Pembina
Pipeline Corporation



MANAGEMENT'S DISCUSSION AND ANALYSIS



The following management's discussion and analysis ("MD&A")
of the financial and operating results of Pembina Pipeline Corporation ("Pembina" or the "Company") is dated
March 1, 2013 and is supplementary to, and should be read in conjunction with, Pembina's audited consolidated annual financial
statements for the years ended December 31, 2012 and 2011 ("Consolidated Financial Statements"). All dollar amounts contained
in this MD&A are expressed in Canadian dollars unless otherwise noted.



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



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



On April 2, 2012, Pembina completed its acquisition of Provident
Energy Ltd. ("Provident") (the "Acquisition"). The amounts disclosed herein for the three and twelve month
periods ending December 31, 2012 reflect results of the post-Acquisition Pembina from April 2, 2012 together with results of legacy
Pembina excluding Provident ("Legacy Pembina"), from January 1 through April 1, 2012, if applicable. The comparative
figures reflect solely the 2011 results of Legacy Pembina. The results of the business acquired through the Acquisition are reported
as part of the Company's Midstream business. For further information with respect to the Acquisition, please refer to Note 5 of
the Consolidated Financial Statements for the year ended December 31, 2012.



About Pembina



Calgary-based Pembina Pipeline Corporation is a leading transportation
and midstream service provider that has been serving North America's energy industry for nearly 60 years. Pembina owns and operates:
pipelines that transport conventional and synthetic crude oil and natural gas liquids produced in western Canada; oil sands, heavy
oil and diluent pipelines; gas gathering and processing facilities; and, an oil and natural gas liquids infrastructure and logistics
business. With facilities strategically located in western Canada and in natural gas liquids markets in eastern Canada and the
U.S., Pembina also offers a full spectrum of midstream and marketing services that spans across its operations. Pembina's integrated
assets and commercial operations enable it to offer services needed by the energy sector along the hydrocarbon value chain.



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



Strategy



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



| | · | Preserve value by providing safe, responsible, cost-effective and reliable
services;
| | - | ------------------------------------------------------------------------------------



| | · | Diversify Pembina's asset base along the hydrocarbon value chain by
providing integrated service offerings which enhance profitability;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | · | Pursue projects or assets that are expected to generate increased cash
flow per share and capture long-life, economic hydrocarbon reserves; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



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



7







Pembina
Pipeline Corporation



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



Common Abbreviations



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



|Measurement | Other                                         
|----------- | ----------------------------------------------
|bbl         | barrel                                        
|mmbbls      | millions of barrels                           
|bpd         | barrels per day                               
|mbpd        | thousands of barrels per day                  
|mboe/d      | thousands of barrels of oil equivalent per day
|MMcf/d      | millions of cubic feet per day                
|bcf/d       | billions of cubic feet per day                
|MW/h        | megawatts per hour                            
|GJ          | gigajoule                                     
|km          | kilometre                                     
|            |                                               
|            |                                               
|            |                                               
|            |                                               



8







Pembina
Pipeline Corporation



Financial & Operating Overview



|                                                                               |  | 3 Months
    Ended December 31 (unaudited) |         |   | 12 Months Ended December 31 | 
|------------------------------------------------------------------------------ |  | ------------------------------------------ | ------- | - | --------------------------- | 
|($ millions, except where noted)                                               |  | 2012                                       |         |   | 2011                        | 
|Average throughput – Conventional Pipelines (mbpd)                             |  |                                            | 480.2   |   |                             | 
|Contracted capacity – Oil Sands & Heavy Oil (mbpd)                             |  |                                            | 870.0   |   |                             | 
|Average processing volume – Gas Services
    (mboe/d)net to Pembina(1)         |  |                                            | 46.0    |   |                             | 
|NGL sales volume – NGL Midstream (mbpd)                                        |  |                                            | 115.8   |   |                             | 
|Revenue                                                                        |  |                                            | 1,265.7 |   |                             | 
|Operations                                                                     |  |                                            | 86.0    |   |                             | 
|Cost of goods sold, including product purchases                                |  |                                            | 968.6   |   |                             | 
|Realized gain (loss) on commodity-related derivative financial instruments     |  |                                            | 11.0    |   |                             | 
|Operating margin(2)                                                            |  |                                            | 222.1   |   |                             | 
|Depreciation and amortization included in operations                           |  |                                            | 47.8    |   |                             | 
|Unrealized gain (loss) on commodity-related derivative financial instruments   |  |                                            | (2.2    | ) |                             | 
|Gross profit                                                                   |  |                                            | 172.1   |   |                             | 
|Deduct/(add)                                                                   |  |                                            |         |   |                             | 
|General and administrative expenses                                            |  |                                            | 27.3    |   |                             | 
|Acquisition-related and other expense                                          |  |                                            | 0.5     |   |                             | 
|Net finance costs                                                              |  |                                            | 35.7    |   |                             | 
|Share of loss (profit) of investments in equity accounted investee, net of tax |  |                                            | 0.2     |   |                             | 
|Income tax expense (reduction)                                                 |  |                                            | 27.1    |   |                             | 
|Earnings for the period                                                        |  |                                            | 81.3    |   |                             | 
|Earnings per share – basic and diluted (dollars)                               |  |                                            | 0.28    |   |                             | 
|Adjusted earnings(2)                                                           |  |                                            | 115.8   |   |                             | 
|Adjusted earnings per share(2)                                                 |  |                                            | 0.40    |   |                             | 
|Adjusted EBITDA(2)                                                             |  |                                            | 199.0   |   |                             | 
|Cash flow from operating activities                                            |  |                                            | 139.5   |   |                             | 
|Cash flow from operating activities per share                                  |  |                                            | 0.48    |   |                             | 
|Adjusted cash flow from operating activities(2)                                |  |                                            | 172.3   |   |                             | 
|Adjusted cash flow from operating activities per share(2)                      |  |                                            | 0.59    |   |                             | 
|Dividends declared                                                             |  |                                            | 118.4   |   |                             | 
|Dividends per common share (dollars)                                           |  |                                            | 0.41    |   |                             | 
|Capital expenditures                                                           |  |                                            | 254.7   |   |                             | 
|Total enterprise value ($ billions)(2)                                         |  |                                            | 11.0    |   |                             | 
|Total assets ($ billions)                                                      |  |                                            | 8.3     |   |                             | 



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

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

| | (3) | Represents per day volumes since the closing of the Acquisition.
| | --- | ----------------------------------------------------------------



Revenue, net of cost of goods sold, increased over 85 percent
to $297.1 million during the fourth quarter of 2012 from $160.1 million during the same period of 2011. Full year revenue, net
of cost of goods sold, in 2012 was $952.4 million compared to $603.7 million in 2011. Revenue was higher in 2012 than the comparative
periods in 2011 primarily due to the addition of results generated by the assets acquired through the Acquisition, which are reported
in the Company's Midstream business, as well as improved performance in each of Pembina's legacy businesses, as discussed in further
detail below.



Operating expenses were $86 million during the fourth quarter
and $271.6 million for the full year in 2012 compared to $55.1 million and $191.9 million during the same periods in 2011. The
increases were primarily due to additional costs associated with the growth in Pembina's asset base since the Acquisition and higher
variable costs in each of the Company's businesses because of increased volumes.



9







Pembina
Pipeline Corporation



Operating margin was $222.1 million during the fourth quarter,
up almost 110 percent from the same period last year when operating margin totalled $105.9 million (operating margin is a Non-GAAP
measure; see "Non-GAAP Measures"). For the year ended December 31, 2012, operating margin was $676.2 million compared
to $417.1 million for the full year of 2011. These increases were primarily due to higher revenue, as discussed above.



Realized and unrealized gains/losses on commodity-related derivative
financial instruments resulting from Pembina's market risk management program are primarily related to outstanding positions acquired
on the closing of the Acquisition (see "Market Risk Management Program" and Note 27 to the Consolidated Financial Statements).
The unrealized gain on commodity-related derivative financial instruments was $36.1 million for 2012 reflecting changes in the
future NGL and natural gas price indices between April 2, 2012 and December 31, 2012 (see "Business Environment").



Depreciation and amortization (operational) increased to
$47.8 million during the fourth quarter of 2012 compared to $19.6 million during the same period in 2011 and $173.6 million
for the year ended December 31, 2012 compared to $68 million in 2011. Both the quarterly and full year increases reflect
depreciation on new capital additions including those assets acquired through the Acquisition.



The increases in revenue and operating margin contributed to
gross profit of $172.1 million during the fourth quarter and $538.7 million for the full year of 2012 compared to $87.2 million
and $354.3 million for the same periods of 2011.



General and administrative expenses ("G&A") of
$27.3 million were incurred during the fourth quarter of 2012 compared to $21 million during the fourth quarter of 2011. The increase,
year-over-year, for the three month period was mainly due to the addition of employees who joined Pembina through the Acquisition,
an increase in salaries and benefits for existing and new employees, and increased rent for expanded office space. Full year 2012
G&A totaled $97.5 million compared to $62.2 million incurred during 2011. The primary driver of the year-over-year increase
in G&A was a $19.8 million increase in salaries, benefits and consulting costs, $3 million increase in rent and $3.6 million
in corporate depreciation. In addition, every $1 change in share price is expected to change Pembina's annual share-based incentive
expense by $1.2 million.



Pembina generated adjusted EBITDA of $199 million during the
fourth quarter of 2012 compared to $88.2 million during the fourth quarter of 2011 (adjusted EBITDA is a Non-GAAP measure; see
"Non-GAAP Measures"). Adjusted EBITDA for the full year of 2012 was $590.1 million compared to $368.6 million in 2011.
The increase in quarterly and full year adjusted EBITDA was due to strong results from each of Pembina's legacy businesses, new
assets and services having been brought on-stream, and the growth of Pembina's operations since completion of the Acquisition.





The Company's earnings were $81.3 million ($0.28 per share)
during the fourth quarter of 2012 compared to $45 million ($0.27 per share) during the fourth quarter of 2011 and $225 million
($0.87 per share) for the full year of 2012 compared to $165.7 million ($0.99 per share) in 2011. These increases were the result
of the Acquisition of Provident as well as improved performance in each of the Company's legacy businesses. Per share metrics
were also impacted by the Acquisition.



10







Pembina
Pipeline Corporation



Adjusted earnings were $115.8 million ($0.40 per share) during
the fourth quarter of 2012 compared to $43.7 million ($0.26 per share) during the fourth quarter of 2011 (adjusted earnings is
a Non-GAAP measure; see "Non-GAAP Measures"). For the full year of 2012, adjusted earnings totalled $283.7 million ($1.10
per share) compared to $208.9 million ($1.25 per share) in 2011. The increases in adjusted earnings were primarily due to higher
operating margin, as discussed above, which was partially offset by increased depreciation and amortization (operational) resulting
from   a larger asset base, and higher G&A and finance costs.



Cash flow from operating activities was $139.5 million
($0.48 per share) during the fourth quarter of 2012 and $359.8 million ($1.39 per share) for the full year in 2012 compared
to $73.8 million ($0.44 per share) and $285.5 million ($1.71 per share), respectively, for the comparative periods of 2011.
The increases in cash flow from operating activities was primarily due to an increase in adjusted EBITDA, which was
somewhat offset by acquisition-related expenses, higher interest expenses and an increase in working capital, which
was partially associated with the integration of Provident.



Adjusted cash flow from operating activities was $172.3 million
($0.59 per share) during the fourth quarter of 2012, an increase of more than 160 percent, compared to $66.0 million ($0.39 per
share) during the fourth quarter of 2011 (adjusted cash flow from operating activities is a Non-GAAP measure; see "Non-GAAP
Measures"). Adjusted cash flow from operating activities was a record $493.8 million ($1.91 per share) during 2012 compared
to $305.8 million ($1.83 per share) during 2011 and was largely driven by strong performance in each of Pembina's businesses.



Operating Results



|                       |  | 3 Months
    Ended December 31 (unaudited) |       |  | 12 Months Ended December 31 | 
|---------------------- |  | ------------------------------------------ | ----- |  | --------------------------- | 
|                       |  | 2012                                       |       |  | 2011                        | 
|($ millions)           |  | Net Revenue(1)                             |       |  | Operating Margin(2)         | 
|Conventional Pipelines |  |                                            | 99.2  |  |                             | 
|Oil Sands & Heavy Oil  |  |                                            | 45.8  |  |                             | 
|Gas Services           |  |                                            | 23.3  |  |                             | 
|Midstream              |  |                                            | 128.8 |  |                             | 
|Corporate              |  |                                            |       |  |                             | 
|Total                  |  |                                            | 297.1 |  |                             | 



| | (1) | Midstream revenue is net of $975 million in cost of goods sold, including product purchases, for the quarter ended December
31, 2012 (quarter ended December 31, 2011: $308 million) and $2,494.5 million in cost of goods sold, including product purchases,
for the twelve months ended December 31, 2012 (twelve months ended December 31, 2011: $1,072.3 million).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | (3) | Includes results from operations generated by the acquired assets from Provident since closing of the Acquisition on April
2, 2012.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------



11







Pembina
Pipeline Corporation



Conventional Pipelines



|                                                                             |  | 3 Months
    Ended December 31 (unaudited) |       |  | 12 Months Ended December 31 | 
|---------------------------------------------------------------------------- |  | ------------------------------------------ | ----- |  | --------------------------- | 
|($ millions, except where noted)                                             |  | 2012                                       |       |  | 2011                        | 
|Average throughput (mbpd)                                                    |  |                                            | 480.2 |  |                             | 
|Revenue                                                                      |  |                                            | 99.2  |  |                             | 
|Operations                                                                   |  |                                            | 42.1  |  |                             | 
|Realized gain on commodity-related derivative financial instruments          |  |                                            | 0.8   |  |                             | 
|Operating margin(1)                                                          |  |                                            | 57.9  |  |                             | 
|Depreciation and amortization included in operations                         |  |                                            | 7.8   |  |                             | 
|Unrealized gain (loss) on commodity-related derivative financial instruments |  |                                            | 0.8   |  |                             | 
|Gross profit                                                                 |  |                                            | 50.9  |  |                             | 
|Capital expenditures                                                         |  |                                            | 88.1  |  |                             | 



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



Business Overview



Pembina's Conventional Pipelines business comprises a well-maintained
and strategically located 7,850 km pipeline network that extends across much of Alberta and B.C. It transports approximately half
of Alberta's conventional crude oil production, about thirty percent of the NGL produced in western Canada, and virtually all of
the conventional oil and condensate produced in B.C. This business' primary objective is to generate sustainable operating margin
while pursuing opportunities for increased throughput and revenue. Conventional Pipelines endeavours to maintain and/or improve
operating margin by capturing incremental volumes, expanding its pipeline systems, managing revenue and following a disciplined
approach to its operating expenses.



Operational Performance: Throughput



During the fourth quarter of 2012, Conventional Pipelines' throughput
averaged 480.2 mbpd, consisting of an average of 352.5 mbpd of crude oil and condensate and 127.7 mbpd of NGL. This was primarily
due to continued production growth from regional resource plays in the Cardium (oil), Deep Basin Cretaceous (NGL), Montney (oil/NGL)
and Beaverhill Lake (oil) formations and represents an increase of 14 percent compared to the same period of 2011, when average
throughput was 422.8 mbpd. Producer production growth also contributed to a 10 percent increase in throughput for the full year
of 2012 compared to 2011.



