Form 10-Q MARKWEST ENERGY PARTNERS For: Sep 30

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM�10-Q

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x����� QUARTERLY REPORT PURSUANT TO SECTION�13 or 15(d)�OF THE SECURITIES EXCHANGE ACT OF�1934

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For the quarterly period ended September�30, 2014

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OR

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o�������� TRANSITION REPORT PURSUANT TO SECTION�13 OR 15(d)�OF THE SECURITIES EXCHANGE ACT OF�1934

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For the transition period from����������to

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Commission File Number�001-31239

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MARKWEST ENERGY PARTNERS,�L.P.

(Exact name of registrant as specified in its charter)

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1515 Arapahoe Street, Tower 1, Suite�1600, Denver, Colorado 80202-2137

(Address of principal executive offices)

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Registrant�s telephone number, including area code: 303-925-9200

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Indicate by check mark whether the registrant (1)�has filed all reports required to be filed by Section�13 or 15(d)�of the Securities Exchange Act of 1934 during the preceding 12�months (or for such shorter period that the registrant was required to file such reports), and (2)�has been subject to such filing requirements for the past 90�days.��Yes�x�No�o

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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule�405 of Regulation�S-T (�232.405 of this chapter) during the preceding 12�months (or for such shorter period that the registrant was required to submit and post such files).��Yes�x�No�o

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of �large accelerated filer,� �accelerated filer,� and �smaller reporting company� in Rule�12b-2 of the Exchange Act.

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Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule�12b-2 of the Exchange Act).� Yes o No x

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As of October�29, 2014, the number of the registrant�s common units and Class�B units outstanding were 184,036,767 and 11,972,634, respectively.

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Throughout this document we make statements that are classified as �forward-looking.� Please refer to �Forward-Looking Statements� included in Part�I,�Item�2 for an explanation of these types of assertions. Also, in this document, unless the context requires otherwise, references to �we,� �us,� �our,� �MarkWest Energy� or the �Partnership� are intended to mean MarkWest Energy Partners,�L.P., and its consolidated subsidiaries. References to �MarkWest Hydrocarbon� or the �Corporation� are intended to mean MarkWest Hydrocarbon,�Inc., a wholly-owned taxable subsidiary of the Partnership. References to the �General Partner� are intended to mean MarkWest Energy GP, L.L.C., the general partner of the Partnership.

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Glossary of Terms

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PART�I�FINANCIAL INFORMATION

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Item�1.� Financial Statements

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MARKWEST ENERGY PARTNERS,�L.P.

Condensed Consolidated Balance Sheets

(unaudited, in thousands)

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Asset and liability amounts in parentheses represent the portion of the condensed consolidated balance attributable to a VIE.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MARKWEST ENERGY PARTNERS,�L.P.

Condensed Consolidated Statements of Operations

(unaudited, in thousands, except per unit amounts)

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The accompanying notes are an integral part of these condensed consolidated financial statements.

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MARKWEST ENERGY PARTNERS,�L.P.

Condensed Consolidated Statements of Changes in Equity

(unaudited, in thousands)

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The accompanying notes are an integral part of these condensed consolidated financial statements.

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MARKWEST ENERGY PARTNERS,�L.P.

Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands)

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The accompanying notes are an integral part of these condensed consolidated financial statements.

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MARKWEST ENERGY PARTNERS,�L.P.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

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1. Organization and Basis of Presentation

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MarkWest Energy Partners,�L.P. was formed in 2002 as a Delaware limited partnership. The Partnership is engaged in the gathering, processing and transportation of natural gas; the gathering, transportation, exchange, fractionation, storage and marketing of NGLs; and the gathering and transportation of crude oil. The Partnership has a leading presence in many unconventional gas plays including the Marcellus Shale, Utica Shale, Huron/Berea Shale, Haynesville Shale, Woodford Shale and Granite Wash formations.

