**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-K/A(Amendment No. 1)**

| **x**      | ** ** | **Annual report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934**                                                                                                                             |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                      |
| ** ** | ** ** | **for the fiscal year ended December 31,  2006.**                                                                                                                                                                          |
| ** ** | ** ** | ** **                                                                                                                                                                                                                      |
| **OR**     |
|       |       | ** **                                                                                                                                                                                                                      |
| **o**      |       | **Transition report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934**                                                                                                                         |
| ** ** |       | ** **                                                                                                                                                                                                                      |
| ** ** |       | **for the transition period from                   to                 .** |

 

**Commission File Number 001-14841**

**MARKWEST HYDROCARBON, INC.**

(Exact name of registrant as specified in its charter)

| **Delaware**                     |   | **84-1352233**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer     |
| incorporation or  organization)  |   | Identification  No.) |

 

**1515 Arapahoe Street, Tower 2, Suite700, Denver, Colorado 80202**

(Address of principal executive offices)

Registrant’s telephone number, including areacode:  **303-925-9200**

Securitiesregistered pursuant to Section 12(b) of the Act: **CommonStock, $0.01 par value, American Stock Exchange**

Securitiesregistered pursuant to Section 12(g) of the Act: **None**

Indicateby check mark whether the registrant is a well-known seasoned issuer, asdefined in Rule 405 of the Securities Act.Yes o No x

Indicate by check markif the registrant is not required to file reports pursuant to Section 13or 15(d) of the Act. Yes o No x

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No o

Indicate by check markif disclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to thisForm 10-K. o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of theExchange Act.  (Check one)

Largeaccelerated filer o    Accelerated filer x             Non-accelerated filer o

Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act). Yes o No x

Theaggregate market value of voting common stock held by non-affiliates of theregistrant on June 30, 2006 was approximately $155,351,000.

Theregistrant had 11,992,520 shares of common stock, $0.01 per share par value,outstanding as of February 15, 2007.

**DOCUMENTS INCORPORATED BY REFERENCE:None**

 

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** **

**Explanatory Note**

ThisAmendment No. 1 to the Annual Report on Form 10-K of MarkWestHydrocarbon, Inc. for the fiscal year ended December 31, 2006, is beingfiled for the purpose of correcting MarkWest Hydrocarbon Standalone contract volumesset forth in the columns “Fixed Physical Forwards” and “Fixed Swaps” toappropriately reflect daily volumes rather than total volumes, as previouslyreported with the Securities and Exchange Commission on March 7, 2007, asdiscussed in *Item 7A — Quantitative and QualitativeDisclosures About Market Risk* and *Item 8.Financial Statements and Supplemental Data — Note 13*. For theconvenience of the reader, this Form 10-K/A sets forth the originalForm 10-K in its entirety. This Form 10-K/A does not reflect eventsoccurring after the filing of the original Form 10-K.

Asrequired by Rule 12b-15 promulgated under the Securities and Exchange Actof 1934, our Chief Executive Officer and Chief Financial Officer are providingRule 13a-14(a) certifications dated March 21, 2007, in connectionwith this Form 10-K/A and written statements pursuant to Section 906of the Sarbanes-Oxley Act of 2002 dated March 21, 2007.

**MarkWest Hydrocarbon, Inc.**

**Form 10-K/A**

**Table of Contents**
| **PART I**   | ** ** | ** **                                                                                                          |
|-------------------|------------|---------------------------------------------------------------------------------------------------------------------|
| Item 1.           |       | Business                                                                                                            |
| Item 1A.          |       | Risk  Factors                                                                                                       |
| Item 1B.          |       | Unresolved Staff  Comments                                                                                          |
| Item 2.           |       | Properties                                                                                                          |
| Item 3.           |       | Legal  Proceedings                                                                                                  |
| Item 4.           |       | Submission of  Matters to a Vote of Security Holders                                                                |
|              |       |                                                                                                                |
| **PART II**  |       |                                                                                                                |
| Item 5.           |       | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |
| Item 6.           |       | Selected Financial  Data                                                                                            |
| Item 7.           |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operation                          |
| Item 7A.          |       | Quantitative  and Qualitative Disclosures About Market Risk                                                         |
| Item 8.           |       | Financial  Statements and Supplementary Data                                                                        |
| Item 9.           |       | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                               |
| Item 9A.          |       | Controls and  Procedures                                                                                            |
| Item 9B.          |       | Other Information                                                                                                   |
|              |       |                                                                                                                |
| **PART III** |       |                                                                                                                |
| Item 10.          |       | Directors,  Executive Officers and Corporate Governance                                                             |
| Item 11.          |       | Executive  Compensation                                                                                             |
| Item 12.          |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    |
| Item 13.          |       | Certain  Relationships, Related Transactions and Director Independence                                              |
| Item 14.          |       | Principal  Accountant Fees and Services                                                                             |
|              |       |                                                                                                                |
| **PART IV**  |       |                                                                                                                |
| Item 15.          |       | Exhibits and  Financial Statement Schedules                                                                         |
|              |       |
| **SIGNATURES**    | ** ** |

 

Throughout this document we make statements that areclassified as “forward-looking.” Please refer to the “Forward-LookingStatements” included later in this section for an explanation of thesetypes of assertions. Also, in this document, unless the context requiresotherwise, references to “we,” “us,” “our,” “MarkWest Hydrocarbon” or the “Company”are intended to mean MarkWest Hydrocarbon, Inc., and its consolidatedsubsidiaries.  “MarkWest Energy” or “MarkWestEnergy Partners” or the “Partnership” is intended to mean MarkWest EnergyPartners, L.P.

**Glossary of Terms**

Inaddition, the following is a list of certain acronyms and terms used throughoutthe document:
| Bbl/d                                               |   | barrels per day                                                       |
|-----------------------------------------------------|--------|-----------------------------------------------------------------------|
| Btu                                                 |   | one British thermal unit, an energy measurement                       |
| Gal                                                 |   | gallons                                                               |
| Gal/d                                               |   | gallons per day                                                       |
| Mcf                                                 |   | one thousand cubic feet of natural gas                                |
| Mcf/d                                               |   | one thousand cubic feet of natural gas per day                        |
| MMBtu                                               |   | one million British thermal units, an energy  measurement             |
| MMBtu/d                                             |   | one million British thermal units, an energy  measurement, per day    |
| MMcf/d                                              |   | one million cubic feet of natural gas per day                         |
| MTBE                                                |   | methyl tertiary butyl ether                                           |
| NA                                                  |   | not applicable                                                        |
| Net operating margin (a non-GAAP financial measure) |   | revenues less purchased product costs                                 |
| NGL(s)                                              |   | natural gas liquid(s), such as propane, butanes and  natural gasoline |

 

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**Forward-Looking Statements**

Statementsincluded in this annual report on Form 10-K that are not historical factsare forward-looking statements. We use words such as “may,” “believe,” “estimate,”“expect,”  “intend,” “project,” “anticipate,”and similar expressions to identify forward-looking statements.

Management basesthese statements on its expectations, estimates, assumptions and beliefsconcerning future events affecting us and therefore they involve a number ofrisks and uncertainties. We caution that forward-looking statements are notguarantees and that actual results could differ materially from those expressedor implied.  Forward-looking statementsinclude statements relating to, among other things:

·                     Ourexpectations regarding MarkWest Energy Partners, L.P.

·                     Our abilityto grow MarkWest Energy Partners, L.P.

·                     Ourexpectations regarding natural gas and NGL products and prices.

·                     Our effortsto increase fee-based contract volumes.

·                     Our abilityto manage our commodity price risk.

·                     Our abilityto maximize the value of our NGL output.

·                     The adequacyof our general public liability, property, and business interruption insurance.

·                     Our abilityto comply with environmental and governmental regulations.

Important factorsthat could cause our actual results of operations or our actual financialcondition to differ include, but are not necessarily limited to:

·                     Theavailability of raw natural gas supply for our gathering and processingservices.

·                     Theavailability of NGLs for our transportation, fractionation and storageservices.

·                     Prices of NGLproducts, crude oil and natural gas, including the effectiveness of any hedgingactivities.

·                     Our abilityto negotiate favorable marketing agreements.

·                     The risk thatthird-party natural gas exploration and production activities will not occur orbe successful.

·                     Competitionfrom other NGL processors, including major energy companies.

·                     Ourdependence on certain significant customers, producers, gatherers, treaters andtransporters of natural gas.

·                     ThePartnership’s ability to successfully integrate its recent and futureacquisitions.

·                     ThePartnership’s ability to identify and complete organic growth projects oracquisitions complementary to its business.

·                     ThePartnership’s substantial debt and other financial obligations could adverselyaffect its financial condition.

·                     The Partnership’s ability to raisesufficient capital to execute our business plan through borrowing or issuingequity.

·                     Changes ingeneral economic conditions in regions where our products are located.

·                     The successof our risk management policies.

·                     Theoperational hazards and availability and cost of insurance on our assets andoperations.

·                     The damage to facilities andinterruption of service due to casualty, weather, mechanical failure or any extendedor extraordinary maintenance or inspection that may be required.

·                     The impact ofany failure of our information technology systems.

·                     The impact ofcurrent and future laws and government regulations.

·                     The liability for environmental claims.

·                     The impact of the departure of any keyexecutive officers.

·                     Winterweather conditions.

·                     The threat ofterrorist attacks or war.

 

This list is not necessarily complete. Other unknownor unpredictable factors could also have material adverse effects on futureresults. The Company does not update publicly any forward-looking statementwith new information or future events. Investors are cautioned not to put undue reliance on forward-lookingstatements as many of these factors are beyond our ability to control orpredict. You should read “Risk Factors” included in Item 1A of thisForm 10-K for further information.

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# **PART I**

## **Item1. Business**

##### **General**

MarkWestHydrocarbon was founded in 1988 as a partnership and later incorporated inDelaware.  We completed our initial public offering of common shares in1996.

MarkWestHydrocarbon is an energy company primarily focused on marketing natural gasliquids (NGLs) and increasing shareholder value by growing MarkWest EnergyPartners, L.P. (“MarkWest Energy” or “MarkWest Energy Partners” or the “Partnership”),our consolidated subsidiary and a publicly-traded master limitedpartnership.  MarkWest Energy Partners isengaged in the gathering, processing and transmission of natural gas; thetransportation, fractionation and storage of natural gas liquids; and thegathering and transportation of crude oil.

MarkWest Hydrocarbon’s assets consist primarily ofpartnership interests in MarkWest Energy Partners and certain processingagreements in Appalachia.  As of December 31, 2006, the Company owneda 17% interest in the Partnership, consisting of the following (all unitinformation has been adjusted for the February 2007 unit split; see Note 2 tothe Consolidated Financial Statements):

·                     3,738,992common units and 1,200,000 subordinated units, representing a combined 15%limited partner interest in the Partnership; and

·                     an 89.7%ownership interest in MarkWest Energy GP, L.L.C., the general partner of thePartnership, which in turn owns a 2% general partner interest and all of theincentive distribution rights in the Partnership.

**Industry Overview**

MarkWestEnergy Partners provides services in most areas of the natural gas gathering,processing and fractionation industry. The following diagram illustrates the typical natural gas gathering,processing and fractionation process:

 

Thenatural gas gathering process begins with the drilling of wells intogas-bearing rock formations.  Oncecompleted, the well is connected to a gathering system.  Gathering systems typically consist of anetwork of small diameter pipelines and, if necessary, compression systems thatcollect natural gas from points near producing wells and transport it to largerpipelines for further transmission.

Natural gas has a widely varyingcomposition, depending on the field, the formation reservoir or facility fromwhich it is produced. The principal constituents of natural gas are methane andethane.  Most natural gas also containsvarying amounts of heavier components, such as propane, butane, naturalgasoline and inert substances that may be removed by any number of processingmethods.

Most natural gasproduced at the wellhead is not suitable for long-haul pipeline transportationor commercial use.  It must be gathered,compressed and transported via pipeline to a central facility, and thenprocessed to remove the heavier hydrocarbon components and other contaminantsthat interfere with pipeline transportation or the end-use of the gas.  Our business includes providing these serviceseither for a fee or a percentage of the NGLs removed or gas unitsprocessed.  The industry as a whole ischaracterized by regional competition, based on the proximity of gatheringsystems and processing plants to producing natural gas wells, or to facilitiesthat produce natural gas as a by product of refining crude oil.

MarkWest EnergyPartners also provides processing and fractionation services to crude oilrefineries in the Corpus Christi, Texas, area through its Javelina gasprocessing and fractionation facility. While similar to the natural gasindustry 

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diagram outlined above,the following diagram illustrates the significant gas processing andfractionation processes at the Partnership’s Javelina Facility:

Natural gasprocessing and treating involves the separation of raw natural gas intopipeline-quality or fuel-quality natural gas, principally methane, and NGLs, aswell as the removal of contaminants.  Rawnatural gas from the wellhead is gathered at a processing plant, typicallylocated near the production area, where it is dehydrated and treated, and thenprocessed to recover a mixed NGL stream. In the case of the Partnership’s Javelina facilities, the natural gasdelivered to its processing plant is a byproduct of the crude oil refiningprocess.

The removal andseparation of individual hydrocarbons by processing is possible because ofdifferences in physical properties.  Eachcomponent has a distinctive weight, boiling point, vapor pressure and otherphysical characteristics. Natural gas may also be diluted or contaminated bywater, sulfur compounds, carbon dioxide, nitrogen, helium or othercomponents.  At the Javelina facility,the Partnership also produces a high quality hydrogen stream that is deliveredback to certain refinery customers.

After beingseparated from natural gas at the processing plant, the mixed NGL stream istypically transported to a centralized facility for fractionation.  Fractionation is the process by which NGLsare further separated into individual, more marketable components, primarilyethane, propane, normal butane, isobutane and natural gasoline. Fractionationsystems typically exist either as an integral part of a gas processing plant oras a “central fractionator,” often located many miles from the primaryproduction and processing facility. A central fractionator may receive mixedstreams of NGLs from many processing plants.

Described below are the five basic NGL products andthree other products, and their typical uses:

·                     *Ethane* is used primarily as feedstock inthe production of ethylene, one of the basic building blocks for a wide rangeof plastics and other chemical products. Ethane is not produced at our Siloam fractionator, as there is littlepetrochemical demand for ethane in Appalachia. It remains, therefore, in the natural gas stream.  Ethane, however, is produced and sold in ourEast Texas and Oklahoma operations.

·                     *Propane* is used for heating, engine andindustrial fuels, agricultural burning and drying, and as a petrochemicalfeedstock for the production of ethylene and propylene.  Propane is principally used as a fuel in ouroperating areas.

·                     *Normal butane* is principally used forgasoline blending, as a fuel gas, either alone or in a mixture with propane,and as a feedstock for the manufacture of ethylene and butadiene, a keyingredient of synthetic rubber.

·                     *Isobutane* is principally used by refinersto enhance the octane content of motor gasoline, as well as in the productionof MTBE, an additive in cleaner-burning motor gasoline.

·                     *Natural gasoline* is principally used as amotor gasoline blend stock or petrochemical feedstock.

·                     *Ethylene and propylene* are principallyused as petrochemical feedstock.

·                     *Hydrogen*is**principally used in the refining process to assist in theproduction of low sulfur products.

**Competition**

MarkWest Hydrocarbon faces competitionfor marketing NGL products and purchasing natural gas supplies. Competition forcustomers and purchases of natural gas are based primarily on price, deliverycapabilities, flexibility and maintenance of quality customer relationships.

The Partnership faces competition fornatural gas and crude oil transportation; in obtaining natural gas supplies forour processing and related services operations; in obtaining unprocessed NGLsfor fractionation; and in marketing our 

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products and services. Competition for natural gas suppliesis based primarily on the location of gas-gathering facilities andgas-processing plants, operating efficiency and reliability, and the ability toobtain a satisfactory price for products recovered. Competitive factors affectingthe Partnership’s fractionation services include availability of capacity,proximity to supply and industry marketing centers, cost efficiency andreliability of service, and, in the case of Javelina, the value of therecovered products compared to their equivalent value when consumed at therefineries as fuel. Competition for customers is based primarily on price,delivery capabilities, flexibility, and maintenance of high-quality customerrelationships.

The Partnership’s competitors include:

·                     other largenatural gas gatherers that gather, process and market natural gas and NGLs;

·                     majorintegrated oil companies;

·                     medium andlarge sized independent exploration and production companies;

·                     majorinterstate and intrastate pipelines; and

·                     a large numberof smaller gas gatherers of varying financial resources and experience.

We believe the Partnership’s competitive strengthsinclude**:**

·                     *Location and efficiency of facilities.* Inmany locations, the Partnership’s facilities were installed more recently andare more efficient than those of its competitors. This provides the Partnershipwith a significant competitive advantage over its competitors. In otherlocations, there are no other viable facilities to provide similar services asthe Partnership provides.

·                     *Strategic and growing position with high-qualityassets in the Southwest and the Gulf Coast.* The Partnership’s acquisitions and internal growth projectshave allowed it to establish and expand its presence in several long-livednatural gas supply basins in the Southwest, particularly in Texas, Oklahoma andthe Gulf Coast.  In 2006 the Partnershipexpanded this strategy through its Newfield agreement by building the largestgathering system to date in the newly emerging Woodford Shale play in southeasternOklahoma.  All of the Partnership’s majoracquisitions in these regions have been characterized by several commoncritical success factors that include:

·                     an existingstrong competitive position;

·                     access to asignificant reserve or customer base with a stable or growing productionprofile;

·                     ampleopportunities for long-term continued organic growth;

·                     ready accessto markets; and

·                     closeproximity to other acquisition or expansion opportunities.

Specifically, thePartnership’s East Texas and Appleby gathering systems are located in the EastTexas basin producing from both the Cotton Valley and Travis Peak reservoirs.The Partnership’s Foss Lake gathering system and the associated Arapaho gasprocessing plant, which it refers to as its western Oklahoma assets, arelocated in the Anadarko basin in Oklahoma. Additionally, as mentioned above,the Partnership’s Woodford gathering system is located in the rapidly growingWoodford Shale reservoir.  Finally, thePartnership’s Starfish asset gathers gas from multiple reservoirs in the Gulfof Mexico.  Each of these basins ishighly prolific with long lived reserves and significant growth potential.  The Partnership’s gathering systems arerelatively new and provide producers with low-pressure and fuel-efficient service,a significant competitive advantage for it over many competing gatheringsystems in those areas. The Partnership believes this competitive advantage isevidenced by its growing throughput volumes on its East Texas, Appleby, westernand southeastern Oklahoma operations.

·                     *Long-term contracts.* We believe MarkWest Energy Partners’long-term contracts, which we define as contracts with remaining terms of fiveyears or more, lend greater stability to its cash-flow profile.  For the year ended December 31, 2006,approximately 67% of the Partnership’s inlet volumes were tied to long-termcontracts.

·                     *Experienced management with operational, technicaland acquisition expertise.*  Each member of our executive management teamhas substantial experience in the energy industry. The Partnership’s facilitymanagers have extensive experience operating their facilities.  The Partnership’s operational and technicalexpertise has enabled it to upgrade its existing facilities, as well as todesign and build new ones, specifically the Carthage gas processing plant.  Since the Partnership’s initial publicoffering in May 2002, its management team has utilized a disciplinedapproach to analyze and evaluate numerous acquisition opportunities, and has 

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completed nine acquisitions.  The Partnership intends to continue to useits management’s experience and disciplined approach in evaluating andacquiring assets to grow through accretive acquisitions.  The acquisitions are expected to increasethroughput volumes and ultimately increase cash flow distributable to thePartnership’s unitholders.

To better understand our business and results ofoperations discussed in *Item 6. Selected FinancialData*and *Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operation*,it is important to have an understanding of three factors:

·                     The nature ofour relationship with MarkWest Energy Partners;

·                     The nature ofthe contracts from which we derive our revenues and from which MarkWest EnergyPartners derives its revenues; and

·                     The lack ofcomparability within our results of operations across periods because ofMarkWest Energy Partners’ significant acquisition activity.

**Our Relationship with MarkWestEnergy Partners**

Wespun off the majority of our then-existing natural gas gathering and processingand NGL transportation, fractionation and storage assets into MarkWest EnergyPartners in May 2002, just before the Partnership completed its initialpublic offering. At the time of its formation and initial public offering, weentered into four contracts with MarkWest Energy Partners whereby MarkWestEnergy Partners provides midstream services in Appalachia to us for afee.  Additionally, MarkWest Energy Partners receives 100% of all fee andpercent-of-proceeds consideration for the first 10 MMcf/d that it gathers andprocesses in Michigan. MarkWest Hydrocarbon retains a 70% net profit interestin the gathering and processing income earned on quarterly pipeline throughputin excess of 10 MMcf/d.  In accordance with accounting principlesgenerally accepted in the United States (“GAAP”), MarkWest Energy Partners’financial results are included in our consolidated financial statements. All intercompany accounts and transactions are eliminated during consolidation.

Asa result of the contracts mentioned above, the Company is one of thePartnership’s largest customers.  For theyear ended December 31, 2006, we accounted for 13% of the Partnership’srevenues and 12% of its net operating margin (a non-GAAP financial measure, see *Item1. Business - Contracts*), compared to 13% of revenues and 20%of net operating margin for the year ending December 31, 2005.  We expect we will account for less of the Partnership’sbusiness in the future as it continues to acquire assets and increase itscustomer base and diversify its business.

Wecontrol and operate MarkWest Energy Partners through our majority ownership inthe Partnership’s general partner.  Ouremployees are responsible for conducting the Partnership’s business andoperating its assets pursuant to a Services Agreement, which was formalized andmade effective January 1, 2004.

**Contracts**

# ***MarkWest Hydrocarbon***

Excludingthe revenues derived from MarkWest Energy Partners, we generate the majority ofour revenues and net operating margin from the Appalachia processingagreements. We outsource these services to the Partnership and pay thePartnership a fee for providing processing and fractionation services. Ascompensation for providing processing services to our Appalachian producers, weearn a fee and receive title to the NGLs produced. In return, we are requiredto replace, in dry natural gas, the Btu content of the NGLs extracted.  This Btu replacement obligation is referredto in the industry as a “keep-whole” arrangement. In keep-whole arrangements,our principal cost is purchasing and delivering dry gas of an equivalent Btucontent to replace the Btus extracted from the gas stream in the form of NGLs,or consumed as fuel during processing.  The spread between the NGL productsales price and the purchase price of natural gas with an equivalent Btucontent is called the “frac spread.” Generally, the frac spread is positive and offsets all or a portion of thefees that we pay the Partnership.  In theevent natural gas becomes more expensive on a Btu equivalent basis than NGLproducts and the associated fees that we pay the Partnership, the net operatingmargin associated with the Appalachian processing agreements results inoperating losses.

InAppalachia, we have entered into various operating agreements with one customerrelated to the delivery of natural gas into its transmission facilities,located upstream of MarkWest Energy’s Kenova, Boldman and Cobb facilities.Under the terms of these operating agreements, the customer has agreed to usereasonable, diligent efforts to supply these facilities with consistent volumesof natural gas it ships on behalf of the Appalachian producers. The initialterms of our agreements with this customer run through February 9, 2015,with annual renewals thereafter.

In September 2004 we entered into several new andamended agreements with this customer mentioned above in the Appalachia region.  These agreements, which expire in 2015assuming renewals we deem likely, will allow us to significantly reduce ourexposure 

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tocommodity price risk, for approximately 25% of our keep-whole gasvolumes.  Under these agreements, the Company’s exposure to the keep-wholenatural gas is limited in the event natural gas becomes more expensive than theNGL product sales price, thereby mitigating the risk of incurring operatinglosses.

Atthe closing of MarkWest Energy Partners’ initial public offering onMay 24, 2002, we outsourced our midstream services to thePartnership.  Pursuant to the terms ofthe operating agreements, we retained all the benefits and associated risks ofthe keep-whole contracts.  We alsoretained our NGL marketing and natural gas supply operations and did notcontribute them to MarkWest Energy Partners.

Thekeep-whole contracts expose us to commodity price risk, both on the sales side(of NGLs) and on the purchase side (of natural gas), which, in turn, mayincrease the volatility of our standalone results and cash flows.  We attempt to mitigate our commodity pricerisk through our commodity price risk management program (see *Item 7A. Quantitative and Qualitative Disclosures about Market Risk*forfurther details about our commodity price risk management program).

***MarkWest EnergyPartners***

The Partnership generates the majority of its revenueand net operating margin from natural gas gathering, processing andtransmission, NGL transportation, fractionation and storage; and crude oilgathering and transportation. In many cases, the Partnership provides servicesunder contracts that contain a combination of more than one of the arrangementsdescribed below. While all of these services constitute midstream energyoperations, the Partnership provides services under the following differenttypes of arrangements:

·                    *Fee-based arrangements.*The Partnershipreceives a fee or fees for one or more of the following services: gathering,processing and transmission of natural gas; transportation, fractionation andstorage of NGLs; and gathering and transportation of crude oil. The revenue thePartnership earns from these arrangements is directly related to the volume ofnatural gas, NGLs or crude oil that flows through our systems and facilitiesand is not directly dependent on commodity prices. In certain cases, thesearrangements provide for minimum annual payments. If a sustained decline incommodity prices were to result in a decline in volumes, the Partnership’srevenues from these arrangements would be reduced.

·                    *Percent-of-proceeds arrangements.* The Partnership gathers and processes natural gas on behalf of producers, sellsthe resulting residue gas, condensate and NGLs at market prices, and remits toproducers an agreed upon percentage of the proceeds based on an index price. Inother cases, instead of remitting cash payments, the Partnership delivers anagreed-upon percentage of the residue gas and NGLs to the producer, and sellsthe volumes it keeps to third parties at market prices.  Generally, underthese types of arrangements its revenues and net operating margins increase asnatural gas, condensate and NGL prices increase, and its revenues and netoperating margins decrease as natural gas and NGL prices decrease.

·                    *Percent-of-index arrangements.*  ThePartnership generally purchases natural gas at either (1) a percentagediscount to a specified index price, (2) a specified index price less afixed amount, or (3) a percentage discount to a specified index price lessan additional fixed amount. It then gathers and delivers the natural gas topipelines, where it resells the natural gas at the index price, or at adifferent percentage discount to the index price. The net operating margins thePartnership realizes under these arrangements decrease in periods of lownatural gas prices, because these net operating margins are based on apercentage of the index price. Conversely, their net operating margins increaseduring periods of high natural gas prices.

·                    *Keep-whole arrangements.*  ThePartnership gathers natural gas from the producer, processes the natural gas,and sells the resulting condensate and NGLs to third parties at market prices.Because the extraction of the condensate and NGLs from the natural gas duringprocessing reduces the Btu content of the natural gas, the Partnership musteither purchase natural gas at market prices for return to producers, or makecash payment to the producers equal to the energy content of this natural gas.Accordingly, under these arrangements the Partnership’s revenues and netoperating margins increase as the price of condensate and NGLs increasesrelative to the price of natural gas, and decreases as the price of natural gasincreases relative to the price of condensate and NGLs.

·                    *Settlement margin.*  Typically, thePartnership is allowed to retain a fixed percentage of the volume gathered tocover the compression fuel charges and deemed line losses.  To the extentthe gathering system is operated more efficiently than specified per contractallowance, the Partnership is entitled to retain the difference for its ownaccount.

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The terms of the Partnership’s contracts vary based ongas quality conditions, the competitive environment when the contracts aresigned and customer requirements. The Partnership’s contract mix and,accordingly, its exposure to natural gas and NGL prices, may change as a resultof changes in producer preferences, its expansion in regions where some typesof contracts are more common and other market factors. Any change in mix willinfluence the Partnership’s financial results.

Management evaluates performance on the basis of netoperating margin (a non-GAAP financial measure), which is defined as income(loss) from operations, excluding facility cost, selling, general and administrativeexpense, depreciation, amortization, impairments and accretion of assetretirement. These charges have been excluded for the purpose of enhancing theunderstanding by both management and investors of the underlying baselineoperating performance of our contractual arrangements, which management uses toevaluate our financial performance for purposes of planning and forecasting.Net operating margin does not have any standardized definition and therefore isunlikely to be comparable to similar measures presented by other reportingcompanies. Net operating margin results should not be evaluated in isolationof, or as a substitute for our financial results prepared in accordance withUnited States GAAP. Our usage of net operating margin and the underlyingmethodology of excluding certain charges is not necessarily an indication ofthe results of operations expected in the future. The following tablerepresents reconciliation to the most comparable GAAP financial measure of thisnon-GAAP financial measure (in thousands):
|                                           | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues                                  |       | $                                          | 785,722    |   | $ | 714,177 |   | $ | 460,113 |   |
| Purchased  product costs                  |       | 512,327                                    |       | 583,084 |   | 363,261 |   |
| Net operating margin                      |       | 273,395                                    |       | 131,093 |   | 96,852 |   |
| Facility  expenses                        |       | 57,403                                     |       | 45,577 |   | 28,580 |   |
| Selling, general  and administrative      |       | 63,038                                     |       | 33,350 |   | 28,132 |   |
| Depreciation                              |       | 31,010                                     |       | 20,829 |   | 16,895 |   |
| Amortization of  intangible               |       | 16,047                                     |       | 9,656 |   | 3,640 |   |
| Accretion of  asset retirement obligation |       | 102                                        |       | 160 |   | 15 |   |
| Impairments                               |       | —                                     |       | — |   | 130 |   |
| Income from  operations                   |       | $                                          | 105,795    |   | $ | 21,521 |   | $ | 19,460 |   |

 

For the year ended December 31, 2006,MarkWest Energy Partners calculated the following approximate percentages ofits revenues and net operating margin from the following types of contracts,exclusive of the impact of commodity derivatives:
|                      | ** ** | **Fee-Based** | ** ** | **Percent-of-  Proceeds (1)** | ** ** | **Percent-of-  Index (2)** | ** ** | **Keep-Whole (3)** | ** ** | **Total** | ** ** |
|----------------------|------------|---------------|------------|------------------------------------|------------|---------------------------------|------------|-------------------------|------------|-----------|------------|
| Revenue              |       | 14            | %          | 25                                 | %          | 43                              | %          | 18                      | %          | 100       | %          |
| Net operating margin |       | 32            | %          | 38                                 | %          | 13                              | %          | 17                      | %          | 100       | %          |

 

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(1)          Includesother types of arrangements tied to NGL prices.

(2)          Includessettlement margin, condensate sales and other types of arrangements tied tonatural gas prices.

(3)          Includessettlement margin, condensate sales and other types of arrangements tied toboth NGL and natural gas prices.

Our short natural gas positions underour keep-whole contracts are largely offset by our long positions in our otheroperating areas.  As a result, our netexposure to natural gas is not significant. While the percentages in the table above accurately reflect thepercentages by contract type, we manage our business by taking into account theoffset described above, required levels of operational flexibility and the factthat our hedge plan is implemented on this basis.  When considered on this basis, the calculatedpercentages for the net operating margin in the table above for percent-of-proceeds,percent-of-index and keep-whole contracts change to 62%, 0% and 6%,respectively.

**Impact of Recent Acquisitions onComparability of Financial Results**

***MarkWest Energy Partners***

In reading the discussion of our historical results ofoperations, you should be aware of the impact of the Partnership’s recentacquisitions, which fundamentally affect the comparability of our results ofoperations over the periods discussed.

Since the Partnership’s initial publicoffering, it has completed nine acquisitions for an aggregate purchase price ofapproximately $810 million, net of working capital. The following tablecontains information regarding each of these acquisitions (in millions):

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| **Name**                 | ** ** | **Assets**                                                         | ** ** | **Location**                           | ** ** | **Consideration** | ** ** | **Closing Date** | ** **         |
|--------------------------|------------|--------------------------------------------------------------------|------------|----------------------------------------|------------|-------------------|------------|-----------------------|--------------------|
| ** **               | ** ** | ** **                                                         | ** ** | ** **                             | ** ** | ** **        | ** ** | ** **            | ** **         |
| Santa Fe                 |       | Grimes  gathering system                                           |       | Oklahoma                               |       | $                 | 15.0       |                  | December  29, 2006 |   |
|                     |       |                                                               |       |                                   |       |              |       |                  |               |
| Javelina (1)             |       | Gas  processing and fractionation   facility                       |       | Corpus  Christi, TX                    |       | 398.8             |       | November  1, 2005     |               |
|                     |       |                                                               |       |                                   |       |              |       |                  |               |
| Starfish (2)             |       | Natural  gas pipeline, gathering   system and dehydration facility |       | Gulf  of   Mexico/Southern   Louisiana |       | 41.7              |       | March  31, 2005       |               |
|                     |       |                                                               |       |                                   |       |              |       |                  |               |
| East Texas               |       | Gathering  system and gas   procession assets                      |       | East  Texas                            |       | 240.7             |       | July  30, 2004        |               |
|                     |       |                                                               |       |                                   |       |              |       |                  |               |
| Hobbs                    |       | Natural  gas pipeline                                              |       | New  Mexico                            |       | 2.3               |       | April  1, 2004        |               |
|                     |       |                                                               |       |                                   |       |              |       |                  |               |
| Michigan Crude  Pipeline |       | Common  carrier crude oil pipeline                                 |       | Michigan                               |       | 21.3              |       | December  18, 2003    |               |
|                     |       |                                                               |       |                                   |       |              |       |                  |               |
| Western Oklahoma         |       | Gathering  system                                                  |       | Western  Oklahoma                      |       | 38.0              |       | December  1, 2003     |               |
|                     |       |                                                               |       |                                   |       |              |       |                  |               |
| Lubbock Pipeline         |       | Natural  gas pipeline                                              |       | West  Texas                            |       | 12.2              |       | September  2, 2003    |               |
|                     |       |                                                               |       |                                   |       |              |       |                  |               |
| Pinnacle                 |       | Natural gas pipelines  and   gathering systems                     |       | East Texas                             |       | 39.9              |       | March 28, 2003        |               |
|                          |            |                                                                    |            |                                        |            |                   |            |                       |                    |  |

 

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(1)  Consideration includes $35.5 million in cash.

(2)  Represents a 50% non-controlling interest.

**Segment Reporting**

The Company’s financial statements include tworeportable segments; MarkWest Hydrocarbon Standalone and MarkWest EnergyPartners.  For further informationregarding our segments, see *Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operation*and*Item 8. Financial Statements and Supplementary Data*included in this Form 10-K.

For the year endedDecember 31, 2006, the MarkWest Hydrocarbon Standalone segment had twosignificant customers while the MarkWest Energy Partners’ segment hadthree.  Of these five significantcustomers, only one, Targa Resources Partners, L.P., had a significant impacton the Company’s consolidated financial statements, accounting for 10% ofconsolidated revenue.

***MarkWestHydrocarbon Standalone***

Our marketing group markets NGL production inAppalachia.  In 2006, we sold approximately 162 million gallons of NGLsextracted at the Partnership’s Siloam facility.  This includesapproximately 43 million gallons sold on behalf of the Partnership at nomark-up in the standalone segment.  Weship NGL products from Siloam by truck, rail and barge. Our marketing customersinclude propane retailers, refineries, petrochemical plants and NGL productresellers.  Most marketing sales contracts have terms of one year or less,are made on best-efforts basis and are priced in reference to Mt. Belvieu indexprices or plant posting prices.  In addition to our NGL product sales, ourmarketing operations also purchase natural gas for delivery to the account ofproducers, pursuant to our keep-whole processing contracts.

We strive to maximize the value of our NGL output bymarketing directly to our customers.  We minimize the use of third-partybrokers, preferring instead to support a direct marketing staff focused onmulti-state and independent dealers.  Additionally, we use our own trailerand railcar fleet, our own terminal, and owned and leased storage facilities,all of which serve to enhance supply reliability to our customers. Theseefforts have allowed us to generally maintain premium pricing for the majorityof our NGL products.

InAppalachia, we have entered into various operating agreements with one customerrelated to the delivery of natural gas into its transmission facilities,located upstream of MarkWest Energy’s Kenova, Boldman and Cobb facilities.Under the terms of these operating agreements, the customer has agreed to usereasonable, diligent efforts to supply these facilities with consistent volumesof natural gas it ships on behalf of the Appalachian producers. The initialterms of our agreements with this customer run through February 9, 2015,with annual renewals thereafter.

Consistent with the Partnership’s operating agreementswith this same customer, the Partnership enters into contracts with natural gasproducers for production to occur in the Partnership’s Kenova, Boldman and Cobbfacilities, before delivery of the producer’s natural gas to the customer’stransmission facilities. We have contractual commitments with over 250 suchproducers in Appalachia. Under the provisions of our contracts with theAppalachian producers, the producers have committed all of the natural gas theydeliver into the customer’s transmission facilities upstream of MarkWest Energy’sKenova, Boldman and Cobb facilities for processing.

As compensation for providing processing services toour Appalachian producers (we have since outsourced these services to MarkWestEnergy Partners as discussed below), we earn a fee and also retain the NGLsproduced under keep-

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wholeagreements.  In return, we are required to replace, in dry natural gas,the Btu content of the NGLs extracted.

In September 2004 we entered into several new andamended agreements with one of the largest producers in the Appalachiaregion.  These agreements, which expire in2015 assuming renewals we deem likely, will allow us to significantly reduceour exposure to commodity price risk, for approximately 25% of our keep-wholegas volumes.  Under these agreements, the Company’s exposure to thekeep-whole natural gas is limited in the event natural gas becomes moreexpensive than the NGL product sales price, thereby mitigating the risk ofincurring operating losses.

Our natural gasmarketing group markets natural gas for the Partnership, purchases thenecessary replacement Btu gas requirements and assists with businessdevelopment efforts. From February 2004 through June 2006, the Company engagedin the wholesale propane marketing business through a third party agencyagreement. The Company completed the terms of the termination agreement withthe third party agency in February 2007. MarkWest Hydrocarbon also enters intofuture sale agreements that, as derivative instruments, are marked to market.

***MarkWest EnergyPartners***

MarkWest Energy Partners’ assets and operations may besummarized as follows:

**SouthwestBusiness Unit**

·                     ***East Texas.***  MarkWest Energy Partners owns the East Texassystem, consisting of natural gas gathering system pipelines, centralizedcompressor stations, and a natural gas processing facility and NGL pipeline.The East Texas system is located in Panola, Harrison and Rusk Counties andservices the Carthage Field, one of the largest onshore natural gas fields inTexas. Producing formations in Panola County consist of the Cotton Valley,Pettit and Travis Peak formations, which together form one of the largestnatural gas producing regions in the United States.

·                          ***Oklahoma.***  MarkWest Energy Partners owns the Foss Lakegathering system and the Arapaho gas processing plant, located in Roger Mills,Custer and Ellis counties of western Oklahoma. The gathering portion consistsof a pipeline system that is connected to natural gas wells and associatedcompression facilities. All of the gathered gas ultimately is compressed anddelivered to the processing plant.  ThePartnership also owns a gathering system in the Woodford Shale Play in theArkoma Basin of southeastern Oklahoma, and owns the Grimes Gathering System,which is located in Roger Mills and Beckham counties in western Oklahoma.

·                          ***Other Southwest.***  MarkWest Energy Partners owns a number ofnatural gas gathering systems located in Texas, Louisiana, Mississippi and NewMexico. These systems generally service long-lived natural gas basins thatcontinue to experience drilling activity. The Partnership gathers a significantportion of the gas produced from fields adjacent to its gathering systems. Inmany areas the Partnership is the primary gatherer, and in some of the areasserved by its smaller systems, they are the sole gatherer. The Partnership alsoowns four lateral pipelines in Texas and New Mexico.

**NortheastBusiness Unit**

·                          ***Appalachia.***  MarkWest Energy Partners is the largestprocessor of natural gas in the Appalachian Basin, with fully integratedprocessing, fractionation, storage and marketing operations. The AppalachianBasin is a large natural gas producing region characterized by long-livedreserves and modest decline rates. The Partnership’s Appalachian assets includethe Kenova, Boldman, Maytown, Cobb and Kermit natural gas-processing plants, aNGL pipeline, a NGL fractionation plant and two caverns for storing propane.

·                          ***Michigan.***  MarkWest Energy Partners owns a commoncarrier crude oil gathering pipeline in Michigan which is subject to regulationby the Federal Energy Regulatory Commission (“FERC”). They refer to thispipeline as the Michigan crude pipeline. The Partnership also owns the Fiskprocessing plant in Manistee County, Michigan.

**GulfCoast Business Unit**

·                           ***Javelina.***  ThePartnership owns and operates the Javelina processing facility, anatural gas processing facility in Corpus Christi, Texas, which processesoff-gas from six local refineries. The facility processes approximately 125 to130 MMcf/d of inlet gas, but is expected to process up to its capacity of 142MMcf/d as refinery output continues to grow.

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The Partnership also owns a 50% non-operating membership interest inStarfish Pipeline Company, LLC, whose assets are located in the Gulf of Mexicoand southwestern Louisiana. The Starfish interest is part of a joint venturewith Enbridge Offshore Pipelines LLC, which is accounted for using the equitymethod; the financial results for Starfish are included in equity from earningsfrom unconsolidated affiliates and are not included in the Gulf Coast BusinessUnit results.

# **Regulatory Matters**

Our operations aresubject to extensive regulations. The failure to comply with applicable lawsand regulations can result in substantial penalties. The regulatory burden onour operations increases our cost of doing business and, consequently, affectsour profitability. However, we do not believe that we are affected in asignificantly different manner by these laws and regulations than are ourcompetitors. Due to the myriad of complex federal, state, provincial and localregulations that may affect us, directly or indirectly, you should not rely onthe following discussion of certain laws and regulations as an exhaustivereview of all regulatory considerations affecting our operations.

*Pipeline and Gathering Regulation*

*InterstateGas Pipelines. *Ournatural gas pipeline operations are subject to federal, state and localregulatory authorities. Specifically, our Hobbs, New Mexico natural gaspipeline and our Michigan crude oil pipeline facilities and related assets aresubject to regulation by the FERC. Federal regulation extends to such matters as:

·                     ratestructures;

·                     rates ofreturn on equity;

·                     recovery ofcosts;

·                     the servicesthat our regulated assets are permitted to perform;

·                     theacquisition, construction and disposition of assets; and

·                     to an extent,the level of competition in that regulated industry.

Under the NaturalGas Act, FERC has authority to regulate natural gas companies that providenatural gas pipeline transportation services in interstate commerce. Itsauthority to regulate those services includes the rates charged for theservices, terms and conditions of service, certification and construction ofnew facilities, the extension or abandonment of services and facilities, themaintenance of accounts and records, the acquisition and disposition offacilities, the initiation and discontinuation of services, and various othermatters. Natural gas companies may not charge rates that have been determinednot to be just and reasonable by FERC. In addition, FERC prohibits natural gascompanies from unduly preferring or unreasonably discriminating against anyperson with respect to pipeline rates or terms and conditions of service. Therates and terms and conditions for our service will be found in FERC-approvedtariffs. Pursuant to FERC’s jurisdiction over rates, existing rates may bechallenged by complaint and proposed rate increases may be challenged byprotest. We cannot assure you that FERC will continue to pursue its approach ofpro-competitive policies as it considers matters such as pipeline rates andrules and policies that may affect rights of access to natural gastransportation capacity, and transportation facilities. Any successfulcomplaint or protest against our rates, or loss of market-based rate authorityby FERC could have an adverse impact on our revenues associated with providinginterstate gas transportation services.