Financial Performance



During the fourth quarter of 2012, Conventional Pipelines
generated revenue of $99.2 million compared to $75.8 million in the same quarter of the previous year. For 2012, revenue was
$338.8 million compared to $296.2 million during 2011. The 31 and 14 percent increases during the respective 2012 periods
were  primarily due to strong volumes generated by newly connected facilities on Pembina’s Conventional Pipelines
systems, as well as many deliveries being received at higher toll locations along the Company's pipeline network.



Quarterly operating expenses increased to $42.1 million compared
to $35.5 million in the fourth quarter of 2011 due to higher variable costs associated with increased throughput as well as integrity
and geotechnical expenditures. Operating expenses for 2012 increased to $129.6 million from $119.1 million in the same period last
year. This nine percent year-over-year increase was because of the same factors that impacted quarterly operating expenses.



12







Pembina
Pipeline Corporation



As a result of higher revenue, operating margin for
the fourth quarter of 2012 was $57.9 million compared to $41.6 million during the same period of 2011. Full year revenue in 2012,
which was offset slightly by an increase in operating expenses, increased to $209.3 million compared  to $181.5 million
for 2011.



Depreciation and amortization included in operations was $7.8
million during the fourth quarter of 2012 compared to $11.1 million during the fourth quarter of 2011. This decrease is due to
a credit made to depreciation because of a re-measurement reduction in the decommissioning provision in excess of the carrying
amount of the related asset. Depreciation and amortization included in operations for the year ended December 31, 2012 was $44
million, up from $41.6 million in 2011 due to capital additions.



For the three months ended December 31, 2012, Pembina
recognized an unrealized gain on commodity-related derivative financial instruments of $0.8 million compared to an unrealized
loss of $0.9 million in the fourth quarter of 2011. For the full year of 2012, Pembina recognized an unrealized loss on
commodity-related derivative financial instruments of $9 million compared to an unrealized gain of $3.7 million for 2011. The
2012 unrealized loss is the  result of Pembina's forward fixed-price power purchase program which is designed to mitigate
operating costs fluctuations.



For the three and twelve months ended December 31, 2012, gross
profit was $50.9 million and $156.3 million, respectively, compared to $29.6 million and $143.6 million, respectively, during the
same periods in 2011. Higher operating margin in 2012 was partially offset by increased depreciation and amortization and unrealized
losses on commodity-related derivative financial instruments.



Capital expenditures for the fourth quarter of 2012 totalled
$88.1 million compared to $24.9 million during the fourth quarter of 2011, and were $187.3 million during the year compared to
$72 million in 2011. The majority of the spending  in 2012 related to the expansion of certain pipeline assets as
described below.



New Developments: Conventional Pipelines



During 2012, Pembina saw increased volumes on its
Conventional Pipelines due to the continued revitalization of many of the plays near its systems. The trend towards
increased exploration, drilling and production in the WCSB has escalated over the past several years, with plays such as the
Alberta Deep Basin, Cardium, Montney, Swan Hills and Duvernay being further developed by producers and offering improved
recoveries with the use of innovative technology. Some of these plays were once considered mature or unviable, and others
were relatively unexplored; by using horizontal drilling and multi-stage hydraulic fracturing technology, these tight and
previously uneconomic portions of reservoirs began to represent attractive opportunities. For Pembina, this producer activity
has meant an increase in crude oil and NGL volumes transported on its Conventional Pipeline systems and the need to complete
expansions of select segments to accommodate customer demand.



| | · | Pembina is pursuing numerous expansions on its Conventional Pipeline
systems to accommodate the increased customer demand mentioned above in areas of Alberta including Dawson Creek, Grande Prairie,
Kaybob and Fox Creek.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | The expansion has been split into two phases. During the first phase, the Companycompleted a re-contracting
initiative in 2012 on existing and new volumes on the Northern NGL System (the Peace and Northern pipelines) to underpin the system’s
Phase 1 NGL expansion.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13







Pembina
Pipeline Corporation



| | o | The Company is nearing completion of the Phase 1 NGL expansion, which is expected to cost $30
                                                               million and add approximately 17 mbpd of additional NGL capacity to the Northern NGL System in the second quarter of 2013.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | The Phase 1 Peace high vapour pressure ("HVP") expansion, which requires seven new
                                                               or upgraded pump stations and associated pipeline reinforcement work  from west of Fox Creek  to Fort Saskatchewan, will add
                                                               NGL capacity of approximately 35 mbpd. Pembina expects to commission three of the pump stations by August 2013, and the
                                                               remaining four stations by October 2013 at an estimated cost of $70 million.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | The Phase 1 Peace low vapour pressure ("LVP") expansion requires three upgraded pump stations and associated
                                                               pipeline reinforcement work between Fox Creek and Edmonton, Alberta, and will provide an additional 40 mbpd of crude oil and
                                                               condensate capacity on this segment. Pembina expects to commission one of the three pump stations by June 2013, and the
                                                               remaining two stations by October 2013 at an estimated cost of $30 million.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On February 13, 2013, Pembina announced that it had reached its contractual
threshold to proceed with its previously announced plans to significantly expand its crude oil and condensate throughput capacity
on its Peace Pipeline system by 55 mbpd ("Phase 2 LVP Expansion"):
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | The Phase 2 LVP Expansion is expected to accommodate increased
                                                                                                                              producer crude oil and condensate volumes due to strong drilling results in the Dawson Creek, Grande Prairie and Kaybob/Fox
                                                                                                                              Creek areas of Alberta. Pembina expects the total cost of the Phase 2 LVP Expansion to be approximately $250 million
                                                                                                                              (including the mainline expansion and tie-ins). Subject to obtaining regulatory and environmental approvals, Pembina
                                                                                                                              anticipates being able to bring the expansion into service by late-2014. Once complete, this expansion will increase LVP
                                                                                                                              capacity on Pembina's Peace Pipeline to 250 mbpd. The Phase 2 LVP Expansion is underpinned by long-term
                                                                                                                              fee-for-service agreements with area producers. The combined
                                                                                                                              LVP expansions will increase capacity by 61 percent from current levels.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The Company is actively working to accelerate the timing of its second
previously announced NGL expansion (a portion of which is subject to reaching commercial arrangements with its customers and receipt
of environmental and regulatory approvals):
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | The Phase 2 NGL Expansion to the Company's Northern NGL System will increase capacity from 167 mbpd to 220 mbpd.
                                                               Pembina expects this expansion to cost approximately $415 million (including the mainline expansion and tie-ins) and to be
                                                               complete                                                                in
                                                               early to                                                                                                     mid-2015.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Conventional Pipelines is also constructing the pipeline
                                                                                                             components of the Company's Saturn and Resthaven gas plant projects. These two pipeline projects will gather NGL from the gas
                                                                                                             plants for delivery to Pembina's Peace Pipeline system. Pembina has received the required environmental and regulatory
                                                                                                             approvals, has awarded construction contracts and has begun construction on both projects.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14







Pembina
Pipeline Corporation



Oil Sands & Heavy Oil



|                                                     |  | 3 Months
    Ended December 31 (unaudited) |       |  | 12 Months Ended December 31 | 
|---------------------------------------------------- |  | ------------------------------------------ | ----- |  | --------------------------- | 
|($ millions, except where noted)                     |  | 2012                                       |       |  | 2011                        | 
|Capacity under contract (mbpd)                       |  |                                            | 870.0 |  |                             | 
|Revenue                                              |  |                                            | 45.8  |  |                             | 
|Operations                                           |  |                                            | 16.2  |  |                             | 
|Operating margin(1)                                  |  |                                            | 29.6  |  |                             | 
|Depreciation and amortization included in operations |  |                                            | 5.0   |  |                             | 
|Gross profit                                         |  |                                            | 24.6  |  |                             | 
|Capital expenditures                                 |  |                                            | 18.3  |  |                             | 



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



Business Overview



Pembina plays an important role in supporting Alberta's oil sands
and heavy oil industry. Pembina is the sole transporter of crude oil for Syncrude Canada Ltd. (via the Syncrude Pipeline) and Canadian
Natural Resources Ltd.'s Horizon Oil Sands operation (via the Horizon Pipeline) to delivery points near Edmonton, Alberta. Pembina
also owns and operates the Nipisi and Mitsue Pipelines, which provide transportation for producers operating in the Pelican Lake
and Peace River heavy oil regions of Alberta, and the Cheecham Lateral which transports synthetic crude to oil sands producers
operating southeast of Fort McMurray, Alberta. The Oil Sands & Heavy Oil business operates approximately 1,650 km of pipeline
and has 870 mbpd of capacity under long-term, extendible contracts which provide for the flow-through of operating expenses to
customers. As a result, operating margin from this business is proportionate to the amount of capital invested and is predominantly
not sensitive to fluctuations in operating expenses or actual throughput.



Financial Performance



The Oil Sands & Heavy Oil business realized revenue of $45.8
million in the fourth quarter of 2012 compared to $39.7 million in the fourth quarter of 2011. This 15 percent increase is primarily
due to higher flow-through operating expenses as well as higher operating margin from the Syncrude and Nipisi pipelines. Full
year revenue in 2012 was $172.4 million compared to $134.9 million for 2011, largely because of contributions
from the Nipisi and Mitsue pipelines which were placed into service in June and July of 2011.



Operating expenses in Pembina's Oil Sands & Heavy Oil
business were $16.2 million during the fourth quarter of 2012 compared to $12.4 million during the fourth quarter of 2011,
and $55.6 million for the full year of 2012 compared to $44 million in 2011. These increases primarily
reflect additional operating expenses related to higher volumes being transported on the Nipisi and Mitsue pipelines compared
to the same periods of the prior year.



For the three and twelve months ended December 31, 2012, operating
margin increased to $29.6 million and $116.8 million compared to $27.3 million and $90.9 million, respectively, during the same
periods in 2011. This is primarily due to incremental contribution from the Nipisi and Mitsue pipelines.



Depreciation and amortization included in operations for the
fourth quarter of 2012 totalled $5 million compared to $4.9 million during the same period of the prior year, and $19.8 million
for the twelve months of 2012 compared to $12.8 million during 2011. These increases primarily reflect the additional Nipisi and
Mitsue depreciation and amortization included in operations.



15







Pembina
Pipeline Corporation



For the three and twelve months ended December 31, 2012, gross
profit was $24.6 million and $97 million, primarily due to higher operating margin as discussed above, compared to $22.4 million
and $78.1 million, respectively, during the same periods of 2011.



For the
year ended December 31, 2012, capital expenditures within the Oil Sands & Heavy Oil business totalled $30.4 million and were
primarily related to Nipisi and Mitsue post-construction clean-up costs
and the construction of additional pump stations on these pipelines. This compares to $191.7 million spent during the same period
in 2011, the majority of which related to completing the two projects.



New Developments: Oil Sands & Heavy Oil



In 2013, Pembina plans to spend approximately $45 million to
increase capacity on the Nipisi and Mitsue pipelines by 12 mbpd and 4 mbpd, respectively, while also increasing connectivity in
the Edmonton area.



Pembina continues to actively work with customers on oil sands
and heavy oil related solutions. With the Acquisition of Provident, the Company has increased its access to diluent supply and
can offer customers condensate and butane products from various sources including Pembina's conventional systems, the Redwater
fractionator, rail imports and truck racks.



Gas Services



|                                                          |  | 3 Months
    Ended December 31 (unaudited) |       |  | 12 Months Ended December 31 | 
|--------------------------------------------------------- |  | ------------------------------------------ | ----- |  | --------------------------- | 
|($ millions, except where noted)                          |  | 2012                                       |       |  | 2011                        | 
|Average processing volume (MMcf/d) net to Pembina         |  |                                            | 276.0 |  |                             | 
|Average
    processing volume (mboe/d) (1) net to Pembina |  |                                            | 46.0  |  |                             | 
|Revenue                                                   |  |                                            | 23.3  |  |                             | 
|Operations                                                |  |                                            | 8.9   |  |                             | 
|Operating margin(2)                                       |  |                                            | 14.4  |  |                             | 
|Depreciation and amortization included in operations      |  |                                            | 3.7   |  |                             | 
|Gross profit                                              |  |                                            | 10.7  |  |                             | 
|Capital expenditures                                      |  |                                            | 77.2  |  |                             | 



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

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



Business Overview



Pembina's operations include a growing natural gas gathering
and processing business. Located approximately 100 km south of Grande Prairie, Alberta, Pembina's key revenue-generating Gas Services
assets form the Cutbank Complex which comprises three sweet gas processing plants with 425 MMcf/d of processing capacity (368 MMcf/d
net to Pembina), a 205 MMcf/d ethane plus extraction facility, as well as approximately 350 km of gathering pipelines. The Cutbank
Complex is connected to Pembina's Peace Pipeline system and serves an active exploration and production area in the WCSB. Pembina
has initiated construction on two projects in its Gas Services business, the Saturn and Resthaven enhanced NGL extraction facilities,
to meet the growing needs of producers in west central Alberta.



16







Pembina
Pipeline Corporation



Financial Performance



Gas Services recorded an increase in revenue of 22
percent during the fourth quarter of 2012, contributing $23.3 million compared to $19.1 million in the fourth quarter of
2011. For the full year of 2012, revenue was $88.3 million compared to $71.5 million in  2011. These increases primarily
reflect higher processing volumes at Pembina's Cutbank Complex. Average processing volumes, net to Pembina, were 276 MMcf/d
during the fourth quarter of 2012, approximately 2 percent higher than the 271.5 MMcf/d processed during the fourth quarter
of the previous year. Full year volumes averaged 275.2 MMcf/d, up approximately 8 percent from 2011 when average volumes were
253.8 MMcf/d.



During the fourth quarter of 2012, operating expenses were
$8.9 million compared to $6.1 million incurred in the fourth quarter of 2011. Full year operating expenses in 2012 totalled
$29.3 million, up from $22.4 million during the prior year. The quarterly and full year increases were mainly due to variable
costs incurred to process higher volumes at the Cutbank Complex as well as additional costs associated with running the
Musreau shallow cut expansion and deep cut facilities.



As a result of processing higher volumes at the Cutbank Complex
and additional processing associated with the Musreau deep cut facility, Gas Services realized operating margin of $14.4 million
in the fourth quarter compared to $13 million during the same period of the prior year. On a full year basis, Gas Services generated
$59 million in operating margin in 2012 compared to $49.1 million in 2011. Of the $9.9 million increase, the Musreau deep cut facility
contributed $6.7 million.



Depreciation and amortization included in operations during the
fourth quarter of 2012 totalled $3.7 million, up from $2.6 million during the same period of the prior year, primarily due to higher
in-service capital balances from additions to the Cutbank Complex (including the Musreau deep cut facility and shallow cut expansion).
For the same reason, depreciation and amortization included in operations totalled $14.5 million in 2012 compared to $9.9 million
in 2011.



For the three months ended December 31, 2012, gross profit
was $10.7 million compared to $10.4 million in the same period of 2011,   and was $44.5 million  for the full year
of 2012 compared to $39.2 million in 2011. These increases reflect higher operating margin during the periods which was
partially offset by increased depreciation and amortization included in operations as discussed above.



For the year ended December 31, 2012, capital expenditures within
Gas Services totalled $162.8 million compared to $136.5 million during the same period of 2011. This increase was because of the
spending required to complete the Musreau deep cut facility, the expansion of the shallow cut facility at the Cutbank Complex as
well as capital expenditures incurred to progress the Saturn and Resthaven enhanced NGL extraction facilities.



