| | ----------------------------------------------------------------------------------------------------- | 
| | independent
    member firms affiliated with KPMG International Cooperative (“KPMG International”), a | 
| | Swiss
    entity. KPMG Canada provides services to KPMG LLP.                                          | 

















49













Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.



In our opinion, the Corporation maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).



We also have audited, in accordance with
Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States),
the consolidated statements of financial position of the Corporation as of December 31, 2016 and December 31, 2015, and the related
consolidated statements of earnings and comprehensive income, changes in equity and cash flows for the years then ended, and our
report dated February 23, 2017 expressed an unmodified (unqualified) opinion on those consolidated financial statements.









Chartered Professional Accountants



February 23, 2017

Calgary, Canada



6


Pembina Pipeline Corporation




CONSOLIDATED STATEMENTS OF FINANCIAL POSITION



|As at December 31($ millions)                     |  | Note |        |  | 2016 |  |        | 2015 | 
|------------------------------------------------- |  | ---- | ------ |  | ---- |  | ------ | ---- | 
|Assets                                            |  |      |        |  |      |  |        |      | 
|Current assets                                    |  |      |        |  |      |  |        |      | 
|Cash and cash equivalents                         |  |      | 24     |  |      |  | 35     |      | 
|Trade receivables and other                       |  |      | 7, 24  |  |      |  | 451    |      | 
|Derivative financial instruments                  |  |      | 24     |  |      |  | 9      |      | 
|Inventory                                         |  |      |        |  |      |  | 181    |      | 
|                                                  |  |      |        |  |      |  | 676    |      | 
|Non-current assets                                |  |      |        |  |      |  |        |      | 
|Property, plant and equipment                     |  |      | 8      |  |      |  | 11,331 |      | 
|Intangible assets and goodwill                    |  |      | 9      |  |      |  | 2,834  |      | 
|Investments in equity accounted investees         |  |      | 10     |  |      |  | 134    |      | 
|Deferred tax assets                               |  |      | 11     |  |      |  | 31     |      | 
|Other assets                                      |  |      | 24     |  |      |  | 11     |      | 
|                                                  |  |      |        |  |      |  | 14,341 |      | 
|Total Assets                                      |  |      |        |  |      |  | 15,017 |      | 
|                                                  |  |      |        |  |      |  |        |      | 
|Liabilities and Equity                            |  |      |        |  |      |  |        |      | 
|Current liabilities                               |  |      |        |  |      |  |        |      | 
|Trade payables and accrued liabilities            |  |      | 12, 24 |  |      |  | 645    |      | 
|Taxes payable                                     |  |      | 11     |  |      |  | 5      |      | 
|Dividends payable                                 |  |      | 24     |  |      |  | 64     |      | 
|Loans and borrowings                              |  |      | 13, 24 |  |      |  | 6      |      | 
|Derivative financial instruments                  |  |      | 24     |  |      |  | 65     |      | 
|                                                  |  |      |        |  |      |  | 785    |      | 
|Non-current liabilities                           |  |      |        |  |      |  |        |      | 
|Loans and borrowings                              |  |      | 13, 24 |  |      |  | 4,002  |      | 
|Convertible debentures                            |  |      | 14, 24 |  |      |  | 143    |      | 
|Derivative financial instruments                  |  |      | 24     |  |      |  | 58     |      | 
|Employee benefits, share-based payments and other |  |      |        |  |      |  | 48     |      | 
|Deferred revenue                                  |  |      | 17     |  |      |  | 86     |      | 
|Decommissioning provision                         |  |      | 15     |  |      |  | 488    |      | 
|Deferred tax liabilities                          |  |      | 11     |  |      |  | 1,111  |      | 
|                                                  |  |      |        |  |      |  | 5,936  |      | 
|Total Liabilities                                 |  |      |        |  |      |  | 6,721  |      | 
|Equity                                            |  |      |        |  |      |  |        |      | 
|Common share capital                              |  |      | 16     |  |      |  | 8,808  |      | 
|Preferred share capital                           |  |      | 16     |  |      |  | 1,509  |      | 
|Deficit                                           |  |      |        |  |      |  | (2,010 | )    | 
|Accumulated other comprehensive income            |  |      |        |  |      |  | (11    | )    | 
|Total Equity                                      |  |      |        |  |      |  | 8,296  |      | 
|Total Liabilities and Equity                      |  |      |        |  |      |  | 15,017 |      | 



See accompanying notes to the consolidated
financial statements



7


Pembina Pipeline Corporation




CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE
INCOME



|Year
    Ended December 31 ($ millions, except per share amounts)              |  | Note |    |  | 2016 |  |       | 2015 | 
|------------------------------------------------------------------------------ |  | ---- | -- |  | ---- |  | ----- | ---- | 
|Revenue                                                                        |  |      | 20 |  |      |  | 4,265 |      | 
|Cost of sales                                                                  |  |      |    |  |      |  | 3,193 |      | 
|Loss (gain) on commodity-related derivative financial instruments              |  |      |    |  |      |  | 71    |      | 
|Gross profit                                                                   |  |      | 20 |  |      |  | 1,001 |      | 
|General and administrative                                                     |  |      |    |  |      |  | 195   |      | 
|Other (recovery) expense                                                       |  |      |    |  |      |  | (1    | )    | 
|                                                                               |  |      |    |  |      |  | 194   |      | 
|Results from operating activities                                              |  |      |    |  |      |  | 807   |      | 
|Net finance costs                                                              |  |      | 19 |  |      |  | 153   |      | 
|Earnings before income tax and equity accounted investees                      |  |      |    |  |      |  | 654   |      | 
|Share of (profit) loss of investment in equity accounted investees, net of tax |  |      |    |  |      |  | (1    | )    | 
|Current tax expense                                                            |  |      | 11 |  |      |  | 50    |      | 
|Deferred tax expense                                                           |  |      | 11 |  |      |  | 139   |      | 
|Income tax expense                                                             |  |      |    |  |      |  | 189   |      | 
|                                                                               |  |      |    |  |      |  |       |      | 
|Earnings attributable to shareholders                                          |  |      |    |  |      |  | 466   |      | 
|Other comprehensive (loss) income                                              |  |      |    |  |      |  |       |      | 
|Exchange differences on translation of foreign operations, net of tax          |  |      |    |  |      |  | (9    | )    | 
|Remeasurements of defined benefit liability, net of tax                        |  |      | 22 |  |      |  | (5    | )    | 
|Total comprehensive income attributable to shareholders                        |  |      |    |  |      |  | 452   |      | 
|                                                                               |  |      |    |  |      |  |       |      | 
|Earnings per common share – basic (dollars)                                    |  |      | 21 |  |      |  | 1.02  |      | 
|Earnings per common share – diluted (dollars)                                  |  |      | 21 |  |      |  | 1.01  |      | 
|                                                                               |  |      |    |  |      |  |       |      | 
|Weighted average number of common shares(millions)                             |  |      |    |  |      |  |       |      | 
|Basic                                                                          |  |      | 21 |  |      |  | 388   |      | 
|Diluted                                                                        |  |      | 21 |  |      |  | 389   |      | 



See accompanying notes to the consolidated
financial statements



8


Pembina Pipeline Corporation




CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY



|                                                                      |  |      |    |  | Attributable to Shareholders of the Company | 
|--------------------------------------------------------------------- |  | ---- | -- |  | ------------------------------------------- | 
|($ millions)                                                          |  | Note |    |  | Common Share Capital                        | 
|December 31, 2015                                                     |  |      |    |  |                                             | 
|Total comprehensive income                                            |  |      |    |  |                                             | 
|Earnings                                                              |  |      |    |  |                                             | 
|Other comprehensive income                                            |  |      |    |  |                                             | 
|Exchange differences on translation of foreign operations, net of tax |  |      |    |  |                                             | 
|Remeasurements of defined benefit liability, net of tax               |  |      |    |  |                                             | 
|Total comprehensive income                                            |  |      |    |  |                                             | 
|Transactions with shareholders of the Company                         |  |      |    |  |                                             | 
|Common shares issued, net of issue costs                              |  |      | 16 |  |                                             | 
|Preferred shares issued, net of issue costs                           |  |      | 16 |  |                                             | 
|Dividend reinvestment plan                                            |  |      | 16 |  |                                             | 
|Debenture conversions                                                 |  |      | 16 |  |                                             | 
|Share-based payment transactions                                      |  |      | 16 |  |                                             | 
|Dividends declared – common                                           |  |      | 16 |  |                                             | 
|Dividends declared – preferred                                        |  |      | 16 |  |                                             | 
|Total transactions with shareholders of the Company                   |  |      |    |  |                                             | 
|December 31, 2016                                                     |  |      |    |  |                                             | 
|                                                                      |  |      |    |  |                                             | 
|December 31, 2014                                                     |  |      |    |  |                                             | 
|Total comprehensive income                                            |  |      |    |  |                                             | 
|Earnings                                                              |  |      |    |  |                                             | 
|Other comprehensive income                                            |  |      |    |  |                                             | 
|Exchange differences on translation of foreign operations, net of tax |  |      |    |  |                                             | 
|Remeasurements
of defined benefit liability, net of tax               |  |      |    |  |                                             | 
|Total comprehensive income                                            |  |      |    |  |                                             | 
|Transactions with shareholders of the Company                         |  |      |    |  |                                             | 
|Common shares issued, net of issue costs                              |  |      |    |  |                                             | 
|Preferred shares issued, net of issue costs                           |  |      |    |  |                                             | 
|Dividend reinvestment plan                                            |  |      |    |  |                                             | 
|Debenture conversions                                                 |  |      |    |  |                                             | 
|Share-based payment transactions                                      |  |      |    |  |                                             | 
|Dividends declared – common                                           |  |      |    |  |                                             | 
|Dividends declared – preferred                                        |  |      |    |  |                                             | 
|Total transactions with shareholders of the Company                   |  |      |    |  |                                             | 
|December 31, 2015                                                     |  |      |    |  |                                             | 



See accompanying notes to the consolidated
financial statements



9


Pembina Pipeline Corporation




CONSOLIDATED STATEMENTS OF CASH FLOWS



|Year
    Ended December 31 ($ millions)                                         |  | Note |    |  | 2016 |  |        | 2015 | 
|------------------------------------------------------------------------------- |  | ---- | -- |  | ---- |  | ------ | ---- | 
|Cash provided by (used in)                                                      |  |      |    |  |      |  |        |      | 
|Operating activities                                                            |  |      |    |  |      |  |        |      | 
|Earnings                                                                        |  |      |    |  |      |  | 466    |      | 
|Adjustments for                                                                 |  |      |    |  |      |  |        |      | 
|Depreciation and amortization                                                   |  |      |    |  |      |  | 293    |      | 
|Unrealized loss on commodity-related derivative financial instruments           |  |      |    |  |      |  | 61     |      | 
|Net finance costs                                                               |  |      | 19 |  |      |  | 153    |      | 
|Net interest paid                                                               |  |      | 19 |  |      |  | (91    | )    | 
|Income tax expense                                                              |  |      | 11 |  |      |  | 189    |      | 
|Taxes paid                                                                      |  |      | 11 |  |      |  | (3     | )    | 
|Share-based compensation expense                                                |  |      | 23 |  |      |  | 46     |      | 
|Share-based compensation payment                                                |  |      |    |  |      |  | (20    | )    | 
|Loss on asset disposal                                                          |  |      |    |  |      |  | 10     |      | 
|Inventory write down                                                            |  |      |    |  |      |  |        |      | 
|Payments received & deferred                                                    |  |      |    |  |      |  | 2      |      | 
|Share of (profit) loss of investments in equity accounted investees, net of tax |  |      |    |  |      |  | (1     | )    | 
|Payments from equity accounted investees                                        |  |      |    |  |      |  | 13     |      | 
|Other                                                                           |  |      |    |  |      |  | (5     | )    | 
|Change in non-cash operating working capital                                    |  |      |    |  |      |  | (36    | )    | 
|Cash flow from operating activities                                             |  |      |    |  |      |  | 1,077  |      | 
|Financing activities                                                            |  |      |    |  |      |  |        |      | 
|Bank borrowings and issuance of debt                                            |  |      |    |  |      |  | 650    |      | 
|Repayment of loans and borrowings                                               |  |      |    |  |      |  | (333   | )    | 
|Issuance of common shares                                                       |  |      |    |  |      |  | 345    |      | 
|Issuance of preferred shares                                                    |  |      |    |  |      |  | 420    |      | 
|Issuance of medium term notes                                                   |  |      |    |  |      |  | 500    |      | 
|Issue costs and financing fees                                                  |  |      |    |  |      |  | (31    | )    | 
|Exercise of stock options                                                       |  |      |    |  |      |  | 16     |      | 
|Dividends paid (net of shares issued under the dividend reinvestment plan)      |  |      |    |  |      |  | (351   | )    | 
|Cash flow from financing activities                                             |  |      |    |  |      |  | 1,216  |      | 
|Investing activities                                                            |  |      |    |  |      |  |        |      | 
|Capital expenditures                                                            |  |      |    |  |      |  | (1,745 | )    | 
|Acquisition                                                                     |  |      | 6  |  |      |  | (566   | )    | 
|Interest paid during construction                                               |  |      | 19 |  |      |  | (72    | )    | 
|Recovery of assets or proceeds from sale                                        |  |      |    |  |      |  | 37     |      | 
|Contributions to equity accounted investees                                     |  |      |    |  |      |  | (2     | )    | 
|Changes in non-cash investing working capital and other                         |  |      |    |  |      |  | 62     |      | 
|Cash flow used in investing activities                                          |  |      |    |  |      |  | (2,286 | )    | 
|Change in cash and cash equivalents                                             |  |      |    |  |      |  | 7      |      | 
|Cash and cash equivalents, beginning of year                                    |  |      |    |  |      |  | 28     |      | 
|Cash and cash equivalents, end of year                                          |  |      |    |  |      |  | 35     |      | 



See accompanying notes to the consolidated
financial statements



10


Pembina Pipeline Corporation




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|1.  | REPORTING ENTITY                                    | 12
|--- | --------------------------------------------------- | --
|    |                                                     |   
|2.  | BASIS OF PREPARATION                                | 12
|    |                                                     |   
|3.  | CHANGES IN ACCOUNTING POLICIES                      | 14
|    |                                                     |   
|4.  | SIGNIFICANT ACCOUNTING POLICIES                     | 14
|    |                                                     |   
|5.  | DETERMINATION OF FAIR VALUES                        | 27
|    |                                                     |   
|6.  | ACQUISITION                                         | 29
|    |                                                     |   
|7.  | TRADE RECEIVABLES AND OTHER                         | 29
|    |                                                     |   
|8.  | PROPERTY, PLANT AND EQUIPMENT                       | 30
|    |                                                     |   
|9.  | INTANGIBLE ASSETS AND GOODWILL                      | 31
|    |                                                     |   
|10. | INVESTMENTS IN EQUITY ACCOUNTED INVESTEES           | 32
|    |                                                     |   
|11. | INCOME TAXES                                        | 33
|    |                                                     |   
|12. | TRADE PAYABLES AND ACCRUED LIABILITIES              | 35
|    |                                                     |   
|13. | LOANS AND BORROWINGS                                | 36
|    |                                                     |   
|14. | CONVERTIBLE DEBENTURES                              | 37
|    |                                                     |   
|15. | DECOMMISSIONING PROVISION                           | 38
|    |                                                     |   
|16. | SHARE CAPITAL                                       | 38
|    |                                                     |   
|17. | DEFERRED REVENUE                                    | 41
|    |                                                     |   
|18. | PERSONNEL EXPENSES                                  | 42
|    |                                                     |   
|19. | NET FINANCE COSTS                                   | 42
|    |                                                     |   
|20. | OPERATING SEGMENTS                                  | 42
|    |                                                     |   
|21. | EARNINGS PER COMMON SHARE                           | 44
|    |                                                     |   
|22. | PENSION PLAN                                        | 45
|    |                                                     |   
|23. | SHARE-BASED PAYMENTS                                | 48
|    |                                                     |   
|24. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT | 51
|    |                                                     |   
|25. | OPERATING LEASES                                    | 56
|    |                                                     |   
|26. | CAPITAL MANAGEMENT                                  | 56
|    |                                                     |   
|27. | GROUP ENTITIES                                      | 57
|    |                                                     |   
|28. | RELATED PARTIES                                     | 57



11


Pembina Pipeline Corporation




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



| | 1. | REPORTING ENTITY
| | -- | ----------------



Pembina Pipeline Corporation ("Pembina" or the "Company")
is an energy transportation and service provider domiciled in Canada. The consolidated financial statements ("Financial Statements")
include the accounts of the Company, its subsidiary companies, partnerships and any interests in associates and joint arrangements
as at and for the year ended December 31, 2016. These Financial Statements present fairly the financial position, financial
performance and cash flows of the Company.



Pembina owns or has interests in conventional crude oil, condensate
and natural gas liquids ("NGL") pipelines, oil sands and heavy oil pipelines, gas gathering and processing facilities,
an NGL infrastructure and logistics business and midstream services that span across its operations. The Company's assets are located
in Canada and in the United States.



| | 2. | BASIS OF PREPARATION
| | -- | --------------------



| | a. | Basis of measurement and statement of compliance
| | -- | ------------------------------------------------



The Financial Statements have been prepared on a historical cost
basis with some exceptions, as detailed the accounting policies set out below in accordance with International Financial Reporting
Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). These accounting policies
have been applied consistently for all periods presented in these financial statements.



Certain insignificant comparative amounts have been reclassified
to conform to the presentation adopted in the current year.



The Financial Statements were authorized for issue by Pembina's
Board of Directors on February 23, 2017.



| | b. | Functional and presentation currency
| | -- | ------------------------------------



The Financial Statements are presented in Canadian dollars. All
financial information presented in Canadian dollars has been disclosed in millions, except where noted. The
assets and liabilities of subsidiaries whose functional currencies are other than Canadian dollars are translated into Canadian
dollars at the foreign exchange rate at the balance sheet date, while revenues and expenses of such subsidiaries are translated
using average monthly foreign exchange rates, which approximate the foreign exchange rates on the dates of the transactions. Foreign
exchange differences arising on translation are included in Other Comprehensive Income.



| | c. | Use of estimates and judgments
| | -- | ------------------------------



The preparation of the 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.