Should our FERCregulated pipeline operations fail to comply with all applicable FERCadministered statutes, rules, regulations and orders; we could be subject tosubstantial penalties and fines. Under the Energy Policy Act of 2005, FERC hascivil penalty authority under the Natural Gas Act to impose penalties forcurrent violations of up to $1,000,000 per day for each violation.

*Gatheringand Intrastate Pipeline Regulation. *Section 1(b)of the Natural Gas Act exempts natural gas gathering facilities from thejurisdiction of FERC.  We own a number offacilities that we believe meet the traditional tests FERC have used toestablish a pipeline’s status as a gatherer not subject to FERC jurisdiction.In the states in which we operate, regulation of gathering facilities andintrastate pipeline facilities generally includes various safety, environmentaland, in some circumstances, open access, nondiscriminatory take requirementsand complaint-based rate regulations. For example, some of our natural gasgathering facilities are subject to state ratable take and common purchaserstatutes. Ratable take statutes generally require gatherers to take, withoutundue discrimination, natural gas production that may be tendered to thegatherer for handling.  Similarly, commonpurchaser statutes generally require gatherers to purchase gas without unduediscrimination as to source of supply or producer. These statutes are designedto prohibit discrimination in favor of one producer over another producer orone source of supply over another source of supply.  These statutes have the effect of restrictingour right as an owner of gathering facilities to decide with whom we contractto purchase or transport natural gas.

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Natural gasgathering may receive greater regulatory scrutiny at both the state and federallevels now that FERC has taken a less stringent approach to regulation of thegathering activities of interstate pipeline transmission companies and a numberof such companies have transferred gathering facilities to unregulatedaffiliates. Our gathering operations could be adversely affected should they besubject in the future to the application of state or federal regulation ofrates and services. Our gathering operations also may be or become subject tosafety and operational regulations relating to the design, installation,testing, construction, operation, replacement and management of gatheringfacilities. Additional rules and legislation pertaining to these matters areconsidered or adopted from time to time. We cannot predict what effect, if any,such changes might have on our operations, but the industry could be requiredto incur additional capital expenditures and increased costs depending onfuture legislative and regulatory changes.

Our intrastate gaspipeline facilities are subject to various state laws and regulation thataffect the rates we charge and terms of service. Although state regulation istypically less onerous than at FERC, state regulation typically requirespipelines to charge just and reasonable rates and to provide service on anon-discriminatory basis. The rates and service of an intrastate pipelinegenerally are subject to challenge by complaint.

The Partnership’sAppalachian pipeline carries NGLs across state lines. The primary shipper onthe pipeline is MarkWest Hydrocarbon, which has entered into agreements withthe Partnership providing for a fixed transportation charge for the term of theagreements. They expire on December 31, 2015. The Partnership is the onlyother shipper on the pipeline. As the Company neither operates the Appalachianpipeline as a common carrier, nor holds it out for service to the publicgenerally, there are currently no third-party shippers on this pipeline and thepipeline is, and will continue to be, operated as a proprietary facility. Thelikelihood of other entities seeking to utilize the Appalachian pipeline isremote, so it should not be subject to regulation by the FERC in the future. Wecannot provide assurance, however, that FERC will not at some point determinethat such transportation is within its jurisdiction, or that such an assertionwould not adversely affect the Partnership’s results of operations.  In such a case, we would be required tofile a tariff with FERC and provide a cost justification for thetransportation charge.  Regardless of anyFERC action, however, MarkWest Hydrocarbon has agreed to not challenge thestatus of the Appalachian pipeline or the transportation charge during the termof its agreements.

*CrudeCommon Carrier Pipeline Operations. *OurMichigan Crude Pipeline is a crude oil pipeline that is a common carrier andsubject to regulation by the FERC under the October 1, 1977 version of theInterstate Commerce Act (ICA) and the Energy Policy Act of 1992 (EPAct 1992).The ICA and its implementing regulations give the FERC authority to regulatethe rates charged for service on the interstate common carrier liquidspipelines and generally require the rates and practices of interstate liquidspipelines to be just and reasonable and nondiscriminatory. The ICA alsorequires tariffs to be maintained on file with the FERC that set forth therates it charges for providing transportation services on its interstate commoncarrier liquids pipelines as well as the rules and regulations governing theseservices. EPAct 1992 and its implementing regulations allow interstate commoncarrier oil pipelines to annually index their rates up to a prescribed ceilinglevel. In addition, the FERC retains cost-of-service ratemaking, market-basedrates and settlement rates as alternatives to the indexing approach.

With respect toour Michigan Crude Pipeline, we filed a tariff establishing a cost-of-servicerate structure to be effective starting January 1, 2006. Two shippers anda producer protested the filing. On December 29, 2005, the Commissionaccepted our filing and permitted the rates to go into effect subject torefund. The Commission established hearing procedures but first referred theparties to settlement discussions before a FERC-appointed settlement judge. OnJanuary 31, 2006, the parties submitted a settlement to the FERC thatre-established the pre-existing Michigan intrastate pipeline rates with minormodifications and place a moratorium on rate changes or challenges for athree-year period, with limited exceptions. On March 7, 2006, the FERC settlementjudge certified the settlement to the FERC as uncontested and fair, reasonable,and in the public interest.

# **Environmental Matters**

***MarkWestHydrocarbon***

We are subject to environmental risks normallyincidental to our operations and construction activities including, but notlimited to, uncontrollable flows of natural gas, fluids and other substancesinto the environment, explosions, fires, pollution and other environmental andsafety risks.  Our business is subject to comprehensive state and federalenvironmental regulations.  For example, we, without regard to fault,could incur liability under the Comprehensive Environmental Response,Compensation, and Liability Act of 1980, as amended (also known as Superfund),or state counterparts, in connection with the disposal or other releases ofhazardous substances, including sour gas, and for natural resourcedamages.  Further, the recent trend in environmental legislation andregulations is toward stricter standards, and this will likely continue in thefuture.

Our activities are subject to environmental and safetyregulation by federal and state authorities, including, without 

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limitation,the state environmental agencies and the federal Environmental ProtectionAgency, which can increase the costs of designing, installing and operating ourfacilities. In most instances, the regulatory requirements relate to thedischarge of substances into the environment and include measures to controlwater and air pollution.

Laws and regulations may require us to obtain a permitor other authorization before we may conduct certain activities or we may besubject to fines and penalties for non-compliance. Further, theserules may limit or prohibit our activities within wilderness areas,wetlands, and areas providing habitat for certain species or other protectedareas.  We are also subject to other federal, state and local lawscovering the handling, storage or discharge of materials used by us. We believethat we are in material compliance with all applicable laws and regulations.

***MarkWest Energy Partners***

*General*

The Partnership’sprocessing and fractionation plants, pipelines, and associated facilities aresubject to multiple environmental obligations and potential liabilities under avariety of stringent and comprehensive federal, state and local laws andregulations. Such laws and regulations affect many aspects of the Partnership’spresent and future operations, and generally require it to obtain and complywith a wide variety of environmental registrations, licenses, permits,inspections and other approvals, with respect to air emissions, water quality,wastewater discharges, and solid and hazardous waste management. Failure tocomply with these stringent and comprehensive requirements may expose thePartnership to fines, penalties and/or interruptions in its operations thatcould influence future results of operations.

The Partnershipbelieves that its operations and facilities are in substantial compliance withapplicable environmental laws and regulations, and that the cost of continuedcompliance with such laws and regulations will not have a material adverseeffect on its results of operations or financial condition. The Partnershipcannot ensure, however, that existing environmental laws and regulations willnot be revised or that new laws and regulations will not be adopted or becomeapplicable to it. The clear trend in environmental law is to place morerestrictions and limitations on activities that may be perceived to affect theenvironment, and thus there can be no assurance as to the amount or timing offuture expenditures for environmental-regulation compliance or remediation, andactual future expenditures may be different from the amounts the Partnershipcurrently anticipates. Revised or additional environmental requirements thatresult in increased compliance costs or additional operating restrictions,particularly if those costs are not fully recoverable from the Partnership’scustomers, could have material adverse effect on its business, financialcondition, results of operations and cash flow.

*HazardousSubstance and Waste*

 To a large extent, the environmental laws andregulations affecting the Partnership’s operations relate to the release ofhazardous substances or solid wastes into soils, groundwater, and surfacewater, and include measures to control environmental pollution of theenvironment. For instance, the Comprehensive Environmental Response,Compensation, and Liability Act, as amended, or CERCLA, also known as the “Superfund”law, and comparable state laws, impose liability without regard to fault or thelegality of the original conduct, on certain classes of persons thatcontributed to a release of “hazardous substance” into the environment.  These persons include the owner or operatorof a site where a release occurred, both current and past, and companies thatdisposed or arranged for the disposal of the hazardous substances found at thesite.  Under CERCLA, liability is imposedupon persons under a strict liability theory, that is without regard to intentor fault, and these persons may be subject to joint and several liability forthe costs of removing or remediating hazardous substances that have beenreleased into the environment, for restoration and damages to naturalresources, and for the costs of certain health studies.  Additionally, it is not uncommon forneighboring landowners and other third parties to file claims for personalinjury and property damage allegedly caused by hazardous substances or otherpollutants released into the environment. While the Partnership generates materials in the course of itsoperations that are regulated as hazardous substances, they have not receivedany notification that they may be potentially responsible for cleanup costsunder CERCLA. The Partnership may also incur a liability under the ResourceConservation and Recovery Act, as amended, or RCRA, and comparable statestatutes, which impose requirements relating to the handling and disposal ofhazardous wastes and non-hazardous solid wastes. The Partnership is notcurrently required to comply with a substantial portion of the RCRArequirements because its operations generate minimal quantities of hazardouswastes. However, it is possible that some wastes generated by the Partnershipthat are currently classified as non-hazardous may, in the future, bedesignated as “hazardous wastes,” resulting in the wastes being subject to morerigorous and costly disposal requirements.

The Partnershipcurrently owns or leases, and have in the past owned or leased, properties thathave been used over the years for natural gas gathering and processing, for NGLfractionation, transportation and storage and for the storage and gathering andtransportation of crude oil.  Althoughsolid waste disposal practices within the NGL industry and other oil and 

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natural gas relatedindustries have improved over the years, a possibility exists that hydrocarbonsand other solid wastes or hazardous wastes may have been disposed of on orunder various properties owned or leased by the Partnership during theoperating history of those facilities. In addition, a number of these properties may have been operated bythird parties whose treatment and disposal or release of hydrocarbons or otherwastes was not under the Partnership’s control. These properties and wastes disposed thereon may be subject to CERCLA,RCRA, and analogous state laws.  Underthese laws, the Partnership could be required to remove or remediate previouslydisposed wastes or property contamination, including groundwater contaminationor to perform remedial operations to prevent future contamination.  The Partnership does not believe that therepresently exists significant surface and subsurface contamination of itsproperties by hydrocarbons or other solid wastes for which it is currentlyresponsible.

*OngoingRemediation and Indemnification from a Third Party*

The previousowner/operator of the Partnership’s Boldman and Cobb facilities has been, or iscurrently involved in, investigatory or remedial activities with respect to thereal property underlying these facilities. These arise out of a September 1994 “Administrative Order byConsent for Removal Actions” with EPA Regions II, III, IV, and V; and an “AgreedOrder” entered into with the Kentucky Natural Resources and EnvironmentalProtection Cabinet in October 1994. The previous owner/operator has accepted sole liability andresponsibility for, and indemnifies MarkWest Hydrocarbon against, anyenvironmental liabilities associated with the EPA Administrative Order, theKentucky Agreed Order or any other environmental condition related to the realproperty prior to the effective dates of MarkWest Hydrocarbon’s lease orpurchase of the real property.  Inaddition, the previous owner/operator has agreed to perform all the required responseactions at its expense in a manner that minimizes interference with MarkWestHydrocarbon’s use of the properties. On May 24, 2002, MarkWest Hydrocarbonassigned to us the benefit of this indemnity from the previousowner/operator.  To date, the previousowner/operator has been performing all actions required under these agreementsand, accordingly, we do not believe that the remediation obligation of theseproperties will have a material adverse impact on the Partnership’s financialcondition or results of operations.

*Air*

The Clean Air Act,as amended and comparable state laws restrict the emission of air pollutantsfrom many sources, including processing plants and compressor stations.  These laws and any implementing regulationsmay require the Partnership to obtain pre-approval for the construction ormodification of certain projects or facilities expected to produce airemissions, impose stringent air permit requirements, or utilize specificequipment or technologies to control emissions. While the Partnership may be required to incur certain capitalexpenditures in the next few years for air pollution control equipment inconnection with maintaining or obtaining operating permits addressing other airemission-related issues, it does not believe that such requirements will have amaterial adverse affect on its operations.

*Water*

The Federal WaterPollution Control Act of 1972, as amended, also known as the “Clean Water Actand analogous state laws impose restrictions and controls on the discharge ofpollutants into federal and state waters. Such discharges are prohibited, except in accord with the terms of apermit issued by the EPA or the state. Any unpermitted release of pollutants, including natural gas liquids orcondensates, could result in penalties, as well as significant remedialobligations.  The Partnership believesthat it is in substantial compliance with the Clean Water Act.

**Pipeline Safety Regulations**

Our pipelines aresubject to regulation by the U.S. Department of Transportation (“DOT”) underthe Pipeline Safety Act of 1992, as amended the newly enacted PipelineInspection, Protection, Enforcement, and Safety Act of 2006, (collectively the “PipelineSafety Acts”), and the Hazardous Liquid Pipeline Safety Act of 1979 (“HLPSA”),as amended; and the Pipeline Integrity Management (“PIM”) in High ConsequenceAreas (Gas Transmission Pipelines) amendment to 49 CFR Part 192, effectiveFebruary 14, 2004, relating to the design, installation, testing,construction, operation, replacement and management of pipeline facilities. ThePipeline Safety Act of 1992 required the Research and Special ProgramsAdministration of the DOT to consider environmental impacts, as well as itstraditional public safety mandate, when developing pipeline safety regulations.The DOT’s pipeline operator qualification rules require minimum qualificationrequirements for personnel performing operations and maintenance activities onhazardous liquid pipelines. HLPSA covers crude oil, carbon dioxide, NGL andpetroleum products pipelines and requires any entity which owns or operatespipeline facilities to comply with the regulations under HLPSA, to permitaccess to and allow copying of records and to make certain reports and provideinformation as required by the Secretary of Transportation. The PipelineIntegrity Management in High Consequence Areas (Gas Transmission Pipelines)amendment to 49 CFR Part 192 (PIM) requires operators of gas 

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transmission pipelines toensure the integrity of their pipelines through hydrostatic pressure testing,the use of in-line inspection tools or through risk-based direct assessmenttechniques. The Pipeline Inspection, Protection, Enforcement, and Safety Act of2006 expands the DOT’s authority and calls for additional studies andadditional regulations to be promulgated in many areas, including integritymanagement, corrosion control, incident reporting, inspection and enforcementorders.  While we believe that ourpipeline operations are in substantial compliance with applicable requirements,due to the possibility of new or amended laws and regulations, orreinterpretation of existing laws and regulations, there can be no assurancethat future compliance with the requirements will not have a material adverseeffect on our results of operations or financial position.

The Partnership’saffiliate MarkWest Energy Appalachia, L.L.C. (“MEA”) operates the AppalachiaLiquids Pipeline System (“ALPS”) pipeline to transport NGLs from its Maytowngas processing plant to its Siloam fractionator. This pipeline is owned byEquitable Production Company, and is leased and operated by MEA.  On November 8, 2004, a leak and an ensuingfire occurred on the line in the area of Ivel, Kentucky, and the line was takenout of service pending investigation and repair.  In accordance with an Office of PipelineSafety (“OPS”) Corrective Action Order, MEA successfully conducted ahydrostatic test of the affected portion of the ALPS pipeline in 2005 and OPSauthorized a partial return to service of the affected pipeline in October2005.  As part of its ongoing operationof the ALPS pipeline, MEA continued to perform pipeline integrity assessmentsand implement an in-line inspection program on the ALPS pipeline. Preliminary data from a four mile section of its in-line inspection programidentified areas for investigation and corrective action.  In November 2006 MEA temporarily idled theline while additional assessment and investigation was undertaken to addressthese concerns.  In late January 2007,MEA received the completed report from its in-line inspection operator andconsultant.  This report indicated areasof significant external corrosion or other defects in the four mile section ofpipeline in which the in-line inspection was conducted.  The assessment of this completed report,coupled with other information MEA has gathered, will continue to be reviewedand MEA will work with Equitable to determine what the most appropriatecorrective action may be.  In theinterim, the pipeline will be maintained in idle status.  MEA is trucking the NGLs produced from ourMaytown plant to the Siloam fractionation facility while MEA is maintaining thepipeline in idle status, and as a result, operations have not beeninterrupted.  The additional transportationcosts associated with the trucking are not expected to have material adverseeffect on our results of operations or financial positions.

**Employee Safety**

The workplaces associated with theprocessing and storage facilities and the pipelines we operate are also subjectto oversight from the federal Occupational Safety and Health Administration, (“OSHA”),as well as comparable state statutes that regulate the protection of the healthand safety of workers. In addition, the OSHA hazard-communication standardrequires that we maintain information about hazardous materials used orproduced in operations, and that this information be provided to employees,state and local government authorities, and citizens. We believe that we haveconducted our operations in substantial compliance with OSHA requirements,including general industry standards, record-keeping requirements andmonitoring of occupational exposure to regulated substances.

In general, we expect industry andregulatory safety standards to become stricter over time, resulting in increasedcompliance expenditures.  Even though wecannot accurately estimate these expenditures at this time, we do not expectthat they will have a material adverse effect on our results of operations.

**Employees**

As of December 31, 2006, we had318 employees, who operate the Company’s facilities and provide general andadministrative services. The Paper, Allied Industrial, Chemical and EnergyWorkers International Union Local 5-372 represents 14 employees at thePartnership’s Siloam fractionation facility in South Shore, Kentucky. Thecollective bargaining agreement with this Union was renewed on July 11,2005, for a term of three years. The agreement covers only hourly,non-supervisory employees. We consider labor relations to be satisfactory atthis time.

**AvailableInformation**

Our principal executive office is located at 1515Arapahoe Street, Tower 2, Suite 700, Denver, Colorado, 80202-2126. Ourtelephone number is 303-925-9200. Our common stock trades on the American StockExchange under the symbol “MWP.”  You canfind more information about us at our Internet website, www.markwest.com.  Our Annual Report on Form 10-K, ourQuarterly Reports on Form 10-Q, our current reports on Form 8-K andany amendments to those reports are available free of charge through ourinternet website as soon as reasonably practicable after we electronically fileor furnish such material with the Securities & Exchange Commission.

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## **Item1A. Risk Factors**

In addition to the other information set forthelsewhere in this Form 10-K, you should carefully consider the followingfactors when evaluating MarkWest Hydrocarbon.

**Risks Inherent in Our Business**

***Weare highly dependent upon the earnings and distributions of MarkWest EnergyPartners.***

A significant decline in MarkWest Energy Partners’ earnings and/or cashdistributions would have a corresponding negative impact on us.  For more information on these earnings andcash distributions, please see MarkWest Energy Partners’ 2006 Annual Report onForm 10-K.

***Ifwe are unable to successfully integrate the Partnership’s recent or futureacquisitions, our future financial performance may be negatively impacted.***

Our future growth will depend in part on our ability to integrate thePartnership’s future acquisitions.  Wecannot guarantee that the Partnership will successfully integrate anyacquisitions into its operations or that the Partnership will achieve thedesired profitability and anticipated results from such acquisitions.  Failure to achieve such planed results couldadversely affect our financial condition and results of operations.

The integration of acquisitions with our existing business involvesnumerous risks, including:

·                     operating a significantly larger combinedorganization and integrating additional midstream operations to our existingoperations;

·                     difficulties in the assimilation of the assets andoperations of the acquired businesses, especially if the assets acquired are ina new business segment or geographical area;

·                     the loss of customers or key employees from theacquired businesses;

·                     the diversion of management’s attention from otherbusiness concerns;

·                     the failure to realize expected synergies and costsavings;

·                     coordinating geographically disparate organizations,systems and facilities;

·                     integrating personnel from diverse businessbackgrounds and organizational cultures; and

·                     consolidating corporate and administrativefunctions.

Further, unexpected costs and challenges may arise whenever businesseswith different operations or management are combined, and we may experienceunanticipated delays in realizing the benefits of an acquisition.  Following an acquisition, the Partnership maydiscover previously unknown liabilities subject to the same stringentenvironmental laws and regulations relating to releases of pollutants into theenvironment and environmental protection as the Partnership’s existing plants,pipelines and facilities.  If so, thePartnership’s operation of these new assets could cause us to incur increasedcosts to attain or maintain compliance with such requirements.  If the Partnership consummates any futureacquisition, its capitalization and results of operation may changesignificantly, and shareholders will not have the opportunity to evaluate theeconomic, financial and other relevant information that we will consider indetermining the application of these funds and other resources.

The Partnership’s acquisition strategy is based, in part, on ourexpectation of ongoing divestitures of assets within the midstream petroleumand natural gas industry.  A materialdecrease in such divestitures could limit the Partnership’s opportunities forfuture acquisitions, and could adversely affect its operations and cash flowsavailable for distribution to its unitholders.

***Our commodity derivative activities may reduce our earnings,profitability and cash flows.***

Our operations expose us to fluctuations in commodity prices. We utilizederivative financial instruments related to the future price of crude oil,natural gas and certain NGLs with the intent of reducing volatility in our cashflows due to fluctuations in commodity prices.

Theextent of our commodity price exposure is related largely to the effectivenessand scope of our derivative activities. We have a policy to enter intoderivative transactions related to only a portion of the volume of our expectedproduction or fuel requirements and, as a result, we will continue to havedirect commodity price exposure to the unhedged portion.  Our actual future production or fuel requirementsmay be significantly higher or lower than we estimate at the time we enter intoderivative transactions for such period. If the actual amount is higher than weestimate, we will have greater commodity price exposure than we intended. Ifthe actual amount is lower than the amount that is subject to our derivativefinancial instruments, we might be forced to satisfy all or a portion of ourderivative transactions without the benefit of the cash flow from our sale orpurchase of the underlying physical commodity, resulting in a substantial diminutionof our liquidity. As a result of these factors, our hedging activities may notbe as effective as we intend in reducing the volatility of 

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our cash flows, and incertain circumstances may actually increase the volatility of our cash flows.In addition, our hedging activities are subject to the risks that acounterparty may not perform its obligation under the applicable derivativeinstrument, the terms of the derivative instruments are imperfect, and ourhedging policies and procedures are not properly followed. It is possible thatthe steps we take to monitor our derivative financial instruments may notdetect and prevent violations of our risk management policies and procedures,particularly if deception or other intentional misconduct is involved. Ouroperations expose us to fluctuations in commodity prices. We utilize derivativefinancial instruments related to the future price of natural gas and certainNGLs with the intent of reducing volatility in our cash flows due tofluctuations in commodity prices.  See *Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operation*and*Item 7A.Quantitative and Qualitative Disclosures About Market Risk* as setforth in this report for more information about our risk management policiesand procedures.

***Ourmanagement has discretion in conducting our risk management activities and maynot accurately predict future price fluctuations and therefore expose us tofinancial risks and reduce our opportunity to benefit from price increases.***

We evaluate our exposure to commodity price risk from an overall portfoliobasis.  Our management has discretion indetermining whether and how to manage the commodity price risk associated withour physical and derivative positions.

To the extent that we do not manage the commodity price risk relating to aposition that is subject to commodity price risk, and commodity prices moveadversely, we could suffer losses.  Suchlosses could be substantial, and could adversely affect our financial conditionand results of operations.

***Changes in commodity prices subject usto margin calls, which may adversely affect our liquidity.***

Unfavorable commodity price changes may subject us to margin calls thatrequire us to provide cash collateral to our counterparties in amounts that maybe material.  Such funding requirementscould exceed our ability to access our credit line or other sources ofcapital.  If we are unable to meet thesemargin calls with borrowings or cash on hand, we would be forced to sellproduct to meet the margin calls, or to terminate the corresponding futurescontracts.  If we are forced to sellproduct to meet margin calls, we may have to sell product at prices that arenot advantageous, which could adversely affect our financial condition, resultsof operations and cash flows.

***ThePartnership’s substantial debt and other financial obligations could impair ourfinancial condition, results of operations and cash flows and our ability tofulfill our debt obligations.***

The Partnership has substantial indebtedness and other financialobligations.  Subject to the restrictionsgoverning the Partnership’s indebtedness and other financial obligations, andthe indenture governing their outstanding notes, the Partnership may incursignificant additional indebtedness and other financial obligations.

The Partnership’s substantial indebtedness and other financial obligationscould have important consequences.  Forexample, they could:

·                     makeit more difficult for the Partnership to satisfy its obligations with respectto its existing debt;

·                     impairthe Partnership’s ability to obtain additional financings in the future forworking capital, capital expenditures, acquisitions, general corporate purposesor other purposes;

·                     havea material adverse effect on the Partnership if it fails to comply withfinancial and restrictive covenants in their debt agreements, and an event ofdefault occurs as a result of that failure that is not cured or waived;

·                     requirethe Partnership to dedicate a substantial portion of its cash flow to paymentson its indebtedness and other financial obligations, thereby reducing theavailability of the Partnership’s cash flow to fund working capital, capitalexpenditures, distributions and other general partnership requirements;

·                     limitthe Partnership’s flexibility in planning for, or reacting to, changes in itsbusiness and the industry in which it operates; and

·                     place thePartnership at a competitive disadvantage compared to its competitors that haveproportionately less debt.

Furthermore, theseconsequences could limit the Partnership’s ability, and the ability of the itssubsidiaries, to obtain future financings, make needed capital expenditures,withstand a future downturn in the its business or the economy in general,conduct operations or otherwise take advantage of business opportunities thatmay arise. The Partnership’s existing credit facility contains covenantsrequiring us to maintain specified financial ratios and satisfy other financialconditions, which may limit our ability to grant liens on its assets, make orown certain investments, enter into any swap contracts other than in theordinary course of business, merge, consolidate, or sell assets, incurindebtedness senior to the credit facility, make distributions on equity investments,and declare or make, directly or indirectly, any distribution on thePartnership common units. The Partnership obligations under the credit facilityare secured by substantially all of its assets and guaranteed by them and allof 

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their subsidiaries, otherthan the Partnership’s operating company, which is the borrower under thecredit facility. In particular, the Partnership may be unable to meet thoseratios and conditions. Any future breach of any of these covenants or thePartnership’s failure to meet any of these ratios or conditions could result ina default under the terms of their credit facility, which could result inacceleration of the Partnership’s debt and other financial obligations. If thePartnership were unable to repay those amounts, the lenders could initiate abankruptcy or liquidation proceeding, or proceed against the collateral.

***A significant decrease in natural gasproduction in the Partnership’s areas of operation would reduce their abilityto make distributions.***

The Partnership’sgathering systems are connected to natural gas reserves and wells, from whichthe production will naturally decline over time, which means that the cashflows associated with these wells will also decline over time. To maintain orincrease throughput levels on the partnership’s gathering systems and theutilization rate at its processing plants and it’s treating and fractionationfacilities, they must continually obtain new natural gas supplies. ThePartnership’s ability to obtain additional sources of natural gas depends inpart on the level of successful drilling activity near its gathering systems.

The Partnershiphas no control over the level of drilling activity in the areas of itsoperations, the amount of reserves associated with the wells or the rate atwhich production from a well will decline. In addition, they have no controlover producers or their production decisions, which are affected by, amongother things, prevailing and projected energy prices, demand for hydrocarbons,the level of reserves, geological considerations, governmental regulations andthe availability and cost of capital. Fluctuations in energy prices can greatlyaffect production rates and investments by third parties in the development ofnew oil and natural gas reserves. Drilling activity generally decreases as oiland natural gas prices decrease. Natural gas prices reached historic highs in2005 and early 2006 but have declined in the second half of 2006. These recentdeclines in natural gas prices are beginning to have a negative impact onproduction activity, and if sustained, could lead to a material decrease insuch production activity and ultimately to exploration activity.

Because of thesefactors, even if new natural gas reserves are discovered in areas served by thePartnership’s assets, producers may choose not to develop those reserves. Ifthe Partnership is not able to obtain new supplies of natural gas to replacethe natural decline in volumes from existing wells due to reductions indrilling activity or competition, throughput on its pipelines and theutilization rates of its treating and processing facilities would decline,which could have a material adverse effect on its business, results ofoperations, financial condition and ability to make cash distributions.

***Weare exposed to the credit risk of our customers and counterparties, and ageneral increase in the nonpayment and nonperformance by our customers couldreduce our revenues and cash flow.***

We are subject torisks of loss resulting from nonpayment or nonperformance by our customers. Anymaterial nonpayment or nonperformance by our key customers could reduce ourability to make distributions to our unitholders. Furthermore, some of ourcustomers may be highly leveraged and subject to their own operating andregulatory risks, which increases the risk that they may default on theirobligations to us.

***ThePartnership may not be able to retain existing customers or acquire newcustomers, which would reduce its revenues and limit its future profitability.***

The renewal or replacement of existing contracts with the Partnership’scustomers at rates sufficient to maintain current revenues and cash flowsdepends on a number of factors beyond its control, including competition fromother gatherers, processors, pipelines, fractionators, and the price of, anddemand for, natural gas, NGLs and crude oil in the markets we serve.  The Partnership’s competitors include largeoil, natural gas, refining and petrochemical companies, some of which havegreater financial resources, more numerous or greater capacity pipelines,processing and other facilities, and greater access to natural gas and NGLsupplies than the Partnership does. Additionally, the Partnership’s customers that gather gas throughfacilities that are not otherwise dedicated to the Partnership may developtheir own processing and fractionation facilities in lieu of using thePartnership’s services.  Certain of thePartnership’s competitors may also have advantages in competing foracquisitions, or other new business opportunities, because of their financialresources and synergies in operations.

As a consequence of the increase in competition in the industry, and thevolatility of natural gas prices, end-users and utilities are reluctant toenter into long-term purchase contracts. Many end-users purchase natural gas from more than one natural gascompany and have the ability to change providers at any time.  Some of these end-users also have the abilityto switch between gas and alternative fuels in response to relative pricefluctuations in the market.  Becausethere are numerous companies of greatly varying size and financial capacitythat compete with the Partnership in the marketing of natural gas, thePartnership often competes in the end-user and utilities markets primarily onthe basis of price.  The inability of thePartnership’s management to renew or replace its current contracts as theyexpire and to respond appropriately to changing market conditions could affectits profitability.

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***Relativechanges in NGL product and natural gas prices may adversely impact our resultsdue to frac spread, natural gas and liquids exposure.***

We are exposed to frac spreadrisk.  Under our keep-whole arrangements,our principal cost is delivering dry gas of an equivalent Btu content toreplace Btus extracted from the gas stream in the form of NGLs, or consumed asfuel during processing.  The spread between the NGL product sales priceand the purchase price of natural gas with an equivalent Btu content is calledthe “frac spread.”  Generally, the fracspread and, consequently, the net operating margins are positive under thesecontracts.  In the event natural gasbecomes more expensive on a Btu equivalent basis than NGL products, the cost ofkeeping the producer “whole” results in operating losses.

Dueto timing of gas purchases and liquid sales, direct exposure to either gas orliquids can be created because there is no longer an offsetting purchase orsale that remains exposed to market pricing. Through our marketing and derivatives activity, direct exposure mayoccur naturally or we may choose direct exposure to either gas or liquids whenwe favor that exposure over frac spread risk. Given that we have positions, adverse movement in prices to thepositions we have taken will negatively impact our results.

***Our profitability is affected by the volatility of NGLproduct and natural gas prices.***

We are subject tosignificant risks associated with frequent and often substantial fluctuationsin commodity prices. In the past, the prices of natural gas and NGLs have beenvolatile, and we expect this volatility to continue. The NYMEX daily settlementprice of natural gas for the prompt month contract in 2005 ranged from a highof $15.38 per MMBtu to a low of $5.79 per MMBtu in 2005. In 2006, the sameindex ranged from a high of $12.48 per MMBtu to a low of $4.20 per MMBtu. Acomposite of the weighted monthly average NGLs price at our Appalachianfacilities based on our average NGLs composition in 2005 ranged from a high ofapproximately $1.25 per gallon to a low of $0.83 per gallon. In 2006, the samecomposite ranged from approximately $1.27 per gallon to approximately $1.03 pergallon. The markets and prices for natural gas and NGLs depend upon factorsbeyond our control. These factors include demand for oil, natural gas and NGLs,which fluctuate with changes in market and economic conditions and otherfactors, including:

·                     thelevel of domestic oil, natural gas and NGL production;

·                     demandfor natural gas and NGL products in localized markets;

·                     importsof crude oil, natural gas and NGLs;

·                     seasonality;

·                     thecondition of the U.S. economy;

·                     politicalconditions in other oil-producing and natural gas-producing countries; and

·                     domesticgovernment regulation, legislation and policies.

Our net operatingmargins under various types of commodity-based contracts are directly affectedby changes in NGL product prices and natural gas prices, thus are moresensitive to volatility in commodity prices than our fee-based contracts.Additionally, our purchase and resale of gas in the ordinary course of businessexposes us to significant risk of volatility in gas prices due to the potentialdifference in the time of the purchases and sales, and the potential existenceof a difference in the gas price associated with each transaction.

***We have found a material weaknessin our internal controls that requires remediation and concluded, pursuant toSection 404 of the Sarbanes-Oxley Act of 2002, that our internal controls overfinancial reporting at December 31, 2006, were not effective.***

As we discuss inour Management’s Report on Internal Control over Financial Reporting in PartII, Item 9A, “Controls and Procedures,” of this Form 10-K, we have discovereddeficiencies, including a material weakness, in our internal controls overfinancial reporting as of December 31, 2006. In particular, we identified, and Deloitte & Touche’s audit reporton management’s assessment of the effectiveness of internal control overfinancial reporting and the effectiveness of internal control over financialreporting as of December 31, 2006 confirmed the presence of, the followingmaterial weakness:

·       accounting for derivative financialinstruments.

At December 31,2006, management identified and Deloitte & Touche LLP confirmed intheir opinion on internal controls, the existence of a continuing materialweakness related to accounting for derivatives. Specifically, there was an issue related to our prior year materialweakness that had not been fully remediated at year-end.  As of year-end, management did not have aprocess for monitoring existing contracts in response to changes in SFAS 133and had not conducted a comprehensive review of substantially all contractsentered into prior to 2006 for the purpose of ensuring that determinationsabout derivative implications and SFAS 133 issues were made appropriatelyand remained appropriate.  Acomprehensive review was deemed necessary because the determinations related tothese historical contracts were originally made in an environment wherematerial weaknesses are known to have existed. Inappropriate conclusions could lead to errors, the most significant ofwhich would likely be in recognition of unrealized gains or losses. Inaddition, we and Deloitte & Touche LLP identified material weaknesses inour control environment and our risk management and accounting for derivativefinancial instruments  as of December 31,2005.

The full impact ofour efforts to remediate the identified material weaknesses had not beenrealized as of December 31, 2006 and may not be sufficient to maintaineffective internal controls in the future. We may not be able to implement andmaintain adequate controls over our financial processes and reporting, whichmay require us to restate our financial statements in the future. In addition,we may discover additional past, ongoing or future material weaknesses orsignificant deficiencies in our financial reporting system in the future. Anyfailure to implement new controls, or difficulty encountered in theirimplementation, could cause us to fail to meet our reporting obligations orresult in material misstatements in our financial statements. Inferior internalcontrols could also cause investors to lose confidence in our reportedfinancial information, which could result in a lower trading price of ourcommon units.

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***Weare subject to operating and litigation risks that may not be covered byinsurance.***

Our industry is subject to numerous operating hazards and risks incidentalto processing, transporting, fractionating and storing natural gas and NGLs andto transporting and storing crude oil. These include:

·                 damage topipelines, plants, related equipment and surrounding properties caused byfloods and other natural disasters;

·                 inadvertentdamage from construction and farm equipment;

·                 leakage of crudeoil, natural gas, NGLs and other hydrocarbons;

·                 fires andexplosions; and

·                 other hazards,including those associated with high-sulfur content, or sour gas that couldalso result in personal injury and loss of life, pollution and suspension of operations.

As a result, we may be the defendants in various legal proceedings andlitigation arising from our operations. We may not be able to maintain or obtain insurance of the type andamount we desire at reasonable rates. Market conditions could cause certain insurance premiums and deductiblesto become unavailable, or available only for reduced amounts of coverage.  For example, insurance carriers now requirebroad exclusions for losses due to war risk and terrorist acts.  If we were to incur a significant liabilityfor which we were not fully insured, it could have a material adverse effect onour financial position.

***Transportationon certain of the Partnership’s pipelines may be subject to federal or staterate and service regulation, and the imposition and/or cost of compliance withsuch regulation could adversely affect our profitability.***

Some of thePartnership’s gas, liquids and crude oil transmission operations are subject torate and service regulations under FERC or various state regulatory bodies,depending upon jurisdiction. FERC generally regulates the transportation ofnatural gas and oil in interstate commerce, and FERC’s regulatory authorityincludes: facilities construction, acquisition, extension or abandonment ofservices or facilities; accounts and records; and depreciation and amortizationpolicies. Intrastate natural gas pipeline operations and transportation onproprietary natural gas or petroleum products pipelines are generally notsubject to regulation by FERC, and the Natural Gas Act (“NGA”) specificallyexempts some gathering systems. Yet such operations may still be subject toregulation by various state agencies. The applicable statutes and regulationsgenerally require that the Partnership’s rates and terms and conditions ofservice provide no more than a fair return on the aggregate value of thefacilities used to render services. The Partnership cannot assure theirunitholders that FERC will not at some point determine that such gathering andtransportation services are within its jurisdiction, and regulate suchservices.  FERC rate cases can involvecomplex and expensive proceedings. For more information regarding regulatorymatters that could affect our business, see *Item 1. Business -Regulatory Matters.*

***The Partnership is indemnified forliabilities arising from an ongoing remediation of property on which itsfacilities are located and its results of operation and its ability to makepayments of principal and interest on its debt and distributions to itsunitholders could be adversely affected if the indemnifying party fails toperform its indemnification obligation.***

Columbia Gas is the previous or current owner of theproperty on which the Partnership’s Kenova, Boldman, Cobb and Kermit facilitiesare located, and is the previous operator of its Boldman and Cobb facilities.Columbia Gas has been, or is currently, involved in investigatory or remedialactivities with respect to the real property underlying the Boldman and Cobbfacilities, pursuant to an “Administrative Order by Consent for Removal Actions”entered into by Columbia Gas and the U.S. Environmental Protection Agency and,in the case of the Boldman facility, an “Agreed Order” with the KentuckyNatural Resources and Environmental Protection Cabinet.

ColumbiaGas has agreed to retain sole liability and responsibility for, and toindemnify MarkWest Hydrocarbon against, any environmental liabilitiesassociated with these regulatory orders or the real property underlying thesefacilities to the extent such liabilities arose prior to the effective date ofthe agreements pursuant to which such properties were acquired or leased fromColumbia Gas. At the closing of our initial public offering, MarkWestHydrocarbon assigned us the benefit of its indemnity from Columbia Gas withrespect to the Cobb, Boldman and Kermit facilities. While the Partnership isnot a party to the agreement under which Columbia Gas agreed to indemnifyMarkWest Hydrocarbon with respect to the Kenova facility, MarkWest Hydrocarbonhas agreed to provide to the benefit of its indemnity, as well as any otherthird party environmental indemnity of which it is a beneficiary. MarkWestHydrocarbon has also agreed to provide an additional environmental indemnitypursuant to the terms of the Omnibus Agreement. The Company’s results ofoperation and ability to make cash distributions could be adversely affectedif, in the future, Columbia Gas fails to perform under the indemnificationprovisions of which the Company is the beneficiary.

***Ourbusiness is subject to federal, state and local laws and regulations withrespect to environmental, safety and other regulatory matters, and theviolation of or the cost of compliance with such laws and regulations couldadversely affect our profitability.***

Numerous governmental agencies enforce complex and stringent laws andregulations on a wide range of environmental, safety and other regulatorymatters.  We could be adversely affectedby increased costs due to stricter pollution-control requirements orliabilities resulting from non-compliance with operating or other regulatorypermits.  New environmental laws andregulations might adversely influence our products and activities.  Federal, state and local agencies also couldimpose additional safety requirements, any of which could affect ourprofitability.  In addition, we face therisk of accidental releases or spills associated with our operations. Thesecould result in material costs and liabilities, including those relating toclaims for damages to property and persons. Our failure to comply with environmental or safety-related laws andregulations could result in administrative, civil and criminal penalties, theimposition of investigatory and remedial obligations and even injunctions thatrestrict or prohibit our operations.  Formore information regarding the environmental, safety and other regulatorymatters that could affect our business, see *Item 1 Business -Regulatory Matters and Environmental Matters.*

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***MarkWest Energy Partners may not be able to successfully execute itsbusiness plan and may not be able to grow its business, which could adverselyaffect the value of our investment in the limited partner units and the generalpartnership interests in MarkWest Energy Partners.***

MarkWest Energy Partners’ ability to successfullyoperate its business, generate sufficient cash to pay the minimum quarterlycash distributions to its unitholders, and to allow for growth, is subject to anumber of risks and uncertainty. Similarly, MarkWest Energy Partners may not be able to successfullyexpand its business through acquiring or growing its assets, because of variousfactors, including economic and competitive factors beyond its control.  If MarkWest Energy Partners is unable to growits business, or execute on its business plan, the market price of the commonunits is likely to decline, causing the limited partner units and the generalpartner interest we hold in MarkWest Energy Partners to also decline in value.

***Ourcash flow would be adversely affected if operations at any of the Partnership’sfacilities were interrupted.***

ThePartnership’s operations depend upon the infrastructure that it has developed,including processing and fractionation plants, storage facilities, and variousmeans of transportation. Any significant interruption at these facilities orpipelines, or the Partnership’s inability to transmit natural gas or NGLs, ortransport crude oil to or from these facilities or pipelines for any reason,would adversely affect our results of operations and cash flows. Operations atthe Partnership’s facilities could be partially or completely shut down,temporarily or permanently, as the result of circumstances not within itscontrol, such as:

·                     unscheduled turnarounds orcatastrophic events at our physical plants;

·                     labor difficulties that resultin a work stoppage or slowdown; or

·                     a disruption in the supply ofcrude oil to the Partnership’s crude oil pipeline, natural gas to itsprocessing plants or gathering pipelines, or a disruption in the supply of NGLsto the Partnership’s transportation pipeline and fractionation facility.