New Developments: Gas Services



Pembina continues to see significant growth opportunities resulting
from the trend towards liquids-rich natural gas drilling and the extraction of valuable NGL from natural gas in the WCSB. Pembina
expects the expansions detailed below (some of which were completed in 2012) to bring the Company's Gas Service's processing capacity
to 903 MMcf/d (net). This includes enhanced NGL extraction capacity of approximately 535 MMcf/d (net). These volumes would be processed
on a contracted, fee-for-service basis and are expected to result in approximately 45 mbpd of incremental NGL to be transported
for additional toll revenue on Pembina's conventional pipelines by early 2014.





17







Pembina
Pipeline Corporation



During the year, Pembina completed two expansions at its Musreau
gas plant, part of the Cutbank Complex: the 205 MMcf/d enhanced NGL extraction deep cut facility and the 50 MMcf/d shallow cut
expansion. With these two expansions in place, the Cutbank Complex now has an aggregate raw shallow gas processing capacity of
425 MMcf/d (368 MMcf/d net to Pembina), an increase of 13 percent net to Pembina.



Pembina's Gas Services business is also constructing two
new fully contracted facilities and associated infrastructure: the Saturn facility – a $200 million 200 MMcf/d enhanced
NGL extraction facility (includes conventional pipeline tie-ins) in the Berland area of west central Alberta; and,
the Resthaven facility – a $230 million 200 MMcf/d combined shallow cut and deep cut NGL extraction facility
(includes conventional pipeline tie-ins) in the Resthaven, Alberta area.



Pembina expects the Saturn facility and associated pipelines
to be in service in the fourth quarter of 2013. Once operational, Pembina expects the Saturn facility will have the capacity to
extract up to 13.5 mbpd of NGL.



For the Resthaven facility, Pembina is modifying and expanding
an existing gas plant, and is constructing a pipeline to transport the extracted NGL from the Resthaven facility to its Peace
Pipeline system. Pembina will own approximately 65 percent of the Resthaven facility and 100 percent of the NGL pipeline. Pembina
expects the Resthaven facility and associated pipelines to be in service in the third quarter of 2014 due to potential scope changes
from the original project. Once operational, Pembina expects the Resthaven facility will have the capacity to extract up to 13
mbpd of NGL.



Construction on both facilities is underway, with over 95 percent
of the major equipment ordered and on-site at the Saturn facility and over 80 percent of the major equipment ordered for the Resthaven
facility.



Midstream(1)



|                                                                             |  | 3 Months
    Ended December 31 (unaudited) |         |   | 12
    Months Ended December 31(2) | 
|---------------------------------------------------------------------------- |  | ------------------------------------------ | ------- | - | ---------------------------------- | 
|($ millions, except where noted)                                             |  | 2012                                       |         |   | 2011                               | 
|Revenue                                                                      |  |                                            | 1,103.7 |   |                                    | 
|Operations                                                                   |  |                                            | 19.4    |   |                                    | 
|Cost of goods sold, including product purchases                              |  |                                            | 975.0   |   |                                    | 
|Realized gain (loss) on commodity-related derivative financial instruments   |  |                                            | 10.2    |   |                                    | 
|Operating margin(3)                                                          |  |                                            | 119.5   |   |                                    | 
|Depreciation and amortization included in operations                         |  |                                            | 31.3    |   |                                    | 
|Unrealized gain (loss) on commodity-related derivative financial instruments |  |                                            | (3.0    | ) |                                    | 
|Gross profit                                                                 |  |                                            | 85.2    |   |                                    | 
|Capital expenditures                                                         |  |                                            | 77.4    |   |                                    | 



| | (1) | Share of profit from equity accounted investees not included in these results.
| | --- | ------------------------------------------------------------------------------

| | (2) | Includes results from NGL midstream since the closing of the Acquisition.
| | --- | -------------------------------------------------------------------------

| | (3) | Refer to "Non-GAAP Measures."
| | --- | -----------------------------



Business Overview



Pembina  offers customers a comprehensive suite of
midstream products and services through its Midstream business as follows:



| | · | Crude oil midstream targets oil and diluent-related opportunities from
key sites across Pembina's network, which comprises 15 truck terminals (including one capable of emulsion treating and water disposal),
terminalling at downstream hub locations, storage, and the Pembina Nexus Terminal ("PNT"). PNT includes: 21 inbound pipelines
connections, 13 outbound pipelines connections, an excess of 1.2 million bpd of crude oil and condensate connected to the terminal,
and 310,000 barrels of surface storage.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | NGL midstream, which Pembina acquired through the Acquisition, includes
two NGL operating systems, Redwater West and Empress East:
| | - | ----------------------------------------------------------------------------------------------------------------------------------



18







Pembina
Pipeline Corporation



| | o | The Redwater West NGL system includes the Younger extraction and fractionation facility in B.C.; the recently expanded 73,000
bpd Redwater NGL fractionator, 6.8 mmbbls of cavern storage and terminalling facilities at Redwater, Alberta; and, third-party
fractionation capacity in Fort Saskatchewan, Alberta.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | The Empress East NGL system includes a 2.1 bcf/d interest in the straddle plants at Empress, Alberta; 20,000 bpd of fractionation
capacity as well as 1.1 mmbbls of cavern storage in Sarnia, Ontario; and, approximately 5 mmbbls of hydrocarbon storage at Corunna,
Ontario.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Financial Performance



In the Midstream business, revenue, net of cost of goods sold,
grew to $128.8 million during the fourth quarter of 2012 from $25.5 million during the fourth quarter of 2011. Full year revenue,
net of cost of goods sold, in 2012 was $352.9 million   compared to $101.1 million in 2011. These increases were primarily
due to the addition of the NGL midstream business acquired through the Acquisition and increased activity on Pembina's pipeline
systems.



Operating expenses during the fourth quarter of 2012 were $19.4
million compared to $1.7 million in the fourth quarter of 2011, and were $59.7 million for the full year 2012 compared to $8.8
million in 2011. Operating expenses for the quarter and the year were higher due to the increase in Midstream's asset base since
the Acquisition.



Operating margin was $119.5 million during the fourth quarter
of 2012 compared to $23.4 million during the fourth quarter of 2011. Operating margin for the 2012 year was $288.5 million compared
to $93.2 million in 2011. These increases were largely due to the same factors that contributed to the increase in revenue, net
of cost of goods sold, as discussed above.



Depreciation and amortization included in operations during the
fourth quarter of 2012 totalled $31.3 million compared to $0.9 million during the same period of the prior year. Full year 2012
depreciation and amortization included in operations totalled $95.3 million compared to $3.6 million in 2011. Both increases reflect
the additional Midstream assets since the closing of the Acquisition.



For the three months ended December 31, 2012, unrealized losses
on commodity-related derivative financial instruments were $3 million. For the full year, there was a gain of $45.1 million. These
amounts reflect fluctuations in the future NGL and natural gas price indices during the periods (see "Market Risk Management
Program" and Note 27 to the Consolidated Financial Statements).



For the three and twelve months ended December 31, 2012, gross
profit in this business increased to $85.2 million and $238.3 million, respectively, from $24.2 million and $91 million, respectively,
during the same periods in 2011. This is due to the addition of assets acquired through the Acquisition and higher operating margin
generated by Pembina's legacy midstream operations.



For the year ended December 31, 2012, capital expenditures
within the Midstream business totalled $204 million and were primarily related to cavern development and associated infrastructure
as well as fractionation capacity expansion at the Redwater facility by approximately 8,000 bpd. This compares to capital expenditures
of $111.5 million during 2011, which included the acquisition of a terminalling and storage facility near Edmonton, Alberta and
linefill for the Peace Pipeline.



19







Pembina
Pipeline Corporation



Crude Oil Midstream



Operating margin for the Company’s crude oil midstream
activities during the fourth quarter of 2012 was $44.7 million compared to $23.4 million during the fourth quarter of 2011. For
the year ended December 31, 2012, operating margin was $132.1 million, representing an increase of 42 percent from $93.2 million
in the same period last year. Strong fourth quarter and full year 2012 results were primarily due to higher volumes and increased
activity on Pembina's pipeline systems, wider margins, as well as opportunities associated with enhanced connectivity at the PNT
added in the first quarter of 2012. Throughput at the crude oil midstream
truck terminals increased by 18 percent compared to the end of 2011 to exit 2012 at 80,000 bpd.



NGL Midstream



Operating margin for Pembina’s NGL midstream activities
was $74.8 million for the fourth quarter and $156.4 million year-to-date since the closing of the Acquisition, including a $5.8
million year-to-date realized loss on commodity-related derivative financial instruments (see "Market Risk Management Program").



NGL sales volumes during the fourth quarter of 2012 were 115.8
mbpd and 97.7 mbpd since the closing of the Acquisition.



Redwater West



Redwater West purchases NGL mix from various natural gas and
NGL producers and fractionates it into finished products at fractionation facilities near Fort Saskatchewan, Alberta. Redwater
West also includes NGL production from the Younger NGL extraction and fractionation plant (Taylor, B.C.) that provides specification
NGL to B.C. markets. Also located at the Redwater facility are Pembina's industry-leading rail-based terminal and more than 6.8
mmbbls of underground hydrocarbon cavern storage, both of which service Pembina's proprietary and customer needs. Pembina's condensate
terminal is the largest of its kind in western Canada.



Operating margin during the fourth quarter of 2012, excluding
realized losses from commodity-related derivative financial instruments, was $49.1 million. Year-to-date since closing of the Acquisition,
operating margin, excluding realized losses from commodity-related derivative financial instruments, was $131.9 million. Realized
propane margins were impacted by weak 2012 market prices and decreased gas volumes at the Younger plant during the year. Overall,
Redwater West NGL sales volumes averaged 59.1 mbpd since closing of the Acquisition.



Empress East



Empress East extracts NGL mix from natural gas at the Empress
straddle plants and purchases NGL mix from other producers/suppliers. Ethane and condensate are generally fractionated out of the
NGL mix at Empress and sold into Alberta markets. The remaining NGL mix is transported by pipelines to Sarnia, Ontario for fractionation
and storage of specification products. Propane and butane are sold into central Canadian and eastern U.S. markets. Demand for propane
is seasonal; inventory generally builds over the second and third quarters of the year and is sold in the fourth quarter and the
first quarter of the following year during the winter heating season.



Operating margin during the fourth quarter of 2012, excluding
realized losses from commodity-related derivative financial instruments, was $16.5 million. Year-to-date since closing of the Acquisition,
operating margin, excluding realized losses from commodity-related derivative financial instruments, was $30.3 million. Results
were impacted by low sales volumes, soft 2012 propane prices and high extraction premiums, but were offset by strong refinery demand
for butane and low AECO natural gas prices since the Acquisition. Overall, Empress East NGL sales volumes averaged 38.6 mbpd since
closing of the Acquisition.



20







Pembina
Pipeline Corporation



New Developments: Midstream



As a result of the Acquisition, Pembina's midstream asset base
has grown substantially. Future prospects related to this business now span across the crude oil and NGL value chains. The capital
being deployed in the Midstream business is primarily directed towards fee-for-service projects which are expected to continue
to increase its stability and predictability.



Pembina continues to advance a number of initiatives, as follows:



| | · | As part of its full service terminal ("FST") development
program, Pembina will be putting two new facilities into service in 2013. This includes a joint venture FST in the Judy Creek area
of Alberta to serve the production from Beaverhill Lake and Swan Hills and a second FST that serves producers in the Cynthia area
west of Drayton Valley. Pembina continues to advance other prospects for approval in 2013 and development in 2014.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | During 2013, Pembina will enhance the connectivity of PNT,
both to third-party infrastructure and to the Company’s own facilities between Edmonton and Fort Saskatchewan. Pembina will
be adding a truck terminal and constructing  storage which will come on stream in 2015. Pembina will also commission the first
phase of a crude oil rail loading facility. This latter project will capitalize on synergies between capabilities and expertise
acquired with Provident and the crude oil midstream business.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | During 2012, Pembina successfully completed and commissioned an 8,000
bpd expansion at the Redwater fractionator, which required a 20-day turn-around of the facility in September. The project was completed
on schedule and under budget. Also at Redwater, Pembina is currently in discussions with customers and completing preliminary engineering
work to advance its proposed new 73,000 bpd ethane plus fractionator at its site. This fractionator would essentially duplicate
the existing fractionator, and is being pursued by the Company to help ease anticipated fractionation capacity constraints in the
Fort Saskatchewan, Alberta area.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In September of 2012, Pembina brought the first of seven fee-for-service
caverns into service at its Redwater site. Three additional caverns are completed and Pembina is in the process of preparing them
for service. Pembina expects to be able to bring two caverns into service in March 2013, and the third cavern into service in June
2013.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | During
the second quarter, Pembina entered into an agreement with a joint venture partner and a third-party producer to tie in its production
of up to 60 MMcf/d and backstop a $12 million natural gas lateral connection to the Younger plant by the first quarter of 2013.
Pembina’s share of NGL extracted from this expanded gathering footprint will be incremental supply to Pembina’s marketing
portfolio in both Taylor, B.C. and Fort Saskatchewan, Alberta.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Given the oversupply of propane in western Canada and North America
at large, and the associated pricing imbalance, Pembina is investigating opportunities for offshore propane export which would
leverage its existing assets and help provide a solution for Canadian producers.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Market Risk Management Program



Pembina is exposed to frac spread risk, which is the difference
between the selling price for propane-plus liquids and the input cost of natural gas required to produce respective NGL products.
Pembina has a risk management program and uses derivative financial instruments to mitigate frac spread risk, when possible, to
safeguard a base level of operating cash flow that covers the input cost of natural gas. Pembina has entered into derivative financial
swap contracts to protect the frac spread and product margin, and to manage exposure to power costs, interest rates and foreign
exchange rates.



21







Pembina
Pipeline Corporation



Pembina's credit policy mitigates risk of non-performance by
counterparties of its derivative financial instruments. Activities undertaken to reduce risk include: regularly monitoring counterparty
exposure to approved credit limits; financial reviews of all active counterparties; entering into International Swap Dealers Association
agreements; and, obtaining financial assurances where warranted. In addition, Pembina has a diversified base
of available counterparties.



Management continues to actively monitor commodity price risk
and mitigate its impact through financial risk management activities. A summary of Pembina's current financial derivative positions
is available on Pembina's website at www.pembina.com.