12


Pembina Pipeline Corporation




The following judgment and estimation uncertainties are those
management considers material to the Company's financial statements:



Judgments



| | (i) | Business combinations
| | --- | ---------------------



Business combinations are accounted for using the
acquisition method of accounting. The determination of fair value often requires management to make judgments about future possible
events. The assumptions with respect to determining the fair value of property, plant and equipment, intangible assets and liabilities
acquired, as well as the determination of deferred taxes, generally require the most judgment.



| | (ii) | Depreciation and amortization
| | ---- | -----------------------------



Depreciation and amortization of property, plant and
equipment and intangible assets are based on management's judgment of the most appropriate method to reflect the pattern of an
asset's future economic benefit expected to be consumed by the Company. Among other factors, these judgments are based on industry
standards and historical experience.



| | (iii) | Impairment
| | ----- | ----------



Assessment of impairment is based on management's
judgment of whether there are sufficient internal and external factors that would indicate that an asset, or cash generating unit
("CGU"), or group of CGU's are impaired. The determination of a CGU is also based on management's judgment and is an
assessment of the smallest group of assets that generate cash inflows independently of other assets. The asset composition of a
CGU can directly impact the recoverability of the assets included therein. In assessing the recoverability, each CGU's carrying
value is compared to its recoverable amount, defined as the greater of fair value less costs to sell and value in use.



Estimates



| | (i) | Business combinations
| | --- | ---------------------



Estimates of future cash flows, forecast prices, interest
rates and discount rates are made in determining the fair value of assets acquired and liabilities assumed. Changes in any of the
assumptions or estimates used in determining the fair value of acquired assets and liabilities could impact the amounts assigned
to assets, liabilities, intangible assets and goodwill in the purchase price equation. Future earnings can be affected as a result
of changes in future depreciation and amortization, asset or goodwill impairment.



| | (ii) | Provisions and contingencies
| | ---- | ----------------------------



Provisions recognized are based on management's judgment
about assessing contingencies and timing, scope and amount of assets and liabilities. Management uses judgment in determining the
likelihood of realization of contingent assets and liabilities to determine the outcome of contingencies.



Based on the long-term nature of the decommissioning
provision, the most significant uncertainties in estimating the provision are the discount rates used, the costs that will be incurred
and the timing of when these costs will occur.



| | (iii) | Deferred taxes
| | ----- | --------------



The calculation of the deferred tax asset or liability
is based on assumptions about the timing of many taxable events and the enacted or substantively enacted rates anticipated to be
applicable to income in the years in which temporary differences are expected to be realized or reversed.



13


Pembina Pipeline Corporation




| | (iv) | Depreciation and amortization
| | ---- | -----------------------------



Estimated useful lives of property, plant and equipment
and intangible assets are based on management's assumptions and estimates of the physical useful lives of the assets, the economic
lives, which may be associated with the reserve lives and commodity type of the production area, in addition to the estimated residual
value.



| | (v) | Impairment tests
| | --- | ----------------



Impairment tests include management's best estimates
of future cash flows and discount rates.



| | 3. | CHANGES IN ACCOUNTING POLICIES
| | -- | ------------------------------



There were no new standards or amendments issued by the International
Accounting Standards Board ("IASB") that were adopted as of January 1, 2016. The accounting policies as disclosed in
Note 4 have been applied to all periods consistently.



| | 4. | SIGNIFICANT ACCOUNTING POLICIES
| | -- | -------------------------------



The accounting policies as set out below have been applied consistently
to all periods presented in these Financial Statements.



| | a. | Basis of consolidation
| | -- | ----------------------



| | i) | Business combinations
| | -- | ---------------------



The Company measures goodwill as the fair value of
the consideration transferred including the recognized amount of any non-controlling interest in the acquiree, less the net recognized
amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date.
When the excess is negative, a bargain purchase gain is recognized immediately in earnings.



The Company elects on a transaction-by-transaction
basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognized amount of
the identifiable net assets, at the acquisition date.



Non-controlling interests represent equity interests
in subsidiaries owned by outside parties. The share of net assets of subsidiaries attributable to non-controlling interests is
presented as a separate component of equity. Their share of net income and other comprehensive income is also recognized in this
separate component of equity. Changes in the Company's ownership interest in subsidiaries that do not result in a loss of control
are accounted for as equity transactions. Adjustments to non-controlling interests are based on a proportionate amount of the net
assets of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognized in earnings.



Transaction costs, other than those associated with
the issue of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred.



| | ii) | Subsidiaries
| | --- | ------------



Subsidiaries are entities, including unincorporated
entities such as partnerships, controlled by the Company. The financial results of subsidiaries are included in the Financial Statements
from the date that control commences until the date that control ceases. The accounting policies of subsidiaries are aligned with
the policies adopted by the Company.



14


Pembina Pipeline Corporation




| | iii) | Investments in associates
| | ---- | -------------------------



Associates are those entities in which the Company
has significant influence and thereby has the power to participate in the financial and operational decisions, but does not control
or jointly control the investee. Significant influence is presumed to exist when the Company holds between 20 and 50 percent of
the voting power of another entity.



The Financial Statements include the Company's share
of the earnings and other comprehensive income, after adjustments to align the accounting policies with those of the Company, from
the date that significant influence commences until the date that significant influence ceases. The Company's investments in associates
are accounted for using the equity method and are recognized initially at cost, including transaction costs.



When the Company's share of losses exceeds its interest
in an equity-accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil,
and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments
on behalf of the investee.



| | iv) | Joint arrangements
| | --- | ------------------



Joint arrangements represent activities where the
Company has joint control established by a contractual agreement. Joint control requires unanimous consent for the relevant financial
and operational decisions. A joint arrangement is either a joint operation, whereby the parties have rights to the assets and obligations
for the liabilities, or a joint venture, whereby the parties have rights to the net assets.



For a joint operation, the consolidated financial
statements include the Company's proportionate share of the assets, liabilities, revenues, expenses and cash flows of the arrangement
with items of a similar nature on a line-by-line basis, from the date that joint control commences until the date that joint control
ceases.



Joint ventures are accounted for using the equity
method of accounting and recognized at cost and adjusted thereafter for the post-acquisition change in the Company's share of the
joint venture's net assets. The Company's consolidated financial statements include its share of the joint venture's profit or
loss and other comprehensive income included in investment in joint ventures, until the date that joint control ceases.



Determining the type of joint arrangement as either
joint operation or joint venture is based on management's assumptions of whether it has joint control over another entity. The
considerations include, but are not limited to, determining if the arrangement is structured through a separate vehicle and whether
the legal form and contractual arrangements give the entity direct rights to the assets and obligations for the liabilities within
the normal course of business. Other facts and circumstances are also assessed by management, including the entity's rights to
the economic benefits of assets and its involvement and responsibility for settling liabilities associated with the arrangement.



| | v) | Transactions eliminated on consolidation
| | -- | ----------------------------------------



Intra-group balances and transactions, and any
unrealized revenue and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial
statements. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment
to the extent of the Company's interest in the investee. Unrealized losses are eliminated in the same way as unrealized
gains, but only to the extent that there is no evidence of impairment.



15


Pembina Pipeline Corporation




| | vi) | Foreign currency
| | --- | ----------------



Transactions in foreign currencies are translated
to the Company's functional currency at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated
in foreign currencies at the reporting date are retranslated to the Company's functional currency at the exchange rate at that
date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at
the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign
currency translated at the exchange rate at the end of the reporting period.



Non-monetary assets and liabilities denominated in
foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date
that the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction.



Foreign currency differences arising on retranslation
are recognized in earnings, with the exception of foreign exchange differences arising on translation of subsidiaries whose functional
currencies are other than the Canadian dollar which are included in Other Comprehensive Income.



| | b. | Cash and cash equivalents
| | -- | -------------------------



Cash and cash equivalents comprise cash balances, call deposits
and short-term investments with original maturities of ninety days or less that are subject to an insignificant risk of changes
in their fair value, and are used by the Company in the management of its short-term commitments.



| | c. | Trade and other receivables
| | -- | ---------------------------



Trade and other receivables are financial assets with fixed or
determinable payments that are not quoted in an active market.



Such assets are recognized initially at fair value plus any directly
attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the
effective interest method less any impairment losses.



| | d. | Inventories
| | -- | -----------



Inventories are measured at the lower of cost and net realizable
value and consist primarily of crude oil, NGL and spare parts. The cost of inventories is determined using the weighted average
costing method and includes direct purchase costs and when applicable, costs of production, extraction, fractionation costs, and
transportation costs. Net realizable value is the estimated selling price in the ordinary course of business less the estimated
selling costs. All changes in the value of the inventories are reflected in inventories and cost of sales.



| | e. | Financial instruments
| | -- | ---------------------



Financial assets and liabilities are offset and the net amount
presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends
either to settle on a net basis or to realize the asset and settle the liability simultaneously.



16


Pembina Pipeline Corporation




| | i) | Non-derivative financial assets
| | -- | -------------------------------



The Company initially recognizes loans, receivables
and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through
earnings) are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the
instrument.



The Company derecognizes a financial asset when the
contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on
the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.
Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability.



The Company classifies non-derivative financial assets
into the following categories:



Financial assets at fair value through profit or
loss



A financial asset is classified in this category if
it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are
recognized in profit or loss as incurred.



Loans and receivables



Such assets are recognized initially at fair value
plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized
cost using the effective interest method less any impairment losses.



Available for sale



These assets are initially measured at fair value
plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value, with changes
in those fair values recognized in other comprehensive income. When these assets are derecognized, the gain or loss accumulated
in equity is reclassified to profit or loss. The Company did not have any financial assets classified as available for sale during
the years covered in these financial statements.



| | ii) | Non-derivative financial liabilities
| | --- | ------------------------------------



The Company initially recognizes debt securities issued
and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated
at fair value through earnings) are recognized initially on the trade date at which the Company becomes a party to the contractual
provisions of the instrument.



The Company derecognizes a financial liability when
its contractual obligations are discharged, cancelled or expire.



The Company's non-derivative financial liabilities
are comprised of the following: bank overdrafts, trade payables and accrued liabilities, taxes payable, dividends payable, loans
and borrowings including finance lease obligations and the liability component of convertible debentures.



Such financial liabilities are recognized initially
at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are
measured at amortized cost using the effective interest method.



17


Pembina Pipeline Corporation




Bank overdrafts that are repayable on demand and form
an integral part of the Company's cash management are included as a component of cash and cash equivalents for the purpose of the
statement of cash flows.



| | iii) | Common share capital
| | ---- | --------------------



Common shares are classified as equity. Incremental
costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any
tax effects.



| | iv) | Preferred share capital
| | --- | -----------------------



Preferred shares are classified as equity because
they bear discretionary dividends and do not contain any obligations to deliver cash or other financial assets. Discretionary dividends
are recognized as equity distributions on approval by the Company's Board of Directors. Incremental costs directly attributable
to the issue of preferred shares are recognized as a deduction from equity, net of any tax effects.



| | v) | Compound financial instruments
| | -- | ------------------------------



The Company's convertible debentures are compound
financial instruments consisting of a financial liability and an embedded conversion feature. In accordance with IAS 39, the embedded
derivatives are required to be separated from the host contracts and accounted for as stand-alone instruments.



Debentures containing a cash conversion option allow
Pembina to pay cash to the converting holder of the debentures, at the option of the Company. As such, the conversion feature is
presented as a financial derivative liability within long-term derivative financial instruments. Debentures without a cash conversion
option are settled in shares on conversion, and therefore the conversion feature is presented within equity, in accordance with
its contractual substance.



On initial recognition and at each reporting date,
the embedded conversion feature is measured using a method whereby the fair value is measured using an option pricing model. Subsequent
to initial recognition, any unrealized gains or losses arising from fair value changes are recognized through earnings in the statement
of earnings and comprehensive income at each reporting date. If the conversion feature is included in equity, it is not remeasured
subsequent to initial recognition. On initial recognition, the debt component, net of issue costs, is recorded as a financial liability
and accounted for at amortized cost. Subsequent to initial recognition, the debt component is accreted to the face value of the
debentures using the effective interest rate method. Upon conversion, the corresponding portions of the debt and equity are removed
from those captions and transferred to share capital.



| | vi) | Derivative financial instruments
| | --- | --------------------------------



The Company holds derivative financial instruments
to manage its interest rate, commodity, power costs and foreign exchange risk exposures as well as cash conversion features on
convertible debentures and a redemption liability. Embedded derivatives are separated from the host contract and accounted for
separately if the economic characteristics and risks of the host contract and the embedded derivative meet the definition of a
derivative, and the combined instrument is not measured at fair value through earnings. Derivatives are recognized initially at
fair value with attributable transaction costs recognized in earnings as incurred. Subsequent to initial recognition, derivatives
are measured at fair value and changes in non-commodity-related derivatives are recognized immediately in earnings in net finance
costs and changes in commodity-related derivatives are recognized immediately in earnings in operating activities.



18


Pembina Pipeline Corporation




| | f. | Property, plant and equipment
| | -- | -----------------------------



| | i) | Recognition and measurement
| | -- | ---------------------------



Items of property, plant and equipment are measured
at cost less accumulated depreciation and accumulated impairment losses.



Cost includes expenditures that are directly attributable
to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other
costs directly attributable to bringing the assets to a working condition for their intended use, estimated decommissioning provisions
and borrowing costs on qualifying assets.



Cost may also include any gain or loss realized on
foreign currency transactions directly attributable to the purchase or construction of property, plant and equipment. Purchased
software that is integral to the functionality of the related equipment is capitalized as part of that equipment.



When parts of an item of property, plant and equipment
have different useful lives, they are accounted for as separate components of property, plant and equipment.



The gain or loss on disposal of an item of property,
plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment,
and are recognized within other expense (income) in earnings.



| | ii) | Subsequent costs
| | --- | ----------------



The cost of replacing a part of an item of property,
plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied
within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized
and recorded as depreciation expense. The cost of maintenance and repair expenses of the property, plant and equipment are recognized
in earnings as incurred.



| | iii) | Depreciation
| | ---- | ------------



Depreciation is based on the cost of an asset less
its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different
from the remainder of the asset, that component is depreciated separately. Land and linefill are not depreciated.



Depreciation is recognized in earnings on a straight
line or declining balance basis, which most closely reflects the expected pattern of consumption of the future economic benefits
embodied in the asset.



Leased assets are depreciated over the shorter of
the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the
lease term.



Depreciation methods, useful lives, economic lives
and residual values are reviewed annually and adjusted if appropriate.



| | g. | Intangible assets
| | -- | -----------------



| | i) | Goodwill
| | -- | --------



Goodwill that arises upon acquisitions is included
in intangible assets. See Note 4(a)(i) for the policy on measurement of goodwill at initial recognition.



19


Pembina Pipeline Corporation




Subsequent measurement



Goodwill is measured at cost less accumulated impairment
losses.



In respect of equity-accounted investees, the carrying
amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an investment is allocated
to the investment and not to any asset, including goodwill, that forms the carrying amount of the equity-accounted investee.



| | ii) | Other intangible assets
| | --- | -----------------------



Other intangible assets acquired individually by the
Company and have finite useful lives are recognized and measured at cost less accumulated amortization and accumulated impairment
losses.



| | iii) | Subsequent expenditures
| | ---- | -----------------------



Subsequent expenditures are capitalized only when
it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures are recognized
in earnings as incurred.



| | iv) | Amortization
| | --- | ------------



Amortization is based on the cost of an asset less
its residual value.



Amortization is recognized in earnings over the estimated
useful lives of intangible assets, other than goodwill, from the date that they are available for use.



Amortization methods, useful lives and residual values
are reviewed annually and adjusted if appropriate.



| | h. | Leased assets
| | -- | -------------



Leases which the Company assumes substantially all the risks
and rewards of ownership are classified as finance leases. The leased asset is initially recognized at an amount equal to the lower
of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted
for in accordance with the accounting policy applicable to that asset.



Other leases are operating leases and are not recognized in the
Company's statement of financial position.



| | i. | Lease payments
| | -- | --------------



Payments made under operating leases are recognized in earnings
on a straight-line basis over the term of the lease. Lease incentives received are deferred and recognized over the term of the
lease.



Minimum lease payments made under finance leases are apportioned
between the finance cost and the reduction of the outstanding liability. The finance cost is allocated to each period during the
lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments
are accounted for by revising the minimum lease payments over the remaining life.



| | i) | Determining whether an arrangement contains a lease
| | -- | ---------------------------------------------------



At inception of an arrangement, the Company determines
whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement
is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to
a lessee the right to control the use of the underlying asset.



20


Pembina Pipeline Corporation




At inception or upon reassessment of the arrangement,
the Company separates payments and other consideration required by such an arrangement into those for the lease and those for other
elements on the basis of their relative fair values. If the Company concludes, for a finance lease, that it is impracticable to
separate the payments reliably, an asset and liability are recognized at an amount equal to the fair value of the underlying asset.
Subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognized using the
Company's incremental borrowing rate.



| | j. | Impairment
| | -- | ----------



| | i) | Non-derivative financial assets
| | -- | -------------------------------



A financial asset not carried at fair value through
earnings is assessed at each reporting date to determine whether it is impaired. A financial asset is impaired if there is objective
evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and that loss
event has a negative impact on the estimated future cash flows of that asset that can be estimated reliably.



Objective evidence that financial assets are impaired
can include default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not
consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers
or issuers in the Company, economic conditions that correlate with defaults or the disappearance of an active market for a security
or a significant or prolonged decline in the fair value below cost.