***Dueto the Partnership’s lack of asset diversification, adverse developments in thePartnership’s gathering, processing, transportation, transmission,fractionation and storage businesses would reduce the Partnership’s ability tomake distributions to its unitholders.***

Werely on the revenues generated from the Partnership’s gathering, processing,transportation, transmission, fractionation and storage businesses.  An adverse development in one of these businesseswould have a significantly greater impact on our financial condition andresults of operations than if we maintained more diverse assets.

***The tax treatment of MarkWest EnergyPartners depends upon its status as a partnership for federal income taxpurposes, as well as it not being subject to entity-level taxation bystates.  If the Internal Revenue Servicewere to treat MarkWest Energy Partners as a corporation, or if it were tobecome subject to entity-level taxation for state tax purposes, then its cashavailable for distribution would be significantly reduced.***

Weown limited partner units representing approximately 15% of the limitedpartnership interests in MarkWest Energy Partners, in addition to a 2% generalpartnership interest.  The anticipatedafter-tax benefit of an investment in the limited partner units of MarkWestEnergy Partners depends largely on MarkWest Energy Partners being treated as apartnership for federal income tax purposes.

IfMarkWest Energy Partners were treated as a corporation for federal income taxpurposes, it would pay income tax on its earnings at the corporate tax rate,which is currently a maximum of 35%, plus any applicable state rates.  Cash distributions to the holders of limitedpartnership interests, including the subordinated units we hold and the commonunits held by the public, would generally be taxed again as corporatedistributions, and no income, gains, losses, deductions or credits would flowthrough to the holders of the limited partnership interests to shelter asubstantial portion of such distributions from state and federal incometaxes.  If MarkWest Energy Partners wastaxed as a corporation, its cash available for distribution to limited partnerswould be significantly reduced.  Thus,treatment of MarkWest Energy Partners as a corporation would result in amaterial reduction in the anticipated cash flow and after-tax return to itsowners, including us, as a holder of the limited partner units, likely causinga significant reduction in the value of the market price of the common units.

***A shortage of skilled labor may make itdifficult for us to maintain labor productivity and competitive costs, andcould adversely affect our profitability.***

ThePartnership’s operations require skilled and experienced laborers withproficiency in multiple tasks. In recent years, a shortage of workers trainedin various skills associated with the midstream energy business has caused usto conduct certain operations without full staff, which decreases ourproductivity and increases our costs. This shortage of trained workers is theresult of the previous generation’s experienced workers reaching the age forretirement, combined with the difficulty of attracting new laborers to themidstream energy industry. Thus, this shortage of skilled labor could continueover 

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an extendedperiod. If the shortage of experienced labor continues or worsens, it couldhave an adverse impact on our labor productivity and costs and our ability toexpand production in the event there is an increase in the demand for ourproducts and services, which could adversely affect our profitability.

***Our business maysuffer if any of our key senior executives discontinues employment with us orif we are unable to recruit and retain highly skilled accounting and financestaff.***

Our future success depends to a large extent on theservices of our key corporate employees. Our business depends on our continuingability to recruit, train and retain highly qualified employees, particularlyaccounting, finance and other key back-office and mid-office personnel. Thecompetition for these employees is intense, and the loss of these employeescould harm our business.  Further, ourability to successfully integrate acquired companies depends in part on ourability to retain key management and existing employees at the time of theacquisition.

***As a result of damage caused by Hurricanes Katrina andRita in the Gulf of Mexico and Gulf Coast regions in 2005, insurance costsrelated to oil and gas assets in these regions have increased significantly. Wemay be unable to obtain insurance on our interest in Starfish at rates weconsider reasonable.***

During2005, Hurricanes Katrina and Rita caused severe and widespread damage to oiland gas assets in the Gulf of Mexico and Gulf Coast regions. The loss to bothoffshore and onshore assets resulting from the hurricanes has led tosubstantial insurance claims within the oil and gas industry.  Along with other industry participants,insurance costs have increased within this region as a result of thesedevelopments.  In the future, we may beunable to obtain adequate insurance on our interest in Starfish at rates weconsider reasonable and as a result may experience losses that are not insuredor that exceed the maximum limits under our insurance policies. If asignificant negative event that is not fully insured occurs with respect toStarfish, it could materially and adversely affect our financial condition andresults of operations.

## **Item1B.  Unresolved Staff Comments**

None.

## **Item2. Properties**

***MarkWest******HydrocarbonStandalone***

As of December 31, 2006, MarkWest HydrocarbonStandalone did not own any materially important physical properties.

***MarkWest EnergyPartners’ Properties***

***GasProcessing Facilities***

**The locations and approximate throughputcapacity of MarkWest Energy Partners’ gas processing facilities as of and forthe year ended December 31, 2006, are as follows:**
| ** **                      | ** ** | ** **           | ** ** | ** **                              | ** ** | ** **                       | ** ** | **Year ended December 31, 2006** | ** ** |
|---------------------------------|------------|----------------------|------------|-----------------------------------------|------------|----------------------------------|------------|------------------------------------------------------|------------|
| **Facility**                    | ** ** | **Location**         | ** ** | **Year of  Initial  Construction** | ** ** | **Design  Throughput  Capacity** | ** ** | **Natural Gas  Throughput**                     | ** ** | **Utilization  of Design  Capacity** | ** ** | **NGL  Throughput** | ** ** |
| ** **                      | ** ** | ** **           | ** ** | ** **                              | ** ** | **(Mcf/d)**                      | ** ** | **(Mcf/d)**                                          | ** ** | ** ** | ** ** | **(Gal/d)** | ** ** |
| **East  Texas:**                |       |                 |       |                                    |       |                             |       |                                                 |       |   |   |   |   |
| East Texas processing plant     |       | Panola  County, TX   |       | 2005                                    |       | 200,000                          |       | 161,300                                              |       | 81% |   | NA |   |
|                            |       |                 |       |                                    |       |                             |       |                                                 |       |   |   |   |   |
| **Oklahoma:**                   |       |                 |       |                                    |       |                             |       |                                                 |       |   |   |   |   |
| Arapaho processing plant        |       | Custer  County, OK   |       | 2000                                    |       | 90,000                           |       | 87,500                                               |       | 97% |   | 217,000 |   |
|                            |       |                 |       |                                    |       |                             |       |                                                 |       |   |   |   |   |
| **Appalachia:**                 |       |                 |       |                                    |       |                             |       |                                                 |       |   |   |   |   |
| Kenova processing plant (1)     |       | Wayne  County, WV    |       | 1996                                    |       | 160,000                          |       | 133,000                                              |       | 83% |   | NA |   |
| Boldman processing plant (1)    |       | Pike  County, KY     |       | 1991                                    |       | 70,000                           |       | 41,000                                               |       | 59% |   | NA |   |
| Maytown processing plant (1)    |       | Floyd  County, KY    |       | 2000                                    |       | 55,000                           |       | 59,000                                               |       | 107% |   | NA |   |
| Cobb processing plant           |       | Kanawha  County, WV  |       | 2005                                    |       | 25,000                           |       | 28,000                                               |       | 112% |   | NA |   |
| Kermit processing plant (1) (2) |       | Mingo  County, WV    |       | 2001                                    |       | 32,000                           |       | NA                                                   |       | NA |   | NA |   |
|                            |       |                 |       |                                    |       |                             |       |                                                 |       |   |   |   |   |
| **Michigan:**                   |       |                 |       |                                    |       |                             |       |                                                 |       |   |   |   |   |
| Fisk processing plant           |       | Manistee  County, MI |       | 1998                                    |       | 35,000                           |       | 6,500                                                |       | 19% |   | 15,500 |   |
|                            |       |                 |       |                                    |       |                             |       |                                                 |       |   |   |   |   |
| **Gulf  Coast:**                |       |                 |       |                                    |       |                             |       |                                                 |       |   |   |   |   |
| Javelina  processing plant (3)  |       | Corpus Christi, TX   |       | 1989                                    |       | 142,000                          |       | 124,000                                              |       | 87% |   | 1,098,483 |   |

 

23

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(1)          A portion of the gas processed at Maytown and Boldman plants, and all ofthe gas processed at Kermit plant, is further processed at Kenova plant torecover additional NGLs.

(2)          The Kermit processing plant is operated by a third party solely toprevent liquids from condensing in the gathering and transmission pipelinesupstream of MarkWest Energy Partners’ Kenova plant. The Partnership does notreceive Kermit gas volume information but does receive all of the liquidsproduced at the Kermit facility.

(3)          MarkWestEnergy Partners acquired the Javelina processing plant on November 1,2005.

*Fractionation Facility*

The location, approximate capacity, and throughput ofMarkWest Energy Partners’ fractionation facility as of and for the year endedDecember 31, 2006, is as follows:
| ** **                  | ** ** | ** **      | ** ** | ** **                                  | ** ** | **Design**               | ** ** | **Year ended December 31, 2006** | ** ** |
|-----------------------------|------------|-----------------|------------|---------------------------------------------|------------|--------------------------|------------|------------------------------------------------------|------------|
| **Pipeline**                | ** ** | **Location**    | ** ** | **Year of Initial  Construction** | ** ** | **Throughput  Capacity** | ** ** | **NGL Throughput**                              | ** ** | **Utilization of  Design Capacity** | ** ** |
| ** **                  | ** ** | ** **      | ** ** | ** **                                  | ** ** | **(Gal/d)**              | ** ** | **(Gal/d)**                                          | ** ** | ** ** | ** ** |
| **Appalachia:**             |       |            |       |                                        |       |                     |       |                                                 |       |   |   |
| Siloam  fractionation plant |       | South Shore, KY |       | 1957                                        |       | 600,000                  |       | 455,000                                              |       | 76% |   |

 

*Natural Gas Gathering Systems andPipelines*

Thename, approximate length in miles, geographical location, and throughput ofMarkWest Energy Partners’ natural gas pipelines as of and for the year endedDecember 31, 2006, are as follows:
| ** **                          | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** **                              | ** ** | ** **                       | ** ** | **Year ended December 31, 2006** | ** ** |
|-------------------------------------|------------|---------------------------------------------|------------|------------|------------|-----------------------------------------|------------|----------------------------------|------------|------------------------------------------------------|------------|
| **Facility**                        | ** ** | **Location**                                | ** ** | **Miles**  | ** ** | **Year of  Initial  Construction** | ** ** | **Design  Throughput  Capacity** | ** ** | **Natural Gas  Throughput**                     | ** ** | **Utilization of  Design  Capacity** | ** ** |
| ** **                          | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** **                              | ** ** | **(Mcf/d)**                      | ** ** | **(Mcf/d)**                                          | ** ** | ** ** | ** ** |
| **East Texas:**                     |       |                                        |       |       |       |                                    |       |                             |       |                                                 |       |   |   |
| East Texas gathering system         |       | Panola  County, TX                          |       | 311        |       | 1990                                    |       | 410,000                          |       | 378,000                                              |       | 92% |   |
|                                |       |                                        |       |       |       |                                    |       |                             |       |                                                 |       |   |   |
| **Oklahoma:**                       |       |                                        |       |       |       |                                    |       |                             |       |                                                 |       |   |   |
| Foss Lake gathering system          |       | Roger  Mills, Ellis and   Custer County, OK |       | 240        |       | 1998                                    |       | 100,000                          |       | 87,500                                               |       | 88% |   |
| Grimes gathering system (4)         |       | Beckham,  Roger Mills   Counties, OK        |       | 25         |       | 2005                                    |       | 25,000                           |       | NA                                                   |       | NA |   |
| Woodford Shale gathering system (5) |       | Hughes,  Pittsburg and Coal   Counties, OK  |       | 40         |       | 2006                                    |       | 45,000                           |       | 34,000                                               |       | 76% |   |
|                                |       |                                        |       |       |       |                                    |       |                             |       |                                                 |       |   |   |
| **Other  Southwest:**               |       |                                        |       |       |       |                                    |       |                             |       |                                                 |       |   |   |
| Appleby gathering system            |       | Nacogdoches  County,   TX                   |       | 139        |       | 1990                                    |       | 50,000                           |       | 34,200                                               |       | 68% |   |
| Other gathering systems (6)         |       | Various                                     |       |       |       | Various                                 |       | 52,570                           |       | 18,300                                               |       | 35% |   |
|                                |       |                                        |       |       |       |                                    |       |                             |       |                                                 |       |   |   |
| **Michigan:**                       |       |                                        |       |       |       |                                    |       |                             |       |                                                 |       |   |   |
| 90-mile gas  gathering pipeline     |       | Manistee, Mason and   Oceana Counties, MI   |       | 90         |       | 1994-1998                               |       | 35,000                           |       | 6,500                                                |       | 19% |   |

 

----

(4)          MarkWest Energy Partners acquired the Grimes gathering system as part ofits December 29, 2006 Santa Fe acquisition.

(5)          In late 2006 the Partnership began the construction and operation of theWoodford gathering system and compression system in a four-county region in theArkoma Basin in eastern Oklahoma.  OnDecember 1, 2006, the Partnership began gathering gas on that system.  The volume reported is the average daily ratefor the month of December.

(6)          MarkWest Energy Partners acquired the Applebygathering system, along with 20 other gathering systems, as part of itsMarch 28, 2003 Pinnacle acquisition.

### *NGL Pipelines*

Thename, approximate length in miles, geographical location, and throughput ofMarkWest Energy Partners’ NGL pipelines as of and for the year endedDecember 31, 2006, are as follows:

24

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| ** **               | ** ** | ** **                               | ** ** | ** ** | ** ** | ** **                              | ** ** | ** **                       | ** ** | **Year ended December 31, 2006** | ** ** |
|--------------------------|------------|------------------------------------------|------------|------------|------------|-----------------------------------------|------------|----------------------------------|------------|------------------------------------------------------|------------|
| **Pipeline**             | ** ** | **Location**                             | ** ** | **Miles**  | ** ** | **Year of  Initial  Construction** | ** ** | **Design  Throughput  Capacity** | ** ** | **NGL  Throughput**                                  | ** ** | **Utilization of  Design  Capacity** | ** ** |
| ** **               | ** ** | ** **                               | ** ** | ** ** | ** ** | ** **                              | ** ** | **(Gal/d)**                      | ** ** | **(Gal/d)**                                          | ** ** | ** ** | ** ** |
| **Appalachia:**          |       |                                     |       |       |       |                                    |       |                             |       |                                                 |       |   |   |
| Maytown to Institute (7) |       | Floyd County, KY to   Kanawha County, WV |       | 100        |       | 1956                                    |       | 250,000                          |       | 132,000                                              |       | 53% |   |
| Ranger to Kenova (8)     |       | Lincoln County, WV  to Wayne County, WV  |       | 40         |       | 1976                                    |       | 831,000                          |       | 132,000                                              |       | 16% |   |
| Kenova to Siloam         |       | Wayne County, WV   to South Shore, KY    |       | 40         |       | 1957                                    |       | 831,000                          |       | 389,000                                              |       | 47% |   |
|                     |       |                                     |       |       |       |                                    |       |                             |       |                                                 |       |   |   |
| **East  Texas:**         |       |                                     |       |       |       |                                    |       |                             |       |                                                 |       |   |   |
| East Texas liquid line   |       | Panola County, Texas                     |       | 37.5       |       | 2005                                    |       | 630,000                          |       | 442,300                                              |       | 70% |   |

 

----

(7)          Represents a leased pipeline, of which the 40 miles extending fromRanger to Institute is currently unused.

(8)          NGLstransported through the Ranger to Kenova pipeline are combined with NGLsrecovered at the Kenova facility and the combined NGL stream is transported inthe Kenova to Siloam pipeline to Siloam.

### *Crude Oil Pipeline*

Thename, approximate length in miles, geographical location, and throughput ofMarkWest Energy Partners’ crude oil pipeline as of and for the year endedDecember 31, 2006, is as follows:
| ** **               | ** ** | ** **                                   | ** ** | ** ** | ** ** | **Year of**          | ** ** | **Design**               | ** ** | **Year ended December 31, 2006** | ** ** |
|--------------------------|------------|----------------------------------------------|------------|------------|------------|---------------------------|------------|--------------------------|------------|------------------------------------------------------|------------|
| **Pipeline**             | ** ** | **Location**                                 | ** ** | **Miles**  | ** ** | **Initial  Construction** | ** ** | **Throughput  Capacity** | ** ** | **NGL  Throughput**                                  | ** ** | **Utilization of  Design Capacity** | ** ** |
| ** **               | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** **                | ** ** | **(Gal/d)**              | ** ** | **(Gal/d)**                                          | ** ** | ** ** | ** ** |
| **Michigan:**            |       |                                         |       |       |       |                      |       |                     |       |                                                 |       |   |   |
| Michigan crude  pipeline |       | Manistee County, MI   to Crawford County, MI |       | 250        |       | 1973                      |       | 60,000                   |       | 14,500                                               |       | 24% |   |

 

**Title to Properties**

***MarkWest HydrocarbonStandalone***

MarkWest Hydrocarbon Standalonebelieves that it has satisfactory title to all of its assets.

***MarkWest Energy Partners***

Substantially allof the Partnership’s pipelines are constructed on rights-of-way granted by theapparent record owners of the property. Lands over which pipeline rights-of-wayhave been obtained may be subject to prior liens that have not beensubordinated to the right-of-way grants. The Partnership has obtained, wheredetermined necessary, permits, leases, license agreements and franchiseordinances from public authorities to cross over or under, or to lay facilitiesin or along water courses, county roads, municipal streets and state highways,as applicable. The Partnership has also obtained easements and licenseagreements from railroad companies to cross over or under railroad propertiesor rights-of-way.  Many of theseauthorizations and grants are revocable at the election of the grantor.  In some cases, property on which thePartnership’s pipelines were built was purchased in fee or held under long-termleases. The Partnership’s Siloam fractionation plant and Kenova processingplant are on land that it owns in fee.

Some of theleases, easements, rights-of-way, permits, licenses and franchise ordinancesthat were transferred to the Partnership required the consent of thethen-current landowner to transfer these rights, which in some instances was agovernmental entity.  The Partnershipbelieves that they have obtained sufficient third-party consents, permits andauthorizations for the transfer of the assets necessary for it to operate itsbusiness. The Partnership also believes they have satisfactory title or otherright to all of its material land assets. Title to these properties issubject to encumbrances in some cases; however, the Partnership believes thatnone of these burdens will materially detract from the value of theseproperties or from its interests in these properties, or will materiallyinterfere with their use in the operation of its business.

The Partnershiphas pledged substantially all of its assets to secure the debt of itssubsidiary, MarkWest Energy Operating Company, L.L.C. (the “Operating Company”),as discussed in Note 12 of the accompanying consolidated financial statements.

25

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## **Item3.  Legal Proceedings**

In the ordinarycourse of its business the Company is subject to a variety of risks anddisputes normal to its business and as a party to various legal proceedings. Wemaintain insurance policies in amounts and with coverage and deductibles as webelieve are reasonable and prudent. However, we cannot assure either that theinsurance companies will promptly honor their policy obligations or that thecoverage or levels of insurance will be adequate to protect us from allmaterial expenses related to future claims for property loss or businessinterruption to the Company; or for third-party claims of personal andproperty damage; or that the coverages or levels of insurance it currently haswill be available in the future at economical prices.

In 2005 MarkWestHydrocarbon, the Partnership, several of its affiliates, and an unrelatedco-defendant, were served with three lawsuits, which in 2006 were consolidatedinto a single action captioned *Ricky J.Conn, et al. v. MarkWest Hydrocarbon, Inc. et al.,* FloydCircuit Court, Commonwealth of Kentucky, and Civil Action No. 05-CI-00137(consolidated March 27, 2006 of three cases originally filed February,2005).  These actions involved third-partyclaims of property and personal injury damages sustained as a consequence of anNGL pipeline leak and an ensuing explosion and fire that occurred onNovember 8, 2004 in Ivel Kentucky. The pipeline was owned by an unrelatedbusiness entity, Equitable Production Company, and leased and operated by thePartnership’s subsidiary, MEA. MEA transports NGLs from the Maytown gasprocessing plant to MEA’s Siloam fractionator. The explosion and fire from theleaked vapors resulted in property damage to several residential structures andinjuries to some of the residents.

The Company notified its general liability insurancecarriers of the incident and the lawsuits in a timely manner and coordinatedits legal defense with the insurers. As of February 1, 2007, all of the claimsin the litigation were fully settled, with MarkWest’s insurance carrier and itsco-defendant and its separate insurance carrier, funding the settlements.

In June 2006, a Notice of Probable Violation andProposed Civil Penalty (NOPV) (CPF No. 2-2006-5001) was issued by OPS to bothMarkWest Hydrocarbon and Equitable Production Company, the owner of thepipeline, asserting six counts of violations of applicable regulations, and aproposed civil penalty in the aggregate amount of $1,070,000. An administrativehearing on the matter is presently set for the last week of March, 2007.  One of the counts of violations, which countinvolves $825,000 of the $1,070,000proposed penalty, concerns alleged activity in 1982 and 1987, which datespredate MarkWest’s leasing and operation of the pipeline.  MarkWest believes it has viable defenses tothe remaining counts and will vigorously defend all applicableassertions of violations at the hearing.

Related to the above referenced pipeline incident, MarkWestHydrocarbon and the Partnership have filed an independent action captioned *MarkWest Hydrocarbon, Inc., et al. v. LibertyMutual Ins. Co., et al.* (District Court, Arapahoe County, Colorado,Case No. 05CV3953 filed August 12, 2005), as removed to the U.S.District Court for the District of Colorado, (Civil ActionNo. 1:05-CV-1948, on October 7, 2005) against its All-Risks Propertyand Business Interruption insurance carriers as a result of the insurancecompanies’ refusal to honor their insurance coverage obligation to pay theCompany for certain expenses related to the pipeline incident. These includethe Company’s internal expenses and costs incurred for damage to, and loss ofuse of the pipeline, equipment and products; the extra transportation costs incurredfor transporting the liquids while the pipeline was out of service; the reducedvolumes of liquids that could be processed; and the costs of complying with theOPS Corrective Action Order (hydrostatic testing, repair/replacement and otherpipeline integrity assurance measures). These expenses and costs have beenexpensed as incurred and any potential recovery from the All-Risks Property andBusiness Interruption insurance carriers will be treated as “other income” ifand when it is received. Following initial discovery, the Company was grantedleave of the Court to amend its complaint to add a bad faith claim, and a claimfor punitive damages.  The Company hasnot provided for a receivable for any of the claims in this action because ofthe uncertainty as to whether and how much the Company will ultimately recoverunder the policies. Discovery in the action is continuing.  The Company has also asserted that the costof pipeline testing, replacement and repair are subject to an equitable sharingarrangement with the pipeline owner, pursuant to the terms of the pipelinelease agreement.

The Company justrecently learned that a default judgment had been entered against it in May of2006, in an action entitled *Runyan v. Eclipse RealtyLLC et a*l, (Arapahoe County District Court, Colorado, Case No.06CV1054, filed February 2006). The Company was not aware of having everreceived a summons and was not given any notification of a motion for defaultjudgment.  The Company is stillinvestigating whether there ever was proper service of process.  The action involves a personal injury claimby an individual who allegedly slipped and fell due to snowy conditions whileapproaching the office building in which the Company was one of severaltenants.  Eclipse Realty, the landlord ofthe building, was responsible for the maintenance and upkeep of the commonareas of the office building.  TheCompany is seeking to have the default judgment vacated, and then having theCompany dismissed as an improper party to the action.  The Company also has a contractualindemnification from Eclipse Realty, the landlord of the building, and we havedemanded that Eclipse Realty 

26

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defend and indemnify theCompany.  We are unable to predict theoutcome of our motion to vacate the default judgment or our indemnificationclaim, but the Company does not expect at this time that the matter should havea material adverse effect on our financial position.

The Partnership received notice from one of itscustomers of a potential gas measurement discrepancy and invoice errors,claiming it is owed several hundred thousand MMBtus as a result. ThePartnership generally disputes the claims under the facts and under the termsof the contract with the customer, but is in discussions with the customer toevaluate and resolve all issues, and it appearsat this time that this claim should not have a material adverse impact on thePartnership or us.

With regard to the Partnership’s Javelina facility,MarkWest Javelina is a party with numerous other defendants to several lawsuitsbrought by various plaintiffs who had residences or businesses located near theCorpus Christi industrial area, an area which included the Javelina gasprocessing plant, and several petroleum, petrochemical and metal processing andrefining operations. These suits, *VictorHuff v. ASARCO Incorporated, et al*. (Cause No. 98-01057-F, 214th JudicialDist. Ct., County of Nueces, Texas, original petition filed in March 3,1998); *Hipolito Gonzales et al. v. ASARCOIncorporated, et al*., (Cause No. 98-1055-F, 214th JudicialDist. Ct., County of Nueces, Texas, original petition filed in 1998); *Jason and Dianne Gutierrez, individually and asrepresentative of the estate of Sarina Galan Gutierrez* (CauseNo. 05-2470-A, 28TH Judicial District, severed May 18, 2005,from the *Gonzales* case citedabove); and *Esmerejilda G. Valasquez, et al. v. OccidentalChemical Corp., et al.,*Case No. A-060352-C, 128th Judicial District, Orange County, Texas,original petition filed July 10, 2006; as refiled from previously dismissedpetition captioned *Jesus Villarreal v. KochRefining Co. et al*., CauseNo. 05-01977-F, 214th Judicial Dist. Ct., County of Nueces, Texas,originally filed April 27, 2005), set forth claims for wrongful death,personal injury or property damage, harm to business operations and nuisancetype claims, allegedly incurred as a result of operations and emissions fromthe various industrial operations in the area or from products Defendantsallegedly manufactured, processed, used, or distributed. The *Gonzales* action was settled in early 2006pursuant to a mediation held December 9, 2005. The other actions have beenand are being vigorously defended and, based on initial evaluation andconsultations; it appears at this time that these actions should not have amaterial adverse impact on the Partnership or us.

In the ordinary course of business, the Company is a party to variousother legal actions. While it is not possible to predict theoutcome of the legal actions with certainty, management is of the opinion thatappropriate provision and accruals for potential losses associated with alllegal actions have been made in the financial statements.  In the opinion of management, none of theseactions, either individually or in the aggregate, will have a material adverseeffect on the Company’s financial condition, liquidity or results ofoperations.

## **Item4. Submission of Matters to a Vote of Security Holders**

No matters were submitted to a vote in the fourthquarter of 2006.

27

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## **PARTII**

## **Item5. Market for Registrant’s Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities**

Our common stock trades on the American Stock Exchange(“AMEX”) national market under the symbol “MWP.”  As of February 15, 2007,there were 11,992,520 shares of common stock outstanding held by 83 holders ofrecord. The following table sets forth quarterly high and low sales prices asreported by the American Stock Exchange as well as the amount of cash dividendspaid per share per quarter for 2006 and 2005. All numbers have been retroactively restated to give effect to the May2006 stock dividend.
| **Quarter ended**   | ** ** | **High** | ** ** | **Low** | ** ** | **Dividend** | ** ** | **Record Date**    | ** ** | **Payment Date** | ** **              |
|--------------------------|------------|----------|------------|---------|------------|--------------|------------|-------------------------|------------|-----------------------|-------------------------|
| December 31,  2006  |       | $        | 49.34      |    | $          | 27.10        |       | $                       | 0.300      |                  | February  9, 2007       |   | February  21, 2007 |   |
| September 30,  2006 |       | 28.11    |       | 24.49   |       | 0.280        |       | November  9, 2006       |       | November  21, 2006    |                    |
| June 30,  2006      |       | 22.95    |       | 18.54   |       | 0.240        |       | August  14, 2006        |       | August  21, 2006      |                    |
| March 31,  2006     |       | 22.64    |       | 19.92   |       | 0.159        |       | May  26, 2006           |       | June  5, 2006         |                    |
|                     |       |     |       |    |       |         |       |                    |       |                  |                    |
| December 31,  2005  |       | $        | 23.17      |    | $          | 19.14        |       | $                       | 0.114      |                  | February 15,  2006 |   | February 22,  2006 |   |
| September 30,  2005 |       | 24.50    |       | 20.05   |       | 0.114        |       | November 15,  2005 |       | November  22, 2005    |                    |
| June 30,  2005      |       | 22.72    |       | 18.05   |       | 0.091        |       | August 15,  2005   |       | August 22,  2005 |                    |
| March 31, 2005      |       | 22.04    |       | 15.61   |       | 0.091        |       | May 16, 2005       |       | May 23, 2005     |                    |

 

**Dividend Policy**

TheCompany does not have a formal dividend policy. The Company’s objective,however, is to maintain a regular quarterly dividend.  Payment ofdividends in the future will depend on our earnings, financial condition andcontractual restrictions, including those under our bank line of credit orimposed by law and other factors deemed relevant by our Board of Directors.

**Stock Dividend**

OnApril 27, 2006, MarkWest Hydrocarbon announced that its Board of Directorsapproved the issuance of one share of common stock for each ten shares ofcommon stock held by common stockholders. The stock was issued on May 23, 2006,to the stockholders of record as of the close of business on May 11, 2006; theex-dividend date was May 9, 2006.

**Securities Authorized for Issuance under Equity CompensationPlans**

Thefollowing table provides information as of December 31, 2006, about the sharesof our common stock and units of the Partnership that may be issued upon theexercise of options, warrants and rights under all of the Company’s existingequity compensation plans.

All previouslyawarded MarkWest Hydrocarbon restricted stock, stock options and othercompensation arrangements based on the market value of our common stock havebeen adjusted to reflect the May 2006 stock dividend.  Furthermore, all previously awardedPartnership units have been adjusted to reflect the February 2007 two-for-oneunit split (see Note 2 to the consolidated financial statements):
| ** **                                                       | ** ** | **Number of  securities to be  issued upon   exercise of  outstanding   options, warrants  and rights** | ** ** | **Weighted-average  exercise price of  outstanding  options, warrants  and rights (1)** | ** ** | **Number of  securities  remaining  available for  future issuance  under equity  compensation  plans** | ** ** |
|------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|
|                                                             | ** ** | ** **                                                                                              | ** ** | ** **                                                                              | ** ** | ** **                                                                                              | ** ** |
| **Equity compensation plans approved by security  holders:**     | ** ** | ** **                                                                                              | ** ** | ** **                                                                              | ** ** | ** **                                                                                              | ** ** |
|                                                             | ** ** | ** **                                                                                              | ** ** | ** **                                                                              | ** ** | ** **                                                                                              | ** ** |
| *MarkWest Hydrocarbon*                                           | ** ** | ** **                                                                                              | ** ** | ** **                                                                              | ** ** | ** **                                                                                              | ** ** |
| 1996 Stock Incentive  Plan - (stock options)                     |       | 65,635                                                                                                  |       | $7.48                                                                                   |       | —                                                                                                  |       |
| 1996 Stock Incentive  Plan - (restricted stock)                  |       | 30,793                                                                                                  |       | —                                                                                  |       | —                                                                                                  |       |
| 2006 Stock Incentive  Plan - (restricted stock)                  |       | 10,900                                                                                                  |       | —                                                                                  |       | 989,100                                                                                                 |       |
| Total                                                            |       | 107,328                                                                                                 |       | —                                                                                  |       | 989,100                                                                                                 |       |
|                                                             |       |                                                                                                    |       |                                                                                    |       |                                                                                                    |       |
| **Equity compensation plans not approved by  security holders:** |       |                                                                                                    |       |                                                                                    |       |                                                                                                    |       |
|                                                             |       |                                                                                                    |       |                                                                                    |       |                                                                                                    |       |
| *MarkWest Energy Partners*                                       |       |                                                                                                    |       |                                                                                    |       |                                                                                                    |       |
| Long-Term Incentive  Plan - (restricted units)                   |       | 125,200                                                                                                 |       | —                                                                                  |       | 128,242                                                                                                 |       |
| Long-Term Incentive  Plan - (unit options)                       |       | —                                                                                                  |       | —                                                                                  |       | 600,000                                                                                                 |       |
| Total                                                            |       | 125,200                                                                                                 |       | —                                                                                  |       | 728,242                                                                                                 |       |

 

28

----

----

(1)  Restricted stock and units are granted with no exercise orconversion price.

**Item 6. Selected Financial Data**

Thefollowing table sets forth selected consolidated historical financial andoperating data for MarkWest Hydrocarbon.  We have derived the summaryselected historical financial data from our current and historical auditedconsolidated financial statements and related notes.  All earnings per share and dividendinformation have been updated to reflect the May 2006 stock dividend. Theselected financial data should be read in conjunction with the consolidatedfinancial statements, including the notes thereto, and *Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperation.*
| ** **                                                                                                     | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **2006**                                   | ** ** | **2005 (1)** | ** ** | **2004 (2)** | ** ** | **2003 (3)** | ** ** | **2002** | ** ** |
| **Statement  of Operations:**                                                                                  |       |                                       |       |   |   |   |   |   |   |   |   |
| Revenues:                                                                                                      |       |                                       |       |   |   |   |   |   |   |   |   |
| Revenue                                                                                                        |       | $                                          | 775,339    |   | $ | 717,375 |   | $ | 464,678 |   | $ | 209,268 |   | $ | 155,787 |   |
| Derivative gain (loss)                                                                                         |       | 10,383                                     |       | (3,198 | ) | (4,565 | ) | — |   | — |   |
| Total revenue                                                                                                  |       | 785,722                                    |       | 714,177 |   | 460,113 |   | 209,268 |   | 155,787 |   |
|                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Operating  expenses:                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Purchased product costs                                                                                        |       | 512,327                                    |       | 583,084 |   | 363,261 |   | 187,544 |   | 127,526 |   |
| Facility expenses                                                                                              |       | 57,403                                     |       | 45,577 |   | 28,580 |   | 20,957 |   | 17,145 |   |
| Selling, general and administrative expenses                                                                   |       | 63,038                                     |       | 33,350 |   | 28,132 |   | 15,865 |   | 9,614 |   |
| Depreciation                                                                                                   |       | 31,010                                     |       | 20,829 |   | 16,895 |   | 8,795 |   | 6,016 |   |
| Amortization of intangible assets                                                                              |       | 16,047                                     |       | 9,656 |   | 3,640 |   | — |   | — |   |
| Accretion of asset retirement obligations                                                                      |       | 102                                        |       | 160 |   | 15 |   | — |   | — |   |
| Impairments                                                                                                    |       | —                                     |       | — |   | 130 |   | 2,187 |   | — |   |
| Total operating expenses                                                                                       |       | 679,927                                    |       | 692,656 |   | 440,653 |   | 235,348 |   | 160,301 |   |
|                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Income (loss) from operations                                                                                  |       | 105,795                                    |       | 21,521 |   | 19,460 |   | (26,080 | ) | (4,514 | ) |
|                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Earnings (losses) from unconsolidated affiliates                                                               |       | 5,316                                      |       | (2,153 | ) | — |   | — |   | — |   |
| Interest income                                                                                                |       | 1,574                                      |       | 1,060 |   | 647 |   | 106 |   | 65 |   |
| Interest expense                                                                                               |       | (40,942                                    | )          | (22,622 | ) | (9,383 | ) | (4,347 | ) | (2,474 | ) |
| Amortization of deferred financing costs and  original issue discount (a component of interest expense)        |       | (9,229                                     | )          | (6,979 | ) | (5,281 | ) | (2,104 | ) | (4,343 | ) |
| Gain on sale of non-operating assets                                                                           |       | —                                     |       | — |   | — |   | — |   | 5,454 |   |
| Dividend income                                                                                                |       | 447                                        |       | 392 |   | 259 |   | — |   | — |   |
| Miscellaneous income (expense)                                                                                 |       | 11,537                                     |       | 266 |   | 788 |   | (92 | ) | (73 | ) |
| Income (loss) before income taxes                                                                              |       | 74,498                                     |       | (8,515 | ) | 6,490 |   | (32,517 | ) | (5,885 | ) |
|                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Income tax  (expense) benefit:                                                                                 |       |                                       |       |   |   |   |   |   |   |   |   |
| Current                                                                                                        |       | 179                                        |       | (554 | ) | (20 | ) | 13,085 |   | 3,057 |   |
| Deferred                                                                                                       |       | (5,431                                     | )          | 2,358 |   | (58 | ) | — |   | — |   |
| Income tax  (expense) benefit                                                                                  |       | (5,252                                     | )          | 1,804 |   | (78 | ) | 13,085 |   | 3,057 |   |
|                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Non-controlling interest in net income of  consolidated subsidiary                                             |       | (59,709                                    | )          | (91 | ) | (7,315 | ) | (2,988 | ) | (1,947 | ) |
| Income (loss) from continuing operations                                                                       |       | 9,537                                      |       | (6,802 | ) | (903 | ) | (22,420 | ) | (4,775 | ) |
|                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Income from discontinued operations                                                                            |       | —                                     |       | — |   | — |   | 11,443 |   | 1,766 |   |
| Income (loss) before cumulative effect of accounting  change                                                   |       | 9,537                                      |       | (6,802 | ) | (903 | ) | (10,977 | ) | (3,009 | ) |
|                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Cumulative effect of change in accounting for asset  retirement obligations, net of income taxes               |       | —                                     |       | — |   | — |   | (29 | ) | — |   |
|                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                              |       | $                                          | 9,537      |   | $ | (6,802 | ) | $ | (903 | ) | $ | (11,006 | ) | $ | (3,009 | ) |
|                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Net income  (loss) from continuing operations per share:                                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Basic                                                                                                          |       | $                                          | 0.80       |   | $ | (0.57 | ) | $ | (0.08 | ) | $ | (1.97 | ) | $ | (0.42 | ) |
| Diluted                                                                                                        |       | $                                          | 0.79       |   | $ | (0.57 | ) | $ | (0.08 | ) | $ | (1.97 | ) | $ | (0.42 | ) |
|                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Net income  (loss) per share:                                                                                  |       |                                       |       |   |   |   |   |   |   |   |   |
| Basic                                                                                                          |       | $                                          | 0.80       |   | $ | (0.57 | ) | $ | (0.08 | ) | $ | (0.97 | ) | $ | (0.27 | ) |
| Diluted                                                                                                        |       | $                                          | 0.79       |   | $ | (0.57 | ) | $ | (0.08 | ) | $ | (0.97 | ) | $ | (0.27 | ) |
|                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Weighted average  number of outstanding shares of common stock (numbers adjusted to reflect  stock dividends): |       |                                       |       |   |   |   |   |   |   |   |   |
| Basic                                                                                                          |       | 11,939                                     |       | 11,864 |   | 11,755 |   | 11,361 |   | 11,314 |   |
| Diluted                                                                                                        |       | 12,033                                     |       | 11,864 |   | 11,755 |   | 11,361 |   | 11,314 |   |
|                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Cash dividend  declared per common share                                                                       |       | $                                          | 0.793      |   | $ | 0.364 |   | $ | 0.087 |   | NA |   | NA |   |
|                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| **Balance  Sheet Data (at December 31):**                                                                      |       |                                       |       |   |   |   |   |   |   |   |   |
| Working capital                                                                                                |       | $                                          | 66,030     |   | $ | 61,156 |   | $ | 53,907 |   | $ | 44,747 |   | $ | (4,331 | ) |
| Property, plant and equipment, net                                                                             |       | 554,335                                    |       | 494,698 |   | 283,193 |   | 232,257 |   | 211,518 |   |
| Total assets                                                                                                   |       | 1,203,241                                  |       | 1,132,304 |   | 593,574 |   | 280,495 |   | 257,503 |   |
| Total long-term debt                                                                                           |       | 526,865                                    |       | 608,762 |   | 225,000 |   | 126,200 |   | 64,223 |   |
| Stockholder’s equity                                                                                      |       | 41,489                                     |       | 39,982 |   | 49,761 |   | 50,914 |   | 53,139 |   |
|                                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| **Cash  Flow Data:**                                                                                           |       |                                       |       |   |   |   |   |   |   |   |   |
| Net cash flow  provided by (used in):                                                                          |       |                                       |       |   |   |   |   |   |   |   |   |
| Operating activities                                                                                           |       | $                                          | 165,969    |   | $ | 16,874 |   | $ | 26,616 |   | $ | (6,411 | ) | $ | 36,301 |   |
| Investing activities                                                                                           |       | (122,046                                   | )          | (445,848 | ) | (303,017 | ) | (36,887 | ) | (22,719 | ) |
| Financing  activities                                                                                          |       | (16,047                                    | )          | 437,098 |   | 247,101 |   | 78,956 |   | (9,520 | ) |

----

(1)          MarkWestEnergy Partners completed its investment in Starfish on March 31, 2005, andacquired Javelina on November 1, 2005.

(2)          MarkWestEnergy Partners acquired the East Texas system in late July 2004.

(3)          MarkWestEnergy Partners acquired the Foss Lake gathering system in December 2003.

MarkWest Energy Partners acquired the Arapahoprocessing plant in December 2003.

MarkWest Energy Partners acquired the Michigancrude pipeline in December 2003.

MarkWest Energy Partners acquired the Pinnaclegathering systems in late March 2003.

MarkWest Energy Partners acquired the Lubbockpipeline in September 2003 and the Hobbs lateral pipeline in April 2004.

MarkWestEnergy Partners sold most of its exploration and production operations in July2003 (U.S.) and December 2003 (Canada).