A summary of Pembina's risk management contracts executed during
the fourth quarter of 2012 is contained in the following table:



Transactions entered into during the fourth quarter



|Year             | Commodity                       | Description                | Volume (Buy)/Sell | Effective Period      
|---------------- | ------------------------------- | -------------------------- | ----------------- | ----------------------
|2013             | Natural Gas                     | CDN $3.29 per gj(1)(6)     | (19,500)          | gjpd                  
|Crude Oil        | US $89.32 per bbl(2)(6)         | 675                        | bpd               | April 1 - October 31  
|                 | CDN $86.43 per bbl(2)(8)        | 10,150                     | bpd               | January 1 - January 31
|                 | Propane                         | US $0.955 per gallon(3)(6) | 528               | bpd                   
|Normal Butane    | US $1.507 per gallon(4)(6)      | 500                        | bpd               | April 1 - October 31  
|ISO Butane       | US $1.636 per gallon(5)(6)      | 250                        | bpd               | April 1 - October 31  
|Foreign Exchange | Sell US $8,400,000 @ 0.9956(7)  |                            |                   | April 1 - October 31  
|                 | Sell US $20,850,000 @ 0.9979(7) |                            |                   | April 1 - December 31 
|2014             | Propane                         | US $0.955 per gallon(3)(6) | 745               | bpd                   
|Foreign Exchange | Sell US $2,700,000 @ 0.9979(7)  |                            |                   | January 1 - March 31  



| | (1) | Natural gas contracts are settled against Canadian Gas Price Reporter AECO's monthly index.
| | --- | -------------------------------------------------------------------------------------------

| | (2) | Crude oil contracts are settled against NYMEX WTI calendar average in U.S. or CDN dollars.
| | --- | ------------------------------------------------------------------------------------------

| | (3) | Propane contracts are settled against OPIS Mont Belvieu C3 TET.
| | --- | ---------------------------------------------------------------

| | (4) | Normal butane contracts are settled against OPIS Mont Belvieu NC4 NON TET.
| | --- | --------------------------------------------------------------------------

| | (5) | ISO butane contracts are settled against OPIS Mont Belvieu IC4 NON TET.
| | --- | -----------------------------------------------------------------------

| | (6) | Frac spread contracts entered into to manage revenue and costs associated with natural gas based supply arrangements.
| | --- | ---------------------------------------------------------------------------------------------------------------------

| | (7) | U.S. dollar forward contracts are settled against the Bank of Canada noon rate average. Selling notional U.S. dollars for Canadian
dollars at a fixed exchange rate results in a fixed Canadian dollar price for the underlying commodity.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (8) | Product margin contracts entered into to protect margins on commodity contracts.
| | --- | --------------------------------------------------------------------------------



The following table summarizes the impact of commodity-related
derivative financial contracts settled during 2012 and 2011 which were included in the realized gain/loss on commodity-related
derivative financial instruments:



|                                                                           |  | 3 Months
    Ended December 31 (unaudited) |      |  | 12 Months Ended December 31 | 
|-------------------------------------------------------------------------- |  | ------------------------------------------ | ---- |  | --------------------------- | 
|($ millions)                                                               |  | 2012                                       |      |  | 2011                        | 
|Realized gain (loss) on commodity-related derivative financial instruments |  |                                            |      |  |                             | 
|Frac spread related                                                        |  |                                            | 5.7  |  |                             | 
|Product margin                                                             |  |                                            | 4.2  |  |                             | 
|Power                                                                      |  |                                            | 1.1  |  |                             | 
|Realized gain (loss) on commodity-related derivative financial instruments |  |                                            | 11.0 |  |                             | 



The realized gain on commodity-related derivative financial instruments
for the fourth quarter of 2012 was $11 million compared to a realized gain of $0.9 million in the comparable period of 2011. The
majority of the realized gain in the fourth quarter of 2012 was driven by NGL derivative sales contracts settling at contracted
prices higher than the current NGL market prices during the settlement period and was partially offset by natural gas derivative
purchase contracts settling at contracted prices higher than the market natural gas prices during the settlement period. For the
year ended December 31, 2012, the Company recognized a realized loss on commodity-related derivative financial instruments of $4.6
million which reflects natural gas derivative purchase contracts settling at contracted prices higher than the market natural gas
prices during the settlement period.



22







Pembina
Pipeline Corporation



For more information on financial instruments and financial risk
management, see Note 27 to the Consolidated Financial Statements.



Business Environment



|                                                      |  | 3 Months
EndedDecember 31 |       |   | 12 Months Ended December 31 |  
|----------------------------------------------------- |  | ------------------------- | ----- | - | --------------------------- | -
|                                                      |  | 2012                      |       |   | 2011                        |  
|WTI crude oil (U.S. $ per bbl)                        |  | $                         | 88.18 |   |                             | $
|Exchange rate (from U.S.$ to Cdn$)                    |  | $                         | 0.99  |   |                             | $
|WTI crude oil (expressed in Cdn$ per bbl)             |  | $                         | 87.31 |   |                             | $
|                                                      |  |                           |       |   |                             |  
|AECO natural gas index (Cdn$ per GJ)                  |  | $                         | 2.90  |   |                             | $
|                                                      |  |                           |       |   |                             |  
|Mont Belvieu Propane (U.S.$ per U.S. gallon)          |  | $                         | 0.88  |   |                             | $
|Mont Belvieu Propane expressed as a percentage of WTI |  |                           | 42    | % |                             |  
|                                                      |  |                           |       |   |                             |  
|Market Frac Spread in Cdn$ per bbl(1)                 |  | $                         | 38.61 |   |                             | $



| | (1) | Market frac spread is determined using average spot prices at Mont Belvieu, weighted based on 65 percent propane, 25 percent
butane and 10 percent condensate, and the AECO monthly index price for natural gas.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Overall, weaker commodity markets impacted the performance of
broader market indices. During the fourth quarter of 2012, the S&P TSX Composite Index saw a one percent increase compared
to the previous quarter, with the value of the Index also realizing a four percent increase over 2011.



The Canadian dollar declined modestly against the U.S. dollar
during most of the fourth quarter, averaging $0.99 per U.S. dollar; however, it was stronger than an average value of $1.03 per
U.S. dollar during the fourth quarter of 2011.



With respect to commodity prices:



| | · | The benchmark WTI oil price exited 2012 at U.S. $91.82/bbl, with prices
remaining range-bound after recovering from lows set earlier in the year. The Canadian heavy crude oil benchmark differential,
Western Canadian Select, compared to WTI widened significantly in the fourth quarter as infrastructure constraints were aggravated
by continued production growth from the WCSB. Compared to $17.17 per barrel differential in 2011, the Western Canadian
Select differential averaged $25.23 in 2012.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Natural gas prices posted strong gains in the fourth quarter as more
seasonal temperatures returned to North America. An abnormally warm 2011/2012 winter depressed pricing through the first half of
2012 resulting in a full year average of $2.28 compared to $3.48 in 2011. While low natural gas prices are generally favourable
for NGL extraction and fractionation economics, a sustained low gas price could impact the availability and overall cost of natural
gas and NGL mix supply in western Canada with the potential for natural gas producers to elect to shut-in production or reduce
drilling activities.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | NGL prices in the fourth quarter of 2012 were mixed across
                                                                                                                 products and continued to be negatively impacted by a warm 2011/2012 winter and increasing production. This resulted in a
                                                                                                                 North American supply-demand imbalance.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23







Pembina
Pipeline Corporation



| | o | In the U.S., industry propane/propylene inventories were approximately 66.7 million barrels at the end of 2012 (approximately
15.9 million barrels or 31 percent above the five-year historical average for this period).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | In Canada, industry propane inventories increased to 8.7 million barrels at the end of 2012 (2.5 million barrels, or 40 percent
higher, than the historic five-year average).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | This over-supply continues to exert pressure on prices, where the Mont Belvieu propane price averaged U.S. $0.88 per U.S. gallon
(42 percent of WTI) in the fourth quarter of 2012 and U.S. $1.00 per U.S. gallon (44 percent of WTI) for the full year, significantly
below its five-year average of 58 percent of WTI.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Butane and condensate sales prices were robust in the fourth quarter; however, price levels remained below those of 2011.
| | - | -------------------------------------------------------------------------------------------------------------------------



| | o | Market frac spreads averaged $38.61 per barrel and $44.70 per barrel during the fourth quarter and full year of 2012, respectively,
compared to $58.41 per barrel and $54.67 per barrel during the same periods of the prior year. The market frac spread does not
include extraction premiums, operating/transportation/storage costs and regional sales prices.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The outlook for the energy infrastructure sector in the WCSB
remains positive for all of Pembina's businesses. Strong activity levels within the oil sands region represent opportunities for
the Company to leverage existing assets to capitalize on additional growth opportunities. Pembina also continues to benefit from
the combination of relatively high oil prices and low natural gas prices, which has resulted in oil and gas producers continuing
to extract the liquids value from their natural gas production and favouring liquids-rich natural gas plays over dry natural gas.
Pembina's Conventional Pipelines, Gas Services and Midstream businesses are well-positioned to capitalize on the increased activity
levels in key NGL-rich producing basins. Crude oil and NGL plays being developed in the vicinity of Pembina’s pipelines include
the Cardium, Montney, Cretaceous, Duvernay and Swan Hills. While recent weaknesses in NGL prices and crude oil differentials as
well as an inflationary cost environment have resulted in some producers scaling back activity in the WCSB, Pembina expects to
see a continued positive growth profile for energy infrastructure.



Non-Operating Expenses



G&A



Pembina incurred G&A (including corporate depreciation and
amortization) of $27.3 million during the fourth quarter of 2012 compared to $21 million during the fourth quarter of 2011. G&A
for the year was $97.5 million compared to $62.2 million in 2011. The increase in G&A compared to the prior
year is mainly due to the addition of employees who joined Pembina through the Acquisition, an increase in salaries and benefits
for existing and new employees, and increased rent for expanded office space. In addition, every $1 change in share price is expected
to change Pembina's annual share-based incentive expense by $1.2 million.



Depreciation & Amortization (operational)



Operational depreciation and amortization increased to $47.8
million during the fourth quarter of 2012 compared to $19.6 million during the same period in 2011. For the year ended December
31, 2012, operational depreciation and amortization was $173.6 million, up from $68 million last year. Both
increases reflect depreciation on new property, plant and equipment and depreciable intangibles including those assets acquired
through the Acquisition.



24







Pembina
Pipeline Corporation



Acquisition-Related and Other



Acquisition-related and other expenses during the fourth quarter
of 2012 were $0.5 million compared to $0.8 million in 2011. For the year ended December 31, 2012, acquisition-related and other
expenses were $24.7 million which includes acquisition expenses of $15.9 million and $8.2 million due to the required make whole
payment for the redemption of the senior secured notes from the first quarter of the year. See "Liquidity and Capital Resources."



Net Finance Costs



Net finance costs in the fourth quarter of 2012 were $35.7 million
compared to $22.1 million in the fourth quarter of 2011. Net finance costs for the full year of 2012 totalled $115.1 million compared
to $91.9 million in 2011. The increases primarily relate to a $16.2 million year-over-year increase in loans
and borrowings interest expense due to higher debt balances and an increase in interest on convertible debentures totalling $17.9
million due to the debentures assumed on closing of the Acquisition. These factors were offset by an $11.7 million increase in
the change in the fair value of non-commodity-related derivative financial instruments for the year when compared to the same period
in 2011. (See Notes 21 and 27 to the Consolidated Financial Statements for the year ended December 31, 2012.) Beginning in the
second quarter of 2012, the change in fair value of commodity-related derivative financial instruments was reclassified from net
finance costs to gain/loss on commodity-related derivative financial instruments and is included in operational results.



Income Tax Expense



Deferred income tax expense arises from the difference between
the accounting and tax basis of assets and liabilities. An income tax expense of $27.1 million was recorded in the fourth quarter
of 2012 compared to a reduction of $0.2 million in the fourth quarter of 2011. Income tax expense in 2012 totalled $75.3 million
compared to $38.9 million in 2011, which includes changes in estimates from the prior year.



Pension Liability



Pembina maintains a defined contribution plan and non-contributory
defined benefit pension plans covering employees and retirees. 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. At the end of 2012, the pension plans carried a deficit of $27.6 million compared to a deficit of $15.8 million at the
end of 2011. At December 31, 2012, plan obligations amounted to $128 million (2011: $105.2 million) compared to plan assets of
$100.4 million (2011: $89.4 million). In 2012, the pension plans' expense was $7.2 million (2011: $4.7 million). Contributions
to the pension plans totaled $10 million in 2012 and $8 million in 2011.



In 2013, contributions to the pension plans are expected to be
$12.6 million and pension plans' expenses are anticipated to be $10.6 million. Management anticipates a long-term return on the
pension plans' assets of 5.8 percent and an annual increase in compensation of 4 percent, which are consistent with current industry
standards.



25







Pembina
Pipeline Corporation



Liquidity & Capital Resources



|($ millions)                                                 |  | December 31, 2012 |         |   | December 31, 2011 | 
|------------------------------------------------------------ |  | ----------------- | ------- | - | ----------------- | 
|Working capital                                              |  |                   | 62.7    |   |                   | 
|Variable rate debt(2)                                        |  |                   |         |   |                   | 
|Bank debt                                                    |  |                   | 525.0   |   |                   | 
|Variable rate debt swapped to fixed                          |  |                   | (380.0  | ) |                   | 
|Total variable rate debt outstanding (average rate of 2.94%) |  |                   | 145.0   |   |                   | 
|Fixed rate debt(2)                                           |  |                   |         |   |                   | 
|Senior secured notes                                         |  |                   |         |   |                   | 
|Senior unsecured notes                                       |  |                   | 642.0   |   |                   | 
|Senior unsecured term debt                                   |  |                   | 75.0    |   |                   | 
|Senior unsecured medium-term-note 1                          |  |                   | 250.0   |   |                   | 
|Senior unsecured medium-term-note 2                          |  |                   | 450.0   |   |                   | 
|Subsidiary debt                                              |  |                   | 9.3     |   |                   | 
|Variable rate debt swapped to fixed                          |  |                   | 380.0   |   |                   | 
|Total fixed rate debt outstanding (average of 4.90%)         |  |                   | 1,806.3 |   |                   | 
|Convertible debentures(2)                                    |  |                   | 644.3   |   |                   | 
|Finance lease liability                                      |  |                   | 5.8     |   |                   | 
|Total debt and debentures outstanding                        |  |                   | 2,601.4 |   |                   | 
|Cash and unutilized debt facilities                          |  |                   | 1,032.3 |   |                   | 



| | (1) | As at December 31, 2011, working capital includes $310 million of current, non-revolving, unsecured credit facilities.
| | --- | ----------------------------------------------------------------------------------------------------------------------

| | (2) | Face value.
| | --- | -----------



Pembina anticipates cash flow from operating activities
will be more than sufficient to meet its short-term operating obligations and fund its targeted dividend level. In the
short-term, Pembina expects to source funds required for capital projects from cash and cash equivalents and unutilized debt
facilities totalling $1,032.3 million as at December 31, 2012. In addition, based on its successful access to financing in
the debt and equity markets during the past several years, Pembina believes it would likely continue to have access to funds
at attractive rates. Pembina has also reinstated its DRIP as of the January 25, 2012 dividend record date to help fund its
ongoing capital program (see "Trading Activity and Total Enterprise Value" for further details). Management remains
satisfied that the leverage employed in Pembina's capital structure is sufficient and appropriate given the characteristics
and operations of the underlying asset base.



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



In connection with the closing of the Acquisition on April 2,
2012, Pembina increased its $800 million facility to $1.5 billion for a term of five years. Upon closing of the Acquisition, Pembina
used the facility, in part, to repay Provident's revolving term credit facility of $205 million. Further, Pembina renegotiated
its operating facility to $30 million from $50 million.



Pembina's credit facilities at December 31, 2012 consisted of
an unsecured $1.5 billion revolving credit facility due March 2017 and an operating facility of $30 million due July 2013. Borrowings
on the revolving credit facility and the operating facility bear interest at prime lending rates plus nil percent to 1.25 percent
or Bankers' Acceptances rates plus 1.00 percent to 2.25 percent. Margins on the credit facilities are based on the credit rating
of Pembina's senior unsecured debt. There are no repayments due over the term of these facilities. As at December 31, 2012, Pembina
had $525 million drawn on bank debt, $0.1 million in letters of credit and $27.3 million in cash, leaving $1,032.3 million of unutilized
debt facilities on the $1,530 million of established bank facilities. Pembina also had an additional $14.3 million in letters of
credit issued in a separate demand letter of credit facility. Other debt includes $75 million in senior unsecured term debt due
2014; $175 million in senior unsecured notes due 2014; $267 million in senior unsecured notes due 2019; $200 million in senior
unsecured notes due 2021; $250 million in senior unsecured medium-term notes due 2021; and $450 million in senior unsecured medium-term notes due 2022. On April 30, 2012, the senior secured notes were redeemed. Pembina has recognized $8.2 million due to the
associated make whole payment, which has been included in acquisition-related and other expenses in the first quarter of the year.
At December 31, 2012, Pembina had loans and borrowing (excluding amortization, letters of credit and finance lease liabilities)
of $1,951.3 million. Pembina's senior debt to total capital at December 31, 2012 was 28 percent.