Trade receivables ("Receivables")



The Company considers evidence of impairment for Receivables
at both a specific asset and collective level. All individually significant Receivables are assessed for specific impairment. All
individually significant Receivables found not to be specifically impaired are then collectively assessed for any impairment that
has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment
by grouping together Receivables with similar risk characteristics.



In assessing collective impairment, the Company uses
historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management's
judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less
than suggested by historical trends.



An impairment loss in respect of a financial asset
measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future
cash flows discounted at the asset's original effective interest rate. Losses are recognized in earnings and reflected in an allowance
account against Receivables. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When
a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through earnings.



| | ii) | Non-financial assets
| | --- | --------------------



The carrying amounts of the Company's non-financial
assets, other than inventory, assets arising from employee benefits and deferred tax assets, are reviewed at each reporting date
to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated.



21


Pembina Pipeline Corporation




For goodwill and intangible assets that have indefinite
useful lives or that are not yet available for use, the recoverable amount is estimated annually in connection with the impairment
test. An impairment loss is recognized if the carrying amount of an asset or its related CGU exceeds its estimated recoverable
amount.



The recoverable amount of an asset or CGU is the greater
of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped
together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the
cash inflows of other assets or CGUs. For the purpose of goodwill impairment testing, CGUs are aggregated so that the level at
which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal purposes. Goodwill
acquired in a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the
combination.



The Company's corporate assets do not generate separate
cash inflows and are utilized by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis
and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated. If there is an indication
that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.



Impairment losses are recognized in earnings. An impairment
loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses recognized
in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and
then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.



An impairment loss in respect of goodwill is not reversed.
In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used
to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not
exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been
recognized.



Goodwill that forms part of the carrying amount of
an equity-accounted investee is not recognized separately, and therefore is not tested for impairment separately. Instead, the
entire amount of the investment is tested for impairment as a single asset when there is objective evidence that the equity-accounted
investee may be impaired.



| | k. | Employee benefits
| | -- | -----------------



| | i) | Defined contribution plans
| | -- | --------------------------



A defined contribution plan is a post-employment benefit
plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to
pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit
expense in earnings in the periods during which services are rendered by employees. Prepaid contributions are recognized as an
asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution
plan due more than 12 months after the end of the period in which the employees render the service are discounted to their present
value.



22


Pembina Pipeline Corporation




| | ii) | Defined benefit pension plans
| | --- | -----------------------------



A defined benefit pension plan is a post-employment
benefit plan other than a defined contribution plan. The Company's net obligation in respect of Defined Benefit Pension Plans is
calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service
in the current and prior periods, discounted to determine its present value, less the fair value of any plan assets. The discount
rate used to determine the present value is established by referencing market yields on high-quality corporate bonds on the measurement
date with cash flows that match the timing and amount of expected benefits.



The calculation is performed, at a minimum, every
three years by a qualified actuary using the actuarial cost method. When the calculation results in a benefit to the Company, the
recognized asset is limited to the present value of economic benefits available in the form of future expenses payable from the
plan, any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value
of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Company. An economic
benefit is available to the Company if it is realizable during the life of the plan or on settlement of the plan liabilities.



When the benefits of a plan are improved, the portion
of the increased benefit relating to past service by employees is recognized in earnings immediately.



The Company recognizes all actuarial gains and losses
arising from defined benefit plans in other comprehensive income and expenses related to defined benefit plans in personnel expenses
in earnings.



The Company recognizes gains or losses on the curtailment
or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment comprises any
resulting change in the fair value of plan assets, change in the present value of defined benefit obligation and any related actuarial
gains or losses and past service cost that had not previously been recognized.



| | iii) | Short-term employee benefits
| | ---- | ----------------------------



Short-term employee benefit obligations are measured
on an undiscounted basis and are expensed as the related service is provided.



A liability is recognized for the amount expected
to be paid under short-term cash bonus if the Company has a present legal or constructive obligation to pay this amount as a result
of past service provided by the employee, and the obligation can be estimated reliably.



| | iv) | Share-based payment transactions
| | --- | --------------------------------



For equity settled share-based payment plans, the
fair value of the share-based payment at grant date is recognized as an expense, with a corresponding increase in equity, over
the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to
reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that
the amount ultimately recognized as an expense is based on the number of awards that meet the related service conditions at the
vesting date.



For cash settled share-based payment plans, the fair
value of the amount payable to employees is recognized as an expense with a corresponding increase in liabilities, over the period
that the employees unconditionally become entitled to payment. The liability is remeasured at each reporting date and at settlement
date. Any changes in the fair value of the liability are recognized as an expense in earnings.



23


Pembina Pipeline Corporation




| | l. | Provisions
| | -- | ----------



A provision is recognized if, as a result of a past event, the
Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at
a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Provisions
are remeasured at each reporting date based on the best estimate of the settlement amount. The unwinding of the discount rate is
recognized as a finance cost.



| | i) | Decommissioning obligation
| | -- | --------------------------



The Company's activities give rise to dismantling,
decommissioning and site disturbance remediation activities. A provision is made for the estimated cost of site restoration and
capitalized in the relevant asset category.



Decommissioning obligations are measured at the present
value, based on a risk-free rate, of management's best estimate of expenditure required to settle the obligation at the balance
sheet date. Subsequent to the initial measurement, the obligation is adjusted at the end of each period to reflect the passage
of time, changes in the risk-free rate and changes in the estimated future cash flows underlying the obligation. The increase in
the provision due to the passage of time is recognized as finance costs whereas increases or decreases due to changes in the estimated
future cash flows or risk-free rate are added to or deducted from the cost of the related asset.



| | m. | Revenue
| | -- | -------



Revenue in the course of ordinary activities is measured at the
fair value of the consideration received or receivable. Revenue is recognized when persuasive evidence exists that the significant
risks and rewards of ownership have been transferred to the customer or the service has been provided, recovery of the consideration
is probable, the associated costs can be estimated reliably, there is no continuing management involvement with the goods, and
the amount of revenue can be measured reliably.



The timing of the transfer of significant risks and rewards varies
depending on the individual terms of the sales or service agreement. For product sales, usually transfer of significant risks and
rewards occurs when the product is delivered to a customer. For pipeline transportation revenues and storage revenue, transfer
of significant risks and rewards usually occurs when the service is provided as per the contract with the customer. For rate or
contractually regulated pipeline operations, revenue is recognized in a manner that is consistent with the underlying rate design
as mandated by agreement or regulatory authority.



Certain commodity buy/sell arrangements where the risks and rewards
of ownership have not transferred are recognized on a net basis in earnings.



| | n. | Finance income and finance costs
| | -- | --------------------------------



Finance income comprises interest income on funds deposited and
invested, gains on non-commodity-related derivatives measured at fair value through earnings and foreign exchange gains. Interest
income is recognized as it accrues in earnings, using the effective interest rate method.



24


Pembina Pipeline Corporation




Finance costs comprise interest expense on loans and borrowings
and convertible debentures, unwinding of discount rate on provisions, losses on disposal of available for sale financial assets,
losses on non-commodity-related derivatives, impairment losses recognized on financial assets (other than trade and other receivables)
and foreign exchange losses.



Borrowing costs that are not directly attributable to the acquisition
or construction of a qualifying asset are recognized in earnings using the effective interest rate method.



| | o. | Income tax
| | -- | ----------



Income tax expense comprises current and deferred tax. Current
and deferred taxes are recognized in earnings except to the extent that it relates to a business combination, or items are recognized
directly in equity or in other comprehensive income.



Current tax is the expected tax payable or receivable on the
taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment
to tax payable in respect of previous years.



Deferred tax is recognized in respect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for:



| | • | temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination
and that affects neither accounting nor taxable earnings;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | temporary differences relating to investments in subsidiaries and joint arrangements to the extent that it is probable that
they will not reverse in the foreseeable future; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | taxable temporary differences arising on the initial recognition of goodwill.
| | - | -----------------------------------------------------------------------------



The measurement of deferred tax reflects the tax consequences
that would follow the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.



Deferred tax is measured at the tax rates that are expected to
be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the
reporting date.



Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same taxable entity,
or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and
liabilities will be realized simultaneously.



A deferred tax asset is recognized for unused tax losses, tax
credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against
which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realized.



In determining the amount of current and deferred tax, the Company
takes into account income tax exposures and whether additional taxes and interest may be due. This assessment relies on estimates
and assumptions and may involve a series of judgments about future events. New information may become available that causes the
Company to change its judgment regarding the adequacy of existing tax liabilities, such changes to tax liabilities will impact
tax expense in the period that such a determination is made.



25


Pembina Pipeline Corporation




| | p. | Earnings per common share
| | -- | -------------------------



The Company presents basic and diluted earnings per common share
("EPS") data for its common shares. Basic EPS is calculated by dividing the earnings attributable to common shareholders
of the Company by the weighted average number of common shares outstanding during the period. To calculate earnings attributable
to common shareholders, earnings are adjusted for accumulated preferred dividends. Diluted EPS is determined by adjusting the earnings
attributable to common shareholders and the weighted average number of common shares outstanding, for the effects of all potentially
dilutive common shares, which comprise convertible debentures and share options granted to employees ("Convertible Instruments").
Only outstanding and Convertible Instruments that will have a dilutive effect are included in fully diluted calculations.



The dilutive effect of Convertible Instruments is determined
whereby outstanding Convertible Instruments at the end of the period are assumed to have been converted at the beginning of the
period or at the time issued if issued during the year. Amounts charged to earnings relating to the outstanding Convertible Instruments
are added back to earnings for the diluted calculations. The shares issued upon conversion are included in the denominator of per
share basic calculations for the date of issue.



| | q. | Segment reporting
| | -- | -----------------



An operating segment is a component of the Company that engages
in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions
with any of the Company's other components. All operating segments' operating results are reviewed regularly by the Company's Chief
Executive Officer ("CEO"), Chief Financial Officer ("CFO") and Senior Vice Presidents ("SVPs") to
make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information
is available.



Segment results that are reported to the CEO, CFO and SVPs include
items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise
mainly corporate assets, corporate general and administrative expenses, finance income and costs, and income tax assets and liabilities.



Segment capital expenditure is the total cost incurred during
the period to acquire property, plant and equipment, and intangible assets other than goodwill.



| | r. | Cash flow statements
| | -- | --------------------



The cash flow statement is prepared using the indirect method
for calculating cash flow from operating activities. Changes in balance sheet items that have not resulted in cash flows such as
share-based compensation expense, unwinding of discount rates, unrealized gains and losses, depreciation and amortization, employee
future benefit expenses, deferred income tax expense, share of profit from equity-accounted investees, among others, have been
eliminated for the purpose of preparing this statement. Dividends paid to ordinary shareholders, among other expenditures, are
included in financing activities. Interest paid is included in operating activities, with the exception of interest paid during
construction, which is included in investing activities.



| | s. | New standards and interpretations not yet adopted
| | -- | -------------------------------------------------



Certain new standards, interpretations, amendments and improvements
to existing standards were issued by the IASB or IFRIC and are effective for accounting periods beginning after January 1, 2017.
These standards have not been applied in preparing these Financial Statements. Those which may be relevant to Pembina are described
below:



26


Pembina Pipeline Corporation




IFRS 9 Financial Instruments (2014)



IFRS 9 Financial Instruments(2014) has a mandatory effective
date of January 1, 2018 and is available for early adoption. The new standard introduces new requirements for the classification
and measurement of financial assets, amends the impairment model, and includes a new general hedge accounting standard which aligns
hedge accounting more closely with risk management.



The Company intends to adopt IFRS 9 Financial Instruments (2014)
effective January 1, 2017. The Company does not expect the standard to have a material impact on the financial statements.



IFRS 15 Revenue from Contracts with Customers



In May 2014 the International Accounting Standards Board issued
IFRS 15 Revenue from contracts with customers, which supersedes existing revenue guidance,effectivefor periods
beginning on or after January 1, 2018. IFRS 15 contains a single model that applies to contracts with customers and two approaches
to recognizing revenue: at a point in time or over time. The model outlines a five step analysis to assess contracts which involves
identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction
price to the performance obligations and recognizing revenue when or as the entity satisfies a performance obligation. Detailed
guidance is also provided on a number of areas for which there was no previous guidance, including contract costs and contract
modifications. In April 2016 the IASB issued Clarifications to IFRS 15, Revenue from Contracts with Customers, which is effective
at the same time as IFRS 15, and provides additional guidance on the five step analysis and transition.



The Company intends to adopt IFRS 15 and the clarifications on
the January 1, 2018 effective date. The Company has completed a detailed implementation plan, identified revenue streams and major
contracts types. The Company is in the process of evaluating the impact that the standard will have on its financial statements
and disclosure, however, the extent of the impact has not yet been determined. The Company expects to report more detailed information
on the impact of the new standard as it is determined.



IFRS 16 Leases



IFRS 16 Leasesis effective for annual periods beginning
on or after January 1, 2019. The new standard results in substantially all lessee leases being recorded on the statement of financial
position.



The Company intends to adopt IFRS 16 for the annual period beginning
on January 1, 2019. The Company is currently evaluating the impact that the standard will have on its results of operations and
financial position.



| | 5. | DETERMINATION OF FAIR VALUES
| | -- | ----------------------------



A number of the Company's accounting policies and disclosures
require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined
for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions
made in determining fair values is disclosed in the notes specific to that asset or liability.



27


Pembina Pipeline Corporation




| | i) | Property, plant and equipment
| | -- | -----------------------------



The fair value of property, plant and equipment recognized as
a result of a business combination or transferred from a customer is based on market values when available and depreciated replacement
cost when appropriate. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic
obsolescence.



| | ii) | Intangible assets
| | --- | -----------------



The fair value of intangible assets acquired in a business combination
is determined using the multi-period excess earnings method, whereby the subject asset is valued after deducting a fair return
on all other assets that are part of creating the related cash flows.



The fair value of other intangible assets is based on the discounted
cash flows expected to be derived from the use and eventual sale of the assets.



| | iii) | Derivatives
| | ---- | -----------



Fair value of derivatives are estimated by reference to independent
monthly forward prices, interest rate yield curves, currency rates and quoted market prices per share at the period ends.



Fair values reflect the credit risk of the instrument and include
adjustments to take account of the credit risk of the company, entity and counterparty when appropriate.



| | iv) | Non-derivative financial assets and liabilities
| | --- | -----------------------------------------------



Fair value, which is determined for disclosure purposes, is calculated
based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting
date. In respect of the convertible debentures, the fair value is determined by the market price of the convertible debenture on
the reporting date. For finance leases, the market rate of interest is determined by reference to similar lease agreements.



| | v) | Share-based compensation transactions
| | -- | -------------------------------------



The fair value of employee share options is measured using the
Black-Scholes formula on grant date. Measurement inputs include share price on measurement date, exercise price of the instrument,
expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information),
weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected
dividends, expected forfeitures and the risk-free interest rate (based on government bonds). Service and non-market performance
conditions attached to the transactions are not taken into account in determining fair value.



The fair value of the long-term share unit award incentive plan
and associated distribution units are measured based on the volume-weighted average price for 20 days ending at the reporting date
of the Company's shares.



| | vi) | Finance lease assets
| | --- | --------------------



The fair value of finance lease assets is based on market values
at the inception date.



28


Pembina Pipeline Corporation




| | 6. | ACQUISITION
| | -- | -----------



On April 20, 2016, the acquisition date, Pembina acquired certain
sour natural gas processing assets with 250 million cubic feet per day ("MMcf/d") of processing capacity for cash consideration
of $566 million (the "Acquisition"). The acquired assets include the recently constructed Kakwa River sweet and sour
natural gas processing complex and associated infrastructure including gas gathering pipelines (99 percent working interest), sales
gas pipeline and future disposal wells; and preliminary engineering studies, licenses and surface rights for the future construction
of a sweet and sour natural gas processing facility (the "Kakwa River Facility"). The Kakwa River Facility is underpinned
by a 20-year, take-or-pay agreement. The purchase price was funded by net proceeds from Pembina's concurrently announced $345 million
bought deal common share offering (refer to Note 16) and existing capacity under Pembina's revolving credit facility.



The following table summarizes the recognized amounts, at fair
value, of assets acquired and liabilities assumed at the date of acquisition.



|($ millions)                  |  |  |    
|----------------------------- |  |  | ---
|Prepaid expenses              |  |  | 1  
|Property, plant and equipment |  |  | 522
|Intangible assets             |  |  | 49 
|Decommissioning provision     |  |  | (1 
|Deferred tax liabilities      |  |  | (5 
|                              |  |  | 566



The fair value of property, plant and equipment was determined
using the depreciated replacement cost method and the fair value of the definite-life intangible assets was determined using the
income and multi-period excess earnings method. If new information obtained within one year of the date of acquisition about facts
and circumstances that existed at the date of acquisition identifies adjustments to the above amounts, or any additional provisions
that existed at the date of acquisition, then the accounting for the acquisition will be further revised.



The Company has recognized $1 million in acquisition-related
expenses. These expenses are included in Other expense in the Financial Statements. All acquisition-related expenses have been
expensed as incurred.