 

29

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***Operating Data***
| ** **                                              | ** ** | **Year ended December 31, 2006** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                              | ** ** | **2006**                                             | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                              | ** ** | ** **                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **MarkWest  Hydrocarbon Standalone:**                   |       |                                                 |       |   |   |   |   |   |   |   |   |
| *Marketing*                                             |       |                                                 |       |   |   |   |   |   |   |   |   |
| Hydrocarbon frac spread sales (gallons)                 |       | 118,581,000                                          |       | 120,300,000 |   | 135,895,000 |   | 136,695,000 |   | 144,187,000 |   |
| Maytown sales (gallons)                                 |       | 43,271,000                                           |       | 41,700,000 |   | 42,105,000 |   | 40,305,000 |   | 38,813,000 |   |
| Total NGL product sales (gallons)(1)                    |       | 161,852,000                                          |       | 162,000,000 |   | 178,000,000 |   | 177,000,000 |   | 183,000,000 |   |
|                                                    |       |                                                 |       |   |   |   |   |   |   |   |   |
| *Wholesale*                                             |       |                                                 |       |   |   |   |   |   |   |   |   |
| NGL product sales (gallons)(2)                          |       | 46,555,000                                           |       | 68,879,000 |   | 42,154,000 |   | NA |   | NA |   |
|                                                    |       |                                                 |       |   |   |   |   |   |   |   |   |
| **MarkWest  Energy Partners:**                          |       |                                                 |       |   |   |   |   |   |   |   |   |
| *East Texas:(3)*                                        |       |                                                 |       |   |   |   |   |   |   |   |   |
| Gathering systems throughput (Mcf/d)                    |       | 378,100                                              |       | 321,000 |   | 259,300 |   | NA |   | NA |   |
| NGL product sales (gallons)                             |       | 161,437,000                                          |       | 126,476,000 |   | 41,478,000 |   | NA |   | NA |   |
|                                                    |       |                                                 |       |   |   |   |   |   |   |   |   |
| *Oklahoma :*                                            |       |                                                 |       |   |   |   |   |   |   |   |   |
| Foss Lake gathering systems throughput (Mcf/d)          |       | 87,500                                               |       | 75,800 |   | 60,900 |   | 57,000 |   | NA |   |
| Woodford Shale gathering systems throughput  (Mcf/d)(4) |       | 34,000                                               |       | NA |   | NA |   | NA |   | NA |   |
| Arapaho NGL product sales (gallons)                     |       | 79,093,000                                           |       | 60,903,000 |   | 45,273,000 |   | 2,910,000 |   | NA |   |
|                                                    |       |                                                 |       |   |   |   |   |   |   |   |   |
| *Other Southwest:*                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Appleby gathering systems throughput (Mcf/d)            |       | 34,200                                               |       | 33,400 |   | 27,100 |   | 23,800 |   | NA |   |
| Other gathering systems throughput (Mcf/d)              |       | 18,300                                               |       | 16,500 |   | 17,000 |   | 20,500 |   | NA |   |
| Lateral throughput volumes (Mcf/d)(5)                   |       | 84,200                                               |       | 81,000 |   | 75,500 |   | 32,100 |   | NA |   |
|                                                    |       |                                                 |       |   |   |   |   |   |   |   |   |
| *Appalachia:(6)*                                        |       |                                                 |       |   |   |   |   |   |   |   |   |
| Natural gas processed for a fee (Mcf/d)                 |       | 203,000                                              |       | 197,000 |   | 203,000 |   | 202,000 |   | 202,000 |   |
| NGLs fractionated for a fee (Gal/d)                     |       | 454,800                                              |       | 430,000 |   | 475,000 |   | 458,000 |   | 476,000 |   |
| NGL product sales (gallons)                             |       | 43,271,000                                           |       | 41,700,000 |   | 42,105,000 |   | 40,305,000 |   | 38,813,000 |   |
|                                                    |       |                                                 |       |   |   |   |   |   |   |   |   |
| *Michigan:*                                             |       |                                                 |       |   |   |   |   |   |   |   |   |
| Natural gas processed for a fee (Mcf/d)                 |       | 6,500                                                |       | 6,600 |   | 12,300 |   | 15,000 |   | 13,800 |   |
| NGL product sales (gallons)                             |       | 5,643,000                                            |       | 5,697,000 |   | 9,818,000 |   | 11,800,000 |   | 11,100,000 |   |
| Crude oil transported for a fee (Bbl/d)                 |       | 14,500                                               |       | 14,200 |   | 14,700 |   | 15,100 |   | NA |   |
|                                                    |       |                                                 |       |   |   |   |   |   |   |   |   |
| *Gulf Coast:(7)*                                        |       |                                                 |       |   |   |   |   |   |   |   |   |
| Natural gas processed for a fee (Mcf/d)                 |       | 124,300                                              |       | 115,000 |   | NA |   | NA |   | NA |   |
| NGLs fractionated  for a fee (Bbl/d)                    |       | 26,200                                               |       | 25,600 |   | NA |   | NA |   | NA |   |

 

----

(1)             Representssales at the Siloam fractionator facility.

(2)             Representssales from our wholesale business.

(3)             ThePartnership acquired the East Texas system in late July 2004.

(4)             Inlate 2006 the Partnership began the construction and operation of the Woodfordgathering system and compression system in a four-county region in the ArkomaBasin in eastern Oklahoma.  On December1, 2006, the Partnership began gathering gas on that system.  The volume reported is the average daily ratefor the month of December.

(5)             ThePartnership acquired the Lubbock pipeline (a/k/a the Power-tex lateralpipeline) in September 2003 and the Hobbs lateral pipeline inApril 2004. The Lubbock and Hobbs pipelines are the only laterals that thePartnership owns that produce revenue on a per-unit-of-throughput basis. ThePartnership receives a flat fee from its other lateral pipelines and,consequently, the throughput data from these lateral pipelines is excluded fromthis statistic.

(6)             Includesthroughput from the Kenova, Cobb, and Boldman processing plants.

(7)             ThePartnership acquired the Javelina system (Gulf Coast) on November 1, 2005.

30

----

# **Item 7. Management’s Discussion and Analysis of Financial Condition and Resultsof Operation**

*Management’s Discussion and Analysis(“MD&A”) contains statements that are forward-looking and should be read inconjunction with “Selected Consolidated Financial Data” and our consolidatedfinancial statements and accompanying notes included elsewhere in thisreport.  These statements are based oncurrent expectations and assumptions that are subject to risks anduncertainties.  Actual results coulddiffer materially from those expressed or implied in the forward-lookingstatements as a result of a number of factors.*

**Overview**

MarkWestHydrocarbon, Inc. is an energy company primarily focused on marketing naturalgas liquids and increasing shareholder value by growing MarkWest EnergyPartners, L.P., its consolidated subsidiary and a publicly-traded masterlimited partnership.  The Partnership isengaged in the gathering, processing and transmission of natural gas; thetransportation, fractionation and storage of natural gas liquids; and thegathering and transportation of crude oil.

Our assets consist primarily of partnership interestsin the Partnership and certain processing agreements in Appalachia.  As ofDecember 31, 2006, the Company owned a 17% interest in the Partnership.This ownership consisted of 3,738,992 common units and 1,200,000 subordinatedunits, representing a combined 15% limited partner interest in the Partnership,and an 89.7% ownership interest in MarkWest Energy GP, L.L.C., the generalpartner of the Partnership, which in turn owns a 2% general partner interestand all of the incentive distribution rights in the Partnership.  Since the formation of the Partnership in2002, it has grown significantly as a result of construction and acquisition ofgathering and transmission pipelines and treating and processing plants.  Since its initial public offering, thePartnership has completed nine acquisitions for an aggregate purchase price of$810 million, net of working capital.

Alarge portion of our cash flows consist of the distributions we receive fromthe Partnership on the partnership interests we own. The Partnership isrequired by its partnership agreement to distribute available cash fromoperating surplus each quarter to pay the minimum quarterly distribution. Theamount of cash the Partnership can distribute on its units depends principallyon the amount of cash generated from its operations.

Incentivedistribution rights entitle us to receive an increasing percentage of cashdistributed by the Partnership as certain target distribution levels arereached.  Specifically, they entitle us to receive 13% of all cashdistributed in a quarter after each unit has received $0.275 for that quarter;23% of all cash distributed after each unit has received $0.3125 for thatquarter; and 48% of all cash distributed after each unit has received $0.375for that quarter.

Distributionsby the Partnership have increased from $0.25 per unit for the quarterended September 30, 2002 (its first full quarter of operation after its initialpublic offering), to $0.50 per unit for the quarter endedDecember 31, 2006.  As a result, ourdistributions from the Partnership pursuant to our ownership of common andsubordinated units have increased from $1.2 million for the quarter endedSeptember 30, 2002 to $2.4 million for the quarter ended December 31,2006; our distributions pursuant to our 2% general partner interest haveincreased from less than $0.1 million to approximately $0.4 million; andour distributions pursuant to our incentive distribution rights have increasedfrom zero to $3.8 million. In total, our total distributions from ourinvestment in the Partnership have increased from $1.3 million for the quarterended September 30, 2002 to $6.6 million for the quarter ended December 31,2006.  As a result, we have increased ourdividend from $0.02 per share for the quarter ended March 31, 2004(our first dividend payout) to $0.30 per share for the quarter endedDecember 31, 2006.

A significant partof the Partnership’s business strategy includes acquiring additional businessesthat will allow it to increase distributions to its unitholders. ThePartnership regularly considers and enters into discussions regarding potentialacquisitions. These transactions may be effectuated quickly, may occur at anytime and may be significant in size relative to the Partnership’s existingassets and operations.  The following isa brief summary of the Partnership’s acquisitions through December 31, 2006.

The Partnership completed the Santa Fe acquisitionclosed on December 29, 2006 for consideration of $15.0 million.  Due to the timing of the acquisition, thereis no associated activity reflected in the statement of operations in 2006.

The Partnership completed the following twoacquisitions in 2005 which are included in the results of operations from theirdates of acquisition:

·                     The Javelinaacquisition closed on November 1, 2005, for consideration of $357.0 million,plus $41.8 million for net working capital.

31

----

·                     The Starfishacquisition closed on March 31, 2005, for consideration of $41.7 million.

The Partnership completed the following twoacquisitions in 2004 which are included in the results of operations from theirdates of acquisition:

·                     TheEast Texas acquisition closed on July 30, 2004, for consideration of $240.7million.

·                     The Hobbsacquisition closed April 1, 2004, for consideration of $2.3 million.

Prior to 2004 the Partnership completed fouradditional acquisitions which are reflected in the results of operations fromtheir respective acquisition dates.

**Resultsof Operations**

Management evaluates performance on the basis of netoperating margin (a non-GAAP financial measure), which is defined as income(loss) from operations, excluding facility cost, selling, general andadministrative expense, depreciation, amortization, impairments and accretionof asset retirement obligations. These charges have been excluded for thepurpose of enhancing the understanding by both management and investors of theunderlying baseline operating performance of our contractual arrangements,which management uses to evaluate our financial performance for purposes ofplanning and forecasting. Net operating margin does not have any standardizeddefinition and therefore is unlikely to be comparable to similar measurespresented by other reporting companies. Net operating margin results should notbe evaluated in isolation of, or as a substitute for our financial resultsprepared in accordance with United States GAAP. Our usage of net operatingmargin and the underlying methodology in excluding certain charges is notnecessarily an indication of our expected future results of operations, or thatwe will not, in fact, incur such charges in future periods.

***Year ended December 31, 2006, compared to the year ended December 31,2005***

The followingreconciles this non-GAAP financial measure to the most comparable GAAPfinancial measure for the years ended December 31, 2006 and 2005 (inthousands):
| ** **                                                                                              | ** ** | **MarkWest  Hydrocarbon  Standalone** | ** ** | **MarkWest  Energy Partners** | ** ** | **Consolidating  Entries** | ** ** | **Total**  | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|------------------------------------|------------|----------------------------|------------|------------|------------|
| **Year  ended December 31, 2006:**                                                                      | ** ** | ** **                            | ** ** | ** **                         | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Revenues:                                                                                               | ** ** | ** **                            | ** ** | ** **                         | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Revenue                                                                                                 |       | $                                     | 278,655    |                               | $          | 570,320                    |       | $          | (73,636    | ) | $ | 775,339 |   |
| Derivative gain                                                                                         |       | 4,751                                 |       | 5,632                              |       | —                     |       | 10,383     |       |
| Total revenue                                                                                           |       | 283,406                               |       | 575,952                            |       | (73,636                    | )          | 785,722    |       |
|                                                                                                    |       |                                  |       |                               |       |                       |       |       |       |
| Purchased product costs                                                                                 |       | 239,359                               |       | 322,278                            |       | (49,310                    | )          | 512,327    |       |
| Net operating margin                                                                                    |       | 44,047                                |       | 253,674                            |       | (24,326                    | )          | 273,395    |       |
|                                                                                                    |       |                                  |       |                               |       |                       |       |       |       |
| Operating  expenses:                                                                                    |       |                                  |       |                               |       |                       |       |       |       |
| Facility expenses                                                                                       |       | 21,617                                |       | 60,112                             |       | (24,326                    | )          | 57,403     |       |
| Selling, general and administrative expenses                                                            |       | 18,853                                |       | 44,185                             |       | —                     |       | 63,038     |       |
| Depreciation                                                                                            |       | 1,017                                 |       | 29,993                             |       | —                     |       | 31,010     |       |
| Amortization of intangible assets                                                                       |       | —                                |       | 16,047                             |       | —                     |       | 16,047     |       |
| Accretion of asset retirement and lease obligations                                                     |       | —                                |       | 102                                |       | —                     |       | 102        |       |
| Income from operations                                                                                  |       | 2,560                                 |       | 103,235                            |       | —                     |       | 105,795    |       |
|                                                                                                    |       |                                  |       |                               |       |                       |       |       |       |
| Other income  (expense):                                                                                |       |                                  |       |                               |       |                       |       |       |       |
| Earnings from unconsolidated affiliates                                                                 |       | —                                |       | 5,316                              |       | —                     |       | 5,316      |       |
| Interest income                                                                                         |       | 612                                   |       | 962                                |       | —                     |       | 1,574      |       |
| Interest expense                                                                                        |       | (276                                  | )          | (40,666                            | )          | —                     |       | (40,942    | )          |
| Amortization of deferred financing costs and  original issue discount (a component of interest expense) |       | (135                                  | )          | (9,094                             | )          | —                     |       | (9,229     | )          |
| Dividend income                                                                                         |       | 447                                   |       | —                             |       | —                     |       | 447        |       |
| Miscellaneous income                                                                                    |       | 437                                   |       | 11,100                             |       | —                     |       | 11,537     |       |
| Income before non-controlling interest in net income  of consolidated subsidiary and income taxes       |       | 3,645                                 |       | 70,853                             |       | —                     |       | 74,498     |       |
| Income tax expense                                                                                      |       | (5,124                                | )          | (769                               | )          | 641                        |       | (5,252     | )          |
| Non-controlling interest in net income of  consolidated subsidiary                                      |       | —                                |       | —                             |       | (59,709                    | )          | (59,709    | )          |
| Interest in net income of consolidated subsidiary                                                       |       | 11,016                                |       | —                             |       | (11,016                    | )          | —     |       |
| Net income                                                                                              |       | $                                     | 9,537      |                               | $          | 70,084                     |       | $          | (70,084    | ) | $ | 9,537 |   |

 

32

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| ** **                                                                                               | ** ** | **MarkWest  Hydrocarbon  Standalone** | ** ** | **MarkWest  Energy Partners** | ** ** | **Consolidating  Entries** | ** ** | **Total**  | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|------------------------------------|------------|----------------------------|------------|------------|------------|
| **Year  ended December 31, 2005:**                                                                       | ** ** | ** **                            | ** ** | ** **                         | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Revenues:                                                                                                | ** ** | ** **                            | ** ** | ** **                         | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Revenue                                                                                                  |       | $                                     | 281,362    |                               | $          | 500,935                    |       | $          | (64,922    | ) | $ | 717,375 |   |
| Derivative loss                                                                                          |       | (1,347                                | )          | (1,851                             | )          | —                     |       | (3,198     | )          |
| Total revenue                                                                                            |       | 280,015                               |       | 499,084                            |       | (64,922                    | )          | 714,177    |       |
|                                                                                                     |       |                                  |       |                               |       |                       |       |       |       |
| Purchased product costs                                                                                  |       | 258,188                               |       | 366,878                            |       | (41,982                    | )          | 583,084    |       |
| Net operating margin                                                                                     |       | 21,827                                |       | 132,206                            |       | (22,940                    | )          | 131,093    |       |
|                                                                                                     |       |                                  |       |                               |       |                       |       |       |       |
| Operating  expenses:                                                                                     |       |                                  |       |                               |       |                       |       |       |       |
| Facility expenses                                                                                        |       | 20,545                                |       | 47,972                             |       | (22,940                    | )          | 45,577     |       |
| Selling, general and administrative expenses                                                             |       | 11,777                                |       | 21,573                             |       | —                     |       | 33,350     |       |
| Depreciation                                                                                             |       | 1,295                                 |       | 19,534                             |       | —                     |       | 20,829     |       |
| Amortization of intangible assets                                                                        |       | —                                |       | 9,656                              |       | —                     |       | 9,656      |       |
| Accretion of asset retirement and lease obligations                                                      |       | 1                                     |       | 159                                |       | —                     |       | 160        |       |
| Income (loss) from operations                                                                            |       | (11,791                               | )          | 33,312                             |       | —                     |       | 21,521     |       |
|                                                                                                     |       |                                  |       |                               |       |                       |       |       |       |
| Other income  (expense):                                                                                 |       |                                  |       |                               |       |                       |       |       |       |
| Losses from unconsolidated affiliates                                                                    |       | —                                |       | (2,153                             | )          | —                     |       | (2,153     | )          |
| Interest income                                                                                          |       | 693                                   |       | 367                                |       | —                     |       | 1,060      |       |
| Interest expense                                                                                         |       | (153                                  | )          | (22,469                            | )          | —                     |       | (22,622    | )          |
| Amortization of deferred financing costs and  original issue discount (a component of interest expense)  |       | (199                                  | )          | (6,780                             | )          | —                     |       | (6,979     | )          |
| Dividend income                                                                                          |       | 392                                   |       | —                             |       | —                     |       | 392        |       |
| Miscellaneous income                                                                                     |       | 215                                   |       | 51                                 |       | —                     |       | 266        |       |
| Income (loss) before non-controlling interest in net  income of consolidated subsidiary and income taxes |       | (10,843                               | )          | 2,328                              |       | —                     |       | (8,515     | )          |
| Income tax benefit                                                                                       |       | 1,804                                 |       | —                             |       | —                     |       | 1,804      |       |
| Non-controlling interest in net income of  consolidated subsidiary                                       |       | —                                |       | 27                                 |       | (118                       | )          | (91        | )          |
| Interest in net income of consolidated subsidiary                                                        |       | 2,237                                 |       | —                             |       | (2,237                     | )          | —     |       |
| Net income  (loss)                                                                                       |       | $                                     | (6,802     | )                                  | $          | 2,355                      |       | $          | (2,355     | ) | $ | (6,802 | ) |

 

***MarkWest Hydrocarbon Standalone***

*Revenue.*Revenue decreased $2.7million, or 1%, for the year ended December 31, 2006, compared to thecorresponding period in 2005. We realized a $14.5 million decrease in our gasmarketing business due primarily to lower prices and volumes of $0.38/MMBtu($2.0 million) and 4,200 MMBtu/d ($12.5 million), respectively.  The $19.1 million decrease in revenues in ourwholesale business can be attributed primarily to the expiration of a marketingarrangement that resulted in lower volumes of 61,000 Gal/d.  This decrease was partially offset by a priceincrease of approximately $0.05/Gal. These decreases were partially offset by an increase in our frac spreadNGL revenues of $19.8 million, an increase primarily the result of increases inprices ($0.13/Gal), offset slightly by a decrease in volumes(1,500/Gal/d).  Additionally, therevaluation of our long-term shrink obligation increased revenue by $5.8million in the year ended December 31, 2006, compared to a $5.3 milliondecrease in 2005, resulting in an $11.1 million increase for theperiod-over-period comparison.

*Derivative gain(loss).* Gains fromderivative instruments increased $6.1 million during the year endedDecember 31, 2006, compared to the corresponding period in 2005.  This increase in gains was primarily due to the mark-to-marketadjustments resulting from our electionnot to adopt hedge accounting treatment on our derivative instruments.  The mark-to-market adjustments resulted in a$4.1 million increase in unrealized gains, which are non-cash items, and a $2.0million decrease in realized losses, when comparing 2006 to 2005 results.

33

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*Purchased product costs.*Purchasedproduct costs decreased $18.8 million, or 7%, for the year ended December 31,2006, compared to the corresponding period in 2005. The decrease was primarilydue to our natural gas marketing business which reflected a decrease of $14.3million.  This was primarily due to adecrease in prices and volumes of $0.41/MMBtu ($2.1 million) and 4,200 MMBtu/d($12.2 million), respectively. Additionally, our wholesale business revenues decreased $18.6 millionwhich was driven by decreased volumes of nearly 61,000 Gal/d, partially offsetby increased prices of $0.06/Gal.  Thesedecreases were partially offset by increases in our frac spread purchase productcosts of $8.3 million, resulting primarily from increased prices and anincrease in our unrealized losses on our derivative mark-to-market adjustmentsof $5.8 million.

*Facility expenses.*Facilityexpenses increased $1.1 million, or 5%, during the year ended December 31, 2006,compared to the corresponding period of 2005. The primary reason for theincrease was due to higher Siloam storage fees ($0.7 million), higher Kenova,Boldman and Cobb plant processing fees ($0.8 million), and higher ALPStransportation fees ($0.2 million). These increases were partially offset by reduced inventory losses ($0.6million).

*Selling, general and administrative expenses.*Selling, general andadministrative expenses increased by $7.1 million, or 60%, during the yearended December 31, 2006, compared to the corresponding period in 2005. Thisincrease was primarily due to a $6.1 million non-cash increase to theparticipation plan compensation expense as a result of the Partnership’sincreased market value and increased labor and benefit costs of $0.9 million.

*Income taxes.*Income tax expense increasedby $6.9 million due to higher pre-tax book income for the year ended December31, 2006, compared to the corresponding period of 2005.  The 2006 estimated annual effective incometax rate varies from the statutory rate mostly due to a change in the valuationallowance associated with the state net operating losses.

***MarkWest Energy Partners***

*Revenue.*Revenue increased $69.4 million, or 14%, forthe year ended December 31, 2006, compared to the corresponding period of 2005,mostly due to the Partnership’s Javelina acquisition in November 2005, whichcontributed $55.1 million.  Additionally,the start-up of several new gathering system expansions in East Texas resultedin a $34.1 million increase in revenue. These increases were partially offset by a decrease in Other Southwestof $23.1 million, which is mostly attributable to lower natural gas sales.

*Derivativegain (loss).* Gains from derivative instruments increased$7.5 million during the year ended December 31, 2006, compared to thecorresponding period in 2005.  This increase in gains was primarily due tothe mark-to-market adjustments resulting from our electing not to adopthedge accounting treatment on our derivative instruments.  The mark-to-market adjustments resulted in a$0.6 million decrease in unrealized losses, which are non-cash items, and a$6.9 million increase in realized gains, when comparing 2006 to 2005 results.

*Purchasedproduct costs.*Purchased product costs decreased $44.6million, or 12%, during the year ended December 31, 2006, compared to thecorresponding period of 2005. This decrease was primarily due to a $23.6million decrease in Oklahoma driven by an 18% decrease in purchase prices($1.28/MMBtu); and a $25.3 million decrease in Other Southwest driven by lowernatural gas sales.  These decreases werepartially offset by a $5.2 increase in Appalachia due to increases in bothprices ($0.10/Gal) and volumes (5,000 Gal/d).

*Facilityexpenses.*Facility expenses increased approximately $12.1million, or 25%, during the year ended December 31, 2006, compared to thecorresponding period of 2005.  Thisincrease was primarily due to the Partnership’s November 2005 JavelinaAcquisition, which contributed $9.0 million; a $5.2 million increase related tothe new Carthage gas processing plant in East Texas, which started operationson January 1, 2006, and a $3.0 million increase in Oklahoma due primarily toincreases in compression and sales. These increases were partially offset by a $5.4 million decrease inAppalachia due to costs incurred to repair the ALPS pipeline in 2005.

*Selling, general and administrativeexpense.*  Selling, general and administrative expensesincreased $22.6 million, or 105%, during the year ended December 31, 2006,relative to the comparable period in 2005. The increase is primarily due tohigher non-cash, equity-based compensation expense of $12.0 million,primarily due to the Partnership’s increased market value; increases inlabor costs of $4.9 million related to increasedcosts for our existing employees plus the cost of additional personnelnecessary to support our growth and strategic objectives; higher insuranceexpense and taxes of $2.4 million; and a one-time charge to terminate theold headquarters lease of $0.8 million.

*Depreciation.*  Depreciation expenses increased $10.5 million, or 54%, during the year ended December31, 2006, compared to the corresponding quarter of 2005, primarily due to thePartnership’s November 2005 Javelina Acquisition, which contributed $5.4million; and $2.9 million in East Texas primarily related to the to the new Carthage gas processing 

34

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plant and Blocker gathering system.

*Earnings (losses) fromunconsolidated affiliates.*Earnings (losses) from unconsolidated affiliates are primarily related to thePartnership’s investment in Starfish, a joint venture with Enbridge OffshorePipelines LLC.  The Partnership accountsfor its 50% interest using the equity method, and the financial results forStarfish are included as earnings (losses) from unconsolidated affiliates.During the year ended December 31, 2006, the Partnership’s earnings fromunconsolidated affiliates increased $7.5 million due to the restoration ofoperations resulting from the completion of the majority of repairs necessaryafter the 2005 hurricane season.

*Interest expense and amortization ofdeferred financing costs (a component of interest expense).* Interest and amortization expense increased$20.5 million during the year ended December 31, 2006, relative tothe comparable period in 2005, primarily due to increased debt levels resultingfrom the financing of our November 2005 Javelina acquisition and higherinterest rates. The increase in the amortization relative to the comparableperiod in 2005 is attributable to deferred financing costs associated with ourdebt refinancing completed in 2006. Deferred financing costs are beingamortized over the terms of the related obligations, which approximate theeffective interest method.

*Miscellaneous income.* Miscellaneous income increased by $11.0 million during the year endedDecember 31, 2006, relative to the comparable period in 2005, due almostentirely to the Partnership recognizing $11.0 million of income from insuranceclaims, net of Starfish insurance premiums, recovered as a result from damagesfrom Hurricane Rita.

*Texas Margin tax.*  The Stateof Texas passed a new tax law that subjects the Partnership to an entity-leveltax on the portion of its income that is generated in Texas. We recorded adeferred tax liability of $0.8 million for the year ended December 31, 2006,related to the Partnership’s temporary differences that are expected to reversein future periods.

***Year ended December 31, 2005, compared to the year ended December 31,2004***

The followingincludes reconciliation to the most comparable GAAP financial measure of thisnon-GAAP financial measure for the years ended December 31, 2005 and 2004 (inthousands):
|                                                                                                          | ** ** | **MarkWest  Hydrocarbon  Standalone** | ** ** | **MarkWest  Energy Partners** | ** ** | **Consolidating  Entries** | ** ** | **Total**  | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|------------------------------------|------------|----------------------------|------------|------------|------------|
| **Year  ended December 31, 2005:**                                                                       | ** ** | ** **                            | ** ** | ** **                         | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Revenues:                                                                                                | ** ** | ** **                            | ** ** | ** **                         | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Revenue                                                                                                  |       | $                                     | 281,362    |                               | $          | 500,935                    |       | $          | (64,922    | ) | $ | 717,375 |   |
| Derivative loss                                                                                          |       | (1,347                                | )          | (1,851                             | )          | —                     |       | (3,198     | )          |
| Total revenue                                                                                            |       | 280,015                               |       | 499,084                            |       | (64,922                    | )          | 714,177    |       |
|                                                                                                     |       |                                  |       |                               |       |                       |       |       |       |
| Purchased product costs                                                                                  |       | 258,188                               |       | 366,878                            |       | (41,982                    | )          | 583,084    |       |
| Net operating margin                                                                                     |       | 21,827                                |       | 132,206                            |       | (22,940                    | )          | 131,093    |       |
|                                                                                                     |       |                                  |       |                               |       |                       |       |       |       |
| Operating  expenses:                                                                                     |       |                                  |       |                               |       |                       |       |       |       |
| Facility expenses                                                                                        |       | 20,545                                |       | 47,972                             |       | (22,940                    | )          | 45,577     |       |
| Selling, general and administrative expenses                                                             |       | 11,777                                |       | 21,573                             |       | —                     |       | 33,350     |       |
| Depreciation                                                                                             |       | 1,295                                 |       | 19,534                             |       | —                     |       | 20,829     |       |
| Amortization of intangible assets                                                                        |       | —                                |       | 9,656                              |       | —                     |       | 9,656      |       |
| Accretion of asset retirement and lease obligations                                                      |       | 1                                     |       | 159                                |       | —                     |       | 160        |       |
| Income (loss) from operations                                                                            |       | (11,791                               | )          | 33,312                             |       | —                     |       | 21,521     |       |
|                                                                                                     |       |                                  |       |                               |       |                       |       |       |       |
| Other income  (expense):                                                                                 |       |                                  |       |                               |       |                       |       |       |       |
| Losses from unconsolidated affiliates                                                                    |       | —                                |       | (2,153                             | )          | —                     |       | (2,153     | )          |
| Interest income                                                                                          |       | 693                                   |       | 367                                |       | —                     |       | 1,060      |       |
| Interest expense                                                                                         |       | (153                                  | )          | (22,469                            | )          | —                     |       | (22,622    | )          |
| Amortization of deferred financing costs and  original issue discount (a component of interest expense)  |       | (199                                  | )          | (6,780                             | )          | —                     |       | (6,979     | )          |
| Dividend income                                                                                          |       | 392                                   |       | —                             |       | —                     |       | 392        |       |
| Miscellaneous income                                                                                     |       | 215                                   |       | 51                                 |       | —                     |       | 266        |       |
| Income (loss) before non-controlling interest in net  income of consolidated subsidiary and income taxes |       | (10,843                               | )          | 2,328                              |       | —                     |       | (8,515     | )          |
| Income tax benefit                                                                                       |       | 1,804                                 |       | —                             |       | —                     |       | 1,804      |       |
| Non-controlling interest in net income of  consolidated subsidiary                                       |       | —                                |       | 27                                 |       | (118                       | )          | (91        | )          |
| Interest in net income of consolidated subsidiary                                                        |       | 2,237                                 |       | —                             |       | (2,237                     | )          | —     |       |
| Net income  (loss)                                                                                       |       | $                                     | (6,802     | )                                  | $          | 2,355                      |       | $          | (2,355     | ) | $ | (6,802 | ) |

 

35

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| ** **                                                                                               | ** ** | **MarkWest  Hydrocarbon  Standalone** | ** ** | **MarkWest  Energy Partners** | ** ** | **Consolidating  Entries** | ** ** | **Total**  | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|------------------------------------|------------|----------------------------|------------|------------|------------|
| **Year  ended December 31, 2004:**                                                                       | ** ** | ** **                            | ** ** | ** **                         | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Revenues:                                                                                                | ** ** | ** **                            | ** ** | ** **                         | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Revenue                                                                                                  |       | $                                     | 222,082    |                               | $          | 302,134                    |       | $          | (59,538    | ) | $ | 464,678 |   |
| Derivative loss                                                                                          |       | (3,745                                | )          | (820                               | )          | —                     |       | (4,565     | )          |
| Total revenue                                                                                            |       | 218,337                               |       | 301,314                            |       | (59,538                    | )          | 460,113    |       |
|                                                                                                     |       |                                  |       |                               |       |                       |       |       |       |
| Purchased product costs                                                                                  |       | 185,951                               |       | 211,534                            |       | (34,224                    | )          | 363,261    |       |
| Net operating margin                                                                                     |       | 32,386                                |       | 89,780                             |       | (25,314                    | )          | 96,852     |       |
|                                                                                                     |       |                                  |       |                               |       |                       |       |       |       |
| Operating  expenses:                                                                                     |       |                                  |       |                               |       |                       |       |       |       |
| Facility expenses                                                                                        |       | 23,983                                |       | 29,911                             |       | (25,314                    | )          | 28,580     |       |
| Selling, general and administrative expenses                                                             |       | 11,999                                |       | 16,133                             |       | —                     |       | 28,132     |       |
| Depreciation                                                                                             |       | 1,339                                 |       | 15,556                             |       | —                     |       | 16,895     |       |
| Amortization of intangible assets                                                                        |       | —                                |       | 3,640                              |       | —                     |       | 3,640      |       |
| Accretion of asset retirement and lease obligations                                                      |       | 2                                     |       | 13                                 |       | —                     |       | 15         |       |
| Impairments                                                                                              |       | —                                |       | 130                                |       | —                     |       | 130        |       |
| Income (loss) from operations                                                                            |       | (4,937                                | )          | 24,397                             |       | —                     |       | 19,460     |       |
|                                                                                                     |       |                                  |       |                               |       |                       |       |       |       |
| Other income  (expense):                                                                                 |       |                                  |       |                               |       |                       |       |       |       |
| Interest income                                                                                          |       | 560                                   |       | 87                                 |       | —                     |       | 647        |       |
| Interest expense                                                                                         |       | (147                                  | )          | (9,236                             | )          | —                     |       | (9,383     | )          |
| Amortization of deferred financing costs and  original issue discount (a component of interest expense)  |       | (45                                   | )          | (5,236                             | )          | —                     |       | (5,281     | )          |
| Dividend income                                                                                          |       | 259                                   |       | —                             |       | —                     |       | 259        |       |
| Miscellaneous income (expense)                                                                           |       | 838                                   |       | (50                                | )          | —                     |       | 788        |       |
| Income (loss) before non-controlling interest in net  income of consolidated subsidiary and income taxes |       | (3,472                                | )          | 9,962                              |       | —                     |       | 6,490      |       |
| Income tax expense                                                                                       |       | (78                                   | )          | —                             |       | —                     |       | (78        | )          |
| Non-controlling interest in net income of  consolidated subsidiary                                       |       | 511                                   |       | —                             |       | (7,826                     | )          | (7,315     | )          |
| Interest in net income of consolidated subsidiary                                                        |       | 2,136                                 |       | —                             |       | (2,136                     | )          | —     |       |
| Net income  (loss)                                                                                       |       | $                                     | (903       | )                                  | $          | 9,962                      |       | $          | (9,962     | ) | $ | (903 | ) |

 

***MarkWest Hydrocarbon Standalone***

*Revenues.* Revenues increased$59.3 million, or 27%, for the year ended December 31, 2005, compared to thecorresponding period of 2004.  Highervolumes and better pricing drove revenue in our wholesale propane marketingbusiness, representing a $30.9 million increase in revenue, and our gasmarketing business, representing an $18.8 million increase.  NGL product revenues increased $18.5 milliondue to favorable pricing, offset by a decrease in volumes.  Increases to revenues were offset by a $5.2million unfavorable mark-to-market adjustment to replacement gas that resultedfrom an increase in natural gas prices, and a $1.0 million decrease in Michiganoperations, primarily from a reduction in volumes.

*Derivative gain(loss).* Losses fromderivative instruments decreased $2.4 million for the year ended December31, 2005, compared to the corresponding period in 2004.  This decrease in losses was primarily due to the mark-to-marketadjustments resulting from our electionnot to adopt hedge accounting treatment on our derivative instruments.  The mark-to-market adjustments resulted in a$0.1 million decrease in unrealized losses, which are non-cash items, anda $2.3 million decrease in realized losses, when comparing 2005 to 2004results.

*Purchased product costs.*  Purchased product costs increased $72.2million, or 39%, for the year ended December 31, 2005, compared to the correspondingperiod of 2004.  The increase wasprimarily due to volumes from our wholesale propane marketing business, a $30.7million increase and our gas marketing business, an $18.1 million increase.  NGL 

36

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productcosts raised $23.2 million because of higher pricing, offset by reducedvolumes.

*Facility expenses.*  Facility expenses decreased by approximately$3.4 million, or 14%, during the year ended December 31, 2005, compared tocorresponding period of 2004.  Thedecrease was the result of a $1.4 million favorable fuel reimbursement at ourKenova, Cobb and Boldman facilities, a reduction to inventory losses at theAppalachia Liquids Pipeline System (ALPS) of $0.7 million, a net reduction toSiloam fractionation fees and Kenova and Boldman processing fees of $1.6million, and a net decrease of costs in Michigan of $0.2 million, offset by anincrease to inventory losses at Siloam of $0.5 million.

*Selling, general and administrative expenses. *Selling, general and administrative expenses decreased by$0.2 million, or 2%, during the year ended December 31, 2005, compared to thecorresponding period of 2004 as a result of a decrease in compensation expenseattributed to the Participation Plan and the 1996 Stock Incentive Plan and 1996Non-employee Director Stock Option Plan, and an increase to allocations ofselling, general and administrative expenses to the Partnership.

*Income taxes.*Income tax benefit increasedby $1.9 million due to lower pre-tax book income for the year ended December31, 2005, compared to the corresponding period of 2004. The 2005 estimatedannual effective income tax rate varies from the statutory rate mostly due to achange in the valuation allowance associated with state net operating losses.

***MarkWest Energy Partners***

*Revenues. *Revenues for the year ended December 31, 2005, were higher by $198.8million, or 66%, compared to 2004.  Theincrease was primarily due to higher volumes and natural gas prices in thePartnership’s Oklahoma operations, $80.3 million, and Other Southwestoperations, $37.2 million, as well as operating the East Texas system for afull year, $64.3 million.  Revenues reflected nine months of activityduring 2005 compared to two months of activity during 2004.  Revenue also increased in Oklahoma during theyear ended December 31, 2005 relative to the corresponding period of 2004 dueto increased well volumes contracted to the gathering system, higher crude oilprices enhancing condensate sales and higher liquids revenue that resulted fromethane recovery during 2005 versus ethane rejection during 2004 thatcontributed to incremental revenue of $42.0 million. In addition, OtherSouthwest revenues increased $21.3 million due to a 27% increase in natural gasvolumes, primarily on the Appleby and Edwards gathering systems.

*Derivative gain(loss).* Losses fromderivative instruments increased $1.0 million for the year ended December31, 2005, compared to the corresponding period in 2004.  This increase in losses was primarily due to the mark-to-marketadjustments resulting from our electingnot to adopt hedge accounting treatment on our derivative instruments.  The mark-to-market adjustments resulted in a$0.6 million increase in unrealized losses, which are non-cash items, and a$0.4 million increase in realized losses, when comparing 2005 to 2004 results.

*Purchasedproduct costs.*  Purchased product costs were higher duringthe year ended December 31, 2005, by $155.3 million, or 73%, compared to2004.  The combination of an increase in purchased volumes and price contributed toincreases in Oklahoma and Other Southwest, primarily Appleby and Edwards, of$75.5 million and $37.1 million, respectively. In addition, the Partnership’s July 30, 2004, East Texas systemacquisition had incremental purchased product costs of $35.3 million due, inpart, to being operational for a full year, but also higher prices.

*Facilityexpenses. *Facility expenses increased approximately$18.1 million, or 60%, during the year ended December 31, 2005, relative to2004.  East Texas accounted for $7.2million of the increase, related to operating the facility for a full year, aswell as performing repairs and a global overhaul of our compressors.  Appalachia increased $5.9 million due, inpart, to repairs to the ALPS pipeline. Gulf Coast, acquired November 1, 2005, contributed $2.2 million to theincrease.  Oklahoma, $1.3 million, andOther Southwest, $1.3 million, increased due to repairs and an overhaul ofcompressors.

*Selling, general and administrative expenses. *Selling, general andadministrative expenses, which are not allocated to segments by thePartnership, increased by $5.4 million, or 34%, during the year ended December31, 2005, compared to 2004 as a result of the increase in incentivecompensation expense of $1.9 million, and audit and external Sarbanes-Oxleyrelated costs of $2.1 million.

*Depreciation. *Depreciation expenseincreased $4.0 million, or 26%, during the year ended December 31, 2005,compared to 2004 primarily due to the Partnership’s 2004 East Texasacquisition, $3.3 million, and 2005 Gulf Coast acquisition, $1.1 million.  These changes were offset by a decrease indepreciation in Appalachia, due to accelerated depreciation in 2004 for the oldCobb facility.

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*Earnings(losses) from unconsolidated affiliates*.  Earnings (losses) from unconsolidatedaffiliates are primarily related to the Partnership’s investment in Starfish, ajoint venture with Enbridge Offshore Pipelines LLC.  ThePartnership accounts for its 50% interest using the equity method, and thefinancial results for Starfish are included as earnings (losses) fromunconsolidated affiliates. The Partnership completed their acquisitionof Starfish on March 31, 2005.  Duringthe year ended December 31, 2005, the Partnership’s losses fromunconsolidated affiliates were by $2.2 million.

*Interestexpense and amortization of deferred financing costs (a component of interestexpense)*.  Interest andamortization expense increased $14.8 million during the year endedDecember 31, 2005, relative to the comparable period in 2004, primarilydue to increased debt levels resulting from the financing of our 2005 and 2004acquisitions and to higher interest rates in 2005. The Partnership alsoincurred approximately $1.0 million in 2005 from penalty interest expense onthe senior debt.  The increase in theamortization of deferred financing costs in 2005, relative to the comparableperiod in 2004, is attributable to costs associated with our debt refinancingcompleted in the fourth quarter of 2005.

# **Critical Accounting Policies andEstimates**

Our discussion andanalysis of financial condition and results of operations are based on ourconsolidated financial statements, prepared in accordance with accountingprinciples generally accepted in the United States of America and containedwithin this report.  The preparation ofthese statements requires us to make certain assumptions and estimates thataffect the reported amounts of assets, liabilities, revenues and expenses aswell as the disclosure of contingent assets and liabilities at the date of ourfinancial statements. We base our assumptions and estimates on historicalexperience and other sources that we believe to be reasonable at the time.Actual results may vary from our estimates due to changes in circumstances,weather, politics, global economics, mechanical problems, general businessconditions and other factors. Our significant accounting policies are detailedin Note 2 to our consolidated financial statements. We have outlined belowcertain of these policies as being of particular importance to the portrayal ofour financial position and results of operations and which require theapplication of significant judgment by our management.

*Revenue Recognition*

The Company generates the majority of its revenuesfrom natural gas gathering and processing, NGL fractionation, transportationand storage, and crude oil gathering and transportation. While all of theseservices constitute midstream energy operations, the Partnership provides itsservices pursuant to six different types of arrangements.  In many cases, the Partnership providesservices under contracts that contain a combination of more than one of thearrangements.  The terms of the Partnership’s contracts vary based on gas qualityconditions, the competitive environment when the contracts are signed andcustomer requirements.  Under allof the arrangements, revenue is recognized at the time the product is deliveredand title is transferred. It is upon delivery and title transfer that thePartnership meets all four revenue recognition criteria, and it is at such timethat the Partnership recognizes revenue.

*Revenue andExpense Accruals*

*We routinely make accruals based on estimates for bothrevenues and expenses due to the timing of compiling billing information,receiving certain third party information and reconciling our records withthose of third parties.  The delayed information from third partiesincludes, among other things, actual volumes purchased, transported or sold,adjustments to inventory and invoices for purchases, actual natural gas and NGLdeliveries and other operating expenses.  We make accruals to reflectestimates for these items based on our internal records and information fromthird parties.  Most of the estimated accruals are reversed in thefollowing month when actual information is received from third parties and ourinternal records have been reconciled.*

*Derivative Instruments*

Statement of FinancialAccounting Standards (“SFAS”)**No. 133,*Accounting for Derivative Instruments and HedgingActivities, (*“SFAS 133”) established accounting and reportingstandards requiring that derivative instruments (including certain derivativeinstruments embedded in other contracts) be recorded at fair value and includedin the consolidated balance sheet as assets or liabilities.  The accounting for changes in the fair valueof a derivative instrument depends on the intended use of the derivative andthe resulting designation, which is established at the inception.  To the extent derivative instruments designatedas cash flow hedges are effective, changes in fair value are recognized inother comprehensive income until the underlying hedged item is recognized inearnings.  Effectiveness is evaluated by the derivative instrument’s ability tooffset changes in fair value or cash flows of the underlying hedged item.  Any change in the fair value resulting fromineffectiveness is recognized immediately in earnings.  Changes in the fair value of derivativeinstruments designated as fair value hedges, as well as the changes in the fairvalue of the underlying hedged item, are recognized currently in earnings.  Any differences between the 

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changes in the fairvalues of the hedged item and the derivative instrument represent gains orlosses from ineffectiveness.  To theextent that the Company elects hedge accounting treatment for specificderivatives, the Company formally documents, designates and assesses theeffectiveness.  As of December 31, 2006and 2005, no transactions had been designated for hedge accounting treatment.