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These unaudited condensed consolidated financial statements have been prepared in accordance with the rules�and regulations of the SEC for interim financial reporting. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Partnership�s consolidated financial statements included in the Partnership�s Annual Report on Form�10-K for the year ended December�31, 2013. In management�s opinion, the Partnership has made all adjustments necessary for a fair presentation of its results of operations, financial position and cash flows for the periods shown. These adjustments are of a normal recurring nature.� Finally, results for the nine months ended September�30, 2014 are not necessarily indicative of results for the full year 2014 or any other future period.

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The Partnership�s unaudited condensed consolidated financial statements include all majority-owned or controlled subsidiaries. In addition, MarkWest Utica EMG, L.L.C. (�MarkWest Utica EMG�), a VIE for which the Partnership has been determined to be the primary beneficiary, is included in the condensed consolidated financial statements (See Note 3 of these Notes to the Condensed Consolidated Financial Statements). All intercompany investments, accounts and transactions have been eliminated. The Partnership�s investments in MarkWest Pioneer, L.L.C. (�MarkWest Pioneer�), Ohio Gathering Company L.L.C. (�Ohio Gathering�), MarkWest Utica EMG Condensate L.L.C. (�Utica Condensate�) and Centrahoma Processing, LLC (�Centrahoma�), in which the Partnership exercises significant influence but does not control and is not the primary beneficiary, are accounted for using the equity method.

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2.� Recent Accounting Pronouncements

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In April�2014, the FASB issued ASU 2014-08 � Presentation Of Financial Statements (Topic 205) And Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations And Disclosures Of Disposals Of Components Of An Entity (�ASU 2014-08�) that will supersede previous GAAP for accounting for discontinued operations.� ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation.� ASU 2014-08 is effective for the Partnership prospectively as of January�1, 2015; however the Partnership has elected to early adopt the guidance as of April�1, 2014.� The adoption of the guidance did not have a material effect on the Partnership�s condensed consolidated financial statements.

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In May�2014, the FASB issued ASU 2014-09 � Revenue from Contracts with Customers (�ASU 2014-09�) that will supersede current revenue recognition guidance.� ASU 2014-09 is intended to provide companies with a single comprehensive model to use for all revenue arising from contracts with customers, which would include real estate sales transactions.� ASU 2014-09 is effective for the Partnership as of January�1, 2017 and must be adopted using either a full retrospective approach for all periods presented in the period of adoption (with some limited relief provided) or a modified retrospective approach.� The Partnership is in the early stages of evaluating ASU 2014-09 and has not yet determined the impact on the Partnership�s condensed consolidated financial statements.

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In August�2014, the FASB issued ASU 2014-15 � Presentation of Financial Statements�Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity�s Ability to Continue as a Going Concern�(�ASU 2014-15�), that provides guidance on management�s responsibility to perform interim and annual assessments of an entity�s ability to continue as a going concern and provides related disclosure requirements. ASU 2014-15 applies to all entities and is effective for annual periods ending after December�15, 2016, and interim periods thereafter, with early adoption permitted. The Partnership is in the early stages of evaluating ASU 2014-15 and has not yet determined the impact on the Partnership�s condensed consolidated financial statements.

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MARKWEST ENERGY PARTNERS,�L.P.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

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3.� Variable Interest Entity

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MarkWest Utica EMG

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Effective January�1, 2012, the Partnership and EMG Utica,�LLC (�EMG Utica�) (together the �Members�) executed agreements to form�a joint venture, MarkWest Utica EMG, to develop significant natural gas gathering, processing and NGL fractionation, transportation and marketing infrastructure in eastern Ohio.