Revenue generated by the acquired business for the period from
the acquisition date of April 20, 2016 to December 31, 2016 was $48 million. Gross profit for the same period was $23 million.
If the acquisition had occurred on January 1, 2016, management estimates that consolidated revenue would have increased an additional
$20 million, and consolidated gross profit for the year would have increased an additional $9 million. In determining these amounts,
management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition
had occurred on January 1, 2016. In addition, no corporate allocations of general and administrative expenses have been considered
as these are assumed to be insignificant.



| | 7. | TRADE RECEIVABLES AND OTHER
| | -- | ---------------------------



|December 31($ millions)                  |  | 2016 |     |   | 2015 | 
|---------------------------------------- |  | ---- | --- | - | ---- | 
|Trade accounts receivable from customers |  |      | 162 |   |      | 
|Other accounts receivable                |  |      | 274 |   |      | 
|Prepayments                              |  |      | 16  |   |      | 
|Allowance for doubtful accounts          |  |      | (1  | ) |      | 
|Total trade receivables and other        |  |      | 451 |   |      | 



29


Pembina Pipeline Corporation




| | 8. | PROPERTY, PLANT AND EQUIPMENT
| | -- | -----------------------------



|($ millions)                        |  | Land and Land Rights |     |   | Pipelines |  |       | Facilities and Equipment |  |  | Linefill and Other |   |  | Assets Under Construction |       |   | Total | 
|----------------------------------- |  | -------------------- | --- | - | --------- |  | ----- | ------------------------ |  |  | ------------------ | - |  | ------------------------- | ----- | - | ----- | 
|Cost                                |  |                      |     |   |           |  |       |                          |  |  |                    |   |  |                           |       |   |       | 
|Balance at December 31, 2014        |  |                      | 148 |   |           |  | 3,419 |                          |  |  | 3,276              |   |  |                           | 795   |   |       | 
|Additions and Transfers             |  |                      | 2   |   |           |  | 422   |                          |  |  | 788                |   |  |                           | 130   |   |       | 
|Acquisition                         |  |                      |     |   |           |  |       |                          |  |  | 4                  |   |  |                           |       |   |       | 
|Change in decommissioning provision |  |                      |     |   |           |  | 28    |                          |  |  | 16                 |   |  |                           |       |   |       | 
|Disposals and other                 |  |                      | (1  | ) |           |  | 13    |                          |  |  | (8                 | ) |  |                           | (25   | ) |       | 
|Balance at December 31, 2015        |  |                      | 149 |   |           |  | 3,882 |                          |  |  | 4,076              |   |  |                           | 900   |   |       | 
|Additions and transfers             |  |                      | 69  |   |           |  | 211   |                          |  |  | 1,116              |   |  |                           | 168   |   |       | 
|Acquisition (Note 6)                |  |                      |     |   |           |  | 100   |                          |  |  | 391                |   |  |                           | 20    |   |       | 
|Change in decommissioning provision |  |                      |     |   |           |  | 61    |                          |  |  | (31                | ) |  |                           |       |   |       | 
|Disposals and other                 |  |                      |     |   |           |  | (1    | )                        |  |  | (38                | ) |  |                           | 1     |   |       | 
|Balance at December 31, 2016        |  |                      | 218 |   |           |  | 4,253 |                          |  |  | 5,514              |   |  |                           | 1,089 |   |       | 
|                                    |  |                      |     |   |           |  |       |                          |  |  |                    |   |  |                           |       |   |       | 
|Depreciation                        |  |                      |     |   |           |  |       |                          |  |  |                    |   |  |                           |       |   |       | 
|Balance at December 31, 2014        |  |                      | 5   |   |           |  | 872   |                          |  |  | 320                |   |  |                           | 92    |   |       | 
|Depreciation                        |  |                      | 1   |   |           |  | 67    |                          |  |  | 109                |   |  |                           | 39    |   |       | 
|Disposals and other                 |  |                      |     |   |           |  | (11   | )                        |  |  | (9                 | ) |  |                           | (11   | ) |       | 
|Balance at December 31, 2015        |  |                      | 6   |   |           |  | 928   |                          |  |  | 420                |   |  |                           | 120   |   |       | 
|Depreciation                        |  |                      | 1   |   |           |  | 41    |                          |  |  | 160                |   |  |                           | 45    |   |       | 
|Disposals and other                 |  |                      |     |   |           |  | (3    | )                        |  |  | (5                 | ) |  |                           | (5    | ) |       | 
|Balance at December 31, 2016        |  |                      | 7   |   |           |  | 966   |                          |  |  | 575                |   |  |                           | 160   |   |       | 
|                                    |  |                      |     |   |           |  |       |                          |  |  |                    |   |  |                           |       |   |       | 
|Carrying amounts                    |  |                      |     |   |           |  |       |                          |  |  |                    |   |  |                           |       |   |       | 
|Balance at December 31, 2015        |  |                      | 143 |   |           |  | 2,954 |                          |  |  | 3,656              |   |  |                           | 780   |   |       | 
|Balance at December 31, 2016        |  |                      | 211 |   |           |  | 3,287 |                          |  |  | 4,939              |   |  |                           | 929   |   |       | 



Property, plant and equipment under construction



Costs of assets under construction at December 31, 2016
totaled $1,965 million (2015: $1,721 million) including capitalized borrowing costs.



For the year ended December 31, 2016, included in additions
and transfers are capitalized borrowing costs related to the construction of new pipelines or facilities amounting to $75 million
(2015: $71 million), with capitalization rates ranging from 4.29 percent to 4.59 percent (2015: 4.38 percent to 4.67 percent).



Depreciation



Pipeline assets are depreciated using the straight line method
over one to 75 years (an average of 48 years). Facilities and equipment are depreciated using the straight line method over one
to 75 years (at an average rate of 41 years). Other assets are depreciated using the straight line method over one to 40 years
(an average of 35 years) or declining balance method at rates ranging from six percent to 21 percent (at an average rate of eight
percent per annum). These rates are established to depreciate remaining net book value over the shorter of their useful lives,
or economic lives.



30


Pembina Pipeline Corporation




Commitments



At December 31, 2016, the Company had contractual construction
commitments for property, plant and equipment of $2,196 million (December 31, 2015: $1,878 million), excluding significant
projects awaiting regulatory approval.



| | 9. | INTANGIBLE ASSETS AND GOODWILL
| | -- | ------------------------------



|                             |  |          |       |  | Intangible Assets                     |  |     |                        | 
|---------------------------- |  | -------- | ----- |  | ------------------------------------- |  | --- | ---------------------- | 
|($ millions)                 |  | Goodwill |       |  | Purchase and Sale Contracts
and Other |  |     | Customer Relationships | 
|Cost                         |  |          |       |  |                                       |  |     |                        | 
|Balance at December 31, 2014 |  |          | 2,090 |  |                                       |  | 188 |                        | 
|Acquisition                  |  |          | 7     |  |                                       |  |     |                        | 
|Additions and other          |  |          |       |  |                                       |  | 13  |                        | 
|Balance at December 31, 2015 |  |          | 2,097 |  |                                       |  | 201 |                        | 
|Acquisition (Note 6)         |  |          |       |  |                                       |  |     |                        | 
|Additions and other          |  |          |       |  |                                       |  | 11  |                        | 
|Balance at December 31, 2016 |  |          | 2,097 |  |                                       |  | 212 |                        | 
|                             |  |          |       |  |                                       |  |     |                        | 
|Amortization                 |  |          |       |  |                                       |  |     |                        | 
|Balance at December 31, 2014 |  |          |       |  |                                       |  | 92  |                        | 
|Amortization                 |  |          |       |  |                                       |  | 18  |                        | 
|Balance at December 31, 2015 |  |          |       |  |                                       |  | 110 |                        | 
|Amortization                 |  |          |       |  |                                       |  | 17  |                        | 
|Balance at December 31, 2016 |  |          |       |  |                                       |  | 127 |                        | 
|                             |  |          |       |  |                                       |  |     |                        | 
|Carrying amounts             |  |          |       |  |                                       |  |     |                        | 
|Balance at December 31, 2015 |  |          | 2,097 |  |                                       |  | 91  |                        | 
|Balance at December 31, 2016 |  |          | 2,097 |  |                                       |  | 85  |                        | 



Intangible assets with finite useful life are amortized using
the straight line method over 2 to 60 years (at an average of 15 years) or declining balance method at 24 percent per annum. The
purchase option attributable to the Midstream operating segment of $277 million to acquire property, plant and equipment is not
being amortized because it is not exercisable until 2018.



The aggregate carrying amount of intangible assets and goodwill
allocated to each operating segment is as follows:



|December 31 ($ millions) |  | 2016     |       |  | 2015              | 
|------------------------ |  | -------- | ----- |  | ----------------- | 
|                         |  | Goodwill |       |  | Intangible Assets | 
|Conventional Pipelines   |  |          | 453   |  |                   | 
|Oil Sands & Heavy Oil    |  |          | 28    |  |                   | 
|Gas Services             |  |          | 176   |  |                   | 
|Midstream                |  |          | 1,440 |  |                   | 
|Corporate                |  |          |       |  |                   | 
|                         |  |          | 2,097 |  |                   | 



31


Pembina Pipeline Corporation




Goodwill Impairment Testing



For the purpose of impairment testing, goodwill is allocated
to the Company's operating segments which represents the lowest level within the Company at which the goodwill is monitored for
management purposes. During the fourth quarter, impairment testing for goodwill was performed as at September 30, 2016. The recoverable
amounts were based on their value in use and were determined to be higher than their carrying amounts.



The recoverable amount was determined using the value-in-use
model by discounting the future cash flows generated from the continuing use of each operating segment. The calculation of the
value in use is based on the following key assumptions:



| | • | Cash flows are projected based on past experience,
actual operating results and four years (2015: four years) of the business plan approved by management.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Long-term growth: cash flows for periods up to 75
years (2015: 75 years) were extrapolated using a constant medium-term inflation, except where contracted, long-term cash flows
indicated that no inflation should be applied or specific reduction in cash flows was more appropriate.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Pre-tax discount rates were applied in determining
the recoverable amount of operating segments. Discount rates were estimated based on past experience, the risk free rate and average
cost of debt, targeted debt to equity ratio, in addition to estimates of the specific operating segment's equity risk premium,
size premium, small capitalization premium, projection risk, betas and tax rate.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following summarizes the key assumptions used in the impairment
test:



|                                                                       |  | Operating Segments     |     
|---------------------------------------------------------------------- |  | ---------------------- | ----
|2016 (percent)                                                         |  | Conventional Pipelines |     
|Pre-tax discount rate                                                  |  |                        | 6.42
|Adjusted inflation rate                                                |  |                        | 1.48
|Change that would result in carrying value equal to recoverable amount |  |                        |     
|Increase in pre-tax discount rate                                      |  |                        | 7.85



| | 10. | INVESTMENTS IN EQUITY ACCOUNTED INVESTEES
| | --- | -----------------------------------------



The Company has a 50 percent interest in two joint ventures (Fort
Saskatchewan Ethylene Storage Corporation and Fort Saskatchewan Ethylene Storage Limited Partnership) that are reported using the
equity method of accounting. The carrying value of the investments at December 31, 2016 is $134 million (2015: $145 million).



At December 31, 2016, the Company had no contractual commitments
for additional investment in its equity accounted investees (December 31, 2015: nil).



32


Pembina Pipeline Corporation




| | 11. | INCOME TAXES
| | --- | ------------



The movements of the components of the deferred tax assets and
deferred tax liabilities are as follows:



|($ millions)                                |  | Balance at December 31, 2015 |      |   | Recognized in Earnings |  |      | Recognized in Other Comprehensive Income |  |  | Acquisition |  |  | Equity |    |   | Other |  |   | Balance at December 31, 2016 | 
|------------------------------------------- |  | ---------------------------- | ---- | - | ---------------------- |  | ---- | ---------------------------------------- |  |  | ----------- |  |  | ------ | -- | - | ----- |  | - | ---------------------------- | 
|Deferred income tax assets                  |  |                              |      |   |                        |  |      |                                          |  |  |             |  |  |        |    |   |       |  |   |                              | 
|Derivative financial instruments            |  |                              | 5    |   |                        |  | 15   |                                          |  |  |             |  |  |        |    |   |       |  |   |                              | 
|Employee benefits                           |  |                              | 1    |   |                        |  | 5    |                                          |  |  | 2           |  |  |        |    |   |       |  |   |                              | 
|Share-based payments                        |  |                              | 9    |   |                        |  | 3    |                                          |  |  |             |  |  |        |    |   |       |  |   |                              | 
|Provisions                                  |  |                              | 124  |   |                        |  | 9    |                                          |  |  |             |  |  |        |    |   |       |  |   |                              | 
|Benefit of loss carryforwards               |  |                              | 63   |   |                        |  | 27   |                                          |  |  |             |  |  |        |    |   |       |  |   |                              | 
|Other deductible temporary differences      |  |                              | 7    |   |                        |  | 35   |                                          |  |  |             |  |  |        |    |   |       |  | 2 |                              | 
|                                            |  |                              |      |   |                        |  |      |                                          |  |  |             |  |  |        |    |   |       |  |   |                              | 
|Deferred income tax liabilities             |  |                              |      |   |                        |  |      |                                          |  |  |             |  |  |        |    |   |       |  |   |                              | 
|Property, plant and equipment               |  |                              | (929 | ) |                        |  | (259 | )                                        |  |  |             |  |  |        | (5 | ) |       |  |   |                              | 
|Intangible assets                           |  |                              | (170 | ) |                        |  | 20   |                                          |  |  |             |  |  |        |    |   |       |  |   |                              | 
|Investments in equity accounted investees   |  |                              | 12   |   |                        |  | (18  | )                                        |  |  |             |  |  |        |    |   |       |  |   |                              | 
|Taxable limited partnership income deferral |  |                              | (49  | ) |                        |  | 24   |                                          |  |  |             |  |  |        |    |   |       |  |   |                              | 
|Other taxable temporary differences         |  |                              | (10  | ) |                        |  |      |                                          |  |  |             |  |  |        |    |   |       |  |   |                              | 
|Total deferred tax liabilities              |  |                              | (937 | ) |                        |  | (139 | )                                        |  |  | 2           |  |  |        | (5 | ) |       |  | 2 |                              | 



33


Pembina Pipeline Corporation




|($ millions)                                |  | Balance at December 31, 2014 |      |   | Recognized in Earnings |  |      | Recognized in Other Comprehensive Income |  |  | Acquisition |  |  | Equity |     |   | Other |  |   | Balance at December 31, 2015 | 
|------------------------------------------- |  | ---------------------------- | ---- | - | ---------------------- |  | ---- | ---------------------------------------- |  |  | ----------- |  |  | ------ | --- | - | ----- |  | - | ---------------------------- | 
|Deferred income tax assets                  |  |                              |      |   |                        |  |      |                                          |  |  |             |  |  |        |     |   |       |  |   |                              | 
|Derivative financial instruments            |  |                              | 3    |   |                        |  | 2    |                                          |  |  |             |  |  |        |     |   |       |  |   |                              | 
|Employee benefits                           |  |                              | 5    |   |                        |  | (4   | )                                        |  |  |             |  |  |        |     |   |       |  |   |                              | 
|Share-based payments                        |  |                              | 13   |   |                        |  | (4   | )                                        |  |  |             |  |  |        |     |   |       |  |   |                              | 
|Provisions                                  |  |                              | 104  |   |                        |  | 20   |                                          |  |  |             |  |  |        |     |   |       |  |   |                              | 
|Benefit of loss carryforwards               |  |                              | 22   |   |                        |  | 41   |                                          |  |  |             |  |  |        |     |   |       |  |   |                              | 
|Other deductible temporary differences      |  |                              | 23   |   |                        |  | (19  | )                                        |  |  |             |  |  |        |     |   |       |  | 4 |                              | 
|                                            |  |                              |      |   |                        |  |      |                                          |  |  |             |  |  |        |     |   |       |  |   |                              | 
|Deferred income tax liabilities             |  |                              |      |   |                        |  |      |                                          |  |  |             |  |  |        |     |   |       |  |   |                              | 
|Property, plant and equipment               |  |                              | (699 | ) |                        |  | (230 | )                                        |  |  |             |  |  |        |     |   |       |  |   |                              | 
|Intangible assets                           |  |                              | (171 | ) |                        |  | 12   |                                          |  |  |             |  |  |        | (11 | ) |       |  |   |                              | 
|Investments in equity accounted investees   |  |                              | (7   | ) |                        |  | 16   |                                          |  |  |             |  |  |        |     |   |       |  |   |                              | 
|Taxable limited partnership income deferral |  |                              | (48  | ) |                        |  | (1   | )                                        |  |  |             |  |  |        |     |   |       |  |   |                              | 
|Other taxable temporary differences         |  |                              | (19  | ) |                        |  | 9    |                                          |  |  |             |  |  |        |     |   |       |  |   |                              | 
|Total deferred tax liabilities              |  |                              | (774 | ) |                        |  | (158 | )                                        |  |  |             |  |  |        | (11 | ) |       |  | 4 |                              | 



The Company's consolidated statutory tax rate for the year ended
December 31, 2016 was 27 percent (2015: 27 percent).



Reconciliation of effective tax rate



|Year Ended December 31 ($ millions, except as noted) |  | 2016 |     |   | 2015 | 
|---------------------------------------------------- |  | ---- | --- | - | ---- | 
|Earnings before income tax                           |  |      | 654 |   |      | 
|Statutory tax rate (percent)                         |  |      | 27  |   |      | 
|Income tax at statutory rate                         |  |      | 176 |   |      | 
|Tax rate changes on deferred income tax balances     |  |      | (2  | ) |      | 
|Changes in estimate and other                        |  |      | 1   |   |      | 
|Permanent items                                      |  |      | 14  |   |      | 
|Income tax expense                                   |  |      | 189 |   |      | 



34


Pembina Pipeline Corporation




Income tax expense



|Year Ended December 31($ millions)                |  | 2016 |     |   | 2015 | 
|------------------------------------------------- |  | ---- | --- | - | ---- | 
|Current tax expense                               |  |      | 50  |   |      | 
|Deferred tax expense                              |  |      |     |   |      | 
|Origination and reversal of temporary differences |  |      | 168 |   |      | 
|Tax rate changes on deferred tax balances         |  |      | (2  | ) |      | 
|Increase in tax loss carry forward                |  |      | (27 | ) |      | 
|Total deferred tax expense                        |  |      | 139 |   |      | 
|Total income tax expense                          |  |      | 189 |   |      | 



Deferred tax items recovered directly in equity



|Year Ended December 31 ($ millions)             |  | 2016 |   |  | 2015 | 
|----------------------------------------------- |  | ---- | - |  | ---- | 
|Share issue costs                               |  |      | 2 |  |      | 
|Other comprehensive income                      |  |      | 2 |  |      | 
|Deferred tax items recovered directly in equity |  |      | 4 |  |      | 



The Company has temporary differences associated with its investments
in foreign subsidiaries and interests in joint arrangements. At December 31, 2016, the Company has not recorded a deferred
tax asset or liability for these temporary differences (December 31, 2015: nil) as the Company controls the timing of the
reversal and it is not probable that the temporary differences will reverse in the foreseeable future.