26







Pembina
Pipeline Corporation



Offering of Medium-Term Notes



On October 22, 2012, Pembina closed the offering of $450 million
principal amount of senior unsecured medium-term notes ("Notes"). The Notes have a fixed interest rate of 3.77% per annum,
paid semi-annually, and will mature on October 24, 2022. The net proceeds from the offering of the Notes were used to repay a portion
of Pembina's existing credit facility. Standard & Poor's Rating Services ("S&P") and DBRS Limited ("DBRS")
have assigned credit ratings of BBB to the Notes.



Credit Ratings



The following information with respect to Pembina's credit ratings
is provided as it relates to Pembina's financing costs and liquidity. Specifically, credit ratings affect Pembina's ability to
obtain short-term and long-term financing and the cost of such financing. A reduction in the current ratings on Pembina's debt
by its rating agencies, particularly a downgrade below investment grade ratings, could adversely affect Pembina's cost of financing
and its access to sources of liquidity and capital. In addition, changes in credit ratings may affect Pembina's ability to, and
the associated costs of, entering into normal course derivative or hedging transactions. Credit ratings are intended to provide
investors with an independent measure of credit quality of any issues of securities. The credit ratings assigned by the rating
agencies are not recommendations to purchase, hold or sell the securities nor do the ratings comment on market price or suitability
for a particular investor. Any rating may not remain in effect for a given period of time or may be revised or withdrawn entirely
by a rating agency in the future if in its judgement circumstances so warrant.



DBRS rates Pembina's senior unsecured notes 'BBB'. S&P's
long-term corporate credit rating on Pembina is 'BBB'.



Assumption of rights related to the Series E and Series F
Debentures



On closing of the Acquisition on April 2, 2012, Pembina assumed
all of the rights and obligations of Provident relating to the 5.75 percent convertible unsecured subordinated debentures maturing
December 31, 2017 (TSX: PPL.DB.E), and the 5.75 percent convertible unsecured subordinated debentures maturing December 31, 2018
(TSX: PPL.DB.F). Outstanding Series E and Series F debentures at April 2, 2012 were $345 million. As of December 31, 2012, $344.6
million of the debentures are still outstanding.



27







Pembina
Pipeline Corporation



Capital Expenditures



|                          |  | 3 Months
    Ended December 31 (unaudited) |       |   | 12 Months Ended December 31 | 
|------------------------- |  | ------------------------------------------ | ----- | - | --------------------------- | 
|($ millions)              |  | 2012                                       |       |   | 2011                        | 
|Development capital       |  |                                            |       |   |                             | 
|Conventional Pipelines    |  |                                            | 88.1  |   |                             | 
|Oil Sands & Heavy Oil     |  |                                            | 18.3  |   |                             | 
|Gas Services              |  |                                            | 77.2  |   |                             | 
|Midstream                 |  |                                            | 77.4  |   |                             | 
|Corporate/other projects  |  |                                            | (6.3  | ) |                             | 
|Total development capital |  |                                            | 254.7 |   |                             | 



During 2012, capital expenditures were $584.3 million compared
to $527.6 million in 2011. In the comparable period in 2011, the Company's capital expenditures included the construction of the
Nipisi and Mitsue pipelines, the acquisition of midstream assets in the Edmonton, Alberta area (related to PNT), linefill for the
Peace Pipeline system as well as construction of the Musreau deep cut facility.



The majority of the capital expenditures in the fourth quarter
and full year of 2012 were in Pembina's Conventional Pipelines, Gas Services and Midstream businesses. Conventional Pipelines'
capital was incurred to progress the Northern NGL Expansion and on various new connections. Gas Services' capital was deployed
to complete the Musreau deep cut facility and the expansion of the shallow cut facility at the Cutbank Complex, as well as to progress
the Saturn and Resthaven enhanced NGL extraction facilities. Midstream's capital expenditures were primarily directed towards cavern
development and related infrastructure as well as the 8,000 bpd expansion at the Redwater Facility.



Contractual Obligations at December 31, 2012



|($ millions)                  |  | Payments Due By Period |        
|----------------------------- |  | ---------------------- | -------
|Contractual Obligations       |  | Total                  |        
|Operating and finance leases  |  |                        | 293.0  
|Loans and borrowings(1)       |  |                        | 2,446.7
|Convertible debentures(1)     |  |                        | 903.5  
|Construction commitments      |  |                        | 362.8  
|Provisions(2)                 |  |                        | 361.7  
|Total contractual obligations |  |                        | 4,367.7



| | (1) | Excluding deferred financing costs.
| | --- | -----------------------------------

| | (2) | Includes discounted constructive and legal obligations included in the decommissioning provision.
| | --- | -------------------------------------------------------------------------------------------------



Pembina
is, subject to certain conditions, contractually committed to the construction and operation of the Saturn facility and the Resthaven
facility. See "Forward-Looking Statements & Information."



The contractual obligations noted above have changed significantly
since December 31, 2011, due primarily to the assumption of the contractual obligations of Provident as a result of the Acquisition.



Critical Accounting Estimates



The preparation of the Consolidated 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.



28







Pembina
Pipeline Corporation



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.



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 and intangible assets acquired generally
require the most judgment.



(ii)	Componentization



The componentization of the Company's assets are based on management's
judgment of which components constitute a significant cost in relation to the total cost of an asset and whether these components
have similar or dissimilar patterns of consumption and useful lives for purposes of calculating depreciation and amortization.



(iii)	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.



Estimates



(i)	Inventory



Due to the inherent limitations in metering and the physical
properties of storage caverns and pipelines, the determination of precise volumes of NGL held in inventory at such locations is
subject to estimation. Actual inventories of NGL within storage caverns can only be determined by draining the caverns.



(ii)	Financial derivative instruments



The Company's financial derivative instruments are recognized
on the Statement of Financial Position at fair value based on management's estimate of commodity prices, share price and associated
volatility, foreign exchange rates, interest rates and the amounts that would have been received or paid to settle these instruments
prior to maturity given future market prices and other relevant factors.



(iii)	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 for allocation of the purchase
price. 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, intangibles and goodwill in the purchase price analysis. Future net earnings
can be affected as a result of changes in future depreciation and amortization, asset or goodwill impairment.



29







Pembina
Pipeline Corporation



(iv)	Defined benefit obligations



The calculation of the defined benefit obligation is sensitive
to many estimates, but most significantly the discount rate applied.



(v)	Provisions and contingencies



Provisions recognized are based on management's judgment about
assessing contingent liabilities and timing, scope and amount of 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 biggest 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. In addition, in determining the provision it is assumed the Company will utilize technology and
materials that are currently available.



(vi)	Share-based payments



Compensation costs pursuant to the share-based compensation plans
are subject to estimated fair values, forfeiture rates and the future attainment of performance criteria.



(vii)	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 apply to income
in the years in which temporary differences are expected to be realized or reversed.



(viii)	Depreciation and amortization



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



Changes in Accounting Principles and Practices



Subsequent to the Acquisition, Pembina reviewed and compared
legacy Provident's accounting policies with the Company's existing policies and determined there were no significant differences.



New standards and interpretations
not yet adopted



Certain new standards, interpretations, amendments and improvements
to existing standards were issued by the IASB or International Financial Reporting Interpretations Committee ("IFRIC")
for accounting periods beginning after January 1, 2013. The Company has reviewed these and determined that the following:



IFRS 7 Financial Instruments: Disclosures – in December
2011, the IASB issued amendments to IFRS 7 which outline disclosures that are required for any financial assets or liabilities
that are offset in accordance with IAS 32. The amendments to this standard are required to be adopted for periods beginning January
1, 2013. The adoption of these amendments is not expected to have a material impact on the Company's Financial Statements.



IFRS 9 Financial Instruments – in November 2009
and revised in October 2010 the IASB issued IFRS 9. This standard replaces the current multiple classification and measurement
model for financial assets and liabilities with a proposed single model for only two classification categories: amortized cost
and fair value. The standard is currently required to be adopted for periods beginning January 1, 2015. The extent of the impact
of adoption of this standard has not yet been determined.



30







Pembina
Pipeline Corporation



IFRS 10 Consolidated Financial Statements – in May
2011, the IASB issued IFRS 10 which provides additional guidance to determine whether an entity should be included within the consolidated
financial statements of Pembina. The guidance applies to all investees, including special purpose entities. The standard is required
to be adopted for periods beginning January 1, 2013. The adoption of this standard is not expected to have a material impact on
the Company’s Financial Statements.



IFRS 11 Joint Arrangements – in May 2011, the IASB
issued IFRS 11 which presents a new model for the financial reporting of joint arrangements. The new model determines whether an
entity should account for joint arrangements using proportionate consolidation or the equity method with emphasis on the substance
rather than legal form of a joint arrangement. The standard is required to be adopted for periods beginning January 1, 2013. The
adoption of this standard is not expected to have a material impact on the Company’s Financial Statements.



IFRS 12 Disclosure of Interests in Other Entities –
in June 2011, the IASB issued IFRS 12 which provides guidance on the disclosure requirements for subsidiaries, joint arrangements,
associates and unconsolidated structured entities. The standard is required to be adopted for periods beginning January 1, 2013.
The adoption of this standard is not expected to have a material impact on the Company’s Financial Statements.



IFRS 13 Fair Value Measurement – in June 2011, the
IASB issued IFRS 13 to provide specific guidance for all standards where IFRS requires or permits fair value measurement. The standard
defines fair value and provides guidance on disclosures about fair value measurements. The standard is required to be adopted for
periods beginning January 1, 2013. The adoption of this standard is not expected to have a material impact on the Company’s
Financial Statements.



IAS 19 Employee Future Benefits – in June 2011,
the IASB issued amendments to IAS 19 which limit the way actuarial gains and losses can be recorded and the way finance costs can
be calculated, along with requirements for additional disclosures for defined benefit plans. The amendments to this standard are
required to be adopted for periods beginning January 1, 2013. The adoption of these amendments is not expected to have a material
impact on the Company's Financial Statements.



IAS 32 Financial Instruments: Presentation – in
December 2011, the IAS issued amendments which clarify matters regarding offsetting financial assets and financial liabilities.
The amendments to this standard are required to be adopted for periods beginning January 1, 2014. The Company is currently evaluating
the impact that these amendments will have on its results of operations and financial position.



Controls and Procedures



As part of the requirements mandated by the Canadian securities
regulatory authorities under National Instrument 52-109 – Certification of Disclosure in Issuers' Annual and Interim Filings
("NI 52-109"), Pembina's Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO")
have evaluated the design and operation of Pembina's disclosure controls and procedures ("DC&P"), as such term is
defined in NI 52-109, as at December 31, 2012. Based on that evaluation, the CEO and the CFO concluded that Pembina's DC&P
was effective as at December 31, 2012.



The CEO and CFO are also responsible for establishing and maintaining
internal controls over financial reporting ("ICFR"), as such term is defined in NI 52-109. These controls are designed
to provide reasonable assurance regarding the reliability of Pembina's financial reporting and compliance with GAAP. Pembina's
CEO and CFO have evaluated the design and operational effectiveness of such controls as at December 31, 2012. Based on the evaluation
of the design and operating effectiveness of Pembina's ICFR, the CEO and the CFO concluded that Pembina's ICFR was effective as
at December 31, 2012.



31







Pembina
Pipeline Corporation



Changes in internal control over financial reporting



During 2012, there have been no changes to the Company's internal
control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting, except as noted below.



In accordance with the provisions of NI 52-109, management, including
the CEO and CFO, have limited the scope of their design of the Company's DC&P and ICFR to exclude controls, policies and procedures
of Provident. Pembina acquired the assets of Provident and its subsidiaries on April 2, 2012. Provident's contribution to the Company's
Consolidated Financial Statements for the quarter and year ended December 31, 2012 were approximately 36 percent and 32 percent
of consolidated revenue, respectively, and approximately 11 percent and 24 percent of consolidated pre-tax earnings, respectively.



Additionally, as at December 31, 2012, Provident's current assets
and current liabilities were approximately 59 percent and 44 percent of consolidated current assets and liabilities, respectively,
and its non-current assets and non-current liabilities were approximately 57 percent and 34 percent of consolidated non-current
assets and non-current liabilities, respectively.



The scope limitation is primarily based on the time required
to assess Provident's DC&P and ICFR in a manner consistent with the Company's other operations.



Further details related to the Acquisition are disclosed in Note
5 in the Notes to the Company's Consolidated Financial Statements for the year ended December 31, 2012.



Trading Activity and Total Enterprise Value(1)







|                                            |  |                          |             |     | As
    at and for the 12 months ended | 
|------------------------------------------- |  | ------------------------ | ----------- | --- | ------------------------------------- | 
|($
    millions, except where noted)        |  | February
    26, 2013(2) |             |     | December
    31, 2012                 | 
|Trading volume and value                    |  |                          |             |     |                                       | 
|Total volume (shares)                       |  |                          | 19,509,172  |     |                                       | 
|Average daily volume (shares)               |  |                          | 500,235     |     |                                       | 
|Value traded                                |  |                          | 568.7       |     |                                       | 
|Shares outstanding (shares)                 |  |                          | 294,924,568 |     |                                       | 
|Closing share price (dollars)               |  |                          | 28.89       |     |                                       | 
|Market value                                |  |                          |             |     |                                       | 
|Shares                                      |  |                          | 8,520.4     |     |                                       | 
|5.75% convertible
    debentures (PPL.DB.C) |  |                          | 334.0       | (3) |                                       | 
|5.75% convertible
    debentures (PPL.DB.E) |  |                          | 205.3       | (6) |                                       | 
|5.75%
    convertible debentures (PPL.DB.F) |  |                          | 193.5       | (8) |                                       | 
|Market capitalization                       |  |                          | 9,253.2     |     |                                       | 
|Senior debt                                 |  |                          | 1,932.0     |     |                                       | 
|Total enterprise
    value(10)              |  |                          | 11,185.2    |     |                                       | 



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

| | (2) | Based on 39  trading days from January 2, 2013 to February 26, 2013, inclusive.
| | --- | -------------------------------------------------------------------------------

| | (3) | $299.7 million principal amount outstanding at a market price of
                                                                                                                                      $111.42 at February 26, 2013 and with a conversion price of $28.55.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | $299.7 million principal amount outstanding at a market price of $111.00 at December 31, 2012 and with a conversion price of
$28.55.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------

| | (5) | $300.0 million principal amount outstanding at a market price of $102.95 at December 31, 2011 and with a conversion price of
$28.55.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------

| | (6) | $172.1 million principal amount outstanding at a market price of $119.36at February  26, 2013 and with a conversion price of $24.94.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------

| | (7) | $172.1 million principal amount outstanding at a market price of $117.00 at December 31, 2012 and with a conversion price of
$24.94.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------

| | (8) | $172.4
million principal amount outstanding at a market price of $112.20 at February 26, 2013 and with a conversion price of $29.53.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------

| | (9) | $172.4 million principal amount outstanding at a market price of $110.75 at December 31, 2012 and with a conversion price of
$29.53.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------

| | (10) | Refer to "Non-GAAP Measures."
| | ---- | -----------------------------



32







Pembina
Pipeline Corporation



As indicated in the previous table, Pembina's total enterprise
value was $11 billion at December 31, 2012, and the Company's issued and outstanding shares rose to 293.2 million at the end of
2012 compared to 167.9 million at the end of 2011 primarily due to shares issued pursuant to the Acquisition.