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In February�2013, the Members entered into the Amended and Restated Limited Liability Company Agreement of MarkWest Utica EMG (�Amended Utica�LLC Agreement�) which replaced the original agreement. Pursuant to the Amended Utica�LLC Agreement, the aggregate funding commitment of EMG Utica increased to $950.0�million (the �Minimum EMG Investment�).� EMG Utica was required to fund all capital until the Minimum EMG Investment was satisfied, which occurred in May�2013. After EMG Utica funded the Minimum EMG Investment, the Partnership was required to fund, as needed, 100% of future capital for MarkWest Utica EMG until such time as the aggregate capital that had been contributed by the Members reached $2.0�billion, which is expected to occur in November�2014. After such time, and until such time as the investment balances of the Partnership and EMG Utica are in the ratio of 70% and 30%, respectively (such time being referred to as the �Second Equalization Date�), EMG Utica will have the right, but not the obligation, to fund up to 10% of each capital call for MarkWest Utica EMG, and the Partnership will be required to fund all remaining capital not elected to be funded by EMG Utica. After the Second Equalization Date, the Partnership and EMG Utica will have the right, but not the obligation, to fund their pro rata portion (based on their respective investment balances) of any additional required capital and may also fund additional capital that the other party elects not to fund. As of September�30, 2014, EMG Utica has contributed $950.0�million and the Partnership has contributed approximately $981.1�million to MarkWest Utica EMG.

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Under the Amended Utica�LLC Agreement, after EMG Utica has contributed more than $500.0�million to MarkWest Utica EMG and prior to December�31, 2016, EMG Utica�s investment balance will also be increased by a quarterly special non-cash allocation of income (�Preference Amount�) that is based upon the amount of capital contributed by EMG Utica in excess of $500.0 million. No Preference Amount will accrue to EMG Utica�s investment balance after December�31, 2016. EMG Utica received a special non-cash allocation of income of approximately $9.3 million and approximately $27.2 million for the three and nine months ended September�30, 2014, respectively.

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If the Partnership�s investment balance does not equal at least 51% of the aggregate investment balances of both Members as of December�31, 2016, then EMG Utica may require the Partnership to purchase membership interests from EMG Utica so that, following the purchase, the Partnership�s investment balance equals 51% of the aggregate investment balances of the Members. The purchase price payable would equal the investment balance associated with the membership interests acquired from EMG Utica. If EMG Utica makes this election, the Partnership would be required to purchase the membership interests on or before March�1, 2017, but effective as of January�1, 2017. The amount of non-controlling interest subject to the redemption option as of September�30, 2014 is reported as Redeemable non-controlling interest in the mezzanine equity section of the Partnership�s Condensed Consolidated Balance Sheets.

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Under the Amended Utica�LLC Agreement, the Partnership will continue to receive 60% of cash generated by MarkWest Utica EMG that is available for distribution until the earlier of December�31, 2016 and the date on which the Partnership�s investment balance equals 60% of the aggregate investment balances of the Members. After the earlier of those dates, cash generated by MarkWest Utica EMG that is available for distribution will be allocated to the Members in proportion to their respective investment balances.

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The Partnership has determined that MarkWest Utica EMG is a VIE primarily due to MarkWest Utica EMG�s inability to fund its planned activities without additional subordinated financial support. The Partnership has concluded that it is the primary beneficiary of MarkWest Utica EMG. As the primary beneficiary of MarkWest Utica EMG, the Partnership consolidates the entity and recognizes non-controlling interest and redeemable non-controlling interest. The decision to consolidate MarkWest Utica EMG is re-evaluated quarterly and is subject to change.

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The assets of MarkWest Utica EMG are the property of MarkWest Utica EMG and are not available to the Partnership for any other purpose, including as collateral for its secured debt (See Notes�9 and 15 of these Notes to the Condensed Consolidated Financial Statements). MarkWest Utica EMG�s asset balances can only be used to settle its own obligations. The liabilities of MarkWest Utica EMG do not represent additional claims against the Partnership�s general assets and the creditors or beneficial interest holders of MarkWest Utica EMG do not have recourse to the general credit of the Partnership. The Partnership�s maximum exposure to loss as a result of its involvement with MarkWest Utica EMG includes its equity investment, any additional capital

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MARKWEST ENERGY PARTNERS,�L.P.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

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contribution commitments and any operating expenses incurred by the subsidiary operator in excess of its compensation received for the performance of the operating services. Other than temporary funding due to the timing of the administrative process associated with capital calls in the beginning of 2013, the Partnership did not provide any financial support to MarkWest Utica EMG that it was not contractually obligated to provide during the nine months ended September�30, 2014 and 2013.