At December 31, 2016, the Company had US$68 million (December 31,
2015: US$54 million) of U.S. tax losses that will expire after 2030, and $205 million (December 31, 2015: $125 million) of
Canadian tax losses that will expire after 2034. The Company has recorded deferred tax assets in respect of these losses as it
has been determined that it is probable that future taxable profits will be sufficient to utilize these losses. Deferred tax assets
in respect of the US tax losses were $31 million at December 31, 2016 (December 31, 2015: $28 million).



| | 12. | TRADE PAYABLES AND ACCRUED LIABILITIES
| | --- | --------------------------------------



|December 31($ millions)                |  | 2016 |     |  | 2015 | 
|-------------------------------------- |  | ---- | --- |  | ---- | 
|Trade payables                         |  |      | 475 |  |      | 
|Other payables & accrued liabilities   |  |      | 170 |  |      | 
|Total current trade and other payables |  |      | 645 |  |      | 



35


Pembina Pipeline Corporation




| | 13. | 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 conditions, and debt maturity schedule



|                                            |  |                                  |       |  |                        |  |                                      |                   |  |  | Carrying value |    
|------------------------------------------- |  | -------------------------------- | ----- |  | ---------------------- |  | ------------------------------------ | ----------------- |  |  | -------------- | ---
|December 31 ($ millions, CAD)               |  | Available at
 December 31,
 2016 |       |  | Nominal 
interest rate |  |                                      | Year of
 maturity |  |  | 2016           |    
|Operating facility(1)                       |  |                                  | 30    |  |                        |  | prime + 0.45 or BA(2)/ LIBOR+ 1.45   |                   |  |  | 2017           | (3)
|Revolving unsecured credit facility(1)      |  |                                  | 2,500 |  |                        |  | prime + 0.45 or BA(2) / LIBOR + 1.45 |                   |  |  | 2020           |    
|Senior unsecured notes – series C           |  |                                  | 200   |  |                        |  | 5.58                                 |                   |  |  | 2021           |    
|Senior unsecured notes – series D           |  |                                  | 267   |  |                        |  | 5.91                                 |                   |  |  | 2019           |    
|Senior unsecured medium-term notes series 1 |  |                                  | 250   |  |                        |  | 4.89                                 |                   |  |  | 2021           |    
|Senior unsecured medium-term notes series 2 |  |                                  | 450   |  |                        |  | 3.77                                 |                   |  |  | 2022           |    
|Senior unsecured medium-term notes series 3 |  |                                  | 450   |  |                        |  | 4.75                                 |                   |  |  | 2043           |    
|Senior unsecured medium-term notes series 4 |  |                                  | 600   |  |                        |  | 4.81                                 |                   |  |  | 2044           |    
|Senior unsecured medium-term notes series 5 |  |                                  | 450   |  |                        |  | 3.54                                 |                   |  |  | 2025           |    
|Senior unsecured medium-term notes series 6 |  |                                  | 500   |  |                        |  | 4.24                                 |                   |  |  | 2027           |    
|Senior unsecured medium-term notes series 7 |  |                                  | 500   |  |                        |  | 3.71                                 |                   |  |  | 2026           |    
|Finance lease liabilities and other         |  |                                  |       |  |                        |  |                                      |                   |  |  |                |    
|Total interest bearing liabilities          |  |                                  | 6,197 |  |                        |  |                                      |                   |  |  |                |    
|Less current portion                        |  |                                  |       |  |                        |  |                                      |                   |  |  |                |    
|Total non-current                           |  |                                  |       |  |                        |  |                                      |                   |  |  |                |    



| | (1) | The nominal interest rate is based on the Company's credit rating at December 31, 2016.
| | --- | ---------------------------------------------------------------------------------------

| | (2) | Bankers' Acceptance.
| | --- | --------------------

| | (3) | Operating facility expected to be renewed on an annual basis.
| | --- | -------------------------------------------------------------



Subsequent to year end, Pembina closed an offering of $300 million
of senior unsecured Series 8 medium-term notes (the "Series 8 Notes") on January 20, 2017. The Series 8 Notes have a
fixed coupon of 2.99 percent per annum, paid semi-annually, and mature on January 22, 2024. Simultaneously, Pembina closed an offering
of $300 million of senior unsecured Series 9 medium-term notes (the "Series 9 Notes"). The Series 9 Notes have a fixed
coupon of 4.74 percent per annum, paid semi-annually, and mature on January 21, 2047.



On August 11, 2016 Pembina closed an offering of $500 million
of senior unsecured series 7 medium-term notes (the "Series 7 Notes"). The Series 7 Notes have a fixed coupon of 3.71
percent per annum, paid semi-annually, and mature on August 11, 2026.



On June 16, 2015, Pembina issued $600 million of senior unsecured
medium-term notes conducted in two tranches consisting of $500 million in senior unsecured medium-term notes, Series 6, having
a fixed coupon of 4.24 percent per annum, paid semi-annually, and maturing on June 15, 2027, and $100 million through the re-opening
of its 4.75 percent medium-term notes, Series 3, maturing on April 30, 2043.



On April 16, 2015, Pembina increased the available funds under
its unsecured revolving credit facility to $2 billion and retained a $750 million accordion feature. The unsecured revolving credit
facility maturity date was extended to May 2020 from March 2019 and the $30 million operating facility maturity date was extended
to May 2016 from July 2015.



36


Pembina Pipeline Corporation




On February 2, 2015, Pembina issued $600 million of senior unsecured
medium-term notes conducted in two tranches consisting of $450 million in senior unsecured medium-term notes, Series 5, having
a fixed coupon of 3.54 percent per annum, paid semi-annually, and maturing on February 3, 2025, and $150 million through the re-opening
of its 4.75 percent medium-term notes, Series 3, maturing on April 30, 2043.



All facilities are governed by specific debt covenants which
Pembina was in compliance with at December 31, 2016 (December 31, 2015: in compliance).



For more information about the Company's exposure to interest
rate, foreign currency and liquidity risk, see financial instruments and financial risk management Note 24.



| | 14. | CONVERTIBLE DEBENTURES
| | --- | ----------------------



|($ millions, except as noted)                 |  | Series C – 5.75% |                        |   | Series E – 5.75% |   |                         | Series F – 5.75% |  |   | Total                   |  
|--------------------------------------------- |  | ---------------- | ---------------------- | - | ---------------- | - | ----------------------- | ---------------- |  | - | ----------------------- | -
|Conversion price (dollars per share)          |  | $                | 28.55                  |   |                  | $ | 24.94                   |                  |  | $ | 29.53                   |  
|Interest payable semi-annually in arrears on: |  |                  | May 31 and
November 30 |   |                  |   | June 30 and
December 31 |                  |  |   | June 30 and
December 31 |  
|Maturity Date                                 |  |                  | October 13, 2015       |   |                  |   | October 13, 2015        |                  |  |   | December 31, 2018       |  
|Balance at December 31, 2014                  |  |                  | 229                    |   |                  |   | 20                      |                  |  |   | 142                     |  
|Conversions and redemptions                   |  |                  | (236                   | ) |                  |   | (24                     | )                |  |   | (1                      | )
|Unwinding of discount rate                    |  |                  |                        |   |                  |   | 1                       |                  |  |   | 1                       |  
|Deferred financing fee (net of amortization)  |  |                  | 7                      |   |                  |   | 3                       |                  |  |   | 1                       |  
|Balance at December 31, 2015                  |  |                  |                        |   |                  |   |                         |                  |  |   | 143                     |  
|Conversions and redemptions                   |  |                  |                        |   |                  |   |                         |                  |  |   | (2                      | )
|Unwinding of discount rate                    |  |                  |                        |   |                  |   |                         |                  |  |   | 1                       |  
|Deferred financing fee (net of amortization)  |  |                  |                        |   |                  |   |                         |                  |  |   | 1                       |  
|Balance at December 31, 2016                  |  |                  |                        |   |                  |   |                         |                  |  |   | 143                     |  



On October 13, 2015, Pembina redeemed its Series C debentures
and its Series E debentures. In each case, Pembina elected to satisfy the redemption of the debentures through the issuance of
common shares.



The Series F debentures may be converted at the option of the
holder at a conversion price of $29.53 per common share at any time prior to maturity and may be redeemed by the Company. On or
after December 31, 2016, the Series F debentures may be redeemed in whole or in part at the option of the Company at a price equal
to their principal amount plus accrued and unpaid interest. Any accrued unpaid interest will be paid in cash.



The Company retains a cash conversion option on the Series F
convertible debentures, allowing the Company to pay cash to the converting holder of the debentures, at the option of the Company.
The cash conversion feature is recognized as an embedded derivative and accounted for as a derivative financial instrument, measured
at fair value using an option pricing model.



37


Pembina Pipeline Corporation




| | 15. | DECOMMISSIONING PROVISION
| | --- | -------------------------



|($ millions)                                           |  | 2016 |     |   | 2015 | 
|------------------------------------------------------ |  | ---- | --- | - | ---- | 
|Balance at January 1                                   |  |      | 462 |   |      | 
|Unwinding of discount rate                             |  |      | 10  |   |      | 
|Change in rates                                        |  |      | (73 | ) |      | 
|Additions                                              |  |      | 55  |   |      | 
|Change in estimates and other                          |  |      | 42  |   |      | 
|Total                                                  |  |      | 496 |   |      | 
|Less current portion (included in accrued liabilities) |  |      | (8  | ) |      | 
|Balance at December 31                                 |  |      | 488 |   |      | 



The Company applied a 1.8 percent inflation rate per annum (December 31,
2015: 2.0 percent) and a risk-free rate of 2.3 percent (December 31, 2015: 2.2 percent) to calculate the present value of
the decommissioning provision. Changes in the measurement of the decommissioning provision were added to, or deducted from, the
cost of the related asset in property, plant and equipment. When a re-measurement reduction of the decommissioning provision is
in excess of the carrying amount of the related asset, the amount is credited to depreciation expense. No re-measurements were
credited to depreciation expense for the year ended December 31, 2016 (December 31, 2015: $1 million).



| | 16. | SHARE CAPITAL
| | --- | -------------



Pembina is authorized to issue an unlimited number of common
shares, a number of a class of Class A Preferred Shares, issuable in series, not to exceed twenty percent of the number of issued
and outstanding Common Shares at the time of issuance of any Class A Preferred Shares and an unlimited number of Class B Preferred
Shares. The holders of the common shares are entitled to receive notice of, attend and vote at any meeting of the shareholders
of the Company, receive dividends declared and share in the remaining property of the Company upon distribution of the assets of
the Company among its shareholders for the purpose of winding-up its affairs.



Pembina has adopted a shareholder rights plan ("Plan")
as a mechanism designed to assist the board in ensuring the fair and equal treatment of all shareholders in the face of an actual
or contemplated unsolicited bid to take control of the Company. Take-over bids may be structured in such a way as to be coercive
or discriminatory in effect, or may be initiated at a time when it will be difficult for the board to prepare an adequate response.
Such offers may result in shareholders receiving unequal or unfair treatment, or not realizing the full or maximum value of their
investment in Pembina. The Plan discourages the making of any such offers by creating the potential of significant dilution to
any offeror who does so. The Plan was reconfirmed at Pembina's 2016 meeting of shareholders and must be reconfirmed at every third
annual meeting thereafter. Accordingly, the Plan, with such amendments as the Board of Directors determines to be necessary or
advisable, and as may otherwise be required by law, is expected to be placed before shareholders for approval at Pembina's 2019
annual meeting. A copy of the agreement relating to the current Plan has been filed on Pembina's SEDAR and EDGAR profiles.



38


Pembina Pipeline Corporation




Common Share Capital





|($
    millions, except as noted)    |  | Number
    ofCommon Shares(millions) |     |  | CommonShare Capital | 
|------------------------------------ |  | ------------------------------------ | --- |  | ------------------- | 
|Balance
    at December 31, 2014     |  |                                      | 338 |  |                     | 
|Issued,
    net of issue costs       |  |                                      | 15  |  |                     | 
|Dividend
    reinvestment plan       |  |                                      | 11  |  |                     | 
|Debenture
    conversions            |  |                                      | 9   |  |                     | 
|Share-based
    payment transactions |  |                                      |     |  |                     | 
|Balance
    at December 31, 2015     |  |                                      | 373 |  |                     | 
|Issued,
    net of issue costs       |  |                                      | 10  |  |                     | 
|Dividend
    reinvestment plan       |  |                                      | 13  |  |                     | 
|Debenture
    conversions            |  |                                      |     |  |                     | 
|Share-based
    payment transactions |  |                                      | 1   |  |                     | 
|Balance
    at December 31, 2016     |  |                                      | 397 |  |                     | 





On March 29, 2016, Pembina closed a bought deal offering of 10.1
million common shares at a price of $34.00 per share for aggregate gross proceeds of approximately $345 million. Pembina used the
net proceeds, together with funds available under its existing credit facilities to finance the Acquisition which closed on April
20, 2016 (see note 6).



On November 19, 2015, Pembina closed a bought deal offering of
15.3 million common shares at a price of $30.00 per share for aggregate gross proceeds of $460 million.



Preferred Share Capital



|($ millions, except as noted)                                  |  | Number of Preferred Shares |    |  | Preferred Share Capital | 
|-------------------------------------------------------------- |  | -------------------------- | -- |  | ----------------------- | 
|Balance at December 31, 2014                                   |  |                            | 36 |  |                         | 
|Class A, Series 9 Preferred shares issued, net of issue costs  |  |                            | 9  |  |                         | 
|Balance at December 31, 2015                                   |  |                            | 45 |  |                         | 
|Class A, Series 11 Preferred shares issued, net of issue costs |  |                            | 7  |  |                         | 
|Class A, Series 13 Preferred shares issued, net of issue costs |  |                            | 10 |  |                         | 
|Balance at December 31, 2016                                   |  |                            | 62 |  |                         | 



On April 27, 2016, Pembina issued 10 million cumulative redeemable
minimum rate reset class A Series 13 Preferred Shares for aggregate gross proceeds of $250 million. The holders of Series 13 Preferred
Shares are entitled to receive fixed cumulative dividends at an annual rate of $1.4375 per share, if, as and when declared by the
Board of Directors. The dividend rate will reset on June 1, 2021 and every fifth year thereafter at a rate equal to the sum of
the then five-year Government of Canada bond yield plus 4.96 percent, provided that, in any event, such rate shall not be less
than 5.75 percent. The Series 13 Preferred Shares are redeemable by the Company at its option on June 1, 2021 every fifth year
thereafter at a price of $25.00 per share plus accrued and unpaid dividends.



Holders of the Series 13 Preferred Shares have the right to convert
their shares into cumulative redeemable floating rate Class A Preferred Shares, Series 14 ("Series 14 Preferred Shares"),
subject to certain conditions, on June 1, 2021 and every fifth year thereafter. Holders of Series 14 Preferred Shares will be entitled
to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day government of Canada bond yield
plus 4.96 percent, if, as and when declared by the Board of Directors.



39


Pembina Pipeline Corporation




On January 15, 2016, Pembina issued 6.8 million cumulative redeemable
minimum rate reset class A Series 11 Preferred Shares for aggregate gross proceeds of $170 million. The holders of Series 11 Preferred
Shares are entitled to receive fixed cumulative dividends at an annual rate of $1.4375 per share, if, as and when declared by the
Board of Directors. The dividend rate will reset on March 1, 2021 and every five years thereafter at a rate equal to the sum of
the then five-year Government of Canada bond yield plus 5.00 percent, provided that, in any event, such rate shall not be less
than 5.75 percent. The Series 11 Preferred Shares are redeemable by the Company at its option on March 1, 2021 and every fifth
year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.



Holders of the Series 11 Preferred Shares have the right to convert
their shares into cumulative redeemable floating rate Class A Preferred Shares, Series 12 ("Series 12 Preferred Shares"),
subject to certain conditions, on March 1, 2021 and every fifth year thereafter. Holders of Series 12 Preferred Shares will be
entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day government of Canada
bond yield plus 5.00 percent, if, as and when declared by the Board of Directors.



On April 10, 2015 Pembina issued 9 million cumulative redeemable
rate reset class A preferred shares, Series 9 ("Series 9 Preferred Shares") for aggregate gross proceeds of $225 million.
The holders of Series 9 Preferred Shares are entitled to receive fixed cumulative dividends at an annual rate of $1.1875 per share,
if, as and when declared by the Board of Directors. The dividend rate will reset on December 1, 2020 and every five years thereafter
at a rate equal to the sum of the then five-year Government of Canada bond yield plus 3.91 percent. The Series 9 Preferred Shares
are redeemable by the Company at its option on December 1, 2020 and on December 1 of every fifth year thereafter.



Holders of the Series 9 Preferred Shares have the right to convert
their shares into cumulative redeemable floating rate Class A Preferred shares, Series 10 ("Series 10 Preferred Shares"),
subject to certain conditions, on December 1, 2020 and on December 1 of every fifth year thereafter. Holders of Series 10 Preferred
Shares will be entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day Government
of Canada Treasury Bill yield plus 3.91 percent, if, as and when declared by the Board of Directors of Pembina.