Dividends



On April 12, 2012, following closing of the Acquisition, Pembina
announced a 3.8 percent increase in its monthly dividend rate to $0.135 per share per month (or $1.62 annualized) from $0.13 per
share per month previously (or $1.56 annualized). Pembina is committed to providing increased shareholder returns over time by
providing stable dividends and, where appropriate, further increases in Pembina's dividend, subject to compliance with applicable
laws and the approval of Pembina's Board of Directors. Pembina has a history of delivering dividend increases once supportable
over the long-term by the underlying fundamentals of Pembina's businesses as a result of, among other things, accretive growth
projects or acquisitions (see "Forward-Looking Statements & Information").



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



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



DRIP



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



Participation in the DRIP for the full year of 2012 was approximately
58 percent of common shares outstanding for proceeds of approximately $218.7 million.



Listing on the NYSE



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



Risk Factors



Pembina's value proposition is based on maintaining a very low
risk profile. In addition to contractually eliminating the majority of its business risk, Pembina has formal risk management policies,
procedures and systems designed to mitigate any residual risks, such as market price risk, credit risk and operational risk. Certain
of the risks associated with Pembina's business are discussed below. For a full discussion of these and other risk factors affecting
the business and operation of Pembina and its operating subsidiaries, readers are referred to Pembina's Annual Information Form,
an electronic copy of which is available at www.pembina.com or on Pembina's SEDAR profile at www.sedar.com. Shareholders and prospective
investors should carefully consider these risk factors before investing in Pembina's securities, as each of these risks may negatively
affect the trading price of Pembina's securities, the amount of dividends paid to shareholders and the ability of Pembina to fund
its debt obligations, including debt obligations under its outstanding convertible debentures and any other debt securities that
Pembina may issue from time to time.



33







Pembina
Pipeline Corporation



RISKS INHERENT IN PEMBINA'S BUSINESS



Operational Risks



Operational risks include: pipeline leaks, the breakdown or
failure of equipment, information systems or processes; the performance of equipment at levels below those originally intended
(whether due to misuse, unexpected degradation or design, construction or manufacturing defects); spills at truck terminals and
hubs; failure to maintain adequate supplies of spare parts; operator error; labour disputes; disputes with interconnected facilities
and carriers; operational disruptions or apportionment on third party systems or refineries which may prevent the full utilization
of our pipelines; and catastrophic events such as natural disasters, fires, explosions, fractures, acts of terrorists and saboteurs;
and, other similar events, many of which are beyond the control of Pembina. The occurrence or continuance of any of these events
could increase the cost of operating Pembina's assets or reduce revenue, thereby impacting earnings.



Pembina is committed to preserving customer and shareholder value
by proactively managing operational risk through safe and reliable operations. Senior managers are responsible for the daily supervision
of operational risk by ensuring appropriate policies and procedures are in place within their business units and internal controls
are operating efficiently. Pembina also has an extensive program to manage system integrity, which includes the development and
use of in-line inspection tools and various other leak detection technologies. Maintenance, excavation and repair programs are
directed to the areas of greatest benefit, and pipe is replaced or repaired as required. Pembina also maintains comprehensive insurance
coverage for significant pipeline leaks and has a comprehensive security program designed to reduce security-related risks. While
Pembina feels the level of insurance is adequate, it may not be sufficient to cover all potential losses.



Midstream Business



Pembina's Midstream business includes product storage terminalling
and hub services. These activities expose Pembina to certain risks including that Pembina may experience volatility in revenue
due to variations in commodity prices. Primarily, Pembina enters into contracts to purchase and sell crude oil at floating market
prices. The prices of products that are marketed by Pembina are subject to fluctuations as a result of such factors as seasonal
demand changes, 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 crude oil can vary and has varied significantly from period to period and this could have an adverse effect on the
results of Pembina's commercial Midstream business and Pembina's overall results of operations. To assist in effectively smoothing
that variability, Midstream is investing in assets that have a fee-based revenue component, and looking to expand this approach
going forward.



The Midstream business is exposed to possible price declines
between the time Pembina purchases NGL feedstock and sells NGL products, and to narrowing frac spreads. Frac spread is the difference
between the selling prices for NGL products and the input cost of the natural gas required to produce the respective NGL products.
The frac spread 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 U.S. dollar foreign exchange
rate. There is also a differential between NGL product prices and crude oil prices which can change prices received and 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 the frac spread. This exposure could result in material
variability of cash flow generated by the NGL midstream business, which could negatively affect Pembina and the cash dividends
of Pembina.



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Pembina
Pipeline Corporation



Reputation



Reputational risk is the potential for negative impacts that
could result from the deterioration of Pembina's reputation with key stakeholders. The potential for harming Pembina's corporate
reputation exists in every business decision, and all risks can have an impact on reputation, which in turn can negatively impact
Pembina's business and its securities. Reputational risk cannot be managed in isolation from other forms of risk. Credit, market,
operational, insurance, liquidity, and regulatory and legal risks must all be managed effectively to safeguard Pembina's reputation.
Negative impacts from a compromised reputation could include revenue loss, reduction in customer base, delays in regulatory approvals
on growth projects, and decreased value of Pembina's securities.



Pembina's reputation as a reliable and responsible energy services
provider with consistent financial performance and long-term financial stability is one of its most valuable assets. Key to effectively
building and maintaining Pembina's reputation is fostering a culture that promotes integrity and ethical conduct. Ultimate responsibility
for Pembina's reputation lies with the executive team, who examines reputational risk and issues as part of all business decisions.
Nonetheless, every employee and representative of Pembina has a responsibility to contribute in a positive way to its reputation.
This means ensuring ethical practices are followed at all times, interactions with our stakeholders are positive, and compliance
with applicable policies, legislation and regulations. Reputational risk is most effectively managed when every individual works
continuously to protect and enhance Pembina's reputation.



Environmental Costs & Liabilities



Pembina's operations, facilities and petroleum product shipments
are subject to extensive national, regional and local environmental, health and safety laws and regulations governing, among other
things, discharges to air, land and water, the handling and storage of petroleum compounds and hazardous materials, waste disposal,
the protection of employee health, safety and the environment, and the investigation and remediation of contamination. Pembina's
facilities could experience incidents, malfunctions or other unplanned events that result in spills or emissions in excess of permitted
levels and result in personal injury, fines, penalties or other sanctions and property damage. Pembina could also incur liability
in the future for environmental contamination associated with past and present activities and properties. Pembina's facilities
and pipelines must maintain a number of environmental and other permits from various governmental authorities in order to operate,
and these facilities are subject to inspection from time to time. Failure to maintain compliance with these requirements could
result in operational interruptions, fines or penalties, or the need to install potentially costly pollution control technology.



While Pembina believes its current operations are in compliance
with all applicable environmental and safety regulations, there can be no assurance that substantial costs or liabilities will
not be incurred. Moreover, it is possible that other developments, such as increasingly strict environmental and safety laws, regulations
and enforcement policies thereunder, claims for damages to persons or property resulting from Pembina's operations, and the discovery
of pre-existing environmental liabilities in relation to any of Pembina's existing or future properties or operations, could result
in significant costs and liabilities to Pembina. In addition, the costs of environmental liabilities in relation to spill sites
of which Pembina is currently aware could be greater than Pembina currently anticipates, and any such differences could be substantial.
If Pembina were not able to recover the resulting costs or increased costs through insurance or increased tariffs, cash flow available
to pay dividends to shareholders and to service obligations under its convertible debentures and other debt obligations could be
adversely affected.



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Pembina
Pipeline Corporation



While Pembina maintains insurance in respect of damage caused
by seepage or pollution in an amount it considers prudent and in accordance with industry standards, certain provisions of such
insurance may limit the availability in respect of certain occurrences unless they are discovered within fixed timed periods. These
periods can range from 72 hours to 30 days. Although Pembina believes it has adequate leak detection systems in place to monitor
a significant spill of product, if Pembina is unaware of a problem or is unable to locate the problem within the relevant time
period, insurance coverage may not be available. However, Pembina believes it has adequate leak detection systems in place to detect
and monitor a significant spill.



Pembina is committed to protecting the health and safety of employees,
contractors and the general public, and to sound environmental stewardship. Pembina believes that prevention of incidents and injuries,
and protection of the environment, benefits everyone and delivers increased value to shareholders, customers and employees.



Pembina has health, safety and environmental management systems
and established policies, programs and practices for conducting safe and environmentally sound operations. Pembina conducts regular
reviews and audits to assess compliance with legislation and company policy.



Abandonment Costs



Pembina is responsible for compliance with all applicable laws
and regulations regarding the abandonment of its pipeline and other assets at the end of their economic life, and these abandonment
costs may be substantial. The proceeds of the disposition of certain assets associated with Pembina's pipeline systems, including,
in respect of certain pipeline systems, linefill may be available to offset abandonment costs. However, it is not possible to definitively
predict abandonment costs since they will be a function of regulatory requirements at the time, and the value of Pembina's assets,
including linefill, may then be more or less than the abandonment costs. Pembina may, in the future, determine it prudent or be
required by applicable laws or regulations to establish and fund one or more reclamation funds to provide for payment of future
abandonment costs. Such reserves could decrease cash flow available for dividends to shareholders and to service obligations under
Pembina's outstanding convertible debentures and other debt obligations.



On May 26, 2009 the NEB issued its Reasons for Decision RH-2-2008
with respect to the Land Matters Consultation Initiative – Stream 3 which dealt with financial issues of pipeline abandonment
for pipelines under the NEB's jurisdiction. The NEB decided in principle to set an ultimate goal to have all companies under its
jurisdiction begin setting aside funds for the abandonment of pipelines no later than 5 years from the date of the decision. The
NEB recommended an action plan to achieve this ultimate goal that would require pipelines to submit to the NEB preliminary cost
estimates and fund collection mechanisms for pipeline abandonment prior to the setting aside of funds. In November 2011, Pembina
(and formally Provident) submitted preliminary cost estimates totalling $11,350,000 to the NEB for its affected approximately 275
km segments of pipeline. Pembina is working towards a pipeline abandonment fund collection plan and set aside mechanism to present
to the NEB by May 31, 2013 prior to the setting aside of funds.



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Pembina
Pipeline Corporation



Reserve Replacement, Throughput and Product Demand



Pembina's Conventional Pipeline tariff revenue is based upon
a variety of tolling arrangements, including "ship or pay" contracts, cost of service arrangements and market-based tolls.
As a result, certain pipeline tariff revenue is heavily dependent upon throughput levels of crude oil, NGL and condensate. Future
throughput on Pembina's crude oil and NGL pipelines and replacement of oil and gas reserves in the service areas will be dependent
upon the success of producers operating in those areas in exploiting their existing reserve bases and exploring for and developing
additional reserves. Without reserve additions, or expansion of the service areas, throughput on such pipelines will decline over
time as reserves are depleted. As oil and gas reserves are depleted, production costs may increase relative to the value of the
remaining reserves in place, causing producers to shut-in production and seek lower cost alternatives for transportation. If the
level of tariffs collected by Pembina decreases as a result, cash flow available for dividends to shareholders, to service obligations
under the convertible debentures and the Company's other debt obligations could be adversely affected.



Over the long-term, Pembina's business will depend, in
part, on the level of demand for crude oil, condensate, NGL and natural gas in the markets served by Pembina's crude oil and
NGL pipelines and gas processing and gathering infrastructure in which Pembina has an interest. The global events of 2008 and
2009 had a substantial downward effect on the demand for and prices of such products. Although prices rebounded in 2010 and
remained relatively strong through 2012, Pembina cannot predict the impact of future economic conditions on the energy and
petrochemical industries or future demand for and prices of natural gas, crude oil, condensate and NGL. Future prices of
these products are determined by supply and demand factors, including weather and general economic conditions as well as
political and other conditions in other oil and natural gas regions, all of which are beyond Pembina's control.



The volumes of natural gas processed through Pembina's gas processing
assets and of NGL and other products transported in the pipelines depend on production of natural gas in the areas serviced by
the business and pipelines. Without reserve additions, production will decline over time as reserves are depleted and production
costs may rise. Producers may shut-in production at lower product prices or higher production costs. Producers in the areas serviced
by the business may not be successful in exploring for and developing additional reserves, and the gas plants and the pipelines
may not be able to maintain existing volumes of throughput. Commodity prices may not remain at a level which encourages producers
to explore for and develop additional reserves or produce existing marginal reserves. Lower production volumes will also increase
the competition for natural gas supply at gas processing plants which could result in higher shrinkage premiums being paid to natural
gas producers.



The rate and timing of production from proven natural gas reserves
tied into the gas plants is at the discretion of the producers and is subject to regulatory constraints. The producers have no
obligation to produce natural gas from these lands. Pembina's gas processing assets are connected to various third-party trunkline
systems. Operational disruptions or apportionment on those third-party systems may prevent the full utilization of the business.



Over the long-term, business will depend, in part, on the level
of demand for NGL and natural gas in the geographic areas in which deliveries are made by pipelines and the ability and willingness
of shippers having access or rights to utilize the pipelines to supply such demand. Pembina cannot predict the impact of future
economic conditions, fuel conservation measures, alternative fuel requirements, governmental regulation or technological advances
in fuel economy and energy generation devices, all of which could reduce the demand for natural gas and NGL.



Operating and Capital Costs



Operating and capital costs of Pembina's business may vary considerably from current and forecast values and rates and represent
significant components of the cost of providing service. In general, as equipment ages, costs associated with such equipment may
increase over time. Dividends may be reduced if significant increases in operating or capital costs are incurred.



37







Pembina
Pipeline Corporation



Although operating costs are to be recaptured through the tariffs
charged on natural gas volumes processed and oil and NGL transported, respectively, to the extent such charges escalate, producers
may seek lower cost alternatives or stop production of their natural gas.



Completion of the Resthaven Facility and Saturn Facility



The Resthaven facility and the Saturn facility are
currently under development by Pembina and the successful completion of these facilities is dependent on numerous factors
outside of Pembina's control. These factors include completion of the construction of the Resthaven facility and Saturn
facility on schedule, as well as construction and labour costs that may change depending on supply, demand and/or inflation.
Under the agreements governing the construction and operation of the Resthaven facility and the Saturn facility, Pembina is
obligated to construct the facilities and Pembina bears the risk for its share of any cost overruns. While Pembina is not
currently aware of any significant cost overruns at the date hereof, any such cost overruns in the future could reduce
Pembina's expected return on the Resthaven facility and the Saturn facility and adversely affect Pembina's results of
operations which, in turn, could reduce the level of cash available for dividends to shareholders.