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Ohio Gathering

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Ohio Gathering is a subsidiary of MarkWest Utica EMG and is engaged in providing natural gas gathering services in the Utica Shale in eastern Ohio. Prior to June�1, 2014, MarkWest Utica EMG, as the primary beneficiary of a VIE, consolidated Ohio Gathering.� Effective June�1, 2014 (�Summit Investment Date�), Summit Midstream Partners (�Summit�) exercised its option (�Ohio Gathering Option�) and increased its equity ownership (�Summit Equity Ownership�) from less than 1% to approximately 40% through a cash investment of approximately $341.1 million that Ohio Gathering received in 2014.� MarkWest Utica EMG received $336.1 million as a distribution from Ohio Gathering as a result of the exercise of the Ohio Gathering Option.� Summit purchased its initial 1% equity interest and the Ohio Gathering Option from Blackhawk Midstream LLC (�Blackhawk�) in January�2014.� As of the Summit Investment Date, MarkWest Utica EMG was no longer deemed the primary beneficiary due to Summit�s voting rights on significant operating matters obtained as a result of its increased equity ownership in Ohio Gathering. As of the Summit Investment Date, the Partnership accounted for Ohio Gathering as an equity method investment.� As of September�30, 2014, Ohio Gathering�s net assets are reported under the caption Investment in unconsolidated affiliates on the Condensed Consolidated Balance Sheet.

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The Partnership accounted for the increase in Summit�s Equity Ownership and the deconsolidation of Ohio Gathering as a partial sale of in-substance real estate.� In conjunction with Summit exercising the Ohio Gathering Option, Summit reimbursed MarkWest Utica EMG $5.0 million and an additional $0.3 million in July�2014 related to a reimbursement of certain costs incurred on behalf of Ohio Gathering and payable to the Partnership.� The Partnership accounted for the cash received of $5.3 million as a (Gain) loss on disposal of property, plant and equipment in the Partnership�s Condensed Consolidated Statements of Operations for the nine months ended September�30, 2014.

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For the nine months ended September�30, 2014, the Partnership�s condensed consolidated results of operations include the consolidated results of operations of Ohio Gathering through May�31, 2014.� For the period from June�1, 2014 to September�30,�2014, MarkWest Utica EMG has reported its pro rata share of Ohio Gathering�s net loss under the caption Equity in (loss) earnings from unconsolidated affiliates on the Condensed Consolidated Statements of Operations for the three and nine months ended September�30, 2014.� Ohio Gathering is considered to be a related party.� The Partnership receives engineering and construction and administrative management fee revenue and other direct personnel costs (�Operational Service� revenue) for operating Ohio Gathering.� The September�30, 2014 receivable balance related to Ohio Gathering�s Operational Service revenue was $4.9 million and is reported as Receivables from unconsolidated affiliates, net in the Partnership�s Condensed Consolidated Balance Sheets.� The amount of Operational Service revenue related to Ohio Gathering for the three and nine months ended September�30, 2014 was approximately $6.0 million and $7.0 million, respectively, and is reported as Revenue in the Condensed Consolidated Statements of Operations.

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4. Other Equity Interests

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Utica Condensate

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In December�2013, the Partnership and The Energy�& Minerals Group (�EMG�) (together the �Condensate Members�) executed an agreement (�Utica Condensate�LLC Agreement�) to form Utica Condensate for the purpose of engaging in wellhead condensate gathering, stabilization, terminalling, storage and marketing in the state of Ohio.

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Under the terms of the Utica Condensate�LLC Agreement, until September�1, 2014 (the �Condensate Equalization Date�) the Partnership had a 55% equity ownership interest and EMG had a 45% equity ownership interest in Utica Condensate. After the Condensate Equalization Date, each Condensate Member�s equity ownership interest is equal to its investment balance expressed as a percentage of the aggregate investment balance of all Condensate Members. However, both before and after the Condensate Equalization Date, allocations of profits and losses and distributions of available cash are made to the Condensate Members based upon the investment balances of the Condensate Members. The investment balances of the Condensate Members are subject to reduction if, and to the extent that, the Condensate Members received distributions of available cash prior to the Condensate Equalization Date as a result of the exercise of the Ohio Condensate Option by Summit as defined below. EMG was required to provide 100% of the capital funding to Utica Condensate, up to $100 million, until�September�1, 2014.� As of that date, the Partnership�s investment balance in Utica Condensate did not equal 55% of the total investment balances of the Condensate Members, and as a result, the Partnership was required to purchase ownership interests for $17.1 million from EMG such that, following the purchase, the Partnership�s investment balance associated with its ownership interest equaled 55%. The $17.1 million purchase price