Dividends



The following dividends were
declared by the Company:



|Year Ended December 31($ millions)                                 |  | 2016 |     |  | 2015 | 
|------------------------------------------------------------------ |  | ---- | --- |  | ---- | 
|Common shares                                                      |  |      |     |  |      | 
|Common shares $1.89750 per qualifying share (2015: $1.80000)       |  |      | 737 |  |      | 
|Preferred shares                                                   |  |      |     |  |      | 
|$1.062500 per qualifying Series 1 preferred share (2015: $1.06250) |  |      | 11  |  |      | 
|$1.175000 per qualifying Series 3 preferred share (2015: $1.17500) |  |      | 7   |  |      | 
|$1.250000 per qualifying Series 5 preferred share (2015: $1.25000) |  |      | 12  |  |      | 
|$1.125000 per qualifying Series 7 preferred share (2015: $1.12500) |  |      | 11  |  |      | 
|$1.187500 per qualifying Series 9 preferred share (2015: $0.76538) |  |      | 11  |  |      | 
|$1.259325 per qualifying Series 11 preferred share (2015: nil)     |  |      | 8   |  |      | 
|$0.859575 per qualifying Series 13 preferred share (2015: nil)     |  |      | 9   |  |      | 
|                                                                   |  |      | 69  |  |      | 



On March 1, Pembina announced an increase in the monthly dividend
by 4.9 percent from $0.1525 per common share per month (or $1.83 annually) to $0.16 per common share per month (or $1.92 annually),
effective for the dividend paid on May 13, 2016.



40


Pembina Pipeline Corporation




On January 5, 2017, Pembina announced that the Board of Directors
declared a dividend of $0.16 per qualifying common share ($1.92 annually) in the total amount of $64 million, payable on February
15, 2017 to shareholders of record on January 25, 2017. Pembina's Board of Directors also declared quarterly dividends for the
Company's preferred shares, Series 1, 3, 5, 7, 9, 11 and 13. All preferred share dividends, in the total amount of $19 million
are payable on March 1, 2017 to shareholders of record on February 1, 2017.



|Series    |  | Dividend Amount |         
|--------- |  | --------------- | --------
|Series 1  |  | $               | 0.265625
|Series 3  |  | $               | 0.293750
|Series 5  |  | $               | 0.312500
|Series 7  |  | $               | 0.281250
|Series 9  |  | $               | 0.296875
|Series 11 |  | $               | 0.359375
|Series 13 |  | $               | 0.359375



On February 7, 2017, Pembina announced that the Board of Directors
declared a dividend for February of $0.16 per qualifying common share ($1.92 annualized) payable on March 15, 2017 to shareholders
of record on February 25, 2017.



DRIP



Eligible Pembina shareholders have the opportunity to receive,
by reinvesting the cash dividends declared payable by Pembina on their common shares, either (i) additional common shares at a
discounted subscription price of 97 percent of the Average Market Price (as defined in the DRIP), pursuant to the "Dividend
Reinvestment Component" of the DRIP, or (ii) a premium cash payment equal to 101 percent of the amount of reinvested dividends
(the "Premium DividendTM"), pursuant to the "Premium DividendTM Component" of the DRIP.



Participation in the DRIP for the fourth quarter and twelve months
of 2016 was 58 percent and 61 percent (2015 – 61 percent and 60 percent) of common shares outstanding. Proceeds for the fourth
quarter of 2016 were $110 million and $449 million during the full year compared to $99 million and $373 million for the same periods
of 2015.



| | 17. | DEFERRED REVENUE
| | --- | ----------------



Deferred revenue consists of asset purchases that occurred at
a nominal value in exchange for future toll reductions which is amortized to revenue over the life of the asset. Deferred revenue
also includes other payments received from customers or lessors related to capital expenditures or lease inducements which are
amortized over the lease or contract terms.



41


Pembina Pipeline Corporation




| | 18. | PERSONNEL EXPENSES
| | --- | ------------------



|Year Ended December 31 ($ millions)        |  | 2016 |     |  | 2015 | 
|------------------------------------------ |  | ---- | --- |  | ---- | 
|Salaries and wages                         |  |      | 183 |  |      | 
|Share-based compensation expense (Note 23) |  |      | 46  |  |      | 
|Short-term incentive plan                  |  |      | 35  |  |      | 
|Pension plan expense                       |  |      | 17  |  |      | 
|Health, savings plan and other benefits    |  |      | 18  |  |      | 
|                                           |  |      | 299 |  |      | 



| | 19. | NET FINANCE COSTS
| | --- | -----------------





|Year
    Ended December 31 ($ millions)                                          |  | 2016 |     |   | 2015 | 
|-------------------------------------------------------------------------------- |  | ---- | --- | - | ---- | 
|Interest expense on
    financial liabilities measured at amortized cost:        |  |      |     |   |      | 
|Loans
    and borrowings                                                         |  |      | 91  |   |      | 
|Convertible
    debentures                                                       |  |      | 11  |   |      | 
|Unwinding
    of discount rate                                                   |  |      | 10  |   |      | 
|Gain
    in fair value of non-commodity-related derivative financial instruments |  |      | (3  | ) |      | 
|Loss
    (gain) on revaluation of conversion feature of convertible debentures   |  |      | 40  |   |      | 
|Foreign
    exchange losses (gains) and other                                    |  |      | 4   |   |      | 
|Net
    finance costs                                                            |  |      | 153 |   |      | 



Net interest paid of $163 million (2015: $147 million) includes
interest paid during construction of $72 million (2015: $68 million).



| | 20. | OPERATING SEGMENTS
| | --- | ------------------



The Company determines its reportable segments based on the nature
of operations and includes four operating segments: Conventional Pipelines, Oil Sands & Heavy Oil, Gas Services and Midstream.



Conventional Pipelines consists of the tariff-based operations
of pipelines and related facilities to deliver crude oil, condensate and NGL in Alberta, British Columbia, Saskatchewan, and North
Dakota, United States.



Oil Sands & Heavy Oil consists of the Syncrude, Horizon,
Nipisi and Mitsue Pipelines, and the Cheecham Lateral. These pipelines and related facilities deliver synthetic crude oil produced
from oil sands under long-term cost-of-service arrangements.



Gas Services consists of natural gas gathering and processing
facilities, including nine shallow and deep cut sweet gas processing plants and gathering systems.



Midstream consists of the Company's interests in extraction and
fractionation facilities, terminalling and storage hub services under a mixture of short, medium and long-term contractual arrangements.



The financial results of the business segments are included below.
Performance is measured based on results from operating activities, net of depreciation and amortization, as included in the internal
management reports that are reviewed by the Company's Chief Executive Officer, Chief Financial Officer and Senior Vice Presidents.
These results are used to measure performance as management believes that such information is the most relevant in evaluating results
of certain segments relative to other entities that operate within these industries. Intersegment transactions are recorded at
market value and eliminated under corporate and intersegment eliminations.



42


Pembina Pipeline Corporation




|12 Months Ended December 31, 2016($ millions)                                |  | Conventional Pipelines(1)(2) |     |   | Oil Sands & Heavy Oil |  |     | Gas Services |  |  | Midstream(3)(4) |  |  | Corporate & Intersegment Eliminations |       |   | Total | 
|---------------------------------------------------------------------------- |  | ---------------------------- | --- | - | --------------------- |  | --- | ------------ |  |  | --------------- |  |  | ------------------------------------- | ----- | - | ----- | 
|Revenue:                                                                     |  |                              |     |   |                       |  |     |              |  |  |                 |  |  |                                       |       |   |       | 
|Pipeline transportation                                                      |  |                              | 719 |   |                       |  | 202 |              |  |  |                 |  |  |                                       |       |   |       | 
|Terminalling, storage and hub services                                       |  |                              |     |   |                       |  |     |              |  |  |                 |  |  |                                       | 3,183 |   |       | 
|Gas services                                                                 |  |                              |     |   |                       |  |     |              |  |  | 283             |  |  |                                       |       |   |       | 
|Total revenue(5)                                                             |  |                              | 719 |   |                       |  | 202 |              |  |  | 283             |  |  |                                       | 3,183 |   |       | 
|Operating expenses                                                           |  |                              | 222 |   |                       |  | 62  |              |  |  | 76              |  |  |                                       | 69    |   |       | 
|Cost of goods sold, including product purchases                              |  |                              |     |   |                       |  |     |              |  |  | 12              |  |  |                                       | 2,611 |   |       | 
|Realized loss on commodity-related derivative financial instruments          |  |                              | 3   |   |                       |  |     |              |  |  |                 |  |  |                                       | 7     |   |       | 
|Operating margin                                                             |  |                              | 494 |   |                       |  | 140 |              |  |  | 195             |  |  |                                       | 496   |   |       | 
|Depreciation and amortization included in operations(6)                      |  |                              | 103 |   |                       |  | 17  |              |  |  | 52              |  |  |                                       | 101   |   |       | 
|Unrealized (gain) loss on commodity-related derivative financial instruments |  |                              | (2  | ) |                       |  |     |              |  |  |                 |  |  |                                       | 63    |   |       | 
|Gross profit                                                                 |  |                              | 393 |   |                       |  | 123 |              |  |  | 143             |  |  |                                       | 332   |   |       | 
|Depreciation included in general and administrative                          |  |                              |     |   |                       |  |     |              |  |  |                 |  |  |                                       |       |   |       | 
|Other general and administrative                                             |  |                              | 10  |   |                       |  | 5   |              |  |  | 8               |  |  |                                       | 24    |   |       | 
|Other (income) expense                                                       |  |                              | (11 | ) |                       |  | 1   |              |  |  | 1               |  |  |                                       | 8     |   |       | 
|Reportable segment results from operating activities                         |  |                              | 394 |   |                       |  | 117 |              |  |  | 134             |  |  |                                       | 300   |   |       | 
|Net finance costs                                                            |  |                              | 5   |   |                       |  | 1   |              |  |  | 2               |  |  |                                       | 8     |   |       | 
|Reportable segment earnings (loss) before tax and equity accounted investees |  |                              | 389 |   |                       |  | 116 |              |  |  | 132             |  |  |                                       | 292   |   |       | 
|Share of profit of investment in equity accounted investees, net of tax      |  |                              |     |   |                       |  |     |              |  |  |                 |  |  |                                       | (1    | ) |       | 
|Capital expenditures                                                         |  |                              | 957 |   |                       |  | 124 |              |  |  | 146             |  |  |                                       | 504   |   |       | 
|Acquisition                                                                  |  |                              |     |   |                       |  |     |              |  |  | 566             |  |  |                                       |       |   |       | 



| | (1) | Eleven percent of Conventional Pipelines revenue is under regulated tolling arrangements.
| | --- | -----------------------------------------------------------------------------------------

| | (2) | Conventional Pipelines revenue includes $13 million associated with U.S. pipeline sales.
| | --- | ----------------------------------------------------------------------------------------

| | (3) | NGL product and services, terminalling, storage and hub services revenue includes $139 million associated with U.S. midstream
sales.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Pembina aggregates its NGL and crude oil midstream activities based on shared economic risk characteristics.
| | --- | ------------------------------------------------------------------------------------------------------------

| | (5) | In 2016, one customer accounted for 10 percent of total revenue.
| | --- | ----------------------------------------------------------------

| | (6) | Includes amortization of intangible assets.
| | --- | -------------------------------------------



43


Pembina Pipeline Corporation




|12 Months Ended December 31, 2015($ millions)                                |  | Conventional Pipelines(1)(2) |     |   | Oil Sands & Heavy Oil |  |     | Gas Services |  |  | Midstream(3)(4)(6) |  |  | Corporate & Intersegment Eliminations |       |   | Total | 
|---------------------------------------------------------------------------- |  | ---------------------------- | --- | - | --------------------- |  | --- | ------------ |  |  | ------------------ |  |  | ------------------------------------- | ----- | - | ----- | 
|Revenue:                                                                     |  |                              |     |   |                       |  |     |              |  |  |                    |  |  |                                       |       |   |       | 
|Pipeline transportation                                                      |  |                              | 628 |   |                       |  | 213 |              |  |  |                    |  |  |                                       |       |   |       | 
|Terminalling, storage and hub services                                       |  |                              |     |   |                       |  |     |              |  |  |                    |  |  |                                       | 3,690 |   |       | 
|Gas services                                                                 |  |                              |     |   |                       |  |     |              |  |  | 209                |  |  |                                       |       |   |       | 
|Total revenue(7)                                                             |  |                              | 628 |   |                       |  | 213 |              |  |  | 209                |  |  |                                       | 3,690 |   |       | 
|Operating expenses                                                           |  |                              | 224 |   |                       |  | 74  |              |  |  | 64                 |  |  |                                       | 71    |   |       | 
|Cost of goods sold, including product purchases                              |  |                              |     |   |                       |  |     |              |  |  | 1                  |  |  |                                       | 3,232 |   |       | 
|Realized loss (gain) on commodity-related derivative financial instruments   |  |                              | 3   |   |                       |  |     |              |  |  |                    |  |  |                                       | (40   | ) |       | 
|Operating margin                                                             |  |                              | 401 |   |                       |  | 139 |              |  |  | 144                |  |  |                                       | 427   |   |       | 
|Depreciation and amortization included in operations(5)                      |  |                              | 88  |   |                       |  | 17  |              |  |  | 33                 |  |  |                                       | 107   |   |       | 
|Unrealized (gain) loss on commodity-related derivative financial instruments |  |                              | (1  | ) |                       |  |     |              |  |  |                    |  |  |                                       | 4     |   |       | 
|Gross profit                                                                 |  |                              | 314 |   |                       |  | 122 |              |  |  | 111                |  |  |                                       | 316   |   |       | 
|Depreciation included in general and administrative                          |  |                              |     |   |                       |  |     |              |  |  |                    |  |  |                                       |       |   |       | 
|Other general and administrative                                             |  |                              | 8   |   |                       |  | 6   |              |  |  | 7                  |  |  |                                       | 21    |   |       | 
|Other expense (income)                                                       |  |                              | 7   |   |                       |  | (2  | )            |  |  | 1                  |  |  |                                       | 18    |   |       | 
|Reportable segment results from operating activities                         |  |                              | 299 |   |                       |  | 118 |              |  |  | 103                |  |  |                                       | 277   |   |       | 
|Net finance costs (income)                                                   |  |                              | 3   |   |                       |  | 1   |              |  |  | 2                  |  |  |                                       | (5    | ) |       | 
|Reportable segment earnings (loss) before tax and equity accounted investees |  |                              | 296 |   |                       |  | 117 |              |  |  | 101                |  |  |                                       | 282   |   |       | 
|Share of loss of investment in equity accounted investees, net of tax        |  |                              |     |   |                       |  |     |              |  |  |                    |  |  |                                       | 9     |   |       | 
|Capital expenditures                                                         |  |                              | 932 |   |                       |  | 28  |              |  |  | 242                |  |  |                                       | 566   |   |       | 



| | (1) | Eight percent of Conventional Pipelines revenue is under regulated tolling arrangements.
| | --- | ----------------------------------------------------------------------------------------

| | (2) | Conventional Pipelines revenue includes $9 million associated with U.S. pipeline sales.
| | --- | ---------------------------------------------------------------------------------------

| | (3) | NGL product and services, terminalling, storage and hub services revenue includes $122 million
associated with U.S. midstream sales.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Includes inventory write-down to net realizable value of $12 million recognized in 2015.
| | --- | ----------------------------------------------------------------------------------------

| | (5) | Includes amortization of intangible assets.
| | --- | -------------------------------------------

| | (6) | Pembina aggregates its NGL and crude oil midstream activities based on shared economic risk characteristics.
| | --- | ------------------------------------------------------------------------------------------------------------

| | (7) | In 2015, one customer accounted for 10 percent of total revenue (2014: no customers).
| | --- | -------------------------------------------------------------------------------------



| | 21. | EARNINGS PER COMMON SHARE
| | --- | -------------------------



Basic earnings per common share



The calculation of basic earnings per common share at December 31,
2016 was based on the earnings attributable to common shareholders of $394 million (2015: $355 million) and a weighted average
number of common shares outstanding of 388 million (2015: 347 million).



Diluted earnings per common share



The calculation of diluted earnings per common share at December 31,
2016 was based on earnings attributable to common shareholders of $394 million (December 31, 2015: $355 million), and weighted
average number of common shares outstanding after adjustment for the effects of all dilutive potential common shares of 389 million
(2015: 348 million).



44


Pembina Pipeline Corporation




Earnings attributable to common shareholders



|Year Ended December 31 ($ millions)                              |  | 2016 |     |   | 2015 | 
|---------------------------------------------------------------- |  | ---- | --- | - | ---- | 
|Earnings                                                         |  |      | 466 |   |      | 
|Dividends on preferred shares                                    |  |      | (69 | ) |      | 
|Cumulative dividends on preferred shares, not yet declared       |  |      | (3  | ) |      | 
|Earnings attributable to common shareholders (basic and diluted) |  |      | 394 |   |      | 



Weighted average number of common shares



|(In millions of shares, except as noted)                          |  | 2016 |      |  | 2015 | 
|----------------------------------------------------------------- |  | ---- | ---- |  | ---- | 
|Issued common shares at January 1                                 |  |      | 373  |  |      | 
|Effect of shares issued                                           |  |      | 8    |  |      | 
|Effect of conversion of convertible debentures                    |  |      |      |  |      | 
|Effect of shares issued under dividend reinvestment plan          |  |      | 7    |  |      | 
|Weighted average number of common shares at December 31 (basic)   |  |      | 388  |  |      | 
|                                                                  |  |      |      |  |      | 
|Dilutive effect of share options on issue                         |  |      | 1    |  |      | 
|Weighted average number of common shares at December 31 (diluted) |  |      | 389  |  |      | 
|                                                                  |  |      |      |  |      | 
|Basic earnings per common share (dollars)                         |  |      | 1.02 |  |      | 
|Diluted earnings per common share (dollars)                       |  |      | 1.01 |  |      | 



At December 31, 2016, the effect of the conversion of the
convertible debentures was excluded from the diluted earnings per common share calculation as the impact was anti-dilutive. If
the convertible debentures were included, an additional 5 million (2015: 12 million) common shares would be added to the weighted
average number of common shares and $8 million (2015: $24 million) would be added to earnings, representing after-tax interest
expense of the convertible debentures.