Expansion of the Peace/Northern NGL System



The Company has announced plans to expand throughput capacity
on the Peace/Northern NGL System (Phase I: 52,000, Phase 2: 55,000 bpd) and Peace Crude and Condensate System (Phase I: 40,000
bpd and Phase 2: 55,000). The successful completion of these expansions is dependent on numerous factors outside of the Company's
control. These factors include receipt of regulatory approval and reaching long-term commercial arrangements with customers in
respect of certain portions of the expansions, completion of the construction of the expansions on schedule, as well as construction
costs that may change depending on supply, demand and/or inflation. Any agreements with customers entered into with respect to
the expansions may require that the Company bears the risk for any cost overruns and any such cost overruns could reduce the Company's
expected return on the expansions and adversely affect the Company's results of operations which, in turn, could reduce the level
of cash available for dividends to shareholders. There is no certainty, nor can the Company provide any assurance, that regulatory
approval will be received or that satisfactory commercial arrangements with customers will be reached where needed on a timely
basis or at all.



Possible Failure to Realize Anticipated Benefits of Acquisitions



As part of its ongoing strategy, Pembina has completed acquisitions,
such as the Provident Acquisition, and may complete additional acquisitions of assets or other entities in the future. Achieving
the benefits of completed and future acquisitions depends in part on successfully consolidating functions and integrating operations,
procedures and personnel in a timely and efficient manner, as well as Pembina's ability to realize the anticipated growth opportunities
and synergies from combining the acquired businesses and operations with those of Pembina. The integration of acquired businesses
and entities requires the dedication of substantial management effort, time and resources which may divert management's focus and
resources from other strategic opportunities and from operational matters during this process. The integration process may result
in the loss of key employees and the disruption of ongoing business, customer and employee relationships that may adversely affect
Pembina's ability to achieve the anticipated benefits of any acquisitions.



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Pembina
Pipeline Corporation



Competition



Pembina competes with other pipelines, midstream and marketing
and gas processing and handling services providers in its service areas as well as other transporters of crude oil and NGL. The
introduction of competing transportation alternatives into the Company's service areas could potentially have the impact of limiting
the Company's ability to adjust tolls as it may deem necessary. Additionally, potential pricing differentials on the components
of NGL may result in these components being transported by competing gas pipelines. Pembina believes it is prepared for and determined
to meet these existing and potential competitive pressures.



Execution Risk



Pembina's ability to successfully execute the development of
its organic growth projects may be influenced by capital constraints, third-party opposition, changes in shipper support over time,
delays in or changes to government and regulatory approvals, cost escalations, construction delays, shortage and in-service delays.
Pembina's growth plans may strain its resources and may be subject to high cost pressures in the North American energy sector.
Early stage project risks include right-of-way procurement, special interest group opposition, Aboriginal consultation, and environmental
and regulatory permitting. Cost escalations may impact project economics. Construction delays due to slow delivery of materials,
contractor non-performance, weather conditions and shortages may impact project development. Labour shortages and productivity
issues may also affect the successful completion of projects.



Pembina has a centralized and clearly defined governance structure
and process for all major projects with dedicated resources organized to lead and execute each major project. Capital constraints
and cost escalation risks are mitigated through structuring of commercial agreements, typically where shippers retain complete
or a share of capital cost excess. Pembina's emphasis on corporate social responsibility promotes generally positive relationships
with landowners, aboriginal groups and governments, which help to facilitate right-of-way acquisition, permitting and scheduling.
Detailed cost tracking and centralized purchasing is used on all major projects to facilitate optimum pricing and service terms.
Strategic relationships have been developed with suppliers and contractors. Compensation programs, communications and the working
environment are aligned to attract, develop and retain qualified personnel.



Shipper and Processing Contracts



Throughput on Pembina's pipelines is or will be governed by
transportation contracts or tolling arrangements with various producers of petroleum products. In addition, Pembina is party to
numerous contracts of varying durations in respect of its gas gathering, processing and fractionating facilities. Any default
by counterparties under such contracts or any expirations of such contracts or tolling arrangements without renewal or replacement
may have an adverse effect on Pembina's business. Furthermore, some of the contracts associated with its gas gathering, processing
and fractionating facilities are comprised of a mixture of firm and interruptible service contracts and the revenue that Pembina
earns on the contracts which are based on interruptible service is dependent on the volume of natural gas and NGL produced by
producers in the relevant geographic areas and lower than historical production volumes in these areas (for reasons such as low
commodity prices) may have an adverse effect on Pembina's revenue.



39







Pembina
Pipeline Corporation



GENERAL RISK FACTORS



Risk Factors Relating to the Structure of Pembina and its
Common Shares



Dilution of Shareholders



Pembina is authorized to issue, among other classes of shares,
an unlimited number of common shares for consideration and on terms and conditions as established by the Board of Directors without
the approval of the shareholders in certain instances. The shareholders will have no pre-emptive rights in connection with such
further issues.



Risk Factors Relating to the Activities of Pembina and the
Ownership of Common Shares



The following is a list of certain risk factors relating to the
activities of Pembina and the ownership its common shares:



| | • | the level of Pembina's indebtedness from time to time could impair Pembina's ability to obtain additional financing on a timely
basis to take advantage of business opportunities that may arise;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | the uncertainty of future dividend payments by Pembina and the level thereof as Pembina's dividend policy and the funds
                                                                     available for the payment of dividends from time to time will be dependent upon, among other things, operating cash flow
                                                                     generated by Pembina and its subsidiaries, financial requirements for Pembina's operations and the execution of its growth
                                                                     strategy and the satisfaction of solvency tests imposed by the  Alberta Business Corporations Act for the declaration and
                                                                     payment                                                                      of dividends;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | Pembina may make future acquisitions or may enter into financings or other transactions involving the issuance of securities
of Pembina which may be dilutive; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | • | the risk that the market value of the common shares may materially deteriorate if Pembina is unable to meet its cash dividend
targets or make cash dividends in the future.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Market Value of Common Shares and Other Securities



Pembina cannot predict at what price the common shares, convertible
debentures or other securities issued by Pembina will trade in the future. Common shares, convertible debentures and other securities
of Pembina will not necessarily trade at values determined solely by reference to the underlying value of Pembina's assets. One
of the factors that may influence the market price of such securities is the annual yield on the common shares and the convertible
debentures. An increase in market interest rates may lead purchasers of common shares or convertible debentures to demand a higher
annual yield and this could adversely affect the market price of the common shares or convertible debentures. In addition, the
market price for the common shares and the convertible debentures may be affected by changes in general market conditions, fluctuations
in the market for equity or debt securities and numerous other factors beyond the control of Pembina.



Shareholders are encouraged to obtain independent legal, tax
and investment advice in their jurisdiction of residence with respect to the holding of common shares.



40







Pembina
Pipeline Corporation



Regulation



Legislation in Alberta and B.C. exists to ensure that producers
have fair and reasonable opportunities to produce, process and market their reserves. In Alberta, the Energy Resources Conservation
Board and in B.C., the British Columbia Utilities Commission, may, on application and following a hearing (and in Alberta with
the approval of the Lieutenant Governor in Council), declare the operator of a pipeline a common carrier of oil or NGL and, as
such, must not discriminate between producers who seek access to the pipeline. Producers and shippers may also apply to the regulatory
authorities for a review of tariffs, and such tariffs may then be regulated if it is proven that the tariffs are not just and
reasonable. Applications by producers to have a pipeline operator declared a common carrier are usually accompanied by an application
to have the tariffs set by the regulatory authorities. The extent to which regulatory authorities in such instances can override
existing transportation or processing contracts has not been fully decided. The potential for direct regulation of tolls, other
than for the Company's provincially regulated B.C. pipelines, while considered remote by the Company, could result in toll levels
that are less advantageous to the Company and could impair the economic operation of such regulated pipeline systems.



Additional Financing and Capital Resources



The timing and amount of Pembina's capital expenditures, and
the ability of Pembina to repay or refinance existing debt as it becomes due, directly affects the amount of cash dividends that
Pembina pays to shareholders. Future acquisitions, expansions of Pembina's pipeline systems and midstream operations, other capital
expenditures, including the capital expenditures that Pembina has committed to in respect of the Resthaven facility, the Saturn
facility and the expansion of the Northern NGL System and the repayment or refinancing of existing debt as it becomes due will
be financed from sources such as cash generated from operations, the issuance of additional shares or other securities (including
debt securities) of Pembina, and borrowings. Dividends may be reduced, or even eliminated, at times when significant capital or
other expenditures are made. There can be no assurance that sufficient capital will be available on terms acceptable to Pembina,
or at all, to make additional investments, fund future expansions or make other required capital expenditures. To the extent that
external sources of capital, including the issuance of additional shares or other securities or the availability of additional
credit facilities, become limited or unavailable on favourable terms or at all due to credit market conditions or otherwise, the
ability of Pembina to make the necessary capital investments to maintain or expand its operations, to repay outstanding debt and
to invest in assets, as the case may be, may be impaired. To the extent Pembina is required to use cash flow to finance capital
expenditures or acquisitions or to repay existing debt as it becomes due, the level of dividends to shareholders of Pembina may
be reduced.



Counterparty credit risk



Pembina
is subject to counterparty credit risk arising out of its operations. A majority of Pembina's accounts receivable are with customers
in the oil and gas industry and are subject to normal industry counterparty credit risk. Counterparty credit risk is managed through
credit approval and monitoring procedures. The credit worthiness assessment takes into account available qualitative and quantitative
information about the counterparty, including, but not limited to, financial status and external credit ratings. Depending on the
outcome of each assessment, guarantees or some other credit enhancement may be requested as security. Pembina attempts to mitigate
its exposure by entering into contracts with customers that may permit netting or entitle Pembina to lien or take product in-kind
and/or allow for termination of the contract on the occurrence of certain events of default. Each business segment monitors outstanding
accounts receivable on an ongoing basis. Historically, Pembina has
collected its accounts receivable in full.



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Pembina
Pipeline Corporation



Debt Service



At the end of 2012, Pembina had exposure to floating interest
rates on $525 million in debt. This debt exposure is managed by using derivative financial instruments. A one percent change in
short-term interest rates would have an annualized impact of $1.4 million on net cash flows. Variations in interest rates and scheduled
principal repayments, if required under the terms of the banking agreements could result in significant changes in the amounts
required to be applied to debt service before payment of any dividends to Pembina's shareholders. Certain covenants in the agreements
with the lenders may also limit payments by Pembina's operating subsidiaries. Although Pembina believes that the existing credit
facilities are sufficient, there can be no assurance that the amount will be adequate for Pembina's financial obligations or that
additional funds can be obtained.



Pembina and its subsidiaries are permitted to borrow funds to
finance the purchase of pipelines and other energy infrastructure assets, to fund capital expenditures and other financial obligations
or expenditures in respect of those assets and for working capital purposes. Amounts paid in respect of interest and principal
on debt incurred in respect of those assets reduce the amount of cash flow available for dividends to shareholders. Variations
in interest rates and scheduled principal repayments for which Pembina may not be able refinance at favourable rates or at all,
could result in significant changes in the amount required to be applied to service debt, which could have detrimental effects
on the amount of cash available for dividends to shareholders. Certain covenants contained in the agreements with Pembina's lenders
may also limit dividend payments. Although Pembina believes the existing credit facilities are sufficient for immediate requirements,
there can be no assurance that the amount will be adequate for the future financial obligations of Pembina or that additional funds
will be able to be obtained on terms favourable to Pembina or at all.



The lenders under Pembina's unsecured credit facilities and senior
notes have also been provided with similar guarantees and subordination agreements. If Pembina becomes unable to pay its debt service
charges or otherwise commits an event of default such as bankruptcy, payments to all of the lenders will rank in priority to dividends
to shareholders and payments to holders of convertible debentures.



Pembina, on a consolidated basis, is also required to meet certain
financial covenants under the credit facilities and the senior notes and is subject to customary restrictions on its operations
and activities, including restrictions on the granting of security, incurring indebtedness and the sale of its assets.



Credit Ratings



Rating agencies regularly evaluate Pembina, basing their ratings
of its long-term and short-term debt on a number of factors. This includes Pembina's financial strength as well as factors not
entirely within its control, including conditions affecting the industry in which Pembina operates generally and the wider state
of the economy. There can be no assurance that one or more of Pembina's credit ratings will not be downgraded.



Pembina's borrowing costs and ability to raise funds are directly
impacted by its credit ratings. Credit ratings may be important to suppliers or counterparties when they seek to engage in certain
transactions. A credit rating downgrade could potentially impair Pembina's ability to enter into arrangements with suppliers or
counterparties, to engage in certain transactions, and could limit Pembina's access to private and public credit markets and increase
the costs of borrowing under its existing credit facilities. A downgrade could also limit Pembina's access to debt markets and
increase its cost of borrowing.



The occurrence of a downgrade in Pembina's credit ratings could
adversely affect Pembina's ability to execute portions of its business strategy and could have a material adverse effect on its
liquidity, results of operations and capital position.



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Pembina
Pipeline Corporation



Changes in Legislation



There can be no assurance that income tax laws, regulatory and
environmental laws or policies and government incentive programs relating to the pipeline or oil and natural gas industry, will
not be changed in a manner which adversely affects Pembina or its shareholders or other securityholders.



Reliance on Management



Shareholders and other securityholders of Pembina will be dependent
on senior management and directors of Pembina in respect of the governance, administration and management of all matters relating
to Pembina and its operations and administration. The loss of the services of key individuals could have a detrimental effect on
Pembina.



Potential Conflicts of Interest



Shareholders are dependent upon senior management of Pembina
and the directors of Pembina for the governance, administration and management of Pembina. Additionally, certain directors and
officers of Pembina may be directors or officers of entities in competition to Pembina. As such, these directors or officers of
Pembina may encounter conflicts of interest in the administration of their duties with respect to Pembina.



Litigation



Pembina and its various subsidiaries and affiliates are, in the
course of their business, subject to lawsuits and other claims. Defence and settlement costs associated with such lawsuits and
claims can be substantial, even with respect to lawsuits and claims that have no merit. Due to the inherent uncertainty of the
litigation process, the resolution of any particular legal proceeding could have a material adverse effect on the financial position
or operating results of Pembina.



Variations in Interest Rates and Foreign Exchange Rates



Variations in interest rates could result in a significant change
in the amount Pembina pays to service debt, potentially impacting dividends to shareholders. Variations in the exchange rate for
the Canadian dollar versus the U.S. dollar could affect future dividends.