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MARKWEST ENERGY PARTNERS,�L.P.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

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equaled the investment balance associated with the ownership interests so acquired from EMG. If Utica Condensate requires additional capital subsequent to September�1, 2014, each Condensate Member has the right, but not the obligation, to contribute capital in proportion to its ownership interest.

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Under the Utica Condensate�LLC Agreement, oversight of the business and affairs of Utica Condensate is managed by a board of managers. Prior to September�1, 2014, the board of managers consisted of three managers designated by the Partnership and three managers designated by EMG. Thereafter, the number of managers that each Condensate Member may designate is determined based upon ownership interests. In addition, both the Partnership and EMG have consent rights with respect to certain specified material transactions involving Utica Condensate; therefore, management has concluded that Utica Condensate is under joint control and will be accounted for as an equity method investment.

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Ohio Condensate

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Utica Condensate�s business is conducted solely through its subsidiary, Ohio Condensate Company L.L.C. (�Ohio Condensate�), which was formed in December�2013 through an agreement executed between Utica Condensate and Blackhawk (�Ohio Condensate LLC Agreement�), in which Utica Condensate and Blackhawk contributed cash in exchange for equity ownership interests of 99% and 1%, respectively. In January�2014, Summit purchased Blackhawk�s less than 1% equity interest and its option to purchase up to an additional equity ownership interest of 40% in Ohio Condensate (�Ohio Condensate Option�).� Effective as of the Summit Investment Date, Summit exercised the Ohio Condensate Option and increased its equity ownership from less than 1% to 40% through a cash investment of approximately $8.6 million.

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As of September�30, 2014, Utica Condensate owned 60% of Ohio Condensate.� The Partnership sold approximately $17�million of assets under construction to Utica Condensate in December�2013 and recorded that amount in Receivables from unconsolidated affiliates, net in the accompanying Condensed Consolidated Balance Sheets as of December�31, 2013. The Partnership received the $17 million in the first quarter of 2014 and has recorded the proceeds in the Proceeds from disposal of property, plant and equipment in the accompanying Condensed Consolidated Statements of Cash Flows for the nine months ended September�30, 2014.� The amount of Operational Service revenue related to Ohio Condensate for the three and nine months ended September�30, 2014 was approximately $0.8 million and $2.1 million, respectively, and is reported as Revenue in the Condensed Consolidated Statements of Operations.

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5.� Business Combination

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Buffalo Creek Acquisition

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On May�8, 2013, the Partnership acquired natural gas gathering and processing assets from Chesapeake Energy Corporation (�Chesapeake�) for a cash purchase price of approximately $225.2�million. The acquired assets include a 200 MMcf/d cryogenic gas processing plant under construction (which commenced operation in February�2014), known as the Buffalo Creek Plant, 22�miles of gas gathering pipeline in Hemphill County, Texas and approximately 30 miles of rights-of-way associated with the future construction of a trunk line. Additional assets acquired from Chesapeake consist of an amine treating facility and a five-mile gas gathering pipeline in Washita County, Oklahoma. This acquisition is referred to as the �Buffalo Creek Acquisition.�

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Concurrently with the closing of the Buffalo Creek Acquisition, the Partnership entered into a long-term fee-based agreement to provide treating, processing and certain gathering and compression services for natural gas owned or controlled by Chesapeake at the acquired facilities. Chesapeake has dedicated 130,000 acres throughout the Anadarko Basin to the Partnership as part of this long-term agreement. As a result of the acquisition, the Partnership has expanded its presence in the Granite Wash and Hogshooter formations in Oklahoma.