The average market value of the Company's shares for purposes
of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were
outstanding.



| | 22. | PENSION PLAN
| | --- | ------------



|December 31 ($ millions)                    |  | 2016 |    |  | 2015 | 
|------------------------------------------- |  | ---- | -- |  | ---- | 
|Registered defined benefit net obligation   |  |      | 16 |  |      | 
|Supplemental defined benefit net obligation |  |      | 10 |  |      | 
|Other accrued benefit obligations           |  |      | 1  |  |      | 
|Net employee benefit obligations            |  |      | 27 |  |      | 



The Company maintains a defined contribution plan and non-contributory
defined benefit pension plans covering its employees. The Company contributes five to ten percent of an employee's earnings to
the defined contribution plan until the employee's age plus years of service equals 50, at which time they become eligible for
the defined benefit plans. The Company recognized $6 million in expense for the defined contribution plan during the year (2015
$5 million). The defined benefit plans include a funded registered plan for all employees and an unfunded supplemental retirement
plan for those employees affected by the Canada Revenue Agency maximum pension limits. The defined benefit plans are administered
by a single pension fund that is legally separated from the Company. Benefits under the plans are based on the length of service
and the annual average best three years of earnings during the last ten years of service of the employee. Benefits paid out of
the plans are not indexed. The Company measures its accrued benefit obligations and the fair value of plan assets for accounting
purposes as at December 31 of each year. The most recent actuarial valuation was at December 31, 2015. The defined benefit plans
expose the Company to actuarial risks such as longevity risk, interest rate risk, and market (investment) risk.



45


Pembina Pipeline Corporation




Defined benefit obligations





|December 31                                              |  | 2016           |     |   | 2015             | 
|-------------------------------------------------------- |  | -------------- | --- | - | ---------------- | 
|($ millions)                                             |  | RegisteredPlan |     |   | SupplementalPlan | 
|Present
    value of unfunded obligations                |  |                |     |   |                  | 
|Present
    value of funded obligations                  |  |                | 180 |   |                  | 
|Total
    present value of obligations                   |  |                | 180 |   |                  | 
|Fair
    value of plan assets                            |  |                | 164 |   |                  | 
|Recognized
    liability for defined benefit obligations |  |                | (16 | ) |                  | 





The Company funds the defined benefit obligation plans in accordance
with government regulations by contributing to trust funds administered by an independent trustee. The funds are invested primarily
in equities and bonds. Defined benefit plan contributions totalled $15 million for the year ended December 31, 2016 (2015:
$9 million).



The Company has determined that, in accordance with the terms
and conditions of the defined benefit plans, and in accordance with statutory requirements of the plans, the present value of refunds
or reductions in future contributions is not lower than the balance of the total fair value of the plan assets less the total present
value of obligations. As such, no decrease in the defined benefit asset is necessary at December 31, 2016 (December 31,
2015: nil).



Registered defined benefit pension plan assets comprise



|December 31 (percentages) |  | 2016 |     |  | 2015 | 
|------------------------- |  | ---- | --- |  | ---- | 
|Equity securities         |  |      | 61  |  |      | 
|Debt                      |  |      | 38  |  |      | 
|Other                     |  |      | 1   |  |      | 
|                          |  |      | 100 |  |      | 



Movement in the present value of the defined benefit pension
obligation





|                                                           |  | 2016           |     |   | 2015             | 
|---------------------------------------------------------- |  | -------------- | --- | - | ---------------- | 
|($ millions)                                               |  | RegisteredPlan |     |   | SupplementalPlan | 
|Defined
    benefits obligations at January 1              |  |                | 160 |   |                  | 
|Benefits
    paid by the plan                              |  |                | (8  | ) |                  | 
|Current
    service costs                                  |  |                | 11  |   |                  | 
|Interest
    expense                                       |  |                | 6   |   |                  | 
|Actuarial
    losses (gains) in other comprehensive income |  |                | 11  |   |                  | 
|Defined
    benefit obligations at December 31             |  |                | 180 |   |                  | 





46


Pembina Pipeline Corporation




Movement in the present value of registered defined benefit
pension plan assets



|($ millions)                                        |  | 2016 |     |   | 2015 | 
|--------------------------------------------------- |  | ---- | --- | - | ---- | 
|Fair value of plan assets at January 1              |  |      | 146 |   |      | 
|Contributions paid into the plan                    |  |      | 15  |   |      | 
|Benefits paid by the plan                           |  |      | (8  | ) |      | 
|Return (loss) on plan assets                        |  |      | 5   |   |      | 
|Interest income                                     |  |      | 6   |   |      | 
|Fair value of registered plan assets at December 31 |  |      | 164 |   |      | 



Expense recognition in earnings



|Registered Plan                    |  |      |    |   |      | 
|---------------------------------- |  | ---- | -- | - | ---- | 
|Year Ended December 31($ millions) |  | 2016 |    |   | 2015 | 
|Current service costs              |  |      | 11 |   |      | 
|Interest on obligation             |  |      | 6  |   |      | 
|Expected return on plan assets     |  |      | (6 | ) |      | 
|                                   |  |      | 11 |   |      | 



The expense is recognized in the following line items in the
statement of comprehensive income:



|Year Ended December 31($ millions) |  | 2016 |    |  | 2015 | 
|---------------------------------- |  | ---- | -- |  | ---- | 
|Registered Plan                    |  |      |    |  |      | 
|Operating expenses                 |  |      | 5  |  |      | 
|General and administrative expense |  |      | 6  |  |      | 
|                                   |  |      | 11 |  |      | 



Expense recognized for the Supplemental Plan was less than one
million for each of the years ended December 31, 2016 and 2015.



Actuarial gains and losses recognized in other comprehensive
income



|                                                       |  | 2016             |     |   | 2015               | 
|------------------------------------------------------ |  | ---------------- | --- | - | ------------------ | 
|($ millions)                                           |  | Registered
 Plan |     |   | Supplemental
 Plan | 
|Balance at January 1                                   |  | (20)             |     |   | (1 )               | 
|Remeasurements gain:                                   |  |                  |     |   |                    | 
|Actuarial gain (loss) arising from                     |  |                  |     |   |                    | 
|Demographic assumptions                                |  |                  | (1  | ) |                    | 
|Financial assumptions                                  |  |                  | (5  | ) |                    | 
|Experience adjustments                                 |  |                  | (3  | ) |                    | 
|Return (loss) on plan assets excluding interest income |  |                  | 4   |   |                    | 
|Recognized during the period after tax                 |  |                  | (5  | ) |                    | 
|Balance at December 31                                 |  |                  | (25 | ) |                    | 



Principal actuarial assumptions used:



|December 31 (weighted
    average percent) |  | 2016 |     |  | 2015 | 
|------------------------------------------ |  | ---- | --- |  | ---- | 
|Discount rate                              |  |      | 3.9 |  |      | 
|Future pension earning increases           |  |      | 4.0 |  |      | 



47


Pembina Pipeline Corporation




Assumptions regarding future mortality are based on published
statistics and mortality tables. The current longevities underlying the values of the liabilities in the defined plans are as follows:



|December 31 (years)                            |  | 2016 |      |  | 2015 | 
|---------------------------------------------- |  | ---- | ---- |  | ---- | 
|Longevity at age 65 for current pensioners     |  |      |      |  |      | 
|Males                                          |  |      | 21.6 |  |      | 
|Females                                        |  |      | 24.0 |  |      | 
|Longevity at age 65 for current member aged 45 |  |      |      |  |      | 
|Males                                          |  |      | 22.7 |  |      | 
|Females                                        |  |      | 25.0 |  |      | 



The calculation of the defined benefit obligation is sensitive
to the discount rate, compensation increases, retirements and termination rates as set out above. An increase or decrease of the
estimated discount rate of 3.9 percent by 100 basis points at December 31, 2016 is considered reasonably possible in the next
financial year but would not have a material impact on the obligation.



The Company expects to contribute $14 million to the defined
benefit plans in 2017.



| | 23. | SHARE-BASED PAYMENTS
| | --- | --------------------



At December 31, 2016, the Company has the following share-based
payment arrangements:



Share option plan (equity settled)



The Company has a share option plan under which employees are
eligible to receive options to purchase shares in the Company.



Long-term share unit award incentive plan (cash-settled)



In 2005, the Company established a long-term share unit award
incentive plan. Under the share-based compensation plan, awards of restricted (RSU) and performance (PSU) share units are made
to officers, non-officers and directors. The plan results in participants receiving cash compensation based on the value of the
underlying notional shares granted under the plan. Payments are based on a trading value of the Company's common shares plus notional
dividends and performance of the Company.



In 2015, the Company also established a deferred share units
(DSU) plan. Under the DSU plan, directors are required to take at least forty percent of total director compensation, excluding
meeting fees, as DSUs. A DSU is a notional share that has the same value as one Pembina common share. Its value changes with our
share price. DSUs do not have voting rights but they accrue dividends as additional DSUs, at the same rate as dividends paid on
our common shares. DSUs are paid out when a director retires from the board and are redeemed for cash using the weighted average
of trading price of common shares on the TSX for the last five trading days before the redemption date, multiplied by the number
of DSUs the director holds.



48


Pembina Pipeline Corporation




Terms and conditions of share option plan and share unit award
incentive plan



The terms and conditions relating to the grants of the share
option program and the long-term share unit award incentive plans are listed in the tables below:



|Grant date share options granted to employees(thousands of options, except as noted) |  | Number of options |       |  | Contractual life of options
|------------------------------------------------------------------------------------ |  | ----------------- | ----- |  | ---------------------------
|March 9, 2015                                                                        |  |                   | 777   |  |                            
|July 2, 2015                                                                         |  |                   | 127   |  |                            
|October 5, 2015                                                                      |  |                   | 50    |  |                            
|December 21, 2015                                                                    |  |                   | 6     |  |                            
|March 8, 2016                                                                        |  |                   | 2,613 |  |                            
|March 30, 2016                                                                       |  |                   | 227   |  |                            
|July 4, 2016                                                                         |  |                   | 88    |  |                            
|August 16, 2016                                                                      |  |                   | 1,268 |  |                            
|October 3, 2016                                                                      |  |                   | 62    |  |                            
|November 15, 2016                                                                    |  |                   | 1,240 |  |                            



One-third vest on the first anniversary of the grant date, one-third
vest on the second anniversary of the grant date and one-third vest on the third anniversary of the grant date.



Long-term share unit award incentive plan(1)



|Grant date RSUs, PSUs and DSUs to Officers, Non-Officers(2)  and Directors(thousands of units, except as noted) |  | PSUs(3) |     |  | RSUs(3) |  |     | DSUs |  |  | Total | 
|--------------------------------------------------------------------------------------------------------------- |  | ------- | --- |  | ------- |  | --- | ---- |  |  | ----- | 
|January 1, 2015                                                                                                 |  |         | 252 |  |         |  | 243 |      |  |  | 27    | 
|January 1, 2016                                                                                                 |  |         | 365 |  |         |  | 372 |      |  |  | 49    | 



PSUs vest on the third anniversary of the grant date. RSUs vest
one-third on the first anniversary of the grant date, one-third on the second anniversary of the grant date and one-third on the
third anniversary of the grant date. Actual units awarded based on the trading value of the shares and performance of the Company.



| | (1) | Distribution Units are granted in addition to RSU and PSU grants based on notional accrued dividends
from RSU and PSU granted but not paid.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Non-Officers defined as senior selected positions within the Company.
| | --- | ---------------------------------------------------------------------

| | (3) | Contractual life of 3 years.
| | --- | ----------------------------



Disclosure of share option
plan



The number and weighted average
exercise prices of share options as follows:



|(thousands of options, except as noted) |  | Number of Options |        |   | Weighted Average Exercise Price (dollars) |  
|--------------------------------------- |  | ----------------- | ------ | - | ----------------------------------------- | -
|Outstanding at December 31, 2014        |  |                   | 9,760  |   |                                           | $
|Granted                                 |  |                   | 960    |   |                                           | $
|Exercised                               |  |                   | (331   | ) |                                           | $
|Forfeited                               |  |                   | (383   | ) |                                           | $
|Outstanding at December 31, 2015        |  |                   | 10,006 |   |                                           | $
|Granted                                 |  |                   | 5,498  |   |                                           | $
|Exercised                               |  |                   | (577   | ) |                                           | $
|Forfeited                               |  |                   | (509   | ) |                                           | $
|Expired                                 |  |                   | (108   | ) |                                           | $
|Outstanding as at December 31, 2016     |  |                   | 14,310 |   |                                           | $



49


Pembina Pipeline Corporation




As of December 31, 2016,
the following options are outstanding:



|(thousands of options, except as noted)
    Exercise Price (dollars) |  | Number outstanding at December 31, 2016 |        |  | Options Exercisable |  |       | Weighted average remaining life | 
|-------------------------------------------------------------------- |  | --------------------------------------- | ------ |  | ------------------- |  | ----- | ------------------------------- | 
|$14.84 – $19.99                                                      |  |                                         | 170    |  |                     |  | 170   |                                 | 
|$20.00 – 29.99                                                       |  |                                         | 1,052  |  |                     |  | 1,049 |                                 | 
|$30.00 – $39.99                                                      |  |                                         | 6,865  |  |                     |  | 1,367 |                                 | 
|$40.00 – $52.01                                                      |  |                                         | 6,223  |  |                     |  | 3,883 |                                 | 
|Total                                                                |  |                                         | 14,310 |  |                     |  | 6,469 |                                 | 



The weighted average share price at the date of exercise for
share options exercised in the year ended December 31, 2016 was $39.27(December 31,
2015: $37.58).



Expected volatility is estimated by considering historic average
share price volatility. The weighted average inputs used in the measurement of the fair values at grant date of share options are
the following:



Share options granted



|Year Ended December 31(dollars, except as noted)             |  | 2016 |       |  | 2015 | 
|------------------------------------------------------------ |  | ---- | ----- |  | ---- | 
|Weighted average                                             |  |      |       |  |      | 
|Fair value at grant date                                     |  |      | 3.71  |  |      | 
|Share price at grant date                                    |  |      | 36.47 |  |      | 
|Exercise price                                               |  |      | 36.41 |  |      | 
|Expected volatility (percent)                                |  |      | 25.1  |  |      | 
|Expected option life (years)                                 |  |      | 3.67  |  |      | 
|Expected annual dividends per option                         |  |      | 1.90  |  |      | 
|Expected forfeitures (percent)                               |  |      | 6.7   |  |      | 
|Risk-free interest rate (based on government bonds)(percent) |  |      | 0.7   |  |      | 



Disclosure of long-term share unit award incentive plan



The long-term share unit award incentive plans was valued using
the volume weighted average price for 20 days ending December 31, 2016 of $41.18 (December 31, 2015: $29.71). Actual
payment may differ from amount valued based on market price and company performance.



Employee expenses



|Year Ended December 31
    ($ millions)                            |  | 2016 |    |  | 2015 | 
|------------------------------------------------------------------ |  | ---- | -- |  | ---- | 
|Share option plan, equity settled                                  |  |      | 15 |  |      | 
|Long-term share unit award incentive plan                          |  |      | 31 |  |      | 
|Share-based compensation expense                                   |  |      | 46 |  |      | 
|                                                                   |  |      |    |  |      | 
|Total carrying amount of liabilities for cash settled arrangements |  |      | 44 |  |      | 
|Total intrinsic value of liability for vested benefits             |  |      | 24 |  |      | 



50


Pembina Pipeline Corporation




| | 24. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
| | --- | ---------------------------------------------------



Financial Risk Management



Pembina has exposure to counterparty credit risk, liquidity risk
and market risk. Pembina recognizes that effective management of these risks is a critical success factor in managing organization
and shareholder value.



Risk management strategies, policies and limits ensure risks
and exposures are aligned to Pembina's business strategy and risk tolerance. The Company's Board of Directors is responsible for
providing risk management oversight at Pembina. The Company's Audit Committee oversees how management monitors compliance with
the Company's risk management policies and procedures and reviews the adequacy of this risk framework in relation to the risks
faced by the Company. Internal audit personnel assist the Audit Committee in its oversight role by monitoring and evaluating the
effectiveness of the organization's risk management system.



Counterparty credit risk



Counterparty credit risk represents the financial loss the Company
would experience if a counterparty to a financial instrument failed to meet its contractual obligations in accordance with the
terms and conditions of the financial instruments with the Company. Counterparty credit risk arises primarily from the Company's
cash and cash equivalents, trade and other receivables, and from counterparties to its derivative financial instruments. The carrying
amount of the Company's cash and cash equivalents, trade and other receivables and derivative financial instruments represents
the maximum counterparty credit exposure, without taking into account security held.



The Company manages counterparty credit risk through established
credit management techniques, including conducting comprehensive financial and other assessments for all new counterparties and
regular reviews of existing counterparties to establish and monitor a counterparty's creditworthiness, setting exposure limits,
monitoring exposures against these limits and obtaining financial assurances where warranted. The Company utilizes various sources
of financial, credit and business information in assessing the creditworthiness of a counterparty including external credit ratings,
where available, and in other cases, detailed financial statement analysis in order to generate an internal credit rating based
on quantitative and qualitative factors. The establishment of counterparty exposure limits is governed by a Board of Directors
designated counterparty exposure limit matrix which represents the maximum dollar amounts of counterparty exposure by debt rating
that can be approved for a counterparty. The Company continues to closely monitor and reassess the creditworthiness of its counterparties,
which has resulted in the Company reducing or mitigating its exposure to certain counterparties where it was deemed warranted and
permitted under contractual terms.



Financial assurances may include guarantees, letters of credit
and cash. Letters of credit totaling $115 million (December 31, 2015: $68 million) are held primarily in respect of customer trade
receivables.



Typically, the Company has collected its trade receivables in
full and at December 31, 2016, 95 percent were current (2015: 87 percent). Management defines current as outstanding accounts
receivable past due and under 30 days. The Company has a general lien and a continuing and first priority security interest in,
and a secured charge on, all of a shipper's petroleum in its custody.