                In the course ofnormal operations, the Company routinely enters into contracts such as forwardphysical contracts for the purchase and sale of natural gas, propane, and otherNGLs, that under SFAS 133, qualify for and are designated as a normalpurchase and sales contracts. Ingeneral, the Company exempts these types of contracts from the mark-to-marketrequirements of SFAS 133 and instead accounts for them using accrualaccounting.

 

                For contracts thatare not designated as normal  purchase andsales contracts, the change in market value of the contracts is recorded as acomponent of revenue or purchase product costs. The following table summarizesour handling of derivative instruments as presented in our accompanyingconsolidated statements of operations:

 

| Transaction Type                  | ** ** | **Realized gain  (loss)** | ** ** | **Unrealized  gain (loss)** |
|-----------------------------------|------------|---------------------------|------------|-----------------------------|
| ***Sales:***                      |       |                      |       |                        |
| Fixed Physical  Forwards          |       | Revenue                   |       | Derivative gain (loss)      |
| All other  derivative instruments |       | Derivative gain (loss)    |       | Derivative gain (loss)      |
|                              |       |                      |       |                        |
| ***Purchases:***                  |       |                      |       |                        |
| Fixed Physical  Forwards          |       | Purchase product costs    |       | Purchase product costs      |
| All other  derivative instruments |       | Purchase product costs    |       | Purchase product costs      |

 

Derivative gain (loss)in the table above are included in total revenues in the accompanyingconsolidated statements of operations.

*Income Taxes*

The Companyaccounts for income taxes under the asset and liability method pursuant to theSFAS No. 109, *Accounting for Income Taxes* (“SFAS 109”). Under SFAS 109,deferred income taxes are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax basis and net operatingloss and credit carryforwards. Deferred tax assets and liabilities are measuredusing enacted tax rates expected to apply to taxable income in the years inwhich those temporary differences are expected to be recovered or settled. Theeffect of any tax rate change on deferred taxes is recognized in the periodthat includes the enactment date of the tax rate change. Realizability ofdeferred tax assets is assessed and, if not more likely than not, a valuationallowance is recorded to write down the deferred tax assets to their netrealizable value.

*Intangible Assets*

TheCompany’s intangible assets are comprised of customer contracts andrelationships acquired in business combinations, recorded under the purchasemethod of accounting at their estimated fair values at the date ofacquisition.  Using relevant informationand assumptions, management determines the fair value of acquired identifiableintangible assets.  Fair value isgenerally calculated as the present value of estimated future cash flows usinga risk-adjusted discount rate.  The keyassumptions include contract renewals, economic incentives to retain customers,historical volumes, current and future capacity of the gathering system,pricing volatility, and the discount rate. Amortization of intangibles with definite lives is calculated using thestraight-line method over the estimated useful life of the intangibleasset.  The estimated economic life isdetermined by assessing the life of the assets to which the contracts orrelationships relate, the likelihood of renewals, competitive factors,regulatory or legal provisions, and maintenance and renewal costs.

*Impairment of Long-Lived Assets*

The Company evaluates its long-lived assets, includingintangibles, for impairment when events or changes in circumstances warrantsuch a review.  A long-lived asset groupis considered impaired when the estimated undiscounted cash flows from suchasset group are less than the asset group’s carrying value.  In that event, a loss is recognized to theextent that the carrying value exceeds the fair value of the long-lived assetgroup.  Fair value is determinedprimarily using estimated discounted cash flows.  Management considers the volume of reservesbehind the asset and future NGL product and natural gas prices to estimate cashflows. The amount of additional reserves developed by future drilling activitydepends, in part, on expected natural gas prices.  Projections of reserves, drilling activityand future commodity prices are inherently subjective and contingent upon anumber of variable factors, many of which are difficult to forecast.  Any significant variance in any of theseassumptions or factors could materially affect future cash flows, which couldresult in the impairment of an asset.

For assets identifiedto be disposed of in the future, the carrying value of these assets is comparedto the estimated fair value, less the cost to sell, to determine if impairmentis required. Until the assets are disposed of, an estimate of the fair value isre-determined when related events or circumstances change.

*Stock andIncentive Compensation Plans*

TheCompany adopted the SFAS No. 123R, *Accountingfor Stock-Based Compensation*(“SFAS 123R”) on January 1, 2006, using the modified prospective method.Prior to adopting SFAS 123R, the Company elected to measure compensationexpense for equity-based employee compensation plans as prescribed byAccounting Principles Board Opinion No. 25 (“APB 25”), *Accounting for Stock Issued to Employees*.

UnderSFAS 123R, compensation expense is based on the fair value of the award.  SFAS 123R classifies 

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stock-based compensationas either equity or liability awards. The fair value on the date of grant foran award classified as equity is recognized over the requisite service period, witha corresponding credit to equity (generally, paid-in capital). The requisiteservice period is the period during which an individual is required to providea service in exchange for the award. The requisite service period is estimatedbased on an analysis of the terms of the share-based payment award.Compensation expense for a liability award is based on the award’s fair value,remeasured at each reporting date until the date of settlement. Additionally,compensation expense is reduced for an estimate of expected award forfeitures.

***MarkWest Hydrocarbon***

*Stock Options*

Historically,stock options were issued under the Company’s 1996 Stock Incentive Plan and1996 Non-employee Director Stock Option Plan, (together the “1996 Plans”).  In June 2006 shareholders approved the 2006Stock Incentive Plan (the “2006 Plan”) to replace the 1996 Plans.  Under SFAS 123R, our stock options arecategorized as equity awards.  Compensation expense for stock options ismeasured based on the grant date fair value and is amortized into earnings overthe service period as the options vest. While it was determined in 2005 that the Company does not intend toissue stock options in the future, they are available for issuance under the2006 Plan.   On December 1, 2006 a boardresolution provided for the accelerated vesting of 14,950 unvested stock optiongrants.  Consequently, as of December 31,2006 the Company had no remaining unvested options or any unrecognizedcompensation expense pertaining to options.

*Restricted Stock*

TheCompany issued restricted stock under the 1996 Plans until the adoption of the2006 Plan at which point all new shares are, and will be, issued pursuant tothe rules of the 2006 Plan.  Under SFAS123R, our restricted stock qualifies as an equity award. Accordingly, it ismeasured at the grant date fair value and the associated compensation expenseis recognized over the requisite service period.  The restricted stock vests equally over athree year period.

*ParticipationPlan*

TheCompany has also entered into arrangements with certain directors and employeesof the Company referred to as the Participation Plan.  Under this plan,the Company sells subordinated units of the Partnership or interests in thePartnership’s general partner, under a purchase and sale agreement.  Boththe subordinated unit and general partner interest transactions are consideredcompensatory arrangements due to the put-and-call provisions and the associatedvaluation being based on a formula instead of an independent third party valuation.  The subordinated units convert to commonunits after a holding period. Historically, the Company has settled thesubordinated units for cash when individuals leave the Company.  The general partner interests have nodefinite term, but historically have been settled for cash when the employeeleaves the Company. Under SFAS 123R, the subordinated units and general partnerinterests are classified as liability awards. As a result, the Company is required to mark to market the subordinatedunit and general partner interest valuations at the end of each period.

UnderTopic 1-B of the codification of the Staff Accounting Bulletins, Allocation ofExpenses and Related Disclosure in Financial Statements of Subsidiaries,Divisions or Lesser Business Components of Another Entity, some portion ofcompensation expense related to services provided by MarkWest Hydrocarbon’semployees and directors recognized under the Participation Plan should beallocated to the Partnership.  The allocation is based on the percent oftime each employee devotes to the Company.  Compensation attributable tointerests sold to individuals who serve on both the board of MarkWestHydrocarbon and the Board of Directors of the Partnership’s general partner isallocated equally.

***MarkWest Energy Partners***

*Restricted Units*

The Partnership issues restricted units under theMarkWest Energy Partners, L.P. Long-Term Incentive Plan.  A restricted unit is a “phantom” unit thatentitles the grantee to receive a common unit upon the vesting of the phantomunit or, at the discretion of the Compensation Committee, cash equivalent tothe value of a common unit.  Therestricted units are treated as liability awards under SFAS 123R.  As aresult, the Partnership is required to mark to market the awards at the end ofeach reporting period.  Compensationexpense is remeasured for the phantom unit grants using the market price ofMarkWest Energy Partners’ common units at each reporting date. The fair valueof the units awarded is amortized into earnings over the period of service andis adjusted monthly for the change in the fair value of the unvested unitsgranted.  The phantom units vest equallyover a three year period.

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Vestingis accelerated for certain employees, if specified performance measures aremet.  The accelerated vesting criteriaprovisions are based on annualized distribution goals.  If the Partnership’s distributions are at orabove the goal for a certain number of consecutive quarters, vesting of theemployee’s phantom units is accelerated. The general partner of the Partnership may also elect to accelerate thevesting of outstanding awards, which results in an immediate charge tooperations for the unamortized portion of the award.

To satisfy common unit awards, the Partnership will issue new commonunits, acquire common units in the open market, or use common units alreadyowned by the general partner.

**Liquidity and Capital Resources**

***MarkWest Hydrocarbon Standalone***

Ourprimary source of liquidity to meet operating expenses and fund capitalexpenditures is cash flow from operations, principally from the marketing ofNGL and quarterly distributions received from MarkWest Energy Partners. We believe that cash flow from operations and distributions from thePartnership will be sufficient to fund capital expenditures and other workingcapital expenditures for the foreseeable future.

OnOctober 13, 2006, the Company completed the repurchase of a 0.5% interestin the general partner.  This purchaseresulted in an increase in our ownership level in the general partner to89.7%.  As of December 31, 2006, we stillowned 89.7% of the general partner of MarkWest Energy Partners, excludinginterests held by certain employees and directors but deemed owned by theCompany through the Participation Plan. The general partner of MarkWest Energy Partners owns the 2% generalpartner interest and all of the incentive distribution rights.  Theincentive distribution rights entitle us to receive an increasing percentage ofcash distributed by the Partnership as certain target distribution levels arereached.  Specifically, they entitle us to receive 13% of all cashdistributed in a quarter after each unit has received $0.275 for that quarter;23% of all cash distributed after each unit has received $0.3125 for that quarter;and 48% of all cash distributed after each unit has received $0.375 for thatquarter.  For the year ended December 31, 2006, we received $8.8 millionin distributions from our limited units and $11.3 million from our generalpartner interest, of which $10.1 million represented payments on incentivedistribution rights.

Cashflows generated from our NGL marketing and natural gas supply operations aresubject to volatility in energy prices, especially prices for NGLs and naturalgas.  Our cash flows are enhanced in periods when NGL prices are highrelative to the price of the natural gas we purchase to satisfy our “keep-whole”contractual arrangements in Appalachia.  Conversely, they are reduced inperiods when the NGL prices are low relative to the price of natural gas wepurchase to satisfy such contractual arrangements.  Under “keep-whole”contracts, we retain and sell the NGLs produced in our processing operationsfor third-party producers, and then reimburse or “keep-whole” the producers forthe energy content of the NGLs removed through the re-delivery to the producersof an equivalent amount (on a Btu basis) of dry natural gas.  Generally,the value of the NGLs extracted is greater than the cost of replacing thoseBtus with dry gas, resulting in positive operating margins under thesecontracts.  Periodically, natural gas becomes more expensive, on a Btuequivalent basis, than NGL products, and the cost of keeping the producer “whole”can result in operating losses.

*Debt*

InOctober 2004 the Company entered into a $25.0 million senior credit facilitywith a term of one year.  The $25.0 million revolving facility has avariable interest rate based on the base rate or the London Inter Bank OfferingRate (“LIBOR”), as discussed below.  InOctober, November and December 2005, the Company entered into the first, secondand third amendments to the credit agreement.  The first amendment to thecredit facility extended the term of the original agreement to November 15,2005.  The second amendment reduced the lending amount from $25.0 millionto $16.0 million, of which $6.0 million is committed to a letter of credit,leaving $10.0 million available for revolving loans.  The second amendmentalso extended the term of the revolving credit to December 30, 2005.  Thethird amendment extended the term of the revolving credit to January 31, 2006,and reduced the lending amount from $16.0 million to $13.5 million, of which$6.0 million is committed to a letter of credit, leaving $7.5 million availablefor revolving loans. On January 31, 2006, the Company entered into the firstamended and restated credit agreement which reinstated the maximum lendinglimit of $25.0 million for a one year term. On August 18, 2006, the Company entered into the second amended andrestated credit facility which increased the size of the facility from $25million to $55 million, increasing the term of the agreement to three years andallowing the flexibility for MarkWest Hydrocarbon to directly invest inadditional units of MarkWest Energy Partners to fund future growthopportunities.

                On February 16,2007, the Company entered into the first amendment to the second amended andrestated credit agreement, increasing the term by one year to August 20,2010, and providing an additional $50 million of credit to enable theCompany to meet margin requirements associated with its derivative instruments.

 

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TheCompany Credit Facility bears interest at a variable interest rate, plus basispoints.  The variable interest rate typically is based on the LIBOR;however, in certain borrowing circumstances the rate would be based on thehigher of a) the Federal Funds Rate plus 0.5-1%, and b) a rate set by theFacility’s administrative agent, based on the U.S. prime rate.  The basis points correspond to the ratio ofthe Revolver Facility Usage to the Borrowing Base, ranging from 0.50% to 1.75%for Base Rate loans, and 1.50% to 2.75% for Eurodollar Rate loans.  The Company pays a quarterly commitment feeon the unused portion of the credit facility at an annual rate ranging from37.5 to 50.0 basis points.

Underthe provisions of the credit facility, the Company is subject to a number ofrestrictions on its business, including its ability to grant liens on assets;make or own certain investments; enter into any swap contracts other than inthe ordinary course of business; merge, consolidate or sell assets; incurindebtedness (other than subordinated indebtedness); make distributions onequity investments; declare or make, directly or indirectly, any restricteddistributions.

AtDecember 31, 2006, we had no debt outstanding on the Company Credit Facilityand $28.0 million available for borrowing.

Wespent $0.3 million for capital expenditures for the year ending December 31,2006.  We have budgeted $3.6 million for 2007, principally for computerhardware and software upgrades.  We believe that cash on hand, cashreceived from quarterly distributions (including the incentive distributionrights) from MarkWest Energy Partners and projected cash generated from ourmarketing operations will be sufficient to meet our working capitalrequirements and fund our required capital expenditures, if any, for theforeseeable future.  Cash generated from our marketing operations willdepend on our operating performance, which will be affected by prevailingcommodity prices and other factors, some of which are beyond our control.

***MarkWest Energy Partners***

The Partnership’s primary source of liquidity to meetoperating expenses and fund capital expenditures (other than for certainacquisitions) are cash flows generated by its operations and its access toequity and debt markets. The equity and debt markets, public and private,retail and institutional, have been the Partnership’s principal source ofcapital used to finance a significant amount of its growth, includingacquisitions.

On December 29, 2005, MarkWest Energy OperatingCompany, L.L.C., a wholly owned subsidiary of MarkWest Energy Partners L.P.,entered into the fifth amended and restated credit agreement (“PartnershipCredit Facility”). It provides for a maximum lending limit of$615.0 million for a five-year term. The credit facility included arevolving facility of $250.0 million and a $365.0 million termloan.  The term loan portion of thePartnership Credit Facility was repaid without penalty in October 2006 using aportion of the proceeds from the debt and equity offerings in 2006 leaving therevolving facility intact. Under certain circumstances, the Partnership CreditFacility can be increased from $250.0 million up to $450.0 million.The credit facility is guaranteed by the Partnership and all of thePartnership’s subsidiaries and is collateralized by substantially all of thePartnership’s assets and those of its subsidiaries. The borrowings under thecredit facility bear interest at a variable interest rate, plus basis points.The variable interest rate typically is based on the LIBOR; however, in certainborrowing circumstances the rate would be based on the higher of a) theFederal Funds Rate plus 0.5-1%, and b) a rate set by the PartnershipCredit Facility’s administrative agent, based on the U.S. prime rate. The basispoints correspond to the ratio of the Partnership’s Consolidated Senior Debt(as defined in the Partnership Credit Facility) to Consolidated EBITDA (asdefined in the Partnership Credit Facility), ranging from 0.50% to 1.50% forBase Rate loans, and 1.50% to 2.50% for Eurodollar Rate loans. The basis pointswill increase by 0.50% during any period (not to exceed 270 days) wherethe Partnership makes an acquisition for a purchase price in excess of$50.0 million (“Acquisition Adjustment Period”). Borrowings under the PartnershipCredit Facility were used to finance, in part, the Javelina acquisitiondiscussed above. On December 31, 2006, the available borrowing capacity underthe Partnership Credit Facility was $218.4 million.

Cash generated from operations, borrowings under thePartnership Credit Facility and funds from the Partnership’s private and publicequity and debt offerings are its primary sources of liquidity. The timing ofthe Partnership’s efforts to raise equity in 2006 was influenced by its failureto file in a timely manner its Annual Report on Form 10-K for the yearended December 31, 2004, and its quarterly report on Form 10-Q forthe quarter ending March 31, 2005. However, as of October 11, 2006, thePartnership has the ability to incorporate by reference information from itsfuture Securities and Exchange Commission (“SEC”) filings into new registrationstatements in order to raise capital through a public offering.  To raise additional capital through publicdebt or equity offerings, the Partnership is eligible to file aForm S-3, which is a short-form type of registration statement.  On November 15, 2006, the Partnership filed ashelf registration statement on Form S-3, which became effective immediatelyand allows it to attempt to raise up to $500 million by issuing debt and equitysecurities in the future in registered offerings.

At December 31, 2006, the Partnership and its whollyowned subsidiary MarkWest Energy Finance Corporation also

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have two series of senior notes outstanding, $225.0 million at afixed rate of 6.875%, which will mature in November, 2014 (the “2014 SeniorNotes”) and senior notes of $271.9 million, net of an unamortized discount of$3.1 million, at a fixed rate of 8.5%, due in July 15, 2016 (the “2016 SeniorNotes”).   The proceeds from these noteswere used to reduce the Partnership’s outstanding debt under its creditfacility. Subject to compliance with certain covenants, the Partnership mayissue additional notes from time to time under the indenture pursuant toRule 144A and Regulation S under the Securities Act of 1933.

The 2016 Senior Notes will mature on July 15, 2016,and interest is payable each July 15 and January 15, commencingJanuary 15, 2007. The Partnership closed this private placement of $200million on July 6, 2006 and it completed the private placement of anadditional $75 million under the indenture on October 20, 2006. The netproceeds from the July and October 2006 private placements were approximately$191.2 million and $74.5 million, respectively, after deducting theinitial purchasers’ discounts and legal, accounting and other transactionexpenses.  The Partnership used the netproceeds from the offerings to repay the term debt under the Partnership CreditFacility, and used the remaining net proceeds to fund both capital expendituresand general corporate expenses. Affiliates of several of the initial purchasers, including RBC CapitalMarkets Corporation, J.P. Morgan Securities Inc. and Wachovia CapitalMarkets, LLC, are lenders under the Partnership Credit Facility.

The indenture governing the 2014 Senior Notes and the2016 Senior Notes limits the activity of the Partnership and its restrictedsubsidiaries. The provisions of such indenture place limits on the ability ofthe Partnership and its restricted subsidiaries to incur additionalindebtedness; declare or pay dividends or distributions or redeem, repurchaseor retire equity interests or subordinated indebtedness; make investments;incur liens; create any consensual limitation on the ability of the Partnership’srestricted subsidiaries to pay dividends, make loans or transfer property tothe Partnership; engage in transactions with the Partnership’s affiliates; sellassets, including equity interests of the Partnership’s subsidiaries; make anypayment on or with respect to, or purchase, redeem, defease or otherwiseacquire or retire for value any subordinated obligation or guarantorsubordination obligation (except principal and interest at maturity); andconsolidate, merge or transfer assets.

On July 6, 2006, the Partnership completed itsunderwritten public offering of 6.0 million common units (the “Common UnitOffering”) at a public offering price of $19.88 per common unit. In addition,on July 12, 2006, the Partnership completed the sale of an additional600,000 common units to cover over-allotments in connection with the CommonUnit Offering. The sale of units resulted in total gross proceeds of$131.2 million, and net proceeds of $123.3 million after theunderwriters’ commission and legal, accounting and other transaction expenses.The Partnership used the net proceeds from the offering, and the proceeds fromthe capital contribution from its general partner to maintain its 2% generalpartner interest in the Partnership, to retire a portion of the term debt underthe Partnership Credit Facility.

ThePartnership’s ability to pay distributions to its unitholders and to fundplanned capital expenditures and make acquisitions will depend upon its futureoperating performance. That, in turn, will be affected by prevailing economicconditions in the Partnership’s industry, as well as financial, business andother factors, some of which are beyond its control.

The Partnership used $77.4 million for capitalexpenditures in 2006, exclusive of any acquisitions, consisting of $75.1 millionfor expansion capital and $2.3 million for sustaining capital. Expansioncapital includes expenditures made to expand or increase the efficiency of theexisting operating capacity of our assets, or facilitate an increase in volumeswithin our operations, whether through construction or acquisition. ThePartnership has budgeted between $230.0 and $240.0 million for expenditures in2007 consisting of approximately $235.0 million for expansion capital and $5.0million of sustaining capital.  ThePartnership plans to use between $150.0 and $170.0 million of its expansioncapital budget to fund the construction of the Woodford gathering system.  Sustaining capital includes expenditures toreplace partially or fully depreciated assets in order to extend their usefullives.

**Cash Flows**

|                                                            | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------|------------|
| **Cash Flows**                                        | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net cash flows  provided by operating activities           |       | $                                          | 165,969    |   | $ | 16,874 |   | $ | 26,616 |   |
| Net cash flows  used in investing activities               |       | (122,046                                   | )          | (445,848 | ) | (303,017 | ) |
| Net cash flows provided  by (used in) financing activities |       | (16,047                                    | )          | 437,098 |   | 247,101 |   |
|                                                            |            |                                            |            |  |  |  |  |  |  |  |

 

Net cash provided by operating activities increased$149.1 million during the year ended December 31, 2006, compared to theyear ended December 31, 2005. This increase resulted primarily fromincreases in both our net income and that of the non-controlling interest ofthe Partnership of $76.0 million; an increase in non-cash equity-basedcompensation expense of $17.5 million, primarily due to the Partnership’sincreased market value; an increase in income tax expense of $7.8 million; and 

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an increase in our unrealized gains on derivative instruments of $5.2million and increases in the changes of our operating assets and liabilitiestotaling $43.9 million.

Net cash used in investing activities decreased by $323.8million during the year ended December 31, 2006, compared to the yearended December 31, 2005, primarily due to our $356.9 millionacquisition of Javelina in November 2005. In December 2006 the Partnership completed its acquisition of the Grimesgathering system using cash of $15.0 million. The Partnership used cash of$80.1 million for capital expenditures in 2006, including $21.6 million for theinitial construction of the Woodford gathering system. In 2005, the Partnershipused cash of $71.3 million for capital expenditures, primarily for theconstruction of a new processing plant and gathering systems in East Texas tohandle our future contractual commitments and construction of the newreplacement Cobb processing facility in Appalachia.

Net cash used in financing activities increased $453.1million during the year ended December 31, 2006, compared to the yearended December 31, 2005. The increase was due primarily to netproceeds from additional long-term debt and private placements in 2005 to fundour acquisitions.  Distributions to thePartnership’s unitholders increased to $43.5 million in 2006 from $26.1 millionin 2005.  Dividends to shareholdersincreased to $9.7 million during the year ended December 31, 2006 compared to$4.3 million in the prior year period.

**Total Contractual CashObligations**

A summary of our total contractual cash obligations as ofDecember 31, 2006, is as follows (in thousands):

|                                        | ** ** | **Payment Due by Period** | ** ** |
|----------------------------------------|------------|------------------------------------------|------------|
| ** Type of obligation** | ** ** | **Total  Obligation**                    | ** ** | **Due in 2007** | ** ** | **Due in  2008-2009** | ** ** | **Due in  2010-2011** | ** ** | **Thereafter** | ** ** |
|                                   |       |                                     |       |   |   |   |   |   |   |   |   |
| Long-term debt                         |       | $                                        | 530,000    |   | $ | — |   | $ | — |   | $ | 30,000 |   | $ | 500,000 |   |
| Interest expense  on debt (1)          |       | 344,624                                  |       | 41,469 |   | 82,937 |   | 80,312 |   | 139,906 |   |
| Operating leases                       |       | 26,585                                   |       | 9,415 |   | 8,494 |   | 3,537 |   | 5,139 |   |
| Purchase  obligations                  |       | 32,053                                   |       | 32,053 |   | — |   | — |   | — |   |
| Other long-term  liabilities           |       | 30,103                                   |       | — |   | — |   | — |   | 30,103 |   |
| Total contractual cash  obligations    |       | $                                        | 963,365    |   | $ | 82,937 |   | $ | 91,431 |   | $ | 113,849 |   | $ | 675,148 |   |

 

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(1)           Assumes that our outstandingborrowings at December 31, 2006, will remain outstanding until theirrespective maturity dates and that we will incur interest expense at 8.75%on the Partnership Credit Facility revolver, 6.875% on the2014 Senior Notes and 8.25% on the 2016 Senior Notes.

# **Off-BalanceSheet Arrangements**

Other than facility and equipment leasingarrangements, we do not engage in off-balance sheet financing activities.

**Matters Influencing Future Results**

DuringAugust and September 2005, Hurricanes Katrina and Rita caused severe andwidespread damage to oil and gas assets in the Gulf of Mexico and Gulf Coastregions. Operations of the Partnership’s unconsolidated affiliate, StarfishPipeline Company were nominally impacted by Hurricane Katrina but weresignificantly impacted by Hurricane Rita. The Partnership is continuing tosubmit insurance claims on an on-going basis relating to both businessinterruption and property damage and have submitted $14.5 million in claimsthrough January 31, 2007.  ThePartnership has recorded $11.0 million in insurance claims, net of Starfishinsurance premiums with respect to its property loss claims, and it anticipatesadditional  recoveries for expenses andlosses incurred as repairs proceed. As ofDecember 31, 2006, the Partnership has not recorded any insurance recoveriesrelated to business interruption, due to the uncertainty around collection, butthe Partnership has filed a claim for $3.5 million with its insurance carrier.

The loss to bothoffshore and onshore assets resulting from Hurricane Rita has led tosubstantial insurance claims within the oil and gas industry. Along with otherindustry participants, we have seen our insurance costs increase substantiallywithin this region as a result of these developments. We have renewed ourinsurance coverage relating to Starfish during the second quarter and mitigateda portion of the cost increase by reducing our coverage and adding a broaderself-insurance element to our overall coverage.

The Partnership’saffiliate, MEA operates the ALPS pipeline to transport NGLs from its Maytowngas processing plant to its Siloam fractionator. This pipeline is owned byEquitable Production Company, and is leased and operated by 

44

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MEA.  On November 8, 2004, a leak and an ensuingfire occurred on the line in the area of Ivel, Kentucky, and the line was takenout of service pending investigation and repair.  In accordance with an OPS Corrective ActionOrder, MEA successfully conducted a hydrostatic test of the affected portion ofthe ALPS pipeline in 2005 and OPS authorized a partial return to service of theaffected pipeline in October 2005.  Aspart of its ongoing operation of the ALPS pipeline, MEA continued to perform pipelineintegrity assessments and implement an in-line inspection program on the ALPSpipeline.  Preliminary data from a four mile section of its in-lineinspection program identified areas for investigation and corrective action.  In November 2006 MEA temporarily idled theline while additional assessment and investigation was undertaken to addressthese concerns.  In late January 2007,MEA received the completed report from its in-line inspection operator andconsultant.  This report indicated areasof significant external corrosion or other defects in the four mile section ofpipeline in which the in-line inspection was conducted.  The assessment of this completed report,coupled with other information MEA has gathered, will continue to be reviewedand MEA will work with Equitable to determine what the most appropriatecorrective action may be.  In theinterim, the pipeline will be maintained in idle status.  MEA is trucking the NGLs produced from ourMaytown plant to the Siloam fractionation facility while MEA is maintaining thepipeline in idle status, and as a result, operations have not beeninterrupted.  The additionaltransportation costs associated with the trucking are not expected to havematerial adverse effect on our results of operations or financial positions.

MarkWest Hydrocarbon, Inc. is a corporation forfederal income tax purposes. As such, our federal taxable income is subject totax at a maximum rate of 35.0% under current law and a blended state rate of2.8%, net of Federal benefit. We expect to have future taxable income allocatedto us as a result of our investment in the Partnership and from our Appalachiaprocessing agreements.

We anticipate using all of the federal net operatingloss carryforwards from previous years for the year ended December 31,2006.  As a result, the amount of moneyavailable to provide dividends to our stockholders will decrease for futuredistributions.

In June 2006 the Financial Accounting Standards Board(“FASB”) issued Interpretation No.48, *Accounting for Uncertainty in Income Taxes (*“FIN48”*)*. The Company is currently evaluating the impact of FIN 48.

**Recent Accounting Pronouncements**

Refer to Note 2 ofthe consolidated financial statements for information regarding recentaccounting pronouncements.

**Effects ofInflation and Pricing**

We experiencedincreased costs during 2006, 2005 and 2004 due to increased demand for naturalgas and oil related products and services. The natural gas and oil industry isvery cyclical and the demand for goods and services of natural gas and oilfield companies, suppliers and others associated with the industry put extremepressure on the economic stability and pricing structure within the industry.Typically, as prices for natural gas and oil increase, so do all associatedcosts. Material changes in prices also impact the current revenue stream,estimates of future reserves, borrowing base calculations of bank loans andvalues of properties in purchase and sale transactions. Material changes inprices can impact the value of natural gas and oil companies and their abilityto raise capital, borrow money and retain personnel. While we do not currentlyexpect business costs to materially increase, continued high prices for naturalgas and oil could result in increases in the costs of materials, services andpersonnel.

# **Commodity Price Sensitivity**

Our earnings and cash flow are dependent on salesvolumes and our ability to achieve positive sales margins on the product wesell. The volumes of our sales and our margin on sales can be adverselyaffected by the prices of commodities, which are subject to significantfluctuation depending upon numerous factors beyond our control, including thesupply of and demand for commodity products. The supply of and demand for ourproducts can be affected by, among other things, production levels,industry-wide inventory levels, the availability of imports, the marketing ofproducts by competitors, and the marketing of competitive fuels.

**Seasonality**

For the portion of our business that is affected bycommodity prices, sales volumes also are affected by various other factors suchas fluctuating and seasonal demands for products, changes in transportation andtravel patterns and variations in weather patterns from year to year.  In general, we store a portion of the propanethat we produce in the summer as well as pre-purchase in the summer a portionof the natural gas that we are required to replace during the winter inaccordance with 

45

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ourAppalachian keep-whole processing agreements.

# **Item 7A.  Quantitative and Qualitative DisclosuresAbout Market Risk**

Market risk includes the risk ofloss arising from adverse changes in market rates and prices.  We facemarket risk from commodity price changes and to a lesser extent, interest ratechanges.

***Commodity Price Risk***

Our primary risk management objective is to managevolatility in our cash flows.  A committee comprised of members of thesenior management team oversees all of our derivative activity.

We utilize a combination offixed-price forward contracts, fixed-for-floating price swaps and options onthe over-the-counter (“OTC”) market.  The Company may also enter intofutures contracts traded on the New York Mercantile Exchange (“NYMEX”). Swaps and futures contracts allow us to manage volatility in our margins becausecorresponding losses or gains on the financial instruments are generally offsetby gains or losses in our physical positions.

We enter into OTC swaps with financial institutionsand other energy company counterparties.  We conduct a standard creditreview on counterparties and have agreements containing collateral requirementswhere deemed necessary.  We use standardized swap agreements that allowfor offset of positive and negative exposures.  We may be subject tomargin deposit requirements under OTC agreements (with non-bank counterparties)and NYMEX positions.

The use of derivative instruments may expose us to therisk of financial loss in certain circumstances, including instances when (i)NGLs do not trade at historical levels relative to crude oil, (ii) salesvolumes are less than expected requiring market purchases to meet commitments,or (iii) our OTC counterparties fail to purchase or deliver the contractedquantities of natural gas, NGLs or crude oil or otherwise fail to perform. Tothe extent that we enter into derivative instruments, we may be prevented fromrealizing the benefits of favorable price changes in the physical market. Weare similarly insulated, however, against unfavorable changes in such prices.

Fair value is based on available market information for theparticular derivative instrument and incorporates the commodity, period, volumeand pricing.  Positive (negative) amounts represent unrealized gains(losses).

***MarkWest Hydrocarbon Standalone***

Subsequent to theissuance of the Company’s 2006 financial statements, the Company’s managementdetermined that the “MarkWest Hydrocarbon Standalone” contract volumes aspreviously reported in columns “Fixed Physical Forwards” and “Fixed Swaps” incorrectlypresented total volumes rather than daily volumes as noted.  As a result,the contract volumes in the “Fixed Physical Forwards” and “Fixed Swaps” columnswithin the “MarkWest Hydrocarbon Standalone” tables herein have been restatedfrom the amounts previously reported to appropriately reflect daily contractvolumes.

MarkWestHydrocarbon Standalone may enter into physical and/or financial positions tomanage its risks related to commodity price exposure.  Due to timing ofpurchases and sales, direct exposure to price volatility can be created becausethere is no longer an offsetting purchase or sale that remains exposed tomarket pricing.  Through marketing and derivatives activities, directexposure may occur naturally, or we may choose direct exposure when we favorthat exposure over frac spread risk. Beginning in 2006 MarkWest HydrocarbonStandalone pre-purchased natural gas for shrink requirements in future monthsand, for both natural gas and NGLs, entered into swaps and future salesagreements to manage frac spread risk. These derivative instruments are markedto market.

The followingtables summarize the current derivative positions specific to MarkWestHydrocarbon Standalone’s segment at December 31, 2006 (in thousands, exceptprice data):

| Fixed Physical Forwards       | ** ** | **Contract Period** | ** ** | **Price** | ** ** | **Fair Value** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|-----------|------------|---------------------|------------|
| Natural Gas - 6,371  MMBtu/d (sale)     |       | Jan  2007                |       | $         | 10.48      |                | $          | 855 |   |
| Natural Gas - 6,371  MMBtu/d (purchase) |       | Jan  2007                |       | 8.95      |       | (575                | )          |
| Natural Gas - 7,143  MMBtu/d (sale)     |       | Feb  2007                |       | 10.76     |       | 834                 |       |
| Natural Gas - 7,143  MMBtu/d (purchase) |       | Feb  2007                |       | 9.07      |       | (516                | )          |
| Natural Gas - 6,308  MMBtu/d (sale)     |       | Apr  2007                |       | 7.48      |       | 106                 |       |
| Natural Gas - 2,284  MMBtu/d (sale)     |       | May  2007                |       | 7.48      |       | 32                  |       |
| Natural Gas - 4,665  MMBtu/d (sale)     |       | Jun  2007                |       | 7.48      |       | 49                  |       |
|                                    |       |                     |       |      |       | $                   | 785        |   |
|                                         |            |                          |            |           |            |                     |            |  |  |

 

46

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| Fixed Swaps (1)                | ** ** | **Contract Period** | ** ** | **Price (2)** | ** ** | **Fair Value** | ** ** |
|------------------------------------------|------------|--------------------------|------------|--------------------|------------|---------------------|------------|
| Crude - 139 Bbl/d  (sale)                |       | Apr  2007                |       | $                  | 63.86      |                | $          | (1 | ) |
| Crude - 139 Bbl/d  (sale)                |       | Apr  2007                |       | 64.87              |       | 2                   |       |
| Crude - 955 Bbl/d (sale)                 |       | Apr-Jun  2007            |       | 71.33              |       | 562                 |       |
| Crude - 18 Bbl/d (sale)                  |       | May  2007                |       | 63.89              |       | 1                   |       |
| Crude - 18 Bbl/d (sale)                  |       | May  2007                |       | 65.35              |       | (3                  | )          |
| Crude - 121 Bbl/d  (sale)                |       | Jun  2007                |       | 64.83              |       | (1                  | )          |
| Crude - 121 Bbl/d  (sale)                |       | Jun  2007                |       | 65.81              |       | 2                   |       |
| Crude - 662 Bbl/d  (sale)                |       | Jul  2007                |       | 65.19              |       | (9                  | )          |
| Crude - 662 Bbl/d  (sale)                |       | Jul  2007                |       | 66.17              |       | 10                  |       |
| Crude - 698 Bbl/d  (sale)                |       | Aug  2007                |       | 65.50              |       | (11                 | )          |
| Crude - 698 Bbl/d  (sale)                |       | Aug  2007                |       | 66.48              |       | 9                   |       |
| Crude - 773 Bbl/d  (sale)                |       | Sep  2007                |       | 65.77              |       | (13                 | )          |
| Crude - 773 Bbl/d  (sale)                |       | Sep  2007                |       | 66.75              |       | 9                   |       |
| Crude - 1,252 Bbl/d  (sale)              |       | Oct  2007                |       | 65.99              |       | (25                 | )          |
| Crude - 1,252 Bbl/d  (sale)              |       | Oct  2007                |       | 66.97              |       | 12                  |       |
| Crude - 1,383 Bbl/d  (sale)              |       | Nov  2007                |       | 66.21              |       | (28                 | )          |
| Crude - 1,383 Bbl/d  (sale)              |       | Nov  2007                |       | 67.19              |       | 11                  |       |
| Crude - 1,958 Bbl/d  (sale)              |       | Dec  2007                |       | 66.46              |       | (35                 | )          |
| Crude - 1,958 Bbl/d  (sale)              |       | Dec  2007                |       | 67.35              |       | 16                  |       |
|                                     |       |                     |       |               |       |                |       |
| Natural Gas - 7,088  MMBtu/d (purchase)  |       | Apr  2007                |       | 8.16               |       | (279                | )          |
| Natural Gas - 86,850  MMBtu/d (purchase) |       | May  2007                |       | 8.08               |       | (3,039              | )          |
| Natural Gas - 13,167  MMBtu/d (purchase) |       | Jun  2007                |       | 8.16               |       | (432                | )          |
| Natural Gas - 12,581  MMBtu/d (purchase) |       | Jul  2007                |       | 8.29               |       | (443                | )          |
| Natural Gas - 12,258  MMBtu/d (purchase) |       | Aug  2007                |       | 8.35               |       | (408                | )          |
| Natural Gas - 4,833  MMBtu/d (purchase)  |       | Sep  2007                |       | 8.38               |       | (149                | )          |
|                                     |       |                     |       |               |       |                |       |
| IsoButane - 6,231 Gal/d  (sale)          |       | Jan  2007                |       | 1.23               |       | 15                  |       |
| IsoButane - 4,210 Gal/d  (sale)          |       | Jan-Mar  2007            |       | 1.17               |       | 8                   |       |
| IsoButane - 1,974 Gal/d  (sale)          |       | Jan-Mar  2007            |       | 1.14               |       | (1                  | )          |
| IsoButane - 4,328 Gal/d  (sale)          |       | Feb  2007                |       | 1.16               |       | 1                   |       |
| IsoButane - 3,007 Gal/d  (sale)          |       | Feb-Mar  2007            |       | 1.35               |       | 36                  |       |
| IsoButane - 1,806 Gal/d  (sale)          |       | Mar  2007                |       | 1.28               |       | 8                   |       |
|                                     |       |                     |       |               |       |                |       |
| Natural Gasoline -  17,756 Gal/d (sale)  |       | Jan  2007                |       | 1.46               |       | 72                  |       |
| Natural Gasoline -  12,446 Gal/d (sale)  |       | Jan-Mar  2007            |       | 1.37               |       | 52                  |       |
| Natural Gasoline -  10,468 Gal/d (sale)  |       | Feb  2007                |       | 1.33               |       | 2                   |       |
| Natural Gasoline -  10,034 Gal/d (sale)  |       | Feb-Mar  2007            |       | 1.59               |       | 159                 |       |
| Natural Gasoline -  4,387 Gal/d (sale)   |       | Mar  2007                |       | 1.62               |       | 40                  |       |
|                                     |       |                     |       |               |       |                |       |
| Normal Butane - 21,018  Gal/d (sale)     |       | Jan  2007                |       | 1.20               |       | 51                  |       |
| Normal Butane - 18,981  Gal/d (sale)     |       | Jan-Mar  2007            |       | 1.13               |       | 24                  |       |
| Normal Butane - 13,879  Gal/d (sale)     |       | Feb  2007                |       | 1.12               |       | 1                   |       |
| Normal Butane - 10,712  Gal/d (sale)     |       | Feb-Mar  2007            |       | 1.29               |       | 108                 |       |
| Normal Butane - 5,839  Gal/d (sale)      |       | Mar  2007                |       | 1.28               |       | 30                  |       |
|                                     |       |                     |       |               |       |                |       |
| Propane - 211,643 Gal/d  (sale)          |       | Jan  2007                |       | 1.09               |       | 1,071               |       |
| Propane - 3,559 Gal/d  (sale)            |       | Jan-Feb  2007            |       | 1.05               |       | 26                  |       |
| Propane - 71,516 Gal/d  (sale)           |       | Jan-Mar  2007            |       | 0.96               |       | 284                 |       |
| Propane - 178,742 Gal/d  (sale)          |       | Feb  2007                |       | 1.06               |       | 695                 |       |
| Propane - 23,797 Gal/d  (sale)           |       | Feb-Mar  2007            |       | 1.18               |       | 360                 |       |
| Propane - 25,806 Gal/d  (sale)           |       | Mar  2007                |       | 1.13               |       | 174                 |       |
|                                     |       |                     |       |               |       | $                   | (1,026     | ) |
|                                          |            |                          |            |                    |            |                     |            |  |  |

 

| Forward Physical Contracts             | ** ** | **Price (2)** | ** ** | **Fair Value** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|---------------------|------------|
| Natural Gas - 9,000  MMBtu/d                     |       | $                  | 7.56       |                | $          | (1,417 | ) |
|                                             |       |               |       |                |       |
| Current - Total  MarkWest Hydrocarbon Standalone |       |               |       | $                   | (1,658     | ) |
|                                                  |            |                    |            |                     |            |  |  |

----

(1)   Swaps represent fixed forward sales andpurchases, which, in combination economically hedge our frac spread position.

(2)   A weighted average is used for grouped positions.