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Contemporaneously with the Buffalo Creek Acquisition, Chesapeake agreed to extend a keep-whole processing agreement for natural gas produced in the Appalachia Basin area of the Partnership�s Northeast segment for five additional years, to 2020. The Partnership paid an additional $20.0�million of cash upon closing the Buffalo Creek Acquisition as consideration for the extension and has recorded it as Deferred contract cost in the accompanying Consolidated Balance Sheets. The deferred contract cost is being amortized over the extension term. This $20.0�million is not considered to be part of the purchase price of the Buffalo Creek Acquisition and is excluded from the purchase price allocation table below.

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The goodwill recognized from the Buffalo Creek Acquisition results primarily from the Partnership�s ability to grow its business in the liquids-rich gas areas of the Granite Wash and Hogshooter formations in Oklahoma and access additional markets in a

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MARKWEST ENERGY PARTNERS,�L.P.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

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competitive environment as a result of securing the gathering and processing rights for a large area of dedicated acreage. All of the goodwill is deductible for tax purposes.

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The following table summarizes the purchase price allocation for the Buffalo Creek Acquisition (in thousands):

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Pro forma financial results that give effect to the Buffalo Creek Acquisition are not presented as it is impractical to obtain the necessary information. Chesapeake did not operate the acquired assets as a standalone business and, therefore, historical financial information that is consistent with the operations under the current agreements is not available.

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6.� Derivative Financial Instruments

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Commodity Derivatives

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NGL and natural gas prices are volatile and are impacted by changes in fundamental supply and demand, as well as market uncertainty, availability of NGL transportation and fractionation capacity and market outlets, and a variety of additional factors that are beyond the Partnership�s control. The Partnership�s profitability is directly affected by prevailing commodity prices primarily as a result of processing or conditioning at its own or third-party processing plants, purchasing and selling or gathering and transporting volumes of natural gas at index-related prices and the cost of third-party transportation and fractionation services. To the extent that commodity prices influence the level of natural gas drilling by the Partnership�s producer customers, such prices also affect profitability. To protect itself financially against adverse price movements and to maintain more stable and predictable cash flows so that the Partnership can meet its cash distribution objectives, debt service and capital plans, the Partnership executes a strategy governed by the risk management policy approved by the General Partner�s board of directors. The Partnership has a committee comprised of senior management that oversees risk management activities, continually monitors the risk management program and adjusts its strategy as conditions warrant. The Partnership enters into certain derivative contracts to reduce the risks associated with unfavorable changes in the prices of natural gas, NGLs and crude oil. Derivative contracts utilized are swaps and options traded on the OTC market and fixed price forward contracts. The risk management policy does not allow the Partnership to take speculative positions with its derivative contracts.

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To mitigate its cash flow exposure to fluctuations in the price of NGLs, the Partnership has entered into derivative financial instruments relating to the future prices of NGLs and crude oil. The Partnership currently manages the majority of its NGL price risk using direct product NGL derivative contracts. The Partnership enters into NGL derivative contracts when adequate market liquidity exists and future prices are satisfactory. A portion of the Partnership�s NGL price exposure is managed by using crude oil contracts that were primarily executed when there was a strong relationship between changes in NGL and crude oil prices. In periods where NGL prices and crude oil prices are not consistent with the historical relationship, the crude oil contracts create increased risk and additional gains or losses. The Partnership may settle its crude oil contracts prior to the contractual settlement date in order to take advantage of favorable terms and reduce the future exposure resulting from the less effective crude oil contracts.

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To mitigate its cash flow exposure to fluctuations in the price of natural gas, the Partnership primarily utilizes derivative financial instruments relating to the future price of natural gas and takes into account the partial offset of its long and short gas positions resulting from normal operating activities.

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As a result of its current derivative positions, the Partnership has mitigated a portion of its expected commodity price risk through the fourth quarter of 2015. The Partnership would be exposed to additional commodity risk in certain situations such as if producers under deliver or over deliver product or when processing facilities are operated in different recovery modes. In the event the Partnership has derivative positions in excess of the product delivered or expected to be delivered, the excess derivative positions may be terminated.