51


Pembina Pipeline Corporation




At December 31, the aging of trade and other receivables was
as follows:





|Past
    Due             |  | 2016 |   |  | 2015 | 
|------------------------ |  | ---- | - |  | ---- | 
|31-60
    days past due  |  |      | 2 |  |      | 
|61-90
    days past due  |  |      | 1 |  |      | 
|Greater
    than 91 days |  |      | 4 |  |      | 
|                         |  |      | 7 |  |      | 



Management believes the unimpaired amounts that are past due
by greater than 30 days are fully collectible based on customer payment history and management's assessment of counterparty credit
risk through established credit management techniques as discussed above. At December 31, 2016, the allowance for doubtful
accounts amounted to $1 million (2015: $1 million). Pembina recognized $1 million in bad debt expense during 2016 (2015: $1 million).



The Company monitors and manages its concentration of counterparty
credit risk on an ongoing basis. The Company believes these measures minimize its counterparty credit risk but there is no certainty
that they will protect it against all material losses. As part of its ongoing operations, the Company must balance its market and
counterparty credit risks when making business decisions.



Liquidity risk



Liquidity risk is the risk the Company will not be able to meet
its financial obligations as they come due. The following are the contractual maturities of financial liabilities, including estimated
interest payments.



|                                       |  | Outstanding balances due by period |      
|-------------------------------------- |  | ---------------------------------- | -----
|December 31, 2016($ millions)          |  | Carrying Amount                    |      
|Trade payables and accrued liabilities |  |                                    | 645  
|Taxes Payable                          |  |                                    | 5    
|Loans and borrowings                   |  |                                    | 4,008
|Convertible debentures                 |  |                                    | 143  
|Dividends payable                      |  |                                    | 64   
|Derivative financial liabilities       |  |                                    | 123  
|Finance leases                         |  |                                    | 14   



The Company manages its liquidity risk by forecasting cash flows
over a 12 month rolling time period to identify financing requirements. These financing requirements are then addressed through
a combination of credit facilities and through access to capital markets, if required.



Market risk



Pembina's results are subject to movements in commodity prices,
foreign exchange and interest rates. A formal Risk Management Program including policies and procedures has been designed to mitigate
these risks.



| | a. | Commodity price risk
| | -- | --------------------



Pembina's Midstream business includes activities
related to product storage, terminalling, and hub services. These activities expose Pembina to certain risks including that Pembina
may experience volatility in revenue, and impairments related to the book value of stored product, due to fluctuations in commodity
prices. Primarily, Pembina enters into contracts to purchase and sell crude and NGL at floating market prices. The prices of products
that are marketed by Pembina are subject to volatility as a result of such factors as seasonal demand changes, extreme weather
conditions, general economic conditions, changes in crude oil markets and other factors. Pembina manages its risk exposure by balancing
purchases and sales to lock-in margins. Notwithstanding Pembina's management of price and quality risk, marketing margins for commodities
can vary and have varied significantly from period to period. This variability could have an adverse effect on the results of Pembina's
commercial Midstream business and its overall results of operations. To assist in effectively smoothing that variability inherent
in this business, Midstream is investing in assets that have a fee-based revenue component, and is looking to expand this area
going forward.



52


Pembina Pipeline Corporation




The Midstream business is also exposed to
possible price declines between the time Pembina purchases NGL feedstock and sells NGL products, and to decreasing frac spreads.
Frac spread is the difference between the sale prices of NGL products and the cost of NGL sourced from natural gas and acquired
at natural gas related prices. Frac spreads can change significantly from period to period depending on the relationship between
crude oil and natural gas prices (the "frac spread ratio"), absolute commodity prices, and changes in the Canadian to
US dollar foreign exchange rate. There is also a differential between NGL product prices and crude oil prices which can change
margins realized for midstream products separate from frac spread ratio changes. The amount of profit or loss made on the extraction
portion of the NGL midstream business will generally increase or decrease with frac spreads. This exposure could result in variability
of cash flow generated by the NGL midstream business, which could affect Pembina and the cash dividends of Pembina.



Pembina responds to commodity price risk
by using an active Risk Management Program to fix revenues to pay for a minimum of 50 percent of the fixed committed term natural
gas supply costs. Pembina's fixed committed natural gas supply can vary from year to year based on industry dynamics. Additionally,
Pembina's Midstream business is also exposed to variability in quality, time and location differentials and the Company may also
utilize financial derivative instruments as part of its overall risk management strategy to assist in managing the exposure to
commodity price risk as a result of these activities. The Company does not trade financial instruments for speculative purposes.



| | b. | Foreign exchange risk
| | -- | ---------------------



Certain of Pembina's cash flows, namely a portion of its commodity-related
cash flows as well as certain U.S.-based infrastructure assets, are subject to currency risk, primarily arising from the denomination
of specific cash flows in U.S. dollars. Additionally, a portion of Pembina's capital expenditures may also be denominated in U.S.
dollars. Pembina responds to this risk using an active Risk Management Program to exchange foreign currency for domestic currency
at a fixed rate.



| | c. | Interest rate risk
| | -- | ------------------



Pembina has floating interest rate debt which subjects the Company
to interest rate risk. Pembina responds to this risk under the active Risk Management Program to enter into financial derivative
contracts to fix interest rates.



At the reporting date, the interest rate profile of the Company's
interest-bearing financial instruments was:



|Carrying Amounts of Financial Liability |  |  |      
|--------------------------------------- |  |  | -----
|December 31 ($ millions)                |  |  | 2016 
|Fixed rate instruments                  |  |  | 3,655
|Variable rate instruments(1)            |  |  | 353  
|                                        |  |  | 4,008



| | (1) | At December 31, 2016, the Company held positions in financial
derivative contracts to fix interest rates on $100 million of the underlying variable rate instruments (December 31, 2015 - $100
million).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



53


Pembina Pipeline Corporation




Cash flow sensitivity analysis for variable rate instruments



A change of 100 basis points in interest rates at the reporting
date would have (increased) decreased earnings by the amounts shown below. This analysis assumes that all other variables remain
constant.





|December 31 ($ millions)       |  | 2016 |              |  | 2015 | 
|------------------------------ |  | ---- | ------------ |  | ---- | 
|                               |  |      | ±
    100 bp |  |      | 
|Variable
    rate instruments  |  |      | ±4           |  |      | 
|Interest
    rate swap         |  |      | ±1           |  |      | 
|Earnings
    sensitivity (net) |  |      | ±3           |  |      | 



Fair values



The basis for determining fair value is disclosed in Note 5.



The fair values of financial assets and liabilities, together
with the carrying amounts shown in the Statements of Financial Position, are as follows:



|                                                |  | December 31, 2016 |       |  | December 31, 2015 | 
|----------------------------------------------- |  | ----------------- | ----- |  | ----------------- | 
|($ millions)                                    |  | Carrying Value    |       |  | Fair Value        | 
|Financial assets carried at fair value          |  |                   |       |  |                   | 
|Derivative financial instruments                |  |                   | 9     |  |                   | 
|Financial assets carried at amortized cost      |  |                   |       |  |                   | 
|Cash and cash equivalents                       |  |                   | 35    |  |                   | 
|Trade receivables and other                     |  |                   | 451   |  |                   | 
|Other assets                                    |  |                   | 11    |  |                   | 
|                                                |  |                   | 497   |  |                   | 
|Financial liabilities carried at fair value     |  |                   |       |  |                   | 
|Derivative financial instruments(2)             |  |                   | 123   |  |                   | 
|Financial liabilities carried at amortized cost |  |                   |       |  |                   | 
|Trade payables and accrued liabilities          |  |                   | 645   |  |                   | 
|Taxes Payable                                   |  |                   | 5     |  |                   | 
|Dividends payable                               |  |                   | 64    |  |                   | 
|Loans and borrowings(2)                         |  |                   | 4,008 |  |                   | 
|Convertible debentures(1)                       |  |                   | 143   |  |                   | 
|                                                |  |                   | 4,865 |  |                   | 



| | (1) | Carrying value excludes conversion feature of convertible debentures.
| | --- | ---------------------------------------------------------------------

| | (2) | Carrying value of current and non-current balances.
| | --- | ---------------------------------------------------



Interest rates used for determining fair value



The interest rates used to discount estimated cash flows, when
applicable, are based on the government yield curve at the reporting date plus and adequate credit spread, and were as follows:



|December 31 (percents) |  | 2016 |           |  | 2015 | 
|---------------------- |  | ---- | --------- |  | ---- | 
|Derivatives            |  |      | 0.9 - 1.1 |  |      | 
|Loans and borrowings   |  |      | 1.9 - 4.8 |  |      | 



Fair value of power derivatives are based on market rates reflecting
forward curves.



54


Pembina Pipeline Corporation




Fair value hierarchy



The fair value of financial instruments carried at fair value
is classified according to the following hierarchy based on the amount of observable inputs used to value the instruments.



Level 1: Unadjusted quoted prices are available in active markets
for identical assets or liabilities as the reporting date. Pembina does not use Level 1 inputs for any of its fair value measurements.



Level 2: Inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level
2 valuations are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can
be substantially observed or corroborated in the marketplace. Instruments in this category include non-exchange traded derivatives
such as over-the-counter physical forwards and options, including those that have prices similar to quoted market prices. Pembina
obtains quoted market prices for its inputs from information sources including banks, Bloomberg Terminals and Natural Gas Exchange.
All of Pembina's significant financial instruments carried at fair value are valued using Level 2 inputs.



The following table is a summary of the net derivative financial
instruments, which is consistent with the gross balances:



|                                                         |  | 2016          |   |  | 2015               | 
|-------------------------------------------------------- |  | ------------- | - |  | ------------------ | 
|December 31($ millions)                                  |  | Current Asset |   |  | Non-
Current Asset | 
|Commodity, power, storage and rail financial instruments |  |               | 9 |  |                    | 
|Interest rate                                            |  |               |   |  |                    | 
|Foreign exchange                                         |  |               |   |  |                    | 
|Conversion feature of convertible debentures (Note 14)   |  |               |   |  |                    | 
|Net derivative financial instruments                     |  |               | 9 |  |                    | 



55


Pembina Pipeline Corporation




Sensitivity analysis



The following table shows the impact on earnings if the underlying
risk variables of the derivative financial instruments changed by a specified amount, with other variables held constant.



|As at December 31, 2016  ($ millions)         |  |                                                  |  | + Change |     |   | - Change | 
|--------------------------------------------- |  | ------------------------------------------------ |  | -------- | --- | - | -------- | 
|Frac spread related                           |  |                                                  |  |          |     |   |          | 
|Natural gas                                   |  | (AECO +/- $0.25 per GJ)                          |  |          | 4   |   |          | 
|NGL (includes propane, butane and condensate) |  | (Belvieu/Conway +/- U.S. $0.10 per gal)          |  |          | (25 | ) |          | 
|Foreign exchange (U.S.$ vs. Cdn$)             |  | (FX rate +/- $0.20)                              |  |          | (15 | ) |          | 
|Product margin                                |  |                                                  |  |          |     |   |          | 
|Crude oil                                     |  | (WTI +/- $2.50 per bbl)                          |  |          | (5  | ) |          | 
|NGL (includes condensate)                     |  | (Belvieu/Conway +/- U.S. $0.10 per gal)          |  |          | N/A |   |          | 
|Corporate                                     |  |                                                  |  |          |     |   |          | 
|Interest rate                                 |  | (Rate +/- 50 basis points)                       |  |          | 1   |   |          | 
|Power                                         |  | (AESO +/- $5.00 per MW/h)                        |  |          | 0.4 |   |          | 
|Conversion feature of convertible debentures  |  | (Pembina share price +/- $0.50 per common share) |  |          | (2  | ) |          | 



| | 25. | OPERATING LEASES
| | --- | ----------------



Leases as lessee



Operating lease rentals are payable as follows:



|December 31 ($ millions) |  | 2016 |     |  | 2015 | 
|------------------------ |  | ---- | --- |  | ---- | 
|Less than 1 year         |  |      | 101 |  |      | 
|Between 1 and 5 years    |  |      | 383 |  |      | 
|More than 5 years        |  |      | 327 |  |      | 
|                         |  |      | 811 |  |      | 



The Company leases a number of offices,
warehouses, vehicles, land and rail cars under operating leases. The leases run for a period of one to twelve years, with an
option to renew the lease after that date. The Company has sublet office space and railcars up to 2027 and has contracted
sub-lease payments for a minimum of $100 million over the term. The amounts shown in the table above are presented gross.



| | 26. | CAPITAL MANAGEMENT
| | --- | ------------------



The Company's objective when managing capital is to ensure a
stable stream of dividends to shareholders that is sustainable over the long-term. The Company manages its capital structure based
on requirements arising from significant capital development activities, the risk characteristics of its underlying asset base,
and changes in economic conditions. Pembina manages its capital structure and short-term financing requirements using Non-GAAP
measures, including the ratios of debt to EBITDA, debt to total enterprise value, adjusted cash flow to debt and debt to equity.
The metrics are used to measure the Company's financial leverage and measure the strength of the Company's balance sheet. The Company
remains satisfied that the leverage currently employed in its capital structure is sufficient and appropriate given the characteristics
and operations of the underlying asset base. The Company, upon approval from its Board of Directors, will balance its overall capital
structure through new equity or debt issuances, as required.



56


Pembina Pipeline Corporation




The Company maintains a conservative capital structure that allows
it to finance its day-to-day cash requirements through its operations, without requiring external sources of capital. The Company
funds its operating commitments, short-term capital spending as well as its dividends to shareholders through this cash flow, while
new borrowing and equity issuances are primarily reserved for the support of specific significant development activities. The capital
structure of the Company consists of shareholder's equity, comprised of common and preferred equity, plus long-term debt. Long-term
debt is comprised of bank credit facilities, unsecured notes, finance lease obligations and convertible debentures.



Pembina is subject to certain financial covenants in its credit
facility agreements and is in compliance with all financial covenants as of December 31, 2016.



Note 16 of these financial statements shows the change in Share
Capital for the year ended December 31, 2016.



| | 27. | GROUP ENTITIES
| | --- | --------------



Significant subsidiaries



|                                         |  | Ownership Interest |    
|---------------------------------------- |  | ------------------ | ---
|December 31 (percentages)                |  | 2016               |    
|Pembina Pipeline                         |  |                    | 100
|Pembina Gas Services Limited Partnership |  |                    | 100
|Pembina Oil Sands Pipeline LP            |  |                    | 100
|Pembina Midstream Limited Partnership    |  |                    | 100
|Pembina NGL Corporation                  |  |                    | 100
|Pembina Facilities NGL LP                |  |                    | 100
|Pembina Midstream Inc.                   |  |                    | 100
|Pembina Infrastructure and Logistics LP  |  |                    | 100
|Pembina Empress NGL Partnership          |  |                    | 100
|Pembina (Pro) Holding Company            |  |                    | 100
|Pembina Resource Services Canada         |  |                    | 100
|Pembina Resource Services (U.S.A.)       |  |                    | 100
|Pembina Prairie Facilities Ltd.          |  |                    | 100



| | 28. | RELATED PARTIES
| | --- | ---------------



All transactions with related parties were made on terms equivalent
to those that prevail in arm's length transactions.



Key management personnel and director compensation



Key management consists of the Company's directors and certain
key officers.



Compensation



In addition to short-term employee benefits - including salaries,
director fees and short term incentives - the Company also provides key management personnel with share-based compensation, contributes
to post employment pension plans and provides car allowances, parking and business club memberships.



57


Pembina Pipeline Corporation




Key management personnel compensation comprised:



|Year Ended December 31 ($ millions)  |  | 2016 |   |  | 2015 | 
|------------------------------------ |  | ---- | - |  | ---- | 
|Short-term employee benefits         |  |      | 5 |  |      | 
|Share-based compensation and other   |  |      | 3 |  |      | 
|Total compensation of key management |  |      | 8 |  |      | 



Transactions



Key management personnel and directors of the Company control
less than one percent of the voting common shares of the Company (consistent with the prior year). Certain directors and key management
personnel also hold Pembina convertible debentures and preferred shares. Dividend and interest payments received for the common
shares and debentures held are commensurate with other non-related holders of those instruments.



Certain officers are subject to employment agreements in the
event of termination without just cause or change of control.



Post-employment benefit plans



Pembina has significant influence over the pension plans for
the benefit of their respective employees. No balance payable is outstanding at December 31, 2016 (December 31, 2015:
nil).



Transactions



|($ millions)                 |  |             |  | Transaction Value Year Ended December 31 |     
|---------------------------- |  | ----------- |  | ---------------------------------------- | ----
|Post-employment benefit plan |  | Transaction |  |                                          | 2016
|Defined benefit plan         |  | Funding     |  |                                          | 15  



58







CORPORATE INFORMATION



HEAD OFFICE



Pembina Pipeline Corporation

Suite 4000, 585 – 8th Avenue SW

Calgary, Alberta T2P 1G1

Phone: (403) 231-7500



AUDITORS



KPMG LLP

Chartered Professional Accountants

Calgary, Alberta



TRUSTEE, REGISTRAR & TRANSFER AGENT



Computershare Trust Company of Canada

Suite 600, 530 – 8th Avenue SW

Calgary, Alberta T2P 3S8

1-800-564-6253



STOCK EXCHANGE



Pembina Pipeline Corporation

Toronto Stock Exchange listing symbols for:

Common shares: PPL

Convertible debentures: PPL.DB.F

Preferred shares: PPL.PR.A, PPL.PR.C, PPL.PR.E, PPL.PR.G,

PPL.PR.I,
PPL.PR.K, PPL.PR.M



New York Stock Exchange listing symbol for:

Common shares: PBA



INVESTOR INQUIRIES

|Phone:     | (403) 231-3156                
|---------- | ------------------------------
|Fax:       | (403) 237-0254                
|Toll Free: | 1-855-880-7404                
|Email:     | investor-relations@pembina.com
|Website:   | www.pembina.com               



59