The followingtable summarizes the non-current derivative positions specific to MarkWestHydrocarbon Standalone’s segment at December 31, 2006 (in thousands, exceptprice data):

47

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| Fixed Swaps (1)                           | ** ** | **Contract Period** | ** ** | **Price** | ** ** | **Fair Value** | ** ** |
|-----------------------------------------------------|------------|--------------------------|------------|-----------|------------|---------------------|------------|
| Crude - 2,181 Bbl/d  (sale)                         |       | Jan  2008                |       | $         | 67.48      |                | $          | 16 |   |
| Crude - 2,181 Bbl/d  (sale)                         |       | Jan  2008                |       | 66.59     |       | (40                 | )          |
| Crude - 1,956 Bbl/d  (sale)                         |       | Feb  2008                |       | 67.58     |       | 12                  |       |
| Crude - 1,956 Bbl/d  (sale)                         |       | Feb  2008                |       | 66.70     |       | (35                 | )          |
| Crude - 1,160 Bbl/d  (sale)                         |       | Mar  2008                |       | 67.67     |       | 7                   |       |
| Crude - 1,160 Bbl/d  (sale)                         |       | Mar  2008                |       | 66.78     |       | (23                 | )          |
| Non-current - Total MarkWest Hydrocarbon Standalone |       | $                        | (63        | )         |
|                                                     |            |                          |            |           |            |                     |            |  |  |

----

(1) Swaps represent fixedforward sales to hedge our production of NGLs.

A summary of MarkWestHydrocarbon Standalone’s commodity derivative instruments is provided below (inthousands):

|                                        | ** ** | **December 31,** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Fair value of  derivative instruments: | ** ** | ** **            | ** ** | ** ** | ** ** |
| Current asset                          |       | $                     | 5,727      |   | $ | — |   |
| Noncurrent asset                       |       | 35                    |       | — |   |
| Current liability                      |       | 7,385                 |       | — |   |
| Noncurrent liability                   |       | 98                    |       | — |   |
|                                        |            |                       |            |  |  |  |  |

 

MarkWest Hydrocarbon Standalone entered into thefollowing derivative positions subsequent to December 31, 2006:

| Fixed Physical Forwards        | ** ** | **Contract Period** | ** ** | **Price (2)** | ** ** |
|------------------------------------------|------------|--------------------------|------------|--------------------|------------|
|                                     |       |                     |       |               |       |
| Natural Gas - 34,783  MMBtu/d (purchase) |       | Jan  2007                |       | $                  | 5.96       |   |
| Natural Gas - 25,806 MMBtu/d (sale)      |       | Jan 2007                 |       | 6.66               |       |
|                                          |            |                          |            |                    |            |  |

 

| Fixed Swaps (1)                | ** ** | **Contract Period** | ** ** | **Price (2)** | ** ** |
|------------------------------------------|------------|--------------------------|------------|--------------------|------------|
|                                     |       |                     |       |               |       |
| Natural Gas - 4,069  MMBtu/d (purchase)  |       | Apr  2008                |       | $                  | 8.05       |   |
| Natural Gas - 15,531  MMBtu/d (purchase) |       | Apr-Jun  2008            |       | 8.01               |       |
| Natural Gas - 5,360  MMBtu/d (purchase)  |       | May  2008                |       | 7.93               |       |
| Natural Gas - 5,482  MMBtu/d (purchase)  |       | Jun  2008                |       | 7.98               |       |
| Natural Gas - 15,755  MMBtu/d (purchase) |       | Jul  2008                |       | 8.05               |       |
| Natural Gas - 15,531  MMBtu/d (purchase) |       | Jul-Sep  2008            |       | 8.10               |       |
| Natural Gas - 15,755  MMBtu/d (purchase) |       | Aug  2008                |       | 8.11               |       |
| Natural Gas - 16,280  MMBtu/d (purchase) |       | Sep  2008                |       | 8.16               |       |
| Natural Gas - 4,069  MMBtu/d (purchase)  |       | Apr  2009                |       | 7.56               |       |
| Natural Gas - 15,883  MMBtu/d (purchase) |       | Apr-Jun  2009            |       | 7.61               |       |
| Natural Gas - 5,360  MMBtu/d (purchase)  |       | May  2009                |       | 7.56               |       |
| Natural Gas - 5,482  MMBtu/d (purchase)  |       | Jun  2009                |       | 7.56               |       |
| Natural Gas - 15,755  MMBtu/d (purchase) |       | Jul  2009                |       | 7.69               |       |
| Natural Gas - 15,710  MMBtu/d (purchase) |       | Jul-Sep  2009            |       | 7.73               |       |
| Natural Gas - 15,755 MMBtu/d  (purchase) |       | Aug  2009                |       | 7.69               |       |
| Natural Gas - 16,280  MMBtu/d (purchase) |       | Sep  2009                |       | 7.69               |       |
|                                     |       |                     |       |               |       |
| Crude - 921 bbl/d  (sale)                |       | Apr  2008                |       | 64.22              |       |
| Crude - 1,087 bbl/d  (sale)              |       | May  2008                |       | 63.95              |       |
|                                          |            |                          |            |                    |            |  |

 

48

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| Crude - 1,096 bbl/d (sale)  |   | Jun  2008 |   | 63.93 |   |
|-----------------------------|--------|-----------|--------|-------|--------|
| Crude - 1,025 bbl/d  (sale) |   | Jul  2008 |   | 64.08 |   |
| Crude - 1,124 bbl/d  (sale) |   | Aug  2008 |   | 64.22 |   |
| Crude - 1,268 bbl/d  (sale) |   | Sep  2008 |   | 64.53 |   |
| Crude - 1,580 bbl/d  (sale) |   | Oct  2008 |   | 65.37 |   |
| Crude - 2,530 bbl/d  (sale) |   | Nov  2008 |   | 65.52 |   |
| Crude - 3,856 bbl/d  (sale) |   | Dec  2008 |   | 65.51 |   |
| Crude - 4,721 bbl/d  (sale) |   | Jan  2009 |   | 65.52 |   |
| Crude - 4,212 bbl/d  (sale) |   | Feb  2009 |   | 65.45 |   |
| Crude - 3,069 bbl/d  (sale) |   | Mar  2009 |   | 65.33 |   |
| Crude - 921 bbl/d  (sale)   |   | Apr  2009 |   | 63.99 |   |
| Crude - 1,087 bbl/d  (sale) |   | May  2009 |   | 63.65 |   |
| Crude - 1,096 bbl/d  (sale) |   | Jun  2009 |   | 63.60 |   |
| Crude - 1,026 bbl/d  (sale) |   | Jul  2009 |   | 63.67 |   |
| Crude - 1,195 bbl/d  (sale) |   | Aug  2009 |   | 64.00 |   |
| Crude - 1,306 bbl/d  (sale) |   | Sep  2009 |   | 64.23 |   |
| Crude - 2,378 bbl/d  (sale) |   | Oct  2009 |   | 64.69 |   |
| Crude - 3,556 bbl/d  (sale) |   | Nov  2009 |   | 64.78 |   |
| Crude - 3,792 bbl/d  (sale) |   | Dec  2009 |   | 64.71 |   |
| Crude - 4,729 bbl/d  (sale) |   | Jan  2010 |   | 64.60 |   |
| Crude - 4,218 bbl/d  (sale) |   | Feb  2010 |   | 64.55 |   |
| Crude - 3,073 bbl/d (sale)  |   | Mar 2010  |   | 64.55 |   |

----

(1)    Swaps represent fixed forward sales and purchases, which, incombination economically hedge our frac spread position.

(2)    A weighted average is usedfor grouped positions.

***MarkWest EnergyPartners***

The Partnership’sprimary risk management objective is to reduce volatility in its cash flowsarising from changes in commodity prices related to future sales of naturalgas, NGLs and crude oil.  Swaps and futures contracts may allow thePartnership to reduce volatility in its realized margins as realized losses orgains on the derivative instruments generally are offset by corresponding gainsor losses in the Partnership’s sales of physical product.  While the Partnership largely expects itsrealized derivative gains and losses to be offset by increases or decreases inthe value of its physical sales, it will experience volatility in reportedearnings due to the recording of unrealized gains and losses on its derivativepositions that will have no offset.  Thevolatility in any given period related to unrealized gains or losses can besignificant to the overall results of the Partnership, however, it ultimatelyexpects those gains and losses to be offset when they become realized.

The followingtables summarize the current derivative positions specific to MarkWest EnergyPartner’s segment at December 31, 2006 (in thousands, except price data):
| Fixed Swaps (1)     | ** ** | **Contract Period** | ** ** | **Fixed Price (2)** | ** ** | **Fair Value** | ** ** |
|-------------------------------|------------|--------------------------|------------|-------------------------------|------------|---------------------|------------|
| Crude - 390  Bbl/d (sale)     |       | Jan-Dec  2007            |       | $                             | 68.46      |                | $          | 473 |   |
| Crude - 600  Bbl/d (sale)     |       | Jan-Dec  2007            |       | 64.77                         |       | (58                 | )          |
| Ethane - 50,000  Gal/d (sale) |       | Jan-Mar  2007            |       | 0.78                          |       | 736                 |       |
|                          |       |                     |       |                          |       | $                   | 1,151      |   |
|                               |            |                          |            |                               |            |                     |            |  |  |

 
| Basis Swaps              | ** ** | **Contract Period** | ** ** | **Fair Value** | ** ** |
|-------------------------------|------------|--------------------------|------------|---------------------|------------|
| Natural Gas -  14,000 MMBtu/d |       | Jan-Oct  2007            |       | $                   | (33        | ) |
|                               |            |                          |            |                     |            |  |

 
| Options (puts) (3) | ** ** | **Contract Period** | ** ** | **Floor** | ** ** | **Fair Value** | ** ** |
|------------------------------|------------|--------------------------|------------|-----------|------------|---------------------|------------|
| Ethane - 50,000  Gal/d       |       | Apr-Jun  2007            |       | $         | 0.65       |                | $          | 7 |   |
| Ethane - 50,000  Gal/d       |       | July-Sep  2007           |       | 0.65      |       | —              |       |
| Ethane - 50,000  Gal/d       |       | Oct-Dec  2007            |       | 0.65      |       | —              |       |
|                         |       |                     |       |      |       | $                   | 7          |   |
|                              |            |                          |            |           |            |                     |            |  |  |

 

49

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| Collars (4)            | ** ** | **Contract Period**                           | ** ** | **Floor (2)** | ** ** | **Cap (2)** | ** ** | **Fair Value** | ** ** |
|------------------------|------------|-----------------------------------------------|------------|---------------|------------|-------------|------------|----------------|------------|
| Crude - 1,105 Bbl/d    |       | Jan-Dec 2007                                  |       | $             | 69.08      |        | $          | 82.43          |       | $ | 2,469 |   |
|                   |       |                                          |       |          |       |        |       |           |       |
| Propane - 23,000 Gal/d |       | Jan-Mar 2007                                  |       | 1.05          |       | 1.28        |       | 286            |       |
| Propane - 30,000 Gal/d |       | Apr-Jun 2007                                  |       | 0.96          |       | 1.16        |       | 240            |       |
| Propane - 30,000 Gal/d |       | Jul-Sep 2007                                  |       | 0.97          |       | 1.16        |       | —         |       |
| Propane - 30,000 Gal/d |       | Oct-Dec 2007                                  |       | 0.98          |       | 1.18        |       | —         |       |
|                   |       |                                          |       |          |       |        |       | 2,995          |       |
|                   |       | Current – Total MarkWest Energy Partners |       | $             | 4,120      |        |
|                        |            |                                               |            |               |            |             |            |                |            |  |  |  |

 

----

(1)          Forward sales to hedge our production.

(2)          A weighted average is used for grouped positions.

(3)          Purchase of puts to hedge our Ethane production.

(4)          Forward producer collars to hedge ourproduction.

The following tablesummarizes the non-current derivative positions specific to MarkWest EnergyPartner’s segment at December 31, 2006 (in thousands, except price data):

| Collars (1)     | ** **                                         | **Contract Period** | ** ** | **Floor (2)** | ** ** | **Cap (2)** | ** ** | **Fair Value** | ** ** |
|----------------------|----------------------------------------------------|--------------------------|------------|--------------------|------------|------------------|------------|---------------------|------------|
| Crude - 1,476  Bbl/d |                                               | Jan-Mar 2008             |       | $                  | 69.76      |             | $          | 79.01               |       | $ | 688 |   |
| Crude - 550  Bbl/d   |                                               | Jan-Dec 2008             |       | 64.48              |       | 73.98            |       | 236                 |       |
| Crude - 1,473  Bbl/d |                                               | Apr-Jun 2008             |       | 69.48              |       | 78.66            |       | 627                 |       |
| Crude - 1,437  Bbl/d |                                               | Jul-Sep 2008             |       | 68.90              |       | 78.32            |       | 566                 |       |
| Crude - 1,473  Bbl/d |                                               | Oct-Dec 2008             |       | 68.41              |       | 77.85            |       | 550                 |       |
| Crude - 925  Bbl/d   |                                               | Jan-Dec 2008             |       | 65.00              |       | 68.78            |       | (172                | )          |
| Crude - 550  Bbl/d   |                                               | Jan-Dec 2009             |       | 63.13              |       | 72.58            |       | 92                  |       |
| Crude - 450  Bbl/d   |                                               | Jan-Mar 2009             |       | 63.00              |       | 70.00            |       | (72                 | )          |
| Crude - 1,925 Bbl/d  |                                               | Jan-Dec 2009             |       | 63.96              |       | 68.90            |       | (844                | )          |
| Crude - 450  Bbl/d   |                                               | Apr-Jun 2009             |       | 63.00              |       | 70.00            |       | (82                 | )          |
| Crude - 450  Bbl/d   |                                               | Jul-Sep 2009             |       | 63.00              |       | 70.00            |       | (91                 | )          |
| Crude - 450 Bbl/d    |                                               | Oct-Dec 2009             |       | 63.00              |       | 70.00            |       | (101                | )          |
|                 | Non-Current – Total  MarkWest Energy Partners |                     | $          | 1,397              |       |
|                      |                                                    |                          |            |                    |            |                  |            |                     |            |  |  |  |  |  |  |

 

----

(1)Forward producer collars to hedge our production.

(2) A weighted average is used for grouped positions.

Asummary of MarkWest Energy’s commodity derivative instruments is provided below(in thousands):

 

|                                        | ** ** | **December 31,** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Fair value of  derivative instruments: |       |                  |       |   |   |
| Current asset                          |       | $                     | 4,211      |   | $ | — |   |
| Noncurrent asset                       |       | 2,759                 |       | 728 |   |
| Current  liability                     |       | 91                    |       | — |   |
| Noncurrent liability                   |       | 1,362                 |       | — |   |
|                                        |            |                       |            |  |  |  |  |

 

The Partnership entered into the following derivativepositions subsequent to December 31, 2006:

50

----

 

| Fixed Swaps (1) | ** ** | **Contract Period** | ** ** | **Price (2)** | ** ** |
|---------------------------|------------|--------------------------|------------|--------------------|------------|
|                      |       |                     |       |               |       |
| Crude - 325  bbl/d        |       | Jan-Dec 2007             |       | $                  | 62.11      |   |
| Crude - 550  bbl/d        |       | Jan-Mar 2010             |       | 64.03              |       |
| Crude - 150  bbl/d        |       | Mar-Dec 2007             |       | 62.40              |       |
| Crude - 2,000 bbl/d       |       | Jan-Mar 2010             |       | 64.45              |       |
|                           |            |                          |            |                    |            |  |

 

----

(1) Forward sales to hedge our production.

(2) A weighted average is used for grouped positions.

*Interest Rate*

Our primary interest rate risk exposure results fromthe revolving portion of the Partnership Credit Facility that has a borrowingcapacity of $250.0 million and was entered into on December 29, 2005. Thedebt related to this agreement bears interest at variable rates that are tiedto either the U.S. prime rate or LIBOR at the time of borrowing. ThePartnership may make use of interest rate swap agreements in the future,to adjust the ratio of fixed and floating rates in its debt portfolio.
| Long-term Debt          | ** ** | **Interest Rate** | ** ** | **Lending Limit** | ** **    | **Due Date** | ** **              | **Outstanding at December 31, 2006** | ** ** |
|------------------------------|------------|------------------------|------------|------------------------|---------------|-------------------|-------------------------|----------------------------------------------------------|------------|
| Partnership  Credit Facility |       | Variable               |       | $                      | 250.0 million |              | December 29,  2010 |                                                     | $          | 30.0 million |   |
| 2014 Senior  Notes           |       | Fixed                  |       | 225.0 million          |          | November,  2014   |                    | 225.0 million                                            |       |
| 2016 Senior Notes            |       | Fixed                  |       | 275.0 million          |          | July, 2016        |                    | 275.0 million                                            |       |
|                              |            |                        |            |                        |               |                   |                         |                                                          |            |  |  |

 

Based on our overall interest rate exposure atDecember 31, 2006, a hypothetical instantaneous increase or decrease ofone percentage point in interest rates applied to borrowings under our creditfacility would change earnings by less than $0.1 million, net of tax, over a12-month period.

51

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**Item8.  Financial Statements and SupplementalData**

**Index to Consolidated FinancialStatements**

Report of Deloitte &Touche LLP, Independent Registered Public Accounting Firm

 

Report of KPMG LLP,Independent Registered Public Accounting Firm

 

Consolidated Balance Sheetsat December 31, 2006 and 2005

 

Consolidated Statements ofOperations for the years ended December 31, 2006, 2005 and 2004

 

Consolidated Statements ofComprehensive Income (Loss) for the years ended December 31, 2006, 2005and 2004

 

Consolidated Statements ofChanges in Stockholders’ Equity for the years ended December 31, 2006,2005 and 2004

 

Consolidated Statements ofCash Flows for the years in the period ended December 31, 2006, 2005 and2004

 

Notesto Consolidated Financial Statements for the years ended December 31, 2006,2005 and 2004 (As Restated)

52

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**Report of Independent Registered Public AccountingFirm**

To the Board of Directorsand Stockholders of MarkWest Hydrocarbon, Inc. **Denver, Colorado

We have audited theaccompanying consolidated balance sheets of MarkWest Hydrocarbon, Inc. andsubsidiaries (the “Company”) as of December 31, 2006 and 2005, and the relatedconsolidated statements of operations, comprehensive income (loss), changes instockholders’ equity, and cash flows for each of the two years in the periodended December 31, 2006.  These financialstatements are the responsibility of the Company’s management.  Ourresponsibility is to express an opinion on the financial statements based onour audits.

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements.  An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation.  We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of MarkWest Hydrocarbon, Inc. and subsidiaries as ofDecember 31, 2006 and 2005, and the results of their operations and their cashflows for each of the two years in the period ended December 31, 2006, inconformity with accounting principles generally accepted in the United Statesof America.

As discussed in Note 2 tothe consolidated financial statements, the Company changed its method ofaccounting for stock-based compensation in 2006 with the implementation ofStatement of Financial Accounting Standards No. 123R “Share-Based Payment”.

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2006, based on the criteria establishedin *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commissionand our report dated March 7, 2007 expressed an unqualified opinion onmanagement’s assessment of the effectiveness of the Company’s internal controlover financial reporting and an adverse opinion on the effectiveness of theCompany’s internal control over financial reporting.
| /s/ Deloitte & Touche,  LLP |   |   |
|---------------------------------|--------|--------|
|                            |   |   |
| Denver, Colorado                |   |   |
| March 7, 2007                   |   |   |
| (March 21, 2007  as to Note 13) |   |   |

 

53

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**Report ofIndependent Registered Public Accounting Firm**

The Board of Directors MarkWest Hydrocarbon, Inc.:

We have audited the accompanying consolidated statements ofoperations, comprehensive income (loss), changes in stockholders’ equity, andcash flows of MarkWest Hydrocarbon, Inc. and its subsidiaries for the yearended December 31, 2004. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the results ofoperations and cash flows of MarkWest Hydrocarbon, Inc. and subsidiaries forthe year ended December 31, 2004, in conformity with U.S. generally acceptedaccounting principles.
| /s/ KPMG LLP     |   |
|------------------|--------|
| Denver, Colorado |
| October 14, 2005 |

 

54

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**MARKWEST HYDROCARBON, INC.**

**CONSOLIDATED BALANCE SHEETS**

(inthousands, except share data)
| ** **                                                                                                           | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                           | ** ** | **2006**              | ** ** | **2005** | ** ** |
| **ASSETS**                                                                                                           | ** ** | ** **            | ** ** | ** ** | ** ** |
| Current assets:                                                                                                      |       |                  |       |   |   |
| Cash and cash  equivalents                                                                                           |       | $                     | 48,844     |   | $ | 20,968 |   |
| Marketable  securities                                                                                               |       | 7,713                 |       | 6,070 |   |
| Receivables, net  of allowances of $156 and $175, respectively                                                       |       | 101,116               |       | 145,539 |   |
| Inventories                                                                                                          |       | 35,261                |       | 41,067 |   |
| Fair value of  derivative instruments                                                                                |       | 9,938                 |       | — |   |
| Other current  assets                                                                                                |       | 15,264                |       | 16,314 |   |
| Total current  assets                                                                                                |       | 218,136               |       | 229,958 |   |
|                                                                                                                 |       |                  |       |   |   |
| Property, plant and equipment                                                                                        |       | 662,606               |       | 573,198 |   |
| Less: accumulated  depreciation, depletion, amortization and impairment                                              |       | (108,271              | )          | (78,500 | ) |
| Total property,  plant and equipment, net                                                                            |       | 554,335               |       | 494,698 |   |
|                                                                                                                 |       |                  |       |   |   |
| Other assets:                                                                                                        |       |                  |       |   |   |
| Investment in  Starfish                                                                                              |       | 64,240                |       | 39,167 |   |
| Intangibles, net  of accumulated amortization of $29,080 and $13,321 respectively                                    |       | 344,066               |       | 346,496 |   |
| Deferred  financing costs, net of accumulated amortization of $5,462 and $4,424  respectively                        |       | 16,079                |       | 18,463 |   |
| Deferred  contract cost, net of accumulated amortization of $702 and $390, respectively                              |       | 2,548                 |       | 2,860 |   |
| Investment in  and advances to other equity investee                                                                 |       | —                |       | 182 |   |
| Fair value of  derivative instruments                                                                                |       | 2,794                 |       | — |   |
| Notes receivable  from related parties                                                                               |       | —                |       | 154 |   |
| Other long term  assets                                                                                              |       | 1,043                 |       | 326 |   |
| Total other  assets                                                                                                  |       | 430,770               |       | 407,648 |   |
| Total assets                                                                                                         |       | $                     | 1,203,241  |   | $ | 1,132,304 |   |
|                                                                                                                 |       |                  |       |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                       | ** ** | ** **            | ** ** | ** ** | ** ** |
| Current liabilities:                                                                                                 |       |                  |       |   |   |
| Accounts  payable, including related party payables of $0 and $25, respectively                                      |       | $                     | 89,242     |   | $ | 119,105 |   |
| Accrued  liabilities                                                                                                 |       | 55,208                |       | 45,869 |   |
| Fair value of  derivative instruments                                                                                |       | 7,476                 |       | 728 |   |
| Deferred income  taxes                                                                                               |       | 180                   |       | 362 |   |
| Current portion  of long term debt                                                                                   |       | —                |       | 2,738 |   |
| Total current  liabilities                                                                                           |       | 152,106               |       | 168,802 |   |
|                                                                                                                 |       |                  |       |   |   |
| Deferred income taxes                                                                                                |       | 9,553                 |       | 3,487 |   |
| Fair value of  derivative instruments                                                                                |       | 1,460                 |       | — |   |
| Long-term debt, net of  original issue discount of $3,135 and $0, respectively                                       |       | 526,865               |       | 608,762 |   |
| Other long-term  liabilities                                                                                         |       | 30,196                |       | 10,256 |   |
| Non-controlling  interest in consolidated subsidiary                                                                 |       | 441,572               |       | 301,015 |   |
|                                                                                                                 |       |                  |       |   |   |
| Commitments and  contingencies (Note 18)                                                                             |       |                  |       |   |   |
|                                                                                                                 |       |                  |       |   |   |
| Stockholders’ equity  (December 31, 2005 adjusted to reflect May 23, 2006 Stock Dividend, see Note  2):         |       |                  |       |   |   |
| Preferred stock,  par value $0.01, 5,000,000 shares authorized, no shares outstanding                                |       | —                |       | — |   |
| Common stock,  par value $0.01, 20,000,000 shares authorized, 11,975,256 and 11,943,733  shares issued, respectively |       | 120                   |       | 119 |   |
| Additional  paid-in capital                                                                                          |       | 40,266                |       | 48,786 |   |
| Deferred  compensation                                                                                               |       | —                |       | (398 | ) |
| Accumulated  earnings (deficit)                                                                                      |       | —                |       | (8,425 | ) |
| Accumulated  other comprehensive income, net of tax                                                                  |       | 1,103                 |       | 357 |   |
| Treasury stock,  0 and 55,619 shares, respectively                                                                   |       | —                |       | (457 | ) |
| Total  stockholders’ equity                                                                                     |       | 41,489                |       | 39,982 |   |
| Total liabilities and  stockholders’ equity                                                                     |       | $                     | 1,203,241  |   | $ | 1,132,304 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

55

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**MARKWESTHYDROCARBON, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

(inthousands, except per share data)
| ** **                                                                                                                                   | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                   | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                                                         |       |                                       |       |   |   |   |   |
| Revenues:                                                                                                                                    |       |                                       |       |   |   |   |   |
| Revenue                                                                                                                                      |       | $                                          | 775,339    |   | $ | 717,375 |   | $ | 464,678 |   |
| Derivative gain (loss)                                                                                                                       |       | 10,383                                     |       | (3,198 | ) | (4,565 | ) |
| Total revenue                                                                                                                                |       | 785,722                                    |       | 714,177 |   | 460,113 |   |
|                                                                                                                                         |       |                                       |       |   |   |   |   |
| Operating  expenses:                                                                                                                         |       |                                       |       |   |   |   |   |
| Purchased product costs                                                                                                                      |       | 512,327                                    |       | 583,084 |   | 363,261 |   |
| Facility expenses                                                                                                                            |       | 57,403                                     |       | 45,577 |   | 28,580 |   |
| Selling, general and administrative expenses                                                                                                 |       | 63,038                                     |       | 33,350 |   | 28,132 |   |
| Depreciation                                                                                                                                 |       | 31,010                                     |       | 20,829 |   | 16,895 |   |
| Amortization of intangible assets                                                                                                            |       | 16,047                                     |       | 9,656 |   | 3,640 |   |
| Accretion of asset retirement obligations                                                                                                    |       | 102                                        |       | 160 |   | 15 |   |
| Impairments                                                                                                                                  |       | —                                     |       | — |   | 130 |   |
| Total operating expenses                                                                                                                     |       | 679,927                                    |       | 692,656 |   | 440,653 |   |
|                                                                                                                                         |       |                                       |       |   |   |   |   |
| Income from operations                                                                                                                       |       | 105,795                                    |       | 21,521 |   | 19,460 |   |
|                                                                                                                                         |       |                                       |       |   |   |   |   |
| Other income  (expense):                                                                                                                     |       |                                       |       |   |   |   |   |
| Earnings (losses) from unconsolidated affiliates                                                                                             |       | 5,316                                      |       | (2,153 | ) | — |   |
| Interest income                                                                                                                              |       | 1,574                                      |       | 1,060 |   | 647 |   |
| Interest expense                                                                                                                             |       | (40,942                                    | )          | (22,622 | ) | (9,383 | ) |
| Amortization of deferred financing costs and  original issue discount (a component of interest expense)                                      |       | (9,229                                     | )          | (6,979 | ) | (5,281 | ) |
| Dividend income                                                                                                                              |       | 447                                        |       | 392 |   | 259 |   |
| Miscellaneous income                                                                                                                         |       | 11,537                                     |       | 266 |   | 788 |   |
| Income (loss) before non-controlling interest in net  income of consolidated subsidiary and income taxes                                     |       | 74,498                                     |       | (8,515 | ) | 6,490 |   |
|                                                                                                                                         |       |                                       |       |   |   |   |   |
| Income tax  (expense) benefit:                                                                                                               |       |                                       |       |   |   |   |   |
| Current                                                                                                                                      |       | 179                                        |       | (554 | ) | (20 | ) |
| Deferred                                                                                                                                     |       | (5,431                                     | )          | 2,358 |   | (58 | ) |
| Income tax  (expense) benefit                                                                                                                |       | (5,252                                     | )          | 1,804 |   | (78 | ) |
| Non-controlling interest in net income of  consolidated subsidiary                                                                           |       | (59,709                                    | )          | (91 | ) | (7,315 | ) |
| Net income (loss)                                                                                                                            |       | $                                          | 9,537      |   | $ | (6,802 | ) | $ | (903 | ) |
|                                                                                                                                         |       |                                       |       |   |   |   |   |
| Net income  (loss) per share:                                                                                                                |       |                                       |       |   |   |   |   |
| Basic                                                                                                                                        |       | $                                          | 0.80       |   | $ | (0.57 | ) | $ | (0.08 | ) |
| Diluted                                                                                                                                      |       | $                                          | 0.79       |   | $ | (0.57 | ) | $ | (0.08 | ) |
|                                                                                                                                         |       |                                       |       |   |   |   |   |
| Weighted average  number of outstanding shares of common stock (2005 and 2004 adjusted to  reflect May 23, 2006 Stock Dividend, see Note 2): |       |                                       |       |   |   |   |   |
| Basic                                                                                                                                        |       | 11,939                                     |       | 11,864 |   | 11,755 |   |
| Diluted                                                                                                                                      |       | 12,033                                     |       | 11,864 |   | 11,755 |   |
|                                                                                                                                         |       |                                       |       |   |   |   |   |
| Cash dividend declared  per common share                                                                                                     |       | $                                          | 0.793      |   | $ | 0.364 |   | $ | 0.087 |   |

 

The accompanying notes are an integral part ofthese consolidated financial statements.

56

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# **MARKWESTHYDROCARBON, INC.**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**

(in thousands)
| ** **                                                                                                                    | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                    | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                                          |       |                                       |       |   |   |   |   |
| Net income  (loss)                                                                                                            |       | $                                          | 9,537      |   | $ | (6,802 | ) | $ | (903 | ) |
|                                                                                                                          |       |                                       |       |   |   |   |   |
| Other  comprehensive income (loss):                                                                                           |       |                                       |       |   |   |   |   |
| Unrealized gains (losses) on marketable securities,  net of tax of $454, $(92) and $291, respectively.                        |       | 746                                        |       | (153 | ) | 526 |   |
| Unrealized gains on commodity derivative instruments  accounted for as hedges, net of tax of $0, $158 and $825, respectively. |       | —                                     |       | 264 |   | 1,513 |   |
| Total comprehensive income                                                                                                    |       | 746                                        |       | 111 |   | 2,039 |   |
|                                                                                                                          |       |                                       |       |   |   |   |   |
| Other comprehensive  income (loss)                                                                                            |       | $                                          | 10,283     |   | $ | (6,691 | ) | $ | 1,136 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

57

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**MARKWESTHYDROCARBON, INC.**

**CONSOLIDATEDSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

(in thousands)
| ** **                                                                      | ** ** | **Shares of  Common  Stock** | ** ** | **Shares of  Treasury  Stock** | ** ** | **Common  Stock** | ** ** | **Additional  Paid in  Capital** | ** ** | **Deferred  Compensation** | ** ** | **Accumulated  Earnings  (Deficit)** | ** ** | **Other  Comprehensive  Income (Loss)** | ** ** | **Treasury  Stock** | ** ** | **Total  Stockholders’  Equity** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------|------------|-------------------------------------|------------|-------------------|------------|---------------------------------------|------------|----------------------------|------------|--------------------------------------|------------|----------------------------------------------|------------|---------------------|------------|---------------------------------------|------------|
| **Balance,  December 31, 2003**                                                 |       | 10,602                            |       | (76                                 | )          | $                 | 106        |                                  | $          | 50,705                     |       | $                                    | —     |                                         | $          | 2,406               |       | $                                     | (1,793     | ) | $ | (510 | ) | $ | 50,914 |   |
| Stock Dividend –  May 23, 2006                                             |       | 1,060                             |       | —                              |       | 11                |       | (11                                   | )          | —                     |       | —                               |       | —                                       |       | —              |       | —                                |       |
| *Adjusted  balance - December 31, 2003*                                         |       | 11,662                            |       | (76                                 | )          | 117               |       | 50,694                                |       | —                     |       | 2,406                                |       | (1,793                                       | )          | (510                | )          | 50,914                                |       |
| Stock option  exercises                                                         |       | 193                               |       | —                              |       | 2                 |       | 1,390                                 |       | —                     |       | —                               |       | —                                       |       | —              |       | 1,392                                 |       |
| Modification of  stock options                                                  |       | 49                                |       | —                              |       | —            |       | 1,994                                 |       | —                     |       | —                               |       | —                                       |       | —              |       | 1,994                                 |       |
| Treasury stock  acquired                                                        |       | —                            |       | (3                                  | )          | —            |       | —                                |       | —                     |       | —                               |       | —                                       |       | (39                 | )          | (39                                   | )          |
| Treasury stock  reissued                                                        |       | —                            |       | 15                                  |       | —            |       | 68                                    |       | —                     |       | —                               |       | —                                       |       | 124                 |       | 192                                   |       |
| Net loss                                                                        |       | —                            |       | —                              |       | —            |       | —                                |       | —                     |       | (903                                 | )          | —                                       |       | —              |       | (903                                  | )          |
| Dividends paid                                                                  |       | —                            |       | —                              |       | —            |       | —                                |       | —                     |       | —                               |       | 2,039                                        |       | —              |       | 2,039                                 |       |
| Other  comprehensive income                                                     |       | —                            |       | —                              |       | —            |       | (2,702                                | )          | —                     |       | (3,126                               | )          | —                                       |       | —              |       | (5,828                                | )          |
| **December  31, 2004**                                                          |       | 11,904                            |       | (64                                 | )          | 119               |       | 51,444                                |       | —                     |       | (1,623                               | )          | 246                                          |       | (425                | )          | 49,761                                |       |
| Stock option  exercises                                                         |       | 16                                |       | —                              |       | —            |       | 77                                    |       | —                     |       | —                               |       | —                                       |       | —              |       | 77                                    |       |
| Issuance of  restricted stock                                                   |       | —                            |       | 3                                   |       | —            |       | (57                                   | )          | —                     |       | —                               |       | —                                       |       | 57                  |       | —                                |       |
| Grant of  restricted stock                                                      |       | —                            |       | —                              |       | —            |       | 482                                   |       | (482                       | )          | —                               |       | —                                       |       | —              |       | —                                |       |
| Amortization of  deferred stock-based compensation                              |       | —                            |       | —                              |       | —            |       | —                                |       | 84                         |       | —                               |       | —                                       |       | —              |       | 84                                    |       |
| Stock options  converted to restricted stock                                    |       | —                            |       | —                              |       | —            |       | 66                                    |       | —                     |       | —                               |       | —                                       |       | —              |       | 66                                    |       |
| Cashless stock  options                                                         |       | 23                                |       | —                              |       | —            |       | 965                                   |       | —                     |       | —                               |       | —                                       |       | —              |       | 965                                   |       |
| Treasury stock  acquired                                                        |       | —                            |       | (7                                  | )          | —            |       | —                                |       | —                     |       | —                               |       | —                                       |       | (161                | )          | (161                                  | )          |
| Contribution of  treasury stock shares to 401(k) benefit plan                   |       | —                            |       | 12                                  |       | —            |       | 124                                   |       | —                     |       | —                               |       | —                                       |       | 72                  |       | 196                                   |       |
| Net loss                                                                        |       | —                            |       | —                              |       | —            |       | —                                |       | —                     |       | (6,802                               | )          | —                                       |       | —              |       | (6,802                                | )          |
| Dividends paid                                                                  |       | —                            |       | —                              |       | —            |       | (4,315                                | )          | —                     |       | —                               |       | —                                       |       | —              |       | (4,315                                | )          |
| Other  comprehensive income                                                     |       | —                            |       | —                              |       | —            |       | —                                |       | —                     |       | —                               |       | 111                                          |       | —              |       | 111                                   |       |
| **December  31, 2005**                                                          |       | 11,943                            |       | (56                                 | )          | 119               |       | 48,786                                |       | (398                       | )          | (8,425                               | )          | 357                                          |       | (457                | )          | 39,982                                |       |
| Stock option  exercises                                                         |       | 19                                |       | 20                                  |       | 1                 |       | 126                                   |       | —                     |       | —                               |       | —                                       |       | 163                 |       | 290                                   |       |
| Compensation  expense related to equity-based awards                            |       | —                            |       | —                              |       | —            |       | 401                                   |       | —                     |       | —                               |       | —                                       |       | —              |       | 401                                   |       |
| Issuance of  restricted stock                                                   |       | 9                                 |       | 37                                  |       | —            |       | (328                                  | )          | —                     |       | —                               |       | —                                       |       | 328                 |       | —                                |       |
| Treasury stock  reacquired                                                      |       | —                            |       | (3                                  | )          | —            |       | 64                                    |       | —                     |       | —                               |       | —                                       |       | (64                 | )          | —                                |       |
| Cashless stock  options exercises                                               |       | 4                                 |       | 2                                   |       | —            |       | (9                                    | )          | —                     |       | —                               |       | —                                       |       | 30                  |       | 21                                    |       |
| Reclassification  of unearned compensation related to the adoption of SFAS 123R |       | —                            |       | —                              |       | —            |       | (398                                  | )          | 398                        |       | —                               |       | —                                       |       | —              |       | —                                |       |
| SFAS 123R  windfall pool under APIC                                             |       | —                            |       | —                              |       | —            |       | 177                                   |       | —                     |       | —                               |       | —                                       |       | —              |       | 177                                   |       |
| Net income                                                                      |       | —                            |       | —                              |       | —            |       | —                                |       | —                     |       | 9,537                                |       | —                                       |       | —              |       | 9,537                                 |       |
| Dividends paid                                                                  |       | —                            |       | —                              |       | —            |       | (8,553                                | )          | —                     |       | (1,112                               | )          | —                                       |       | —              |       | (9,665                                | )          |
| Other  comprehensive income                                                     |       | —                            |       | —                              |       | —            |       | —                                |       | —                     |       | —                               |       | 746                                          |       | —              |       | 746                                   |       |
| **December 31, 2006**                                                           |       | 11,975                            |       | —                              |       | $                 | 120        |                                  | $          | 40,266                     |       | $                                    | —     |                                         | $          | —              |       | $                                     | 1,103      |   | $ | — |   | $ | 41,489 |   |

 

# The accompanying notes are an integral part of theseconsolidated financial statements.

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# **MARKWESTHYDROCARBON, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

(inthousands)
| ** **                                                                                               | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                               | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Cash  flows from operating activities:**                                                               | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income  (loss)                                                                                       |       | $                                          | 9,537      |   | $ | (6,802 | ) | $ | (903 | ) |
| Adjustments to reconcile net income to net cash  provided by operating activities (net of acquisitions): |       |                                       |       |   |   |   |   |
| Depreciation                                                                                             |       | 31,010                                     |       | 20,829 |   | 16,895 |   |
| Amortization of intangible assets                                                                        |       | 16,047                                     |       | 9,656 |   | 3,640 |   |
| Amortization of deferred financing costs and  original issue discount                                    |       | 9,229                                      |       | 6,979 |   | 5,281 |   |
| Accretion of asset retirement obligation                                                                 |       | 102                                        |       | 160 |   | 15 |   |
| Amortization of gas contract                                                                             |       | 312                                        |       | 312 |   | 78 |   |
| Impairments                                                                                              |       | —                                     |       | — |   | 130 |   |
| Restricted unit compensation expense                                                                     |       | 1,686                                      |       | 1,076 |   | 1,065 |   |
| Participation Plan compensation expense                                                                  |       | 20,743                                     |       | 3,244 |   | 3,711 |   |
| Stock option compensation expense                                                                        |       | (9                                         | )          | 965 |   | 1,994 |   |
| Restricted stock compensation expense                                                                    |       | 410                                        |       | 150 |   | — |   |
| Non-controlling interest in net income of  consolidated subsidiary                                       |       | 59,709                                     |       | 91 |   | 7,315 |   |
| Contribution of treasury shares to 401(k) benefit  plan                                                  |       | —                                     |       | 196 |   | 192 |   |
| Equity in (earnings) losses from unconsolidated  affiliates                                              |       | (5,316                                     | )          | 2,153 |   | 73 |   |
| Distributions from equity investments                                                                    |       | —                                     |       | 1,849 |   | — |   |
| Unrealized (gains) losses on derivative instruments                                                      |       | (4,524                                     | )          | 657 |   | 762 |   |
| Gain on sale of property, plant and equipment                                                            |       | (332                                       | )          | (407 | ) | (63 | ) |
| Deferred income taxes                                                                                    |       | 5,431                                      |       | (2,358 | ) | 39 |   |
| Gain from sale of marketable securities                                                                  |       | (267                                       | )          | (56 | ) | (37 | ) |
| Other                                                                                                    |       | 26                                         |       | — |   | (1 | ) |
|                                                                                                     |       |                                       |       |   |   |   |   |
| Changes in  operating assets and liabilities, net of working capital acquired:                           |       |                                       |       |   |   |   |   |
| Receivables                                                                                              |       | 31,153                                     |       | (1,372 | ) | (34,946 | ) |
| Inventories                                                                                              |       | 5,806                                      |       | (17,742 | ) | (10,049 | ) |
| Other current assets                                                                                     |       | 333                                        |       | (14,742 | ) | (1,395 | ) |
| Accounts payable and accrued liabilities                                                                 |       | (14,653                                    | )          | 11,983 |   | 32,299 |   |
| Notes receivables from officers                                                                          |       | 154                                        |       | 53 |   | 10 |   |
| Other assets                                                                                             |       | —                                     |       | — |   | 28 |   |
| Other long-term liabilities                                                                              |       | (618                                       | )          | — |   | 483 |   |
| Net cash flows provided by operating activities                                                          |       | 165,969                                    |       | 16,874 |   | 26,616 |   |
|                                                                                                     |       |                                       |       |   |   |   |   |
| **Cash  flows from investing activities:**                                                               | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Acquisitions                                                                                             |       | (21,389                                    | )          | (356,917 | ) | (243,001 | ) |
| Investment in Starfish                                                                                   |       | (21,237                                    | )          | (41,688 | ) | — |   |
| Restricted marketable securities                                                                         |       | —                                     |       | — |   | 2,500 |   |
| Restricted cash                                                                                          |       | —                                     |       | 15,000 |   | (15,000 | ) |
| Purchase of marketable securities                                                                        |       | (789                                       | )          | (8,725 | ) | (15,053 | ) |
| Proceeds from sale of marketable securities                                                              |       | 614                                        |       | 17,275 |   | 1,092 |   |
| Capital expenditures                                                                                     |       | (80,080                                    | )          | (71,343 | ) | (30,654 | ) |
| Proceeds from sale of equity investee                                                                    |       | 150                                        |       | 550 |   | 216 |   |
| Payments on financing lease receivable                                                                   |       | —                                     |       | — |   | 133 |   |
| Payment on long-term gas purchase contracts                                                              |       | —                                     |       | — |   | (3,250 | ) |
| Proceeds from sale of property, plant and equipment                                                      |       | 685                                        |       | — |   | — |   |
| Net cash flows used in investing activities                                                              |       | (122,046                                   | )          | (445,848 | ) | (303,017 | ) |
|                                                                                                     |       |                                       |       |   |   |   |   |
| **Cash  flows from financing activities:**                                                               | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Proceeds from long-term debt                                                                             |       | 173,024                                    |       | 910,500 |   | 220,100 |   |
| Payments of long-term debt                                                                               |       | (529,524                                   | )          | (524,000 | ) | (346,300 | ) |
| Proceeds from MarkWest Energy’s private placement of  senior notes                                  |       | 271,700                                    |       | — |   | 225,000 |   |
| Payments for debt issuance costs, deferred financing  costs and registration costs                       |       | (6,826                                     | )          | (11,809 | ) | (15,643 | ) |
| Proceeds from MarkWest Energy’s private placement,  net                                             |       | 5,000                                      |       | 92,887 |   | 44,139 |   |
| Proceeds from MarkWest Energy’s public offering, net                                                |       | 123,256                                    |       | — |   | 139,630 |   |
| Exercise of stock options                                                                                |       | 311                                        |       | 77 |   | 1,392 |   |
| Excess income tax benefits from share-based  compensation                                                |       | 177                                        |       | — |   | — |   |
| Purchase of treasury shares                                                                              |       | —                                     |       | (161 | ) | (39 | ) |
| Payment of dividends                                                                                     |       | (9,665                                     | )          | (4,315 | ) | (5,828 | ) |
| Distributions to MarkWest Energy unitholders                                                             |       | (43,500                                    | )          | (26,081 | ) | (15,350 | ) |
| Net cash flows provided by (used in) financing  activities                                               |       | (16,047                                    | )          | 437,098 |   | 247,101 |   |
|                                                                                                     |       |                                       |       |   |   |   |   |
| Net increase  (decrease) in cash                                                                         |       | 27,876                                     |       | 8,124 |   | (29,300 | ) |
| Cash and cash  equivalents at beginning of year                                                          |       | 20,968                                     |       | 12,844 |   | 42,144 |   |
| Cash and cash  equivalents at end of year                                                                |       | $                                          | 48,844     |   | $ | 20,968 |   | $ | 12,844 |   |
|                                                                                                     |       |                                       |       |   |   |   |   |
| **Supplemental  disclosures of cash flow information:**                                                  | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash paid for  interest, net of amount capitalized                                                       |       | $                                          | 16,120     |   | $ | 22,225 |   | $ | 6,532 |   |
| Cash paid for  income taxes                                                                              |       | 2,600                                      |       | 549 |   | — |   |
|                                                                                                     |       |                                       |       |   |   |   |   |
| **Supplemental  schedule of non-cash investing and financing activities:**                               | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Construction  projects in progress                                                                       |       | (8,270                                     | )          | (1,545 | ) | 4,037 |   |
| Property, plant  and equipment asset retirement obligation                                               |       | 64                                         |       | 561 |   | 377 |   |
| Deferred  offering costs                                                                                 |       | —                                     |       | 215 |   | — |   |
| Accrued amounts  due to Javelina sellers and Starfish                                                    |       | —                                     |       | 6,888 |   | — |   |
| Accrued private  placement proceeds                                                                      |       | —                                     |       | 5,000 |   | — |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

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**MARKWEST HYDROCARBON, INC.**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**1.     Organization**

MarkWest Hydrocarbon, Inc. (“MarkWest Hydrocarbon” orthe “Company”) is an energy company primarily focused on marketing natural gasliquids (NGLs) and increasing shareholder value by growing MarkWest EnergyPartners, L.P. (“MarkWest Energy Partners” or the “Partnership”), aconsolidated subsidiary and publicly traded master limited partnership.MarkWest Energy Partners is engaged in the gathering, processing and transmissionof natural gas; the transportation, fractionation and storage of natural gasliquids; and the gathering and transportation of crude oil. The Company alsomarkets natural gas and NGLs. MarkWest Hydrocarbon and MarkWest Energy Partnersprovide services primarily in Appalachia, Michigan, Texas, Oklahoma, Gulf Coastand other areas of the southwest.