Selected Quarterly Operating Information



|                                              |  | 2012 |       |  | 2011 |  |       | 2010 | 
|--------------------------------------------- |  | ---- | ----- |  | ---- |  | ----- | ---- | 
|                                              |  | Q4   |       |  | Q3   |  |       | Q2   | 
|Average volume (mbpd unless stated otherwise) |  |      |       |  |      |  |       |      | 
|Conventional Throughput                       |  |      | 480.2 |  |      |  | 443.9 |      | 
|Oil Sands & Heavy Oil(1)                      |  |      | 870.0 |  |      |  | 870.0 |      | 
|Gas Services Processing (mboe/d)(2)           |  |      | 46.0  |  |      |  | 45.8  |      | 
|NGL sales volume (mboe/d)                     |  |      | 115.8 |  |      |  | 86.7  |      | 



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



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



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Pembina
Pipeline Corporation



Selected Quarterly Financial Information



|                                                                                  |  | 2012 |         |   | 2011 |  |       | 2010 | 
|--------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- |  | ----- | ---- | 
|($ millions, except where noted)                                                  |  | Q4   |         |   | Q3   |  |       | Q2   | 
|Revenue                                                                           |  |      | 1,265.7 |   |      |  | 815.3 |      | 
|Operations                                                                        |  |      | 86.0    |   |      |  | 69.5  |      | 
|Cost of goods sold including product purchases                                    |  |      | 968.6   |   |      |  | 565.5 |      | 
|Realized gain (loss) on commodity-related derivative financial
    instruments    |  |      | 11.0    |   |      |  | (2.8  | )    | 
|Operating margin(1)                                                               |  |      | 222.1   |   |      |  | 177.5 |      | 
|Depreciation and amortization included in operations                              |  |      | 47.8    |   |      |  | 51.6  |      | 
|Unrealized gain (loss) on commodity-related derivative
    financial instruments  |  |      | (2.2    | ) |      |  | (23.0 | )    | 
|Gross profit                                                                      |  |      | 172.1   |   |      |  | 102.9 |      | 
|Adjusted EBITDA(1)                                                                |  |      | 199.0   |   |      |  | 153.8 |      | 
|Cash flow from operating activities                                               |  |      | 139.5   |   |      |  | 130.9 |      | 
|Cash
    flow from operating activities per common share ($ per share)            |  |      | 0.48    |   |      |  | 0.45  |      | 
|Adjusted
    cash flow from operating activities(1)                               |  |      | 172.3   |   |      |  | 133.2 |      | 
|Adjusted
    cash flow from operating activities per common share(1)($ per share) |  |      | 0.59    |   |      |  | 0.46  |      | 
|Earnings for the period                                                           |  |      | 81.3    |   |      |  | 30.7  |      | 
|Earnings per common
    share ($ per share)                                       |  |      |         |   |      |  |       |      | 
|Basic                                                                             |  |      | 0.28    |   |      |  | 0.11  |      | 
|Diluted                                                                           |  |      | 0.28    |   |      |  | 0.11  |      | 
|Common
    shares outstanding (millions):                                         |  |      |         |   |      |  |       |      | 
|Weighted average (basic)                                                          |  |      | 291.9   |   |      |  | 289.2 |      | 
|Weighted average (diluted)                                                        |  |      | 292.5   |   |      |  | 289.7 |      | 
|End of period                                                                     |  |      | 293.2   |   |      |  | 290.5 |      | 
|Dividends declared                                                                |  |      | 118.4   |   |      |  | 117.3 |      | 
|Dividends
    per common share ($ per share)                                      |  |      | 0.405   |   |      |  | 0.405 |      | 



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



During the above periods, Pembina's results were influenced by
the following factors and trends:



| | · | Increased oil production from customers operating in the Cardium and
Deep Basin Cretaceous formations of west central Alberta, which has resulted in increased service offerings in these areas, as
well as new connections and capacity expansions;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Increased liquids-rich natural gas production from producers in the
WCBS (Deep Basin, Montney, Cardium and emerging Duvernay Shale plays), which has resulted in increased gas gathering and processing
at the Company's gas services assets and additional associated NGL transported on its pipelines;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Revenue contribution from the Nipisi and Mitsue Pipelines, which were
completed in June and July of 2011; and
| | - | -------------------------------------------------------------------------------------------------------------



| | · | The Acquisition of Provident, which closed on April 2, 2012 (for more
details please see Note 5 of the Consolidated Financial Statements for the year ended December 31, 2012).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



44









Pembina
Pipeline Corporation



Selected
Annual Financial Information



|($ millions, except where noted)               |  | 2012 |         |  | 2011 |  |         | 2010 | 
|---------------------------------------------- |  | ---- | ------- |  | ---- |  | ------- | ---- | 
|Revenue                                        |  |      | 3,427.4 |  |      |  | 1,676.0 |      | 
|Earnings                                       |  |      | 225.0   |  |      |  | 165.7   |      | 
|Per share – basic                              |  |      | 0.87    |  |      |  | 0.99    |      | 
|Per share – diluted                            |  |      | 0.87    |  |      |  | 0.99    |      | 
|Total assets                                   |  |      | 8,276.5 |  |      |  | 3,339.2 |      | 
|Long-term financial liabilities(1)             |  |      | 3,004.7 |  |      |  | 1,752.9 |      | 
|Declared dividends per share
    ($ per share) |  |      | 1.61    |  |      |  | 1.56    |      | 



| | (1) | Includes loans and borrowings, convertible debentures, long-term derivative financial instrument, provisions and other long-term
liabilities.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



Additional
Information



Additional information about Pembina and legacy Provident filed
with Canadian securities commissions and the United States Securities Commission ("SEC"), including quarterly and annual
reports, Annual Information Forms (filed with the SEC under Form 40-F), Management Information Circulars and financial statements
can be found online at www.sedar.com, www.sec.gov and Pembina's website at www.pembina.com.



Non-GAAP Measures



Throughout this MD&A, Pembina has used the following terms
that are not defined by GAAP but are used by Management to evaluate performance of Pembina and its business. Since certain Non-GAAP
financial measures may not have a standardized meaning, securities regulations require that Non-GAAP financial measures are clearly
defined, qualified and reconciled to their nearest GAAP measure. Concurrent with the Acquisition of Provident, certain Non-GAAP
measures definitions have changed from those previously used to better reflect the changes in aspects of Pembina's business activities.
Except as otherwise indicated, these Non-GAAP measures are calculated and disclosed on a consistent basis from period to period.
Specific adjusting items may only be relevant in certain periods.



Earnings before interest, taxes, depreciation and amortization
("EBITDA")



EBITDA is commonly used by Management, investors and creditors
in the calculation of ratios for assessing leverage and financial performance and is calculated as results from operating activities
plus share of profit from equity accounted investees (before tax) plus depreciation and amortization (included in operations and
general and administrative expense) and unrealized gains or losses on commodity-related derivative financial instruments.



45









Pembina
Pipeline Corporation



Adjusted EBITDA is EBITDA excluding acquisition-related expenses
in connection with the Acquisition.



|                                                                                                |  | 3 Months Ended December
    31 (unaudited) |       |  | 12 Months Ended December 31 | 
|----------------------------------------------------------------------------------------------- |  | ------------------------------------------ | ----- |  | --------------------------- | 
|($ millions, except per share amounts)                                                          |  | 2012                                       |       |  | 2011                        | 
|Results from operating activities                                                               |  |                                            | 144.3 |  |                             | 
|Share of profit from equity accounted investees (before
    tax, depreciation and amortization) |  |                                            | 2.0   |  |                             | 
|Depreciation and amortization                                                                   |  |                                            | 49.5  |  |                             | 
|Unrealized
    loss (gain) on commodity-related derivative financial instruments                |  |                                            | 2.2   |  |                             | 
|EBITDA                                                                                          |  |                                            | 198.0 |  |                             | 
|Add:                                                                                            |  |                                            |       |  |                             | 
|Acquisition-related
    expenses                                                                |  |                                            | 1.0   |  |                             | 
|Adjusted EBITDA                                                                                 |  |                                            | 199.0 |  |                             | 
|EBITDA
    per common share – basic (dollars)                                                   |  |                                            | 0.68  |  |                             | 
|Adjusted
    EBITDA per common share – basic (dollars)                                          |  |                                            | 0.68  |  |                             | 



Adjusted earnings



Adjusted earnings is commonly used by Management for assessing
and comparing financial performance each reporting period and is calculated as earnings before tax excluding unrealized gains or
losses on derivative financial instruments and acquisition-related expenses in connection with the Acquisition plus share of profit
from equity accounted investees (before tax).





|                                                                                     |  | 3 Months Ended December
    31 (unaudited) |       |   | 12 Months Ended December 31 | 
|------------------------------------------------------------------------------------ |  | ------------------------------------------ | ----- | - | --------------------------- | 
|($ millions, except per share amounts)                                               |  | 2012                                       |       |   | 2011                        | 
|Earnings before income tax and equity accounted investees                            |  |                                            | 108.5 |   |                             | 
|Add (deduct):                                                                        |  |                                            |       |   |                             | 
|Unrealized (gains) losses on fair value of derivative
    financial instruments      |  |                                            | 6.4   |   |                             | 
|Share of (loss) profit of investments in equity accounted
    investees (before tax) |  |                                            | (0.1  | ) |                             | 
|Acquisition-related expenses                                                         |  |                                            | 1.0   |   |                             | 
|Adjusted earnings                                                                    |  |                                            | 115.8 |   |                             | 
|Adjusted
    earnings per common share – basic(dollars)                              |  |                                            | 0.40  |   |                             | 





Adjusted cash flow from operating activities



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





|                                                                                    |  | 3
    Months Ended December 31 (unaudited) |       |  | 12 Months Ended December 31 | 
|----------------------------------------------------------------------------------- |  | ------------------------------------------ | ----- |  | --------------------------- | 
|($ millions, except per share amounts)                                              |  | 2012                                       |       |  | 2011                        | 
|Cash flow from operating activities                                                 |  |                                            | 139.5 |  |                             | 
|Add (deduct):                                                                       |  |                                            |       |  |                             | 
|Change in non-cash working capital                                                  |  |                                            | 31.8  |  |                             | 
|Acquisition-related expenses                                                        |  |                                            | 1.0   |  |                             | 
|Adjusted cash flow from operating activities                                        |  |                                            | 172.3 |  |                             | 
|Adjusted
    cash flow from operating activities per common share – basic (dollars) |  |                                            | 0.59  |  |                             | 



46









Pembina
Pipeline Corporation





Operating margin



Operating margin is commonly used by Management for assessing
financial performance and is calculated as gross profit before depreciation and amortization included in operations and unrealized
gain/loss on commodity-related derivative financial instruments.



Reconciliation of operating margin to gross profit:



|                                                                             |  | 3
    Months Ended December 31 (unaudited) |         |   | 12 Months Ended December 31 | 
|---------------------------------------------------------------------------- |  | ------------------------------------------ | ------- | - | --------------------------- | 
|($ millions)                                                                 |  | 2012                                       |         |   | 2011                        | 
|Revenue                                                                      |  |                                            | 1,265.7 |   |                             | 
|Cost of sales:                                                               |  |                                            |         |   |                             | 
|Operations                                                                   |  |                                            | 86.0    |   |                             | 
|Cost of goods sold, including product purchases                              |  |                                            | 968.6   |   |                             | 
|Realized gain (loss) on commodity-related derivative financial instruments   |  |                                            | 11.0    |   |                             | 
|Operating margin                                                             |  |                                            | 222.1   |   |                             | 
|Depreciation and amortization included in operations                         |  |                                            | 47.8    |   |                             | 
|Unrealized gain (loss) on commodity-related derivative financial instruments |  |                                            | (2.2    | ) |                             | 
|Gross profit                                                                 |  |                                            | 172.1   |   |                             | 



Beginning in the second quarter of 2012, unrealized gain/loss
on commodity-related derivative financial instruments has been reclassified from net finance costs to be included in gross profit.



Total enterprise value



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



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



47









Pembina
Pipeline Corporation





Forward-Looking Statements & Information



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



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



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



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



| | · | capital expenditure-estimates, plans, schedules, rights and activities
and the planning, development, construction, operations and costs of pipelines, gas service facilities, terminalling, storage and
hub facilities and other facilities or energy infrastructure, including, but not limited to, the Northern NGL System, the Peace
HVP expansion between Fox Creed and Fort Saskatchewan, the LVP expansion between Fox Creek and Edmonton, Alberta, the Phase 2 LVP
Expansion, the Phase 2 NGL Expansion, the joint venture full-service terminal in the Judy Creek area of Alberta area, the development
program in the Cynthia area west of Drayton Valley, offshore export opportunities for propane, the Nipisi and Mitsue pipelines
expansions, the Saturn facility and associated pipelines, the Resthaven facility and associated pipelines, the Nexus expansion,
the Redwater expansion;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



| | · | growth opportunities;
| | - | ---------------------



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



| | · | treatment under government regulatory regimes including environmental
regulations and related abandonment and reclamation obligations;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| | · | future G&A expenses at Pembina
| | - | ------------------------------



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



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



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



| | · | cash dividends and the tax treatment thereof;
| | - | ---------------------------------------------



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



| | · | the expected capacity, incremental volumes and in-services dates of
proposed expansions and new developments, including the Northern NGL System, the Peace HVP expansion between Fox Creek and Fort
Saskatchewan, the LVP expansion between Fox Creek and Edmonton, Alberta, the Phase 2 LVP Expansion, the Phase 2 NGL Expansion,
the Nipisi and Mitsue pipelines, the Saturn facility, the Resthaven facility and Nexus;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the possibility of offshore export opportunities for propane;
| | - | -------------------------------------------------------------



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



| | · | expectations regarding participation in Pembina's DRIP;
| | - | -------------------------------------------------------



| | · | the expected impact of changes in share price on annual share-based
incentive expense;
| | - | --------------------------------------------------------------------------------------



| | · | inventory and pricing levels in the North American liquids market;
| | - | ------------------------------------------------------------------



| | · | Pembina's discretion to hedge natural gas and NGL volumes; and
| | - | --------------------------------------------------------------



| | · | competitive conditions.
| | - | -----------------------



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



| | · | the success of Pembina's operations;
| | - | ------------------------------------



| | · | prevailing commodity prices and exchange rates and the ability of Pembina
to maintain current credit ratings;
| | - | -------------------------------------------------------------------------------------------------------------



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



| | · | future operating costs;
| | - | -----------------------



| | · | geotechnical and integrity costs associated with the Western System;
| | - | --------------------------------------------------------------------



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



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



48









Pembina
Pipeline Corporation



| | · | in respect of the proposed expansion of Redwater; that Pembina will
receive regulatory approval; that Pembina will reach satisfactory long-term arrangements with customers; that counterparties will
comply with such contracts in a timely manner; that there are no unforeseen events preventing the performance of contracts by Pembina;
that there are no unforeseen construction costs; and that there are no unforeseen material costs relating to the proposed fractionators
that are not recoverable from customers;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | in respect of other developments, expansions and capital expenditures
planned, including the proposed expansion of a number of existing truck terminals and construction of new full-service terminals,
the expectation of additional NGL and crude volumes being transported on the conventional pipelines, the proposed expansion plans
to strengthen Pembina's transportation service options that it provides to producers developing the Cardium oil formation located
in central Alberta, the installation of two remaining pump stations on the Nipisi and Mitsue pipelines, the development of seven-fee-for-service
storage facilities at Redwater and the Redwater fractionator expansion that counterparties will comply with contracts in a timely
manner; that there are no unforeseen events preventing the performance of contracts by Pembina; that there are no unforeseen construction
costs; and that there are no unforeseen material costs relating to the developments, expansions and capital expenditures which
are not recoverable from customers;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



| | · | the regulatory environment and decisions;
| | - | -----------------------------------------



| | · | the impact of competitive entities and pricing;
| | - | -----------------------------------------------



| | · | labour and material shortages;
| | - | ------------------------------



| | · | reliance on key alliances and agreements;
| | - | -----------------------------------------



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



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



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



| | · | fluctuations in operating results;
| | - | ----------------------------------



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



| | · | the failure to realize the anticipated benefits of the Acquisition;
| | - | -------------------------------------------------------------------



| | · | the failure to complete remaining integration of the businesses of
Pembina and Provident; and
| | - | ---------------------------------------------------------------------------------------------



| | · | the other factors discussed under "Risk Factors" in Pembina's
Annual Information Form ("AIF") for the year ended December 31, 2012. Pembina's MD&A and AIF are available at www.pembina.com
and in Canada under Pembina's company profile on www.sedar.com and in the U.S. on the Company's profile at www.sec.gov.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



49