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Currently, all of the Partnership�s financial derivative positions are with financial institutions that are syndicated members of the Credit Facility (�syndicated bank group members�). Management conducts a standard credit review on counterparties to derivative

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MARKWEST ENERGY PARTNERS,�L.P.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

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contracts. There are no collateral requirements for derivative contracts among the Partnership and any syndicated bank group members. Specifically, the Partnership is not required to post collateral when it enters into derivative contracts with syndicated bank group members, as the syndicated bank group members have a collateral position in substantially all the wholly-owned assets of the Partnership other than MarkWest Liberty Midstream�& Resources L.L.C. (�MarkWest Liberty Midstream�) and its subsidiaries. A separate agreement with certain syndicated bank group members allows MarkWest Liberty Midstream to enter into derivative positions without posting cash collateral.� The Partnership uses standardized agreements that allow for offset of certain positive and negative exposures (�master netting arrangements�) in the event of default or other terminating events, including bankruptcy.

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The Partnership records derivative contracts at fair value in the Condensed Consolidated Balance Sheets and has not elected hedge accounting or the normal purchases and normal sales designation for its derivative contracts.� The Partnership�s accounting may cause volatility in the Condensed Consolidated Statements of Operations as the Partnership recognizes in current earnings all unrealized gains and losses from the changes in fair value of derivatives.

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As of September�30, 2014, the Partnership had the following outstanding commodity contracts that were entered into to manage cash flow risk associated with future sales of NGLs or future purchases of natural gas:

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Embedded Derivatives in Commodity Contracts

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The Partnership has a commodity contract with a producer in the Appalachia region that creates a floor on the frac spread for gas purchases of 9,000 Dth/d. The commodity contract is a component of a broader regional arrangement that also includes a keep-whole processing agreement. This contract is accounted for as an embedded derivative and is recorded at fair value. The changes in fair value of this commodity contract are based on the difference between the contractual and index pricing and are recorded in earnings through Derivative (gain) loss related to purchased product costs. In February�2011, the Partnership executed agreements with the producer to extend the commodity contract and the related processing agreement from September�30, 2015 to December�31, 2022 with the producer�s option to extend the agreement for successive five-year terms through December�31, 2032. As of September�30, 2014, the estimated fair value of this contract was a liability of $83.8�million and the recorded value was a liability of $30.3 million. The recorded liability does not include the inception fair value of the commodity contract related to the extended period from April�1, 2015 to December�31, 2022. In accordance with GAAP for non-option embedded derivatives, the fair value of this extended portion of the commodity contract at its inception of February�1, 2011 is deemed to be allocable to the host processing contract and therefore not recorded as a derivative liability. See the following table for a reconciliation of the liability recorded for the embedded derivative as of September�30, 2014 (in thousands):

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The Partnership has a commodity contract that gives it an option to fix a component of the utilities cost to an index price on electricity at its plant location in the Southwest segment through the fourth quarter of 2014. Changes in the fair value of the derivative component of this contract are recorded in Derivative loss related to facility expenses. As of September�30, 2014, the estimated fair value of this contract was an asset of $0.4 million.� This commodity contract has been amended effective December�31, 2014 and will no longer be accounted for as an embedded derivative on a go forward basis.

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Financial Statement Impact of Derivative Instruments

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There were no material changes to the Partnership�s policy regarding the accounting for these instruments as previously disclosed in the Partnership�s Annual Report on Form�10-K for the year ended December�31, 2013. The impact of the Partnership�s derivative instruments on its Condensed Consolidated Balance Sheets is summarized below (in thousands):

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MARKWEST ENERGY PARTNERS,�L.P.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

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(1)�������� Includes Embedded Derivatives in Commodity Contracts as discussed above.

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Although certain derivative positions are subject to master netting agreements, the Partnership has elected not to offset any derivative assets and liabilities. The gross amounts in the table below equal the balances presented in the Condensed Consolidated Balance Sheets.� The table below summarizes the impact if the Partnership had elected to net its derivative positions that are subject to master netting arrangements (in thousands):

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