**2.****             ****Summary****of Significant AccountingPolicies**

*Basis of Presentation*

Theaccompanying consolidated financial statements include the accounts of MarkWestHydrocarbon, Inc., MarkWest Energy Partners, L.P. and all of its majority-ownedsubsidiaries (collectively “the Company”) and have been prepared in accordancewith accounting principles generally accepted in the United States of America (“GAAP”).   The Company’s consolidated financialstatements include the accounts of all majority-owned subsidiaries.  Equity investments in which the Companyexercises significant influence, but does not control and is not the primarybeneficiary, are accounted for using the equity method.  Intercompany balances and transactions havebeen eliminated.

On April 27, 2006, MarkWest Hydrocarbon announced thatits Board of Directors approved the issuance of one share of common stock foreach ten shares of common stock held by common stockholders. The stock wasissued on May 23, 2006, to the stockholders of record as of the close ofbusiness on May 11, 2006; the ex-dividend date was May 9, 2006. 1,084,647shares were issued at a fair value of $24.4 million, based upon the last saleprice on the record date ($22.50 per share). Cash of $3,200 was paid in lieu offractional shares, based upon the last sale price on the record date. Allcommon stock accounts and per share data have been retroactively adjusted togive effect to the dividend of our common stock.

On January 25,2007, the Board of the General Partner of the Partnership declared thePartnership’s two-for-one split of the Partnership’s units.  The units were issued on February 28, 2007for holders of record at the close of business on February 22, 2007.  The unit split resulted in the issuance of anadditional 15,603,257 common units and 600,000 subordinated units.  All Partnership specific references to the numberof units and per unit net income and distribution amounts included in thisreport have been adjusted to give the effect to the unit split.

*Non-Controlling Interest in Consolidated Subsidiary*

**The non-controlling interest inconsolidated subsidiary on the consolidated balance sheet represents theinitial investment by the partners other than MarkWest Hydrocarbon in thePartnership, plus those partners’ share of the net income of the Partnershipsince its initial public offering on May 24, 2002. Non-controllinginterest in net income of consolidated subsidiary in the consolidated statementof operations represents those partners’ share of the net income of thePartnership.**

###### *Use of Estimates*

The preparation of financial statementsin conformity with GAAP requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities, disclosure ofcontingent assets and liabilities at the date of the financial statements, andthe reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.  Estimates are used in accounting for, amongother items, valuing identified intangible assets, determining the fair valueof derivative instruments, evaluating impairments of long lived assets,establishing estimated useful lives for long-lived assets, valuing assetretirement obligations, and in determining liabilities, if any, for legalcontingencies.

*Cash and CashEquivalents*

The Company considers investments inhighly liquid financial instruments purchased with an original maturity of 90days or less to be cash equivalents. Such investments include money market accounts.

*Inventories*

Inventoriesare valued at the lower of weighted average cost or market.  Inventories consisting primarily of crude oil

60

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andunprocessed natural gas are valued based on the cost of the raw material.  Processed natural gas inventories includematerial, labor and overhead.  Shippingand handling costs are included in operating expenses.

*Prepaid Replacement Natural Gas*

Prepaid replacementnatural gas consists of natural gas purchased in advance of its actual usevalued using the weighted average cost method.

###### *Property,Plant and Equipment*

Property,plant and equipment are recorded at cost. Expenditures that extend the useful lives of assets arecapitalized.  Repairs, maintenance and renewalsthat do not extend the useful lives of the assets are expensed asincurred.  Interest costs for theconstruction or development of long-term assets are capitalized and amortizedover the related asset’s estimated useful life. Leasehold improvements are depreciated over the shorter of the usefullife or lease term.  Depreciation isprovided principally on the straight-line method over the following estimateduseful lives:

| Asset Class                      | ** ** | **Range of  Estimated  Useful Lives** |
|---------------------------------------|------------|-------------------------------------------------|
| Buildings                             |       | 20 – 25 years                              |
| Gas gathering  facilities             |       | 20 – 25 years                              |
| Gas processing  plants                |       | 20 – 25 years                              |
| Fractionation  and storage facilities |       | 20 – 25 years                              |
| Natural gas  pipelines                |       | 20 – 25 years                              |
| Crude oil  pipelines                  |       | 20 – 25 years                              |
| NGL  transportation facilities        |       | 20 – 25 years                              |
| Equipment and  other                  |       | 3 – 10 years                               |

 

The Company recognizes the fair value of a liabilityfor an asset retirement obligation in the period, in which the liability isincurred, with an offsetting increase in the carrying amount of the relatedlong-lived asset.  Over time, theliability is accreted to its future value, and the capitalized cost isdepreciated over the useful life of the related asset.  Upon settlement of the liability, an entityeither settles the obligation for its recorded amount or incurs a gain orloss.  The Company adopted the Financial Accounting StandardsBoard (“FASB”) Interpretation No. 47, *Accountingfor Conditional Asset Retirement Obligations* (“FIN 47”), on January 1, 2005. FIN 47 clarified the accounting for conditional asset retirementobligations under Statement of Financial Accounting Standards (“SFAS”) No.143, *Accountingfor Asset Retirement Obligations* (“SFAS 143”).  Aconditional asset retirement obligation is an unconditional legal obligation toperform an activity in which the timing and / or method of settlement areconditional on a future event that may or may not be within the control of theentity.  FIN 47 requires an entity torecognize a liability for a conditional asset retirement obligation if the amountcan be reasonably estimated.  AdoptingFIN 47 had an immaterial impact on the Company**.**

###### *Investment in Starfish*

On March 31, 2005, the Partnership acquired itsnon-controlling, 50% interest in Starfish Pipeline Company, LLC (“Starfish”)for $41.7 million, which is accounted for under the equity method.  Differences between the Partnership’sinvestment and its proportionate share of Starfish’s reported equity areamortized based upon the respective useful lives of the assets to which thedifferences relate.  The Partnership’sshare of Starfish’s earnings in 2006 was $5.3 million compared to a loss of $2.2million in 2005.

The Partnership’s accounting policy requires it toevaluate operating losses, if any, and other factors that may have occurred,that may be indicative of a decrease in value of the investment which is otherthan temporary, and which should be recognized even though the decrease invalue is in excess of what would otherwise be recognized by application of theequity method.  The evaluation allows thePartnership to determine if an equity method investment should be impaired andthat an impairment, if any, is fairly reflected in its financial statements.

The Partnership believes the equity method is anappropriate means for it to recognize increases or decreases measured by GAAPin the economic resources underlying the investments.  Regular evaluation of these investments isappropriate to evaluate any potential need for impairment.  It uses the following types of triggers toidentify a loss in value of an investment that is other than a temporarydecline.  Examples of a loss in value maybe identified by:

·                  An inability torecover the carrying amount of the investment;

·                  A current fairvalue of an investment that is less than its carrying amount; and

·                  Otheroperational criteria that cause us to believe the investment may be worth lessthan otherwise accounted for by using the equity method.

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*Intangible Assets*

TheCompany’s intangible assets are comprised of customer contracts andrelationships acquired in business combinations, recorded under the purchasemethod of accounting at their estimated fair values at the date ofacquisition.  Using relevant informationand assumptions, management determines the fair value of acquired identifiableintangible assets.  Fair value isgenerally calculated as the present value of estimated future cash flows usinga risk-adjusted discount rate.  The keyassumptions include contract renewals, economic incentives to retain customers,historical volumes, current and future capacity of the gathering system,pricing volatility, and the discount rate. Amortization of intangibles with definite lives is calculated using thestraight-line method over the estimated useful life of the intangibleasset.  The estimated economic life isdetermined by assessing the life of the assets to which the contracts orrelationships relate, the likelihood of renewals, competitive factors,regulatory or legal provisions, and maintenance and renewal costs.

###### *Impairment of Long-Lived Assets*

The Company evaluates its long-lived assets, includingintangibles, for impairment when events or changes in circumstances warrantsuch a review.  A long-lived asset groupis considered impaired when the estimated undiscounted cash flows from suchasset group are less than the asset group’s carrying value.  In that event, a loss is recognized to theextent that the carrying value exceeds the fair value of the long-lived assetgroup.  Fair value is determined primarilyusing estimated discounted cash flows. Management considers the volume of reserves behind the asset and futureNGL product and natural gas prices to estimate cash flows. The amount ofadditional reserves developed by future drilling activity depends, in part, onexpected natural gas prices.  Projectionsof reserves, drilling activity and future commodity prices are inherentlysubjective and contingent upon a number of variable factors, many of which aredifficult to forecast.  Any significantvariance in any of these assumptions or factors could materially affect futurecash flows, which could result in the impairment of an asset.

For assets identified to be disposed of in the future,the carrying value of these assets is compared to the estimated fair value,less the cost to sell, to determine if impairment is required. Until the assetsare disposed of, an estimate of the fair value is re-determined when relatedevents or circumstances change.

*Deferred Financing Costs*

Deferred financing costs, included in *Other assets*in the accompanying consolidated balancesheets, are amortized over the estimated lives of the related obligations or,in certain circumstances, accelerated if the obligation is refinanced, usingthe straight line method which approximates the effective interest rate method.

*Deferred Contract Costs*

The Company entered intoa series of agreements with a gas producer in September 2004, under whichthe Company processes natural gas under modified keep-whole arrangements. In connection with these agreements, the Company paid $3.3 million ofconsideration to the producer in connection with these non-separable contracts,which are being amortized as additional cost of the gas purchased over the termof the contracts, October 1, 2004 through February 9, 2015.  Amortization related to these contracts forthe years ended December 31, 2006 and 2005 was $0.3 million and $0.3 million,respectively.

*Deferred income*

Deferred incomerepresents prepayments received under fixed fee contracts to deliver NGLs at afuture date.  Deferred income is recognized as revenue upon delivery ofthe product.

*Derivative Instruments*

SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities,*(“SFAS 133”) established accounting and reporting standards requiring thatderivative instruments (including certain derivative instruments embedded inother contracts) be recorded at fair value and included in the consolidatedbalance sheet as assets or liabilities. The accounting for changes in the fair value of a derivative instrumentdepends on the intended use of the derivative and the resulting designation,which is established at the inception. To the extent derivative instruments designated as cash flow hedges areeffective, changes in fair value are recognized in other comprehensive incomeuntil the underlying hedged item is recognized in earnings.  Effectiveness is evaluated by the derivative instrument’s ability tooffset changes in fair value or cash flows of the underlying hedged item.  Any change in the fair value resulting fromineffectiveness is recognized immediately in earnings.  Changes in the fair value of derivativeinstruments designated as fair value hedges, as well as the changes in the fairvalue of the underlying hedged item, are recognized currently in earnings.  Any differences between the changes in thefair values of the hedged item and the derivative instrument represent gains orlosses from ineffectiveness.  To theextent that the Company elects hedge accounting treatment for specificderivatives, the Company formally documents, designates and assesses the

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effectiveness.  As of December 31, 2006 and 2005, notransactions had been designated for hedge accounting treatment.

                In the course ofnormal operations, the Company routinely enters into contracts such as forwardphysical contracts for the purchase and sale of natural gas, propane, and otherNGLs, that under SFAS 133, qualify for and are designated as a normal purchase and sales contracts. In general, the Company exemptsthese types of contracts from the mark-to-market requirements of SFAS 133 andinstead accounts for them using accrual accounting.

 

                For contracts thatare not designated as normal purchase and sales contracts, thechange in market value of the contracts is recorded as a component of revenueor purchase product costs.  The following table summarizes our handlingof derivative instruments as presented in our accompanying consolidatedstatements of operations:

 

| Transaction Type                  | ** ** | **Realized gain  (loss)** | ** ** | **Unrealized  gain (loss)** |
|-----------------------------------|------------|---------------------------|------------|-----------------------------|
| ***Sales:***                      |       |                      |       |                        |
| Fixed Physical  Forwards          |       | Revenue                   |       | Derivative gain (loss)      |
| All other  derivative instruments |       | Derivative gain (loss)    |       | Derivative gain (loss)      |
|                              |       |                      |       |                        |
| ***Purchases:***                  |       |                      |       |                        |
| Fixed Physical  Forwards          |       | Purchase product costs    |       | Purchase product costs      |
| All other  derivative instruments |       | Purchase product costs    |       | Purchase product costs      |

 

Derivativegain (loss) in the table above are included in total revenues in theaccompanying consolidated statements of operations.

*Treasury Stock*

Treasury stock purchasesare accounted for under the cost method, whereby the entire cost of theacquired stock is recorded as treasury stock. Treasury stock reissued is relieved on a weighted average cost basis.

###### *Fair Valueof Financial Instruments*

Management believes the carrying amount of financial instruments, includingcash, accounts receivable, accounts payable, accrued expenses, and otherfinancial instruments approximates fair value because of the short-termmaturity of these instruments. Management believes the carrying value of MarkWest Hydrocarbon’s CreditFacility and the Partnership’s Credit Facility approximates fair value due totheir variable interest rates.  Theestimated fair value of the Senior Notes was approximately $499.8 million and$207.0 million at December 31, 2006 and 2005, respectively, based on quotedmarket prices, see Note 12. Derivative instruments are recorded at fair value,based on available market information, see Note 13.

*Revenue Recognition*

The Company generates the majority of its revenuesfrom natural gas gathering and processing, NGL fractionation, transportationand storage, and crude oil gathering and transportation. While all of theseservices constitute midstream energy operations, the Partnership provides itsservices pursuant to six different types of arrangements.  In many cases, the Partnership providesservices under contracts that contain a combination of more than one of thearrangements.  The following are descriptionsof the Partnership’s arrangements.

·                    *Fee-based arrangements.* The Partnership receives a fee orfees for one or more of the following services: gathering, processing andtransmission of natural gas; transportation, fractionation and storage of NGLs;and gathering and transportation of crude oil. The revenue the Partnershipearns from these arrangements is directly related to the volume of natural gas,NGLs or crude oil that flows through our systems and facilities and is notdirectly dependent on commodity prices. In certain cases, these arrangementsprovide for minimum annual payments. If a sustained decline in commodity priceswere to result in a decline in volumes, the Partnership’s revenues from thesearrangements would be reduced.

·                    *Percent-of-proceeds arrangements*.  The Partnershipgathers and processes natural gas on behalf of producers, sells the resultingresidue gas, condensate and NGLs at market prices, and remits to producers anagreed upon percentage of the proceeds based on an index price. In other cases,instead of remitting cash payments, the Partnership delivers an agreed-uponpercentage of the residue gas and NGLs to the producer, and sells the volumesit keeps to third parties at market prices.  Generally, under these typesof arrangements its revenues and net operating margins generally increase asnatural gas, condensate and NGL prices increase, and its revenues and netoperating margins decrease as natural gas and NGL prices decrease.

·                    *Percent-of-index arrangements.*  ThePartnership generally purchases natural gas at either (1) a percentagediscount to a specified index price, (2) a specified index price less afixed amount, or (3) a percentage discount to a specified index price lessan additional fixed amount. It then gathers and delivers the natural gas topipelines, where it resells the natural gas at the index price, or at adifferent percentage discount to the index price. The net operating margins thePartnership realizes under these arrangements decrease in periods of lownatural gas prices, because these net operating margins are based on apercentage of the index price. Conversely, their net operating margins increaseduring periods of high natural gas prices.

·                    *Keep-whole arrangements.*  ThePartnership gathers natural gas from the producer, processes the natural gas,and sells the resulting condensate and NGLs to third parties at market prices.Because the extraction of the condensate and NGLs from the natural gas duringprocessing reduces the Btu content of the natural gas, the Partnership must

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either purchase naturalgas at market prices for return to producers, or make cash payment to theproducers equal to the energy content of this natural gas. Accordingly, underthese arrangements the Partnership’s revenues and net operating marginsincrease as the price of condensate and NGLs increases relative to the price ofnatural gas, and decreases as the price of natural gas increases relative tothe price of condensate and NGLs.

·                    *Settlement margin.*  Typically, thePartnership is allowed to retain a fixed percentage of the volume gathered tocover the compression fuel charges and deemed line losses.  To the extentthe gathering system is operated more efficiently than specified per contractallowance, the Partnership is entitled to retain the difference for its ownaccount.

In many cases, the Partnershipprovides services under contracts that contain a combination of more than oneof the arrangements described above. The terms of the Partnership’s contractsvary based on gas quality conditions, the competitive environment when thecontracts are signed and customer requirements.  Under all of the arrangements, revenue isrecognized at the time the product is delivered and title is transferred. It isupon delivery and title transfer that the Partnership meets all four revenuerecognition criteria, and it is at such time that the Partnership recognizesrevenue.

The Partnership’s assessment of each of the fourrevenue recognition criteria as they relate to its revenue producing activitiesis as follows:

·                    *Persuasiveevidence of an arrangement exists.*The Partnership’s customary practice is to enter into a writtencontract, executed by both the customer and the Partnership.

·                    *Delivery.*Delivery is deemed to haveoccurred at the time the product is delivered and title is transferred, or inthe case of fee-based arrangements, when the services are rendered.  Tothe extent the Partnership retains its equity liquids as inventory, deliveryoccurs when the inventory is subsequently sold and title is transferred to thethird party purchaser.

·                    *The fee is fixed or determinable.* ThePartnership negotiates the fee for its services at the outset of its fee-basedarrangements. In these arrangements, the fees are nonrefundable. The fees aregenerally due within ten days of delivery or services rendered.  For other arrangements, the amount of revenueis determinable when the sale of the applicable product has been completed upondelivery and transfer of tile. Proceeds from the sale of products are generallydue in ten days.

·                    *Collectibility is probable.* Collectibilityis evaluated on a customer-by-customer basis. New and existing customers aresubject to a credit review process, which evaluates the customers’ financialposition (e.g. cash position and credit rating) and their ability to pay. Ifcollectibility is not considered probable at the outset of an arrangement inaccordance with the Partnership’s credit review process, revenue is recognizedwhen the fee is collected.

Certainrevenue from sales of customer gas to a third-party processor is recognizednet, under EITF 99-19, *Reporting RevenueGross as a Principal versus Net as an Agent,*as the Partnershipearns a fixed amount and does not take ownership of the gas.

*Revenue and Expense Accruals*

* *We routinely make accruals based on estimates for both revenues andexpenses due to the timing of compiling billing information, receiving certainthird party information and reconciling our records with those of thirdparties.  The delayed information from third parties includes, among otherthings, actual volumes purchased, transported or sold, adjustments to inventoryand invoices for purchases, actual natural gas and NGL deliveries and otheroperating expenses.  We make accruals to reflect estimates for these itemsbased on our internal records and information from third parties.  Theestimated accruals are reversed in the following month when actual informationis received from third parties and our internal records have been reconciled.

*Stock and Incentive CompensationPlans*

TheCompany adopted the SFAS No. 123R, *Accountingfor Stock-Based Compensation*(“SFAS 123R”) on January 1, 2006, using the modified prospective method.Prior to adopting SFAS 123R, the Company elected to measure compensationexpense for equity-based employee compensation plans as prescribed byAccounting Principles Board Opinion No. 25 (“APB 25”), *Accounting for Stock Issued to Employees*.

UnderSFAS 123R, compensation expense is based on the fair value of the award.  SFAS 123R classifies stock-based compensationas either equity or liability awards. The fair value on the date of grant foran award classified as equity is

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recognized over therequisite service period, with a corresponding credit to equity (generally,paid-in capital). The requisite service period is the period during which anindividual is required to provide a service in exchange for the award. Therequisite service period is estimated based on an analysis of the terms of theshare-based payment award. Compensation expense for a liability award is basedon the award’s fair value, remeasured at each reporting date until the date ofsettlement. Additionally, compensation expense is reduced for an estimate ofexpected award forfeitures.

***MarkWest Hydrocarbon***

*Stock Options*

Historically,stock options were issued under the Company’s 1996 Stock Incentive Plan and1996 Non-employee Director Stock Option Plan, (together the “1996 Plans”).  In June 2006 shareholders approved the 2006Stock Incentive Plan (the “2006 Plan”) to replace the 1996 Plans.  Under SFAS 123R, our stock options arecategorized as equity awards.  Compensation expense for stock options ismeasured based on the grant date fair value and is amortized into earnings overthe service period as the options vest. While it was determined in 2005 that the Company does not intend toissue stock options in the future, they are available for issuance under the2006 Plan.   On December 1, 2006 a boardresolution provided for the accelerated vesting of 14,950 unvested stock optiongrants.  Consequently, as of December 31,2006 the Company had no remaining unvested options or any unrecognizedcompensation expense pertaining to options.

*Restricted Stock*

TheCompany issued restricted stock under the 1996 Plans until the adoption of the2006 Plan at which point all new shares are, and will be, issued pursuant tothe rules of the 2006 Plan.  Under SFAS123R, our restricted stock qualifies as an equity award. Accordingly, it ismeasured at the grant date fair value and the associated compensation expenseis recognized over the requisite service period.  The restricted stock vests equally over athree year period.

*ParticipationPlan*

TheCompany has also entered into arrangements with certain directors and employeesof the Company referred to as the Participation Plan.  Under this plan,the Company sells subordinated units of the Partnership or interests in thePartnership’s general partner, under a purchase and sale agreement.  Boththe subordinated unit and general partner interest transactions are consideredcompensatory arrangements due to the put-and-call provisions and the associatedvaluation being based on a formula instead of an independent third partyvaluation.  The subordinated units convertto common units after a holding period. Historically, the Company has settledthe subordinated units for cash when individuals leave the Company.  The general partner interests have nodefinite term, but historically have been settled for cash when the employeeleaves the Company. Under SFAS 123R, the subordinated units and general partnerinterests are classified as liability awards. As a result, the Company is required to mark to market the subordinatedunit and general partner interest valuations at the end of each period.

UnderTopic 1-B of the codification of the Staff Accounting Bulletins, Allocation ofExpenses and Related Disclosure in Financial Statements of Subsidiaries,Divisions or Lesser Business Components of Another Entity, some portion ofcompensation expense related to services provided by MarkWest Hydrocarbon’semployees and directors recognized under the Participation Plan should beallocated to the Partnership.  The allocation is based on the percent oftime each employee devotes to the Company.  Compensation attributable to interestssold to individuals who serve on both the board of MarkWest Hydrocarbon and theBoard of Directors of the Partnership’s General Partner is allocated equally.

***MarkWest Energy Partners***

*Restricted Units*

The Partnership issues restricted units under theMarkWest Energy Partners, L.P. Long-Term Incentive Plan.  A restricted unit is a “phantom” unit thatentitles the grantee to receive a common unit upon the vesting of the phantomunit or, at the discretion of the Compensation Committee, cash equivalent tothe value of a common unit.  Therestricted units are treated as liability awards under SFAS 123R.  As aresult, the Partnership is required to mark to market the awards at the end ofeach reporting period.  Compensationexpense is remeasured for the phantom unit grants using the market price ofMarkWest Energy Partners’ common units at each reporting date. The fair valueof the units awarded is amortized into earnings over the period of service andis adjusted monthly for the change in the fair value of the unvested unitsgranted.  The phantom units vest equallyover a three year period.

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Vestingis accelerated for certain employees, if specified performance measures aremet.  The accelerated vesting criteriaprovisions are based on annualized distribution goals.  If the Partnership’s distributions are at orabove the goal for a certain number of consecutive quarters, vesting of theemployee’s phantom units is accelerated. The general partner of the Partnership may also elect to accelerate thevesting of outstanding awards, which results in an immediate charge tooperations for the unamortized portion of the award.

To satisfy common unit awards, the Partnership will issue new commonunits, acquire common units in the open market, or use common units alreadyowned by the general partner.

*ProFormas*

Had compensationcost for the Company’s stock-based and unit-based compensation plans beendetermined based on the fair value at the grant dates under those plansconsistent with the method prescribed by SFAS 123R for the fiscal years endedDecember 31, 2005 and 2004, the Company’s net income and earnings per sharewould have been adjusted to the pro forma amounts listed below:

|                                                                                                                                              | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                   | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
|                                                                                                                                         |       |                                       |       |   |   |
| Net loss, as  reported                                                                                                                       |       | $                                          | (6,802     | ) | $ | (903 | ) |
| Add: compensation expense included in reported net  income, net of related tax effect                                                        |       | 6,341                                      |       | 6,770 |   |
| Deduct: total stock-based employee compensation  expense determined under fair value-based method for all awards, net of  related tax effect |       | (5,215                                     | )          | (4,681 | ) |
| Proforma income (loss)                                                                                                                       |       | $                                          | (5,676     | ) | $ | 1,186 |   |
|                                                                                                                                         |       |                                       |       |   |   |
| Net income  (loss) per share:                                                                                                                |       |                                       |       |   |   |
| Basic:                                                                                                                                       |       |                                       |       |   |   |
| As reported                                                                                                                                  |       | $                                          | (0.57      | ) | $ | (0.08 | ) |
| Pro forma                                                                                                                                    |       | $                                          | (0.48      | ) | $ | 0.10 |   |
| Diluted:                                                                                                                                     |       |                                       |       |   |   |
| As reported                                                                                                                                  |       | $                                          | (0.57      | ) | $ | (0.08 | ) |
| Pro forma                                                                                                                                    |       | $                                          | (0.48      | ) | $ | 0.10 |   |

 

*Income Taxes*

The Companyaccounts for income taxes under the asset and liability method pursuant to SFAS No. 109, *Accounting for Income Taxes* (“SFAS 109”). Under SFAS 109, deferred income taxes arerecognized for the future tax consequences attributable to differences betweenthe financial statement carrying amounts of existing assets and liabilities andtheir respective tax basis and net operating loss and credit carryforwards.Deferred tax assets and liabilities are measured using enacted tax ratesexpected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. The effect of any tax ratechange on deferred taxes is recognized in the period that includes theenactment date of the tax rate change. Realizability of deferred tax assets isassessed and, if not more likely than not, a valuation allowance is recorded towrite down the deferred tax assets to their net realizable value.

*Comprehensive Income (Loss)*

Comprehensive income(loss) includes net income (loss) and other comprehensive income (loss), whichincludes unrealized gains and losses on commodity or interest rate derivativefinancial instruments, accounted for as hedges, and unrealized gains or losseson marketable securities, accounted for as available for sale.

*Earnings (Loss) Per Share*

Basic earnings (loss)per share are computed by dividing net income by the weighted average number ofshares of common stock outstanding during the period.  Diluted earnings per share is computed byadjusting the weighted average number of common shares outstanding for thedilutive effect, if any, of common share equivalents.  The Company uses the treasury stock method todetermine the dilutive effect. Dilutive potential common shares includeoutstanding stock options and stock awards.  All share information hasbeen adjusted to give retroactive effect to the May 2006 stock dividend.

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The following are thenumber of shares used to compute the basic and diluted earnings per share (inthousands, except per share data):
| ** **                                                                                                   | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                   | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                                         |       |                                       |       |   |   |   |   |
| Net income  (loss)                                                                                           |       | $                                          | 9,537      |   | $ | (6,802 | ) | $ | (903 | ) |
|                                                                                                         |       |                                       |       |   |   |   |   |
| Weighted average  common shares outstanding during the period                                                |       | 11,939                                     |       | 11,864 |   | 11,755 |   |
| Effect of dilutive instruments                                                                               |       | 94                                         |       | — |   | — |   |
| Weighted average  common shares outstanding during the period including the effects of dilutive  instruments |       | 12,033                                     |       | 11,864 |   | 11,755 |   |
|                                                                                                         |       |                                       |       |   |   |   |   |
| Net income  (loss) per share:                                                                                |       |                                       |       |   |   |   |   |
| Basic                                                                                                        |       | $                                          | 0.80       |   | $ | (0.57 | ) | $ | (0.08 | ) |
| Diluted                                                                                                      |       | $                                          | 0.79       |   | $ | (0.57 | ) | $ | (0.08 | ) |

 

*Recent Accounting Pronouncements*

In February 2006 the FASB issued SFAS No. 155, *Accounting for Certain Hybrid FinancialInstruments—an amendment of FASB Statements No. 133 and 140* (“SFAS 155”).This statement amends *SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities* (“SFAS 133”),and SFAS No. 140, *Accounting forTransfers and Servicing of Financial Assets and Extinguishments of Liabilities*and resolves issues addressed in SFAS 133 Implementation Issue No. D1, “Applicationof Statement 133 to Beneficial Interest in Securitized Financial Assets.” ThisStatement: (a) permits fair value remeasurement for any hybrid financialinstrument that contains an embedded derivative that otherwise would require bifurcation;(b) clarifies which interest-only strips and principal-only strips are notsubject to the requirements of SFAS 133; (c) establishes arequirement to evaluate beneficial interests in securitized financial assets toidentify interests that are freestanding derivatives or that are hybridfinancial instruments that contain an embedded derivative requiringbifurcation; (d) clarifies that concentrations of credit risk in the formof subordination are not embedded derivatives; and, (e) eliminates restrictionson a qualifying special-purpose entity’s ability to hold passivederivative financial instruments that pertain to beneficial interests that areor contain a derivative financial instrument. The standard also requirespresentation within the financial statements that identifies those hybridfinancial instruments for which the fair value election has been applied andinformation on the income statement impact of the changes in fair value ofthose instruments. The Company is required to apply SFAS 155 to allfinancial instruments acquired, issued or subject to a remeasurement eventbeginning January 1, 2007, although early adoption is permitted as of thebeginning of an entity’s fiscal year. The adoption of SFAS 155 is not expected to have a material impact onthe consolidated financial statements of the Company.

In June 2006 the FASB issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes*(“FIN48”). The interpretation clarifies the accounting for uncertainty in incometaxes recognized in a company’s financial statements in accordance withSFAS109, *Accounting for Income Taxes*.Specifically, the pronouncement prescribes a “more likely than not” recognitionthreshold and a measurement attribute for the financial statement recognitionand measurement of a tax position taken or expected to be taken in a taxreturn. The interpretation also provides guidance on the related derecognition,classification, interest and penalties, accounting for interim periods,disclosure and transition of uncertain tax positions. The interpretation iseffective for fiscal years beginning after December 15, 2006.  The Company is currently evaluating theimpact of FIN 48.

In September 2006the FASB issued SFAS No. 157, *FairValue Measurements*(“SFAS 157”). SFAS 157 clarifies the principlethat fair value should be based on the assumptions market participants woulduse when pricing an asset or liability and establishes a fair value hierarchythat prioritizes the information used to develop those assumptions. SFAS 157 iseffective for financial statements issued for fiscal years beginning afterNovember 15, 2007 and interim periods within those fiscal years, withearly adoption permitted.  The Companyhas not yet determined the impact, if any, the implementation of SFAS 157 mayhave on the consolidated financial statements of the Company.

In September 2006,the Securities and Exchange Commission (“SEC”) issued Staff Accounting BulletinNo. 108, “Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements” (“SAB 108”). SAB 108provides interpretive guidance on how the effects of the carryover or reversalof prior year misstatements should be considered in quantifying a current yearmisstatement. The SEC staff believes that registrants should quantify errorsusing both a balance sheet and an income statement approach and evaluatewhether either approach results in quantifying a misstatement that, when allrelevant quantitative and qualitative factors are considered, is material. SAB108 is effective for the first annual period ending after November 15, 2006.The Company adopted SAB 108 for the

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year ending December 31,2006, and it did not have a material effect on the consolidated financialstatements of the Company.

The FASB hasissued SFAS No. 159,*The Fair Value Optionfor Financial Assets and Financial Liabilities*(“SFAS 159”), which permits an entityto measure certain financial assets and financial liabilities at fair value.The Statement’s objective is to improve financial reporting by allowingentities to mitigate volatility in reported earnings caused by the measurementof related assets and liabilities using different attributes, without having toapply complex hedge accounting provisions. Under SFAS 159, entities that electthe fair value option will report unrealized gains and losses in earnings ateach subsequent reporting date. The fair value option may be elected on aninstrument-by-instrument basis, with a few exceptions, as long as it is appliedto the instrument in its entirety. The fair value option election isirrevocable, unless a new election date occurs. The new Statement establishespresentation and disclosure requirements to help financial statement usersunderstand the effect of the entity’s election on its earnings, but does noteliminate disclosure requirements of other accounting standards. Assets andliabilities that are measured at fair value must be displayed on the face ofthe balance sheet. SFAS 159 is effective as of the beginning of an entity’sfirst fiscal year beginning after November 15, 2007. Early adoption ispermitted as of the beginning of the previous fiscal year provided that theentity (1) makes that choice in the first 120 days of that fiscal year, (2) hasnot yet issued financial statements, and (3) elects to apply the provisions ofSFAS 157. The Company has not yet determined the impact, if any; theimplementation of SFAS 159 may have on the consolidated financial statements ofthe Company.

***3.*****             ****Acquisitions by MarkWest Energy Partners**

During 2006, 2005and 2004, the Partnership completed the following acquisitions. Eachacquisition was accounted for under the purchase method.  The assets acquired and liabilities assumedwere recorded at the estimated fair market values as of the acquisition date.The preliminary allocation of assets and liabilities may be adjusted to reflectthe final determined amounts during a short period of time following theacquisition. The results of operations from these acquisitions are included in ourconsolidated financial statements from the acquisition date.

*SantaFe Acquisition*

On December 29, 2006, thePartnership purchased 100% of the ownership interest in Santa Fe Gathering,L.L.C for $15.0 million, subject to working capital adjustments.  The gathering system is located in RogerMills and Beckham Counties, Oklahoma. The Grimes system was constructed in May 2005 to gather from growing productionfields.  Current system throughput isapproximately 16 MMcf/d.  The final purchaseprice allocation is expected to be completed in the second quarter of 2007.

*JavelinaAcquisition*

On November 1, 2005, the Partnership acquired equityinterests in Javelina Company, Javelina Pipeline Company and Javelina LandCompany, L.L.C., which were 40%, 40% and 20%, respectively, owned bysubsidiaries of El Paso Corporation, Kerr-McGee Corporation and Valero EnergyCorporation. The Partnership paid consideration of $357.0 million, plus$41.8 million for net working capital that included approximately$35.5 million in cash. The Corpus Christi, Texas, gas processing facilitytreats and processes off-gas from six local refineries, two of which are ownedby Valero Energy Corporation, two by Koch Industries, Inc. and two byCitgo Petroleum Corporation. Constructed in 1989 to recover up to 28,000 Bbl/dof NGLs, the facility currently processes approximately 125 to 130 MMcf/d ofinlet gas and produces approximately 26,200 Bbl/d of NGLs. The Partnership andthe seller negotiated a final settlement of the acquired working capital of$41.8 million, and the final payment of $5.9 million was paid to thesellers in May of 2006 and included in the final purchase price allocation,which was completed in the second quarter of 2006.

*Starfish Joint Venture*

On March 31, 2005, the Partnership paid $41.7 millionto an affiliate of Enterprise Products Partners L.P. for a 50% non-operatingmembership interest in Starfish Pipeline Company, LLC.  Starfish is a joint venture with EnbridgeOffshore Pipelines LLC, which the Partnership accounts for using the equitymethod. Starfish owns the FERC-regulated Stingray natural gas pipeline, and theunregulated Triton natural gas gathering system and West Cameron dehydrationfacility. All are located in the Gulf of Mexico and southwestern Louisiana.

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*EastTexas System Acquisition*

OnJuly 30, 2004, the Partnership completed the East Texas system acquisitionof American Central Eastern Texas’ Carthage gathering system and gas-processingassets, located in East Texas, for approximately $240.7 million.  The Partnership’s consolidated financialstatements include the results of operations of the Carthage gathering systemfrom July 30, 2004.  The acquiredassets consist of processing plants, gathering systems, a processing facilitycurrently under construction and an NGL pipeline.

*Hobbs**Lateral Acquisition*

*On April 1,2004, the Partnership acquired the Hobbs lateral pipeline for approximately$2.3 million.  The Hobbs lateralconsisted of a four-mile pipeline, with a capacity of 160 million cubic feet ofnatural gas per day, connecting the Northern Natural Gas interstate pipeline toSouthwestern Public Service’s Cunningham and Maddox power-generating stationsin Hobbs, New Mexico.  The Hobbs lateralis a New Mexico intrastate pipeline regulated by the FERC.*

The following table summarizes the costs and allocations of the aboveacquisitions (in thousands):
|                                       | ** ** | **2006**          | ** ** | **2005**     | ** ** | **2004**            | ** ** |
|---------------------------------------|------------|-------------------|------------|--------------|------------|---------------------|------------|
| ** **                            | ** ** | **Santa Fe** | ** ** | **Javelina** | ** ** | **East Texas** | ** ** | **Hobbs** | ** ** |
| **Acquisition  costs:**               | ** ** | ** **        | ** ** | ** **   | ** ** | ** **          | ** ** | ** ** | ** ** |
| Cash consideration                    |       | $                 | 15,000     |         | $          | 396,836             |       | $ | 240,269 |   | $ | 2,275 |   |
| Direct acquisition costs              |       | —            |       | 2,009        |       | 457                 |       | — |   |
| Totals                                |       | 15,000            |       | 398,845      |       | 240,726             |       | 2,275 |   |
|                                  |       |              |       |         |       |                |       |   |   |
| **Allocation  of acquisition costs:** | ** ** | ** **        | ** ** | ** **   | ** ** | ** **          | ** ** | ** ** | ** ** |
| Current assets                        |       | —            |       | 111,679      |       | 65                  |       | — |   |
| Customer contracts and relationships  |       | 12,630            |       | 194,650      |       | 165,379             |       | — |   |
| Property, plant and equipment         |       | 2,370             |       | 162,859      |       | 76,012              |       | 2,275 |   |
| Liabilities assumed                   |       | —            |       | (70,343      | )          | (730                | )          | — |   |
| Totals                                |       | $                 | 15,000     |         | $          | 398,845             |       | $ | 240,726 |   | $ | 2,275 |   |

 

*ProForma Results of Operations (Unaudited)*

The following table reflects theunaudited pro forma consolidated results of operations for the years endedDecember 31, 2005 and 2004, as though the Javelina, Starfish and East Texasacquisitions had occurred on January 1, 2004. The unaudited pro forma resultsof operations for the Hobbs and Santa Fe acquisitions have not been presented,as the acquisitions were not considered significant.  The results have been prepared forcomparative purposes only and may not be indicative of future results.  All earnings per share information have been updated toreflect the May 2006 stock dividend.
| ** **                                                      | ** ** | **Year ended December 31,**                        | ** ** |
|-----------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **2005**                                                          | ** ** | **2004** | ** ** |
| ** **                                                      | ** ** | **As Reported**                                              | ** ** | **Pro Forma** | ** ** | **As Reported** | ** ** | **Pro Forma** | ** ** |
| ** **                                                      | ** ** | **(in thousands, except per unit data)** | ** ** |
| Revenue                                                         |       | $                                                                 | 714,177    |   | $ | 970,041 |   | $ | 460,113 |   | $ | 766,692 |   |
| Net income (loss)                                               |       | (6,802                                                            | )          | (17,229 | ) | (903 | ) | 952 |   |
|                                                            |       |                                                              |       |   |   |   |   |   |   |
| Net income  (loss) per share:                                   |       |                                                              |       |   |   |   |   |   |   |
| Basic                                                           |       | $                                                                 | (0.57      | ) | $ | (1.45 | ) | $ | (0.08 | ) | $ | 0.08 |   |
| Diluted                                                         |       | $                                                                 | (0.57      | ) | $ | (1.45 | ) | $ | (0.08 | ) | $ | 0.08 |   |
|                                                            |       |                                                              |       |   |   |   |   |   |   |
| Weighted average  number of outstanding shares of common stock: |       |                                                              |       |   |   |   |   |   |   |
| Basic                                                           |       | 11,864                                                            |       | 11,864 |   | 11,755 |   | 11,755 |   |
| Diluted                                                         |       | 11,864                                                            |       | 11,864 |   | 11,755 |   | 12,084 |   |

 

**4. Marketable securities**

Marketablesecurities are classified as available-for-sale and stated at market based onthe closing price of the securities at the balance sheet date. Accordingly, unrealized gains are reflected in other comprehensive income, netof applicable income taxes.  For losses that are other than temporary, thecost basis of the securities is written down to fair value, and the amount ofthe write down is reflected in the statement of operations.  The Company utilizes a first-in first-outcost basis to compute realized gains and losses.  Realized gains andlosses, dividends, interest income, and the amortization of discounts andpremiums are reflected in the statement of operations.

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The following arethe components of marketable securities (in thousands):

|                                   | ** ** | **Cost Basis** | ** ** | **Unrealized  Gains** | ** ** | **Unrealized  Losses** | ** ** | **Recorded Basis** | ** ** |
|-----------------------------------|------------|---------------------|------------|-----------------------|------------|------------------------|------------|-------------------------|------------|
| **December  31, 2006**            | ** ** | ** **          | ** ** | ** **            | ** ** | ** **             | ** ** | ** **              | ** ** |
| **Equity securities:**            | ** ** | ** **          | ** ** | ** **            | ** ** | ** **             | ** ** | ** **              | ** ** |
| Master limited partnership units  |       | $                   | 5,942      |                  | $          | 1,771                  |       | $                       | —     |   | $ | 7,713 |   |
|                              |       |                |       |                  |       |                   |       |                    |       |
| **December  31, 2005**            | ** ** | ** **          | ** ** | ** **            | ** ** | ** **             | ** ** | ** **              | ** ** |
| **Equity securities:**            | ** ** | ** **          | ** ** | ** **            | ** ** | ** **             | ** ** | ** **              | ** ** |
| Master limited  partnership units |       | $                   | 5,497      |                  | $          | 714                    |       | $                       | (141       | ) | $ | 6,070 |   |

 

For the year endedDecember 31, 2006, the Company recognized net unrealized gains on marketablesecurities of $0.7 million, net of the related tax expense of $0.5million.  These gains are shown as acomponent of other comprehensive income for 2006.

For the year endedDecember 31, 2005, the Company recognized net unrealized losses on marketablesecurities of $0.2 million, net of the related tax benefit of $0.1million.  These losses are shown as acomponent of other comprehensive income for 2005.

**5.****              SignificantCustomers and Concentration of CreditRisk**

For the year endedDecember 31, 2006, revenues from Targa Resources Partners, L.P. (“Targa”)totaled $76 million, representing 10% of the Company’s consolidatedrevenues.  Sales to Targa are madeprimarily from the MarkWest Energy Partner segment.  The Company had a receivable of $3.0 millionfrom Targa as of December 31, 2006.

For the yearsended December 31, 2005 and 2004, revenues from one other customer totaled $67million and $60 million, representing 9% and 13% of the Company’s consolidatedrevenues, respectively.  Sales to thiscustomer were made primarily from the MarkWest Energy Partner segment.  The Company had a receivable of $5.5 millionfrom this customer as of December 31, 2005.

**6. Receivables and Other current assets**

Receivables consist of the following (in thousands):
|                    | ** ** | **December 31,** | ** ** |
|--------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Trade, net         |       | $                     | 81,908     |   | $ | 135,008 |   |
| Other              |       | 19,208                |       | 10,531 |   |
| Total  Receivables |       | $                     | 101,116    |   | $ | 145,539 |   |

 

Other current assets consist of the following (inthousands):
|                             | ** ** | **December 31,** | ** ** |
|-----------------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **2006**              | ** ** | **2005** | ** ** |
| ** **                  | ** ** | ** **            | ** ** | ** ** | ** ** |
| Customer margin  deposits   |       | $                     | 7,761      |   | $ | 6,598 |   |
| Prepaid fuel                |       | 3,017                 |       | 8,696 |   |
| Risk management  premiums   |       | 1,009                 |       | — |   |
| Income tax  receivable      |       | 2,372                 |       | — |   |
| Prepaid other               |       | 1,105                 |       | 1,020 |   |
| Total other current  assets |       | $                     | 15,264     |   | $ | 16,314 |   |

 

*Risk management premium*

In the third and fourth quarters of 2006 thePartnership entered into certain put option contracts on commodities requiringpremium payments to secure certain floor prices.  The Partnership paid $1.0 million to thecounterparty as a premium on certain short-term put option contracts.  The payment is recorded as a short-term assetand will be amortized through revenue as the puts expire or are exercised.  The contracts are recorded as derivativeinstruments, so charges in fair value of the contracts are recorded as anunrelated gain or loss.

 

***7.  Properties, plant and equipment***

Property, plant and equipment consist of (inthousands):

70

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|                                                 | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|------------------|------------|
| ** **                                      | ** ** | **2006**         | ** ** | **2005** | ** ** |
|  Gas gathering facilities                  |       | $                | 289,586    |   | $ | 212,042 |   |
|  Gas processing plants                     |       | 217,080          |       | 213,943 |   |
|  Fractionation and storage  facilities     |       | 23,470           |       | 22,882 |   |
|  Natural gas pipelines                     |       | 42,361           |       | 42,246 |   |
|  Crude oil pipelines                       |       | 19,114           |       | 19,070 |   |
|  NGL transportation facilities             |       | 5,326            |       | 4,433 |   |
|  Furniture, office equipment  and other    |       | 2,641            |       | 2,864 |   |
|  Land, building and other  equipment       |       | 20,705           |       | 13,823 |   |
|  Construction-in-progress                  |       | 42,323           |       | 41,895 |   |
|                                            |       | 662,606          |       | 573,198 |   |
|  Less: Accumulated depreciation            |       | (108,271         | )          | (78,500 | ) |
|  Total property, plant and  equipment, net |       | $                | 554,335    |   | $ | 494,698 |   |

 

TheCompany capitalizes interest on major projects during construction.  For the years ended December 31, 2006and 2005, the Company capitalized interest of $0.9 million and $2.1 million,respectively.

*Woodford gathering system*

In late 2006 thePartnership began the construction and operation of the Woodford gatheringsystem and compression system to support wells in a 200-square-mile projectarea situated in a four-county region in the Arkoma Basin in eastern Oklahoma.As of December 31, 2006, the Partnership invested capital of $26.4 million.

**8.****             ****Intangibleassets**

The Company’s intangible assets at December 31,2006 and 2005 are comprised of customer contracts and relationships, as follows(in thousands):
| ** **      | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** | ** ** | ** ** |
|-----------------|------------|---------------------------------|------------|---------------------------------|------------|------------|------------|
| **Description** | ** ** | **Gross**                       | ** ** | **Accumulated  Amortization**   | ** ** | **Net**    | ** ** | **Gross** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** | **Useful  Life** | ** ** |
| East Texas      |       | $                               | 165,379    |                            | $          | 19,984     |       | $ | 145,395 |   | $ | 165,379 |   | $ | 11,740 |   | $ | 153,639 |   | 20  years |   |
| Javelina        |       | 195,137                         |       | 9,096                           |       | 186,041    |       | 194,150 |   | 1,293 |   | 192,857 |   | 25  years |   |
| Oklahoma        |       | 12,630                          |       | —                          |       | 12,630     |       | — |   | — |   | — |   | 20  years |   |
| Other           |       | —                          |       | —                          |       | —     |       | 288 |   | 288 |   | — |   | 1  year |   |
| **Total:**      |       | $                               | 373,146    |                            | $          | 29,080     |       | $ | 344,066 |   | $ | 359,817 |   | $ | 13,321 |   | $ | 346,496 |   |   |   |

 

Amortization expense related to intangible assets was$16.0 million, $9.7 million and $3.6 million for the years endedDecember 31, 2006, 2005 and 2004, respectively.

Estimated future amortization expense related to theintangible assets at December 31, 2006, is as follows (in thousands):

| Year ended December 31, | ** ** |
|----------------------------------------|------------|
| 2007                                   |       | $ | 16,705 |   |
| 2008                                   |       | 16,705 |   |
| 2009                                   |       | 16,705 |   |
| 2010                                   |       | 16,705 |   |
| 2011                                   |       | 16,705 |   |
| Thereafter                             |       | 260,541 |   |
| Total                                  |       | $ | 344,066 |   |

 

***9.     Other long-term assets***

The Company’sother long-term assets at December 31, 2006 and 2005 are comprised of thefollowing (in thousands):

71

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|                           | ** ** | **December 31,** | ** ** |
|---------------------------|------------|-----------------------|------------|
| ** **                | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Risk management  deposits |       | $                     | 717        |   | $ | — |   |
| Other                     |       | 326                   |       | 326 |   |
|                      |       | $                     | 1,043      |   | $ | 326 |   |

 

*Risk management premium*

In the third and fourth quarters of 2006 the Partnershipentered into certain put option contracts on commodities requiring premiumpayments to secure certain floor prices. The Partnership paid $0.7 million to the counterparty as a premium oncertain long-term put option contracts. The payment is recorded as a long-term asset (and reclassified to acurrent asset once the contract is set to expire within one year) and will beamortized through revenue as the puts expire or are exercised.  The contracts are recorded as derivativeinstruments, so changes in fair value of the contracts are recorded as anunrealized gain or loss.

***10.*****      ****Accrued liabilities**

Accrued liabilities consist of the following (inthousands):
|                                                                  | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                       | ** ** | **2006**              | ** ** | **2005** | ** ** |
|  Product and operations                                     |       | $                     | 14,990     |   | $ | 17,987 |   |
|  Customer obligations                                       |       | 203                   |       | 3,380 |   |
|  Professional services                                      |       | 1,689                 |       | 2,054 |   |
|  Taxes, other than income                                   |       | 3,284                 |       | 3,014 |   |
|  Interest                                                   |       | 13,936                |       | 3,273 |   |
|  Javelina working capital adjustment                        |       | —                |       | 5,402 |   |
|  Starfish contribution                                      |       | —                |       | 1,486 |   |
|  Construction in progress                                   |       | 10,922                |       | 2,652 |   |
|  Deferred income                                            |       | 375                   |       | 1,937 |   |
|  Bonus and profit sharing, severance and  vacation accruals |       | 4,629                 |       | 3,349 |   |
|  Phantom unit compensation expense accrual                  |       | 2,007                 |       | 958 |   |
|  Deferred lease obligation                                  |       | 2,344                 |       |   |   |
|  Other                                                      |       | 829                   |       | 377 |   |
|  Total accrued liabilities                                  |       | $                     | 55,208     |   | $ | 45,869 |   |

 

**11.****       Asset retirement obligation**

**The Company adopted Statement ofFinancial Accounting Standards No. 143, *Accountingfor Asset Retirement Obligations*(“SFAS 143”)*,* onJanuary 1, 2003. Under SFAS 143, the fair value of a liability for anasset retirement obligation is recognized in the period in which the liabilityis incurred with an offsetting increase in the carrying amount of the relatedlong-lived asset.**The recognition of an assetretirement obligation requires that management make numerous estimates,assumptions and judgments regarding such factors as the estimatedprobabilities, amounts and timing of settlements; the credit-adjusted risk-freerate to be used; inflation rates, and future advances in technology.  In periods subsequent to initial measurementof the liability, we must recognize period-to-period changes in the liabilityresulting from the passage of time and revisions to either the timing or theamount of the original estimate of undiscounted cash flows.Over time, the liability isaccreted to its future value, and the capitalized cost is depreciated over theuseful life of the related asset. Upon settlement of the liability, an entityeither settles the obligation for its recorded amount or incurs a gain or loss.

The Company’sassets subject to asset retirement obligations are primarily certaingas-gathering pipelines and processing facilities, a crude oil pipeline andother related pipeline assets.  TheCompany also has land leases that require the Company to return the land to itsoriginal condition upon the termination of the lease.   In connection with the adoption of SFAS 143,the Company reviewed current laws and regulations governing obligations forasset retirements and leases, as well as the Company’s leases and otheragreements.

The following is a reconciliation of the changes inthe asset retirement obligation from December 31, 2004, to December 31,2006 (in thousands):

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| Asset retirement obligation  as of December 31, 2004 |   | $      | 892    |   |
|------------------------------------------------------|--------|--------|--------|--------|
| Liabilities  accrued during the period               |   | 554    |   |
| Liabilities  settled                                 |   | (504   | )      |
| Accretion  expense                                   |   | 160    |   |
| Asset retirement  obligation as of December 31, 2005 |   | 1,102  |   |
| Liabilities  accrued during the period               |   | 64     |   |
| Liabilities  settled                                 |   | — |   |
| Accretion  expense                                   |   | 102    |   |
| Asset retirement  obligation as of December 31, 2006 |   | $      | 1,268  |   |

 

AtDecember 31, 2006, 2005 and 2004, there were no assets legally restrictedfor purposes of settling asset retirement obligations. The asset retirementobligation liability has been recorded as “Other long-term liabilities” in theaccompanying consolidated balance sheets.

***12.*****      ****Debt**

Debt as of December 31,2006 and 2005 is summarized below (in thousands):
|                                                                                             | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                  | ** ** | **2006**              | ** ** | **2005** | ** ** |
| **MarkWest  Hydrocarbon Credit Facility**                                                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Revolver  facility, 8.75% interest                                                          |       | $                     | —     |   | $ | 7,500 |   |
|                                                                                        |       |                  |       |   |   |
| **Partnership  Credit Facility**                                                            | ** ** | ** **            | ** ** | ** ** | ** ** |
|  Term loan, 8.75% interest at December 31,  2005, retired October 2006                 |       | —                |       | 365,000 |   |
|  Revolver facility, 8.75% interest at  December 31, 2005, due December 2010            |       | 30,000                |       | 14,000 |   |
|                                                                                        |       |                  |       |   |   |
| **Partnership  Senior Notes**                                                               | ** ** | ** **            | ** ** | ** ** | ** ** |
|  Senior Notes, 6.875% interest, due November  2014                                     |       | 225,000               |       | 225,000 |   |
|  Senior Notes, 8.5% interest, net of original  issue discount of $3,135, due July 2016 |       | 271,865               |       | — |   |
|                                                                                        |       | 526,865               |       | 611,500 |   |
| Less: obligations  due in one year                                                          |       | —                |       | (2,738 | ) |
| Total long-term debt                                                                        |       | $                     | 526,865    |   | $ | 608,762 |   |

 

***MarkWest Hydrocarbon***

*Credit Facility (August 2006 to Present)*

On August 18,2006, the Company entered into the second amended and restated credit agreement(“Company Credit Facility”) which provides a maximum lending limit of $55.0million, increased from $25.0 million; and extends the term from one to threeyears.  The Company Credit Facilityincludes a $40.0 million Revolving Facility and a $15.0 million UnitAcquisition Facility. The $15.0 million Unit Acquisition Facility may be usedto finance the acquisition of MarkWest Energy Partners common or subordinatedunits.

The Company CreditFacility bears interest at a variable interest rate, plus basis points. The variable interest rate typically is based on the London Inter Bank OfferingRate (“LIBOR”); however, in certain borrowing circumstances the rate would bebased on the higher of a) the Federal Funds Rate plus 0.5-1%, and b) a rate setby the Facility’s administrative agent, based on the U.S. prime rate.  The basis points correspond to the ratio ofthe Revolver Facility Usage to the Borrowing Base, ranging from 0.50% to 1.75%for Base Rate loans, and 1.50% to 2.75% for Eurodollar Rate loans.  The Company pays a quarterly commitment feeon the unused portion of the credit facility at an annual rate ranging from37.5 to 50.0 basis points.

Under theprovisions of the Company Credit Facility, the Company is subject to a numberof restrictions on its business, including its ability to grant liens onassets; make or own certain investments; enter into any swap contracts otherthan in the ordinary course of business; merge, consolidate or sell assets;incur indebtedness (other than subordinated indebtedness); make distributions onequity investments; declare or make, directly or indirectly, any restricteddistributions.

The creditfacility also contains covenants requiring the Company to maintain:

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·                    a leverageratio (as defined in the credit agreement) of not greater than 4.0 to 1.0, orup to 5.5 to 1.0, in certain circumstances;

·                    a minimum networth of a) $30.0 million plus, b) 50% of consolidated net income (if positive)earned on or after July 1, 2006, plus, c) 100% of net proceeds of all equityissued by the Company subsequent to August 18, 2006; and

·                    a minimumcollateral coverage ratio of not more than 2.0 to 1.0 as of the date of anydetermination.

                On February 16,2007, the Company entered into the first amendment to the second amended andrestated credit agreement. The Term of the Agreement was extended by one year,to August 20, 2010. Additionally, provisions were added for aNon-Borrowing Base Revolving Credit Facility (“NBB Facility”). The NBB Facilityprovides for up to $50 million of credit to enable the Company to meetmargin requirements associated with its derivative instruments.

 

                The new agreementalso added the following covenant:

 

·       In the event the NBB Facility loans aredrawn the minimum collateral coverage ratio increases to 3.5 to 1.0.

*Credit Facility (January 2006 to August 2006)*

OnJanuary 31, 2006, the Company entered into the first amended and restatedcredit agreement, which provided a maximum lending limit of $25.0 million for aone-year term, and which amended and restated the October 2004 agreement discussedbelow. As of December 31, 2006, the Company had $6.0 million of theavailability committed to a letter of credit, leaving $19.0 million availablefor revolving loans.

OnMarch 23, 2006, the Company amended the First Amended and Restated Credit Agreementto reduce the cash reserve requirement from $13.0 million to $5.0 millionthrough December 31, 2006.

*Credit Facility (October 2004 to January 2006)*

InOctober 2004 the Company entered into a $25.0 million senior credit facilitywith a term of one year.  The $25.0 million revolving facility had avariable interest rate based on the base rate, which is equal to the higher ofa) the Federal Funds Rate plus 1⁄2 of 1%, and b) the rate of interest in effectfor such day as publicly announced from time to time by the AdministrativeAgent as its prime rate, plus the applicable rate, which is based on autilization percentage.  In October, November and December 2005, theCompany entered into the first, second and third amendment to the creditagreement.  The first amendment extended the term of the originalagreement to November 15, 2005.  The second amendment reduced the lendingamount from $25.0 million to $16.0 million, of which $6.0 million ofavailability is committed to a letter of credit, leaving $10.0 millionavailable for revolving loans.  The second amendment also extended theterm of the revolving credit to December 30, 2005.  The third amendmentextended the term of the revolving credit to January 31, 2006, and reduced thelending amount from $16.0 million to $13.5 million, of which $6.0 million iscommitted to a letter of credit, leaving $7.5 million available for revolvingloans at December 31, 2005.

***MarkWest Energy Partners***

*2016 Senior Notes*

In July 2006 MarkWest Energy Partners, LP and itswholly owned subsidiary MarkWest Energy Finance Corporation (the “Issuers”)co-issued $200 million in aggregate principal amount of 81¤2% senior notes due 2016 (the “2016 Senior Notes”)to qualified institutional buyers. The 2016 Senior Notes will mature onJuly 15, 2016, and interest is payable on each July 15 andJanuary 15, commencing January 15, 2007.  In October 2006 the Issuers offered $75.0million in additional debt securitiesunder this same indenture. The net proceedsfrom the private placements were approximately $191.2 million and $74.5million, respectively, after deducting the initial purchasers’ discounts andlegal, accounting and other transaction expenses. The Issuers used a portion ofthe net proceeds from the offerings to repay the term debt under thePartnership Credit Facility. Affiliates of several of the initial purchasers,including RBC Capital Markets Corporation, J.P. Morgan Securities Inc.,and Wachovia Capital Markets, LLC, are lenders under the Partnership CreditFacility.  Each of the Partnership’sexisting subsidiaries, other than MarkWest Energy Finance Corporation, hasguaranteed the notes jointly and severally and fully and unconditionally.  The 2016 notes are senior unsecuredobligations equal in right of payment with all of the Partnership’s existingand future senior debt.  These notes aresenior in right of payment to all of the Partnership’s future subordinated debtbut effectively junior in right of payment to its secured debt to the extent ofthe assets securing the debt, including the Partnership’s obligations inrespect of its Partnership Credit Facility.

The indenture governing the Partnership’s 2016 SeniorNotes limits the activity of the Partnership and its restricted subsidiaries,including the ability of the Partnership and its restricted subsidiaries toincur additional indebtedness; declare or pay dividends or distributions, orredeem, repurchase or retire equity interests or subordinated indebtedness;make investments; incur liens; create any consensual limitation on the abilityof the Partnership’s restricted subsidiaries to pay dividends, make loans ortransfer property to the Partnership; engage in transactions with thePartnership’s affiliates; sell assets, including equity interests of thePartnership’s subsidiaries; make any payment on or with respect to, orpurchase, redeem, defease or otherwise acquire or retire for value anysubordinated obligation or guarantor subordination obligation (except principaland interest at maturity); and consolidate, merge or transfer assets. Subjectto compliance with certain covenants, the Partnership may issue additionalnotes from time to time under the indenture pursuant to Rule 144A andRegulation S under the Securities Act of 1933.

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The Partnership agreed to file anexchange offer registration statement or, under certain circumstances, a shelfregistration statement, pursuant to a registration rights agreement relating tothe 2016 Senior Notes.  The Partnershipfailed to complete the exchange offer in the time provided for in thesubscription agreements (January 6, 2007), and as a consequence it beganincurring an interest rate penalty of 0.5% annually, increasing 0.25% every90 days thereafter up to 1%, until such time as the exchange offer wascompleted.  The Partnership incurredpenalty interest of 0.5% from January 7, 2007 until February 26, 2007.

*2014 Senior Notes*

InOctober 2004 MarkWest Energy Partners, LP and its wholly owned subsidiary,MarkWest Energy Finance Corporation, co-issued $225.0 million in senior notes (“2014Senior Notes”) at a fixed rate of 6.875%, payable semi-annually in arrears onMay 1 and November 1, and commencing on May 1, 2005. The 2014 Senior Notesmature on November 1, 2014. The Partnership may redeem some or all of thenotes at any time on or after November 1, 2009, at certain redemptionprices together with accrued and unpaidinterest to the date of redemption. The Partnership may redeem all of the notesat any time prior to November 1, 2009, at a make-whole redemption price.In addition, prior to November 1, 2007, the Partnership may redeem up to35% of the aggregate principal amount of the notes with the proceeds of certainequity offerings at a stated redemption price. The Partnership must offer torepurchase the notes at a specified price if it a) sells certain assets anddoes not reinvest the proceeds or repay senior indebtedness, or b) experiencesspecific kinds of changes in control. Each of the Partnership’s existing subsidiaries, other than MarkWestEnergy Finance Corporation, has guaranteed the notes jointly and severally andfully and unconditionally.  The 2014Senior Notes are senior unsecured obligations equal in right of payment withall of the Partnership’s existing and future senior debt.  These notes are senior in right of payment toall of the Partnership’s future subordinated debt but effectively junior inright of payment to its secured debt to the extent of the assets securing thedebt, including the Partnership’s obligations in respect of its PartnershipCredit Facility.

The indenture governing the 2014 Senior Notes limits theactivity of the Partnership and its restricted subsidiaries. Limitationsinclude the ability of the Partnership and its restricted subsidiaries to incuradditional indebtedness; declare or pay dividends or distributions, or redeem,repurchase or retire equity interests or subordinated indebtedness; makeinvestments; incur liens; create any consensual limitation on the ability ofthe Partnership’s restricted subsidiaries to pay dividends, make loans ortransfer property to the Partnership; engage in transactions with thePartnership’s affiliates; sell assets, including equity interests of thePartnership’s subsidiaries; make any payment on or with respect to, or purchase,redeem, defease or otherwise acquire or retire for value any subordinatedobligation or guarantor subordination obligation (except principal and interestat maturity); and consolidate, merge or transfer assets. Subject to compliancewith certain covenants, the Partnership may issue additional notes from time totime under the indenture pursuant to Rule 144A and Regulation S underthe Securities Act of 1933.

ThePartnership agreed to file an exchange offer registration statement or, undercertain circumstances, a shelf registration statement, pursuant to aregistration rights agreement relating to the 2014 Senior Notes. ThePartnership failed to complete the exchange offer in the time provided for inthe subscription agreements (April 26, 2005) and, as a consequence, wasincurring an interest rate penalty of 0.5% annually, increasing 0.25% every 90days thereafter up to 1%, until such time as the exchange offer was completed.The registration statement was filed on January 17, 2006, the exchange offer wascompleted on March 7, 2006, and the interest penalty ceased.

*Partnership Credit Facility*

OnDecember 29, 2005, MarkWest Energy Operating Company, L.L.C., a whollyowned subsidiary of MarkWest Energy Partners L.P., entered into the fifthamended and restated credit agreement (“Partnership Credit Facility”), whichprovides for a maximum lending limit of $615.0 million for a five-yearterm.  The credit facility includes a revolving facility of $250.0 millionand a $365.0 million term loan.  The credit facility is guaranteed by thePartnership and all of the Partnership’s subsidiaries and is collateralized bysubstantially all of the Partnership’s assets and those of itssubsidiaries.  The borrowings under the credit facility bear interest at avariable interest rate, plus basis points.  The basis points vary based onthe ratio of the Partnership’s Consolidated Debt (as defined in the PartnershipCredit Facility) to Consolidated EBITDA (as defined in the Partnership CreditFacility), ranging from 0.50% to 1.50% for Base Rate loans, and 1.50% to 2.50%for Eurodollar Rate loans.  The basis points will increase by 0.50% duringany period (not to exceed 270 days) where the Partnership makes an acquisitionfor a purchase price in excess of $50.0 million (“Acquisition Adjustment Period”).For the year ended December 31, 2006, the weighted average interest rate on thePartnership Credit Facility was 7.2%.

The aggregate amount of minimum principal paymentsrequired on long-term debt in each of the years indicated are as follows as ofDecember 31, (in thousands):

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| Year ended December 31, | ** ** | ** ** | ** ** |
|----------------------------------------|------------|------------|------------|
| 2007                                   |       | $          | —     |   |
| 2008                                   |       | —     |       |
| 2009                                   |       | —     |       |
| 2010                                   |       | 30,000     |       |
| 2011                                   |       | —     |       |
| Thereafter                             |       | 500,000    |       |
| Totals                                 |       | $          | 530,000    |   |

 

**13.  Derivativefinancial instruments (As Restated)**

Subsequent to theissuance of the Company’s 2006 financial statements, the Company’s managementdetermined that the “MarkWest Hydrocarbon Standalone” contract volumes aspreviously reported in columns “Fixed Physical Forwards” and “Fixed Swaps” incorrectlypresented total volumes rather than daily volumes as noted.  As a result,the contract volumes in the “Fixed Physical Forwards” and “Fixed Swaps” columnswithin the “MarkWest Hydrocarbon Standalone” tables herein have been restatedfrom the amounts previously reported to appropriately reflect daily contractvolumes.

Our primary risk management objective is to managevolatility in our cash flows.  A committee comprised of members of thesenior management team oversees all of our derivative activity.

We utilize a combination offixed-price forward contracts, fixed-for-floating price swaps and options onthe over-the-counter (“OTC”) market.  The Company may also enter intofutures contracts traded on the New York Mercantile Exchange (“NYMEX”). Swaps and futures contracts allow us to manage volatility in our marginsbecause corresponding losses or gains on the financial instruments aregenerally offset by gains or losses in our physical positions.

We enter into OTC swaps with financial institutionsand other energy company counterparties.  We conduct a standard creditreview on counterparties and have agreements containing collateral requirementswhere deemed necessary.  We use standardized swap agreements that allowfor offset of positive and negative exposures.  We may be subject tomargin deposit requirements under OTC agreements (with non-bank counterparties)and NYMEX positions.

The use of derivative instruments may expose us to therisk of financial loss in certain circumstances, including instances when (i)NGLs do not trade at historical levels relative to crude oil, (ii) salesvolumes are less than expected requiring market purchases to meet commitments,or (iii) our OTC counterparties fail to purchase or deliver the contractedquantities of natural gas, NGLs or crude oil or otherwise fail to perform. Tothe extent that we enter into derivative instruments, we may be prevented fromrealizing the benefits of favorable price changes in the physical market. Weare similarly insulated, however, against unfavorable changes in such prices.

Fair value is based on available market information for theparticular derivative instrument and incorporates the commodity, period, volumeand pricing.  Positive (negative) amounts represent unrealized gains(losses).

***MarkWest Hydrocarbon Standalone***

MarkWestHydrocarbon Standalone may enter into physical and/or financial positions tomanage its risks related to commodity price exposure.  Due to timing ofpurchases and sales, direct exposure to price volatility can be created becausethere is no longer an offsetting purchase or sale that remains exposed tomarket pricing.  Through marketing and derivatives activities, directexposure may occur naturally, or we may choose direct exposure when we favor thatexposure over frac spread risk. Beginning in 2006 MarkWest HydrocarbonStandalone pre-purchased natural gas for shrink requirements in future monthsand, for both natural gas and NGLs, entered into swaps and future salesagreements to manage frac spread risk. These derivative instruments are markedto market.

The followingtables summarize the current derivative positions specific to MarkWestHydrocarbon Standalone’s segment at December 31, 2006 (in thousands, exceptprice data):

| Fixed Physical Forwards       | ** ** | **Contract Period** | ** ** | **Price** | ** ** | **Fair Value** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|-----------|------------|---------------------|------------|
| Natural Gas - 6,371  MMBtu/d (sale)     |       | Jan  2007                |       | $         | 10.48      |                | $          | 855 |   |
| Natural Gas - 6,371  MMBtu/d (purchase) |       | Jan  2007                |       | 8.95      |       | (575                | )          |
| Natural Gas - 7,143  MMBtu/d (sale)     |       | Feb  2007                |       | 10.76     |       | 834                 |       |
| Natural Gas - 7,143  MMBtu/d (purchase) |       | Feb  2007                |       | 9.07      |       | (516                | )          |
| Natural Gas - 6,308  MMBtu/d (sale)     |       | Apr  2007                |       | 7.48      |       | 106                 |       |
| Natural Gas - 2,284  MMBtu/d (sale)     |       | May  2007                |       | 7.48      |       | 32                  |       |
| Natural Gas - 4,665  MMBtu/d (sale)     |       | Jun  2007                |       | 7.48      |       | 49                  |       |
|                                    |       |                     |       |      |       | $                   | 785        |   |
|                                         |            |                          |            |           |            |                     |            |  |  |

 

76

----

 

| Fixed Swaps (1)                | ** ** | **Contract Period** | ** ** | **Price (2)** | ** ** | **Fair Value** | ** ** |
|------------------------------------------|------------|--------------------------|------------|--------------------|------------|---------------------|------------|
| Crude - 139  Bbl/d (sale)                |       | Apr  2007                |       | $                  | 63.86      |                | $          | (1 | ) |
| Crude - 139  Bbl/d (sale)                |       | Apr  2007                |       | 64.87              |       | 2                   |       |
| Crude - 955  Bbl/d (sale)                |       | Apr-Jun  2007            |       | 71.33              |       | 562                 |       |
| Crude - 18 Bbl/d  (sale)                 |       | May  2007                |       | 63.89              |       | 1                   |       |
| Crude - 18 Bbl/d  (sale)                 |       | May  2007                |       | 65.35              |       | (3                  | )          |
| Crude - 121  Bbl/d (sale)                |       | Jun  2007                |       | 64.83              |       | (1                  | )          |
| Crude - 121  Bbl/d (sale)                |       | Jun  2007                |       | 65.81              |       | 2                   |       |
| Crude - 662  Bbl/d (sale)                |       | Jul  2007                |       | 65.19              |       | (9                  | )          |
| Crude - 662  Bbl/d (sale)                |       | Jul  2007                |       | 66.17              |       | 10                  |       |
| Crude - 698  Bbl/d (sale)                |       | Aug  2007                |       | 65.50              |       | (11                 | )          |
| Crude - 698  Bbl/d (sale)                |       | Aug  2007                |       | 66.48              |       | 9                   |       |
| Crude - 773  Bbl/d (sale)                |       | Sep  2007                |       | 65.77              |       | (13                 | )          |
| Crude - 773  Bbl/d (sale)                |       | Sep  2007                |       | 66.75              |       | 9                   |       |
| Crude - 1,252  Bbl/d (sale)              |       | Oct  2007                |       | 65.99              |       | (25                 | )          |
| Crude - 1,252  Bbl/d (sale)              |       | Oct  2007                |       | 66.97              |       | 12                  |       |
| Crude - 1,383  Bbl/d (sale)              |       | Nov  2007                |       | 66.21              |       | (28                 | )          |
| Crude - 1,383  Bbl/d (sale)              |       | Nov  2007                |       | 67.19              |       | 11                  |       |
| Crude - 1,958  Bbl/d (sale)              |       | Dec  2007                |       | 66.46              |       | (35                 | )          |
| Crude - 1,958  Bbl/d (sale)              |       | Dec  2007                |       | 67.35              |       | 16                  |       |
|                                     |       |                     |       |               |       |                |       |
| Natural Gas -  7,088 MMBtu/d (purchase)  |       | Apr  2007                |       | 8.16               |       | (279                | )          |
| Natural Gas -  86,850 MMBtu/d (purchase) |       | May  2007                |       | 8.08               |       | (3,039              | )          |
| Natural Gas -  13,167 MMBtu/d (purchase) |       | Jun  2007                |       | 8.16               |       | (432                | )          |
| Natural Gas -  12,581 MMBtu/d (purchase) |       | Jul  2007                |       | 8.29               |       | (443                | )          |
| Natural Gas -  12,258 MMBtu/d (purchase) |       | Aug  2007                |       | 8.35               |       | (408                | )          |
| Natural Gas -  4,833 MMBtu/d (purchase)  |       | Sep  2007                |       | 8.38               |       | (149                | )          |
|                                     |       |                     |       |               |       |                |       |
| IsoButane -  6,231 Gal/d (sale)          |       | Jan  2007                |       | 1.23               |       | 15                  |       |
| IsoButane -  4,210 Gal/d (sale)          |       | Jan-Mar  2007            |       | 1.17               |       | 8                   |       |
| IsoButane -  1,974 Gal/d (sale)          |       | Jan-Mar  2007            |       | 1.14               |       | (1                  | )          |
| IsoButane -  4,328 Gal/d (sale)          |       | Feb  2007                |       | 1.16               |       | 1                   |       |
| IsoButane -  3,007 Gal/d (sale)          |       | Feb-Mar  2007            |       | 1.35               |       | 36                  |       |
| IsoButane -  1,806 Gal/d (sale)          |       | Mar  2007                |       | 1.28               |       | 8                   |       |
| ** **                               |       |                     |       |               |       |                |       |
|                                     |       |                     |       |               |       |                |       |
| Natural Gasoline  - 17,756 Gal/d (sale)  |       | Jan  2007                |       | 1.46               |       | 72                  |       |
| Natural Gasoline  - 12,446 Gal/d (sale)  |       | Jan-Mar  2007            |       | 1.37               |       | 52                  |       |
| Natural Gasoline  - 10,468 Gal/d (sale)  |       | Feb  2007                |       | 1.33               |       | 2                   |       |
| Natural Gasoline  - 10,034 Gal/d (sale)  |       | Feb-Mar  2007            |       | 1.59               |       | 159                 |       |
| Natural Gasoline  - 4,387 Gal/d (sale)   |       | Mar  2007                |       | 1.62               |       | 40                  |       |
|                                     |       |                     |       |               |       |                |       |
| Normal Butane -  21,018 Gal/d (sale)     |       | Jan  2007                |       | 1.20               |       | 51                  |       |
| Normal Butane -  18,981 Gal/d (sale)     |       | Jan-Mar  2007            |       | 1.13               |       | 24                  |       |
| Normal Butane -  13,879 Gal/d (sale)     |       | Feb  2007                |       | 1.12               |       | 1                   |       |
| Normal Butane -  10,712 Gal/d (sale)     |       | Feb-Mar  2007            |       | 1.29               |       | 108                 |       |
| Normal Butane -  5,839 Gal/d (sale)      |       | Mar  2007                |       | 1.28               |       | 30                  |       |
|                                     |       |                     |       |               |       |                |       |
| Propane -  211,643 Gal/d (sale)          |       | Jan  2007                |       | 1.09               |       | 1,071               |       |
| Propane - 3,559  Gal/d (sale)            |       | Jan-Feb  2007            |       | 1.05               |       | 26                  |       |
| Propane - 71,516  Gal/d (sale)           |       | Jan-Mar  2007            |       | 0.96               |       | 284                 |       |
| Propane - 178,742  Gal/d (sale)          |       | Feb  2007                |       | 1.06               |       | 695                 |       |
| Propane - 23,797  Gal/d (sale)           |       | Feb-Mar  2007            |       | 1.18               |       | 360                 |       |
| Propane - 25,806  Gal/d (sale)           |       | Mar  2007                |       | 1.13               |       | 174                 |       |
|                                     |       |                     |       |               |       | $                   | (1,026     | ) |
|                                          |            |                          |            |                    |            |                     |            |  |  |

 

| Forward Physical Contracts             | ** ** | **Price (2)** | ** ** | **Fair Value** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|---------------------|------------|
| Natural Gas - 9,000  MMBtu/d                     |       | $                  | 7.56       |                | $          | (1,417 | ) |
|                                             |       |               |       |                |       |
| Current - Total  MarkWest Hydrocarbon Standalone |       |               |       | $                   | (1,658     | ) |
|                                                  |            |                    |            |                     |            |  |  |

----

(1)   Swaps represent fixed forward sales andpurchases, which, in combination economically hedge our frac spread position.

(2)   A weighted average is used for grouped positions.

77

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The followingtable summarizes the non-current derivative positions specific to MarkWestHydrocarbon Standalone’s segment at December 31, 2006 (in thousands, exceptprice data):

| Fixed Swaps (1)                           | ** ** | **Contract Period** | ** ** | **Price** | ** ** | **Fair Value** | ** ** |
|-----------------------------------------------------|------------|--------------------------|------------|-----------|------------|---------------------|------------|
| Crude - 2,181 Bbl/d  (sale)                         |       | Jan 2008                 |       | $         | 67.48      |                | $          | 16 |   |
| Crude - 2,181 Bbl/d  (sale)                         |       | Jan 2008                 |       | 66.59     |       | (40                 | )          |
| Crude - 1,956 Bbl/d  (sale)                         |       | Feb 2008                 |       | 67.58     |       | 12                  |       |
| Crude - 1,956 Bbl/d  (sale)                         |       | Feb 2008                 |       | 66.70     |       | (35                 | )          |
| Crude - 1,160 Bbl/d  (sale)                         |       | Mar 2008                 |       | 67.67     |       | 7                   |       |
| Crude - 1,160 Bbl/d  (sale)                         |       | Mar 2008                 |       | 66.78     |       | (23                 | )          |
| Non-current - Total MarkWest Hydrocarbon Standalone |       | $                        | (63        | )         |
|                                                     |            |                          |            |           |            |                     |            |  |  |

----

(1) Swaps represent fixedforward sales to hedge our production of NGLs.

A summary of MarkWestHydrocarbon Standalone’s commodity derivative instruments is provided below (inthousands):

 
|                                        | ** ** | **December 31,** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Fair value of  derivative instruments: |       |                  |       |   |   |
| Current asset                          |       | $                     | 5,727      |   | $ | — |   |
| Noncurrent asset                       |       | 35                    |       | — |   |
| Current  liability                     |       | 7,385                 |       | — |   |
| Noncurrent liability                   |       | 98                    |       | — |   |
|                                        |            |                       |            |  |  |  |  |

 

***MarkWest EnergyPartners***

The Partnership’sprimary risk management objective is to reduce volatility in its cash flowsarising from changes in commodity prices related to future sales of naturalgas, NGLs and crude oil.  Swaps and futures contracts may allow thePartnership to reduce volatility in its realized margins as realized losses orgains on the derivative instruments generally are offset by corresponding gainsor losses in the Partnership’s sales of physical product.  While the Partnership largely expects it’srealized derivative gains and losses to be offset by increases or decreases inthe value of its physical sales, it will experience volatility in reportedearnings due to the recording of unrealized gains and losses on its derivativepositions that will have no offset.  Thevolatility in any given period related to unrealized gains or losses can besignificant to the overall results of the Partnership, however, it ultimatelyexpects those gains and losses to be offset when they become realized.

The followingtables summarize the current derivative positions specific to MarkWest EnergyPartner’s segment at December 31, 2006 (in thousands, except price data):
| Fixed Swaps (1)     | ** ** | **Contract Period** | ** ** | **Fixed Price (2)** | ** ** | **Fair Value** | ** ** |
|-------------------------------|------------|--------------------------|------------|-------------------------------|------------|---------------------|------------|
| Crude - 390  Bbl/d (sale)     |       | Jan-Dec  2007            |       | $                             | 68.46      |                | $          | 473 |   |
| Crude - 600  Bbl/d (sale)     |       | Jan-Dec  2007            |       | 64.77                         |       | (58                 | )          |
| Ethane - 50,000  Gal/d (sale) |       | Jan-Mar  2007            |       | 0.78                          |       | 736                 |       |
|                          |       |                     |       |                          |       | $                   | 1,151      |   |
|                               |            |                          |            |                               |            |                     |            |  |  |

** **
| Basis Swaps              | ** ** | **Contract Period** | ** ** | **Fair Value** | ** ** |
|-------------------------------|------------|--------------------------|------------|---------------------|------------|
| Natural Gas -  14,000 MMBtu/d |       | Jan-Oct  2007            |       | $                   | (33        | ) |
|                               |            |                          |            |                     |            |  |

 

78

----

 

| Options (puts) (3) | ** ** | **Contract Period** | ** ** | **Floor** | ** ** | **Fair Value** | ** ** |
|------------------------------|------------|--------------------------|------------|-----------|------------|---------------------|------------|
| Ethane - 50,000  Gal/d       |       | Apr-Jun  2007            |       | $         | 0.65       |                | $          | 7 |   |
| Ethane - 50,000  Gal/d       |       | July-Sep  2007           |       | 0.65      |       | —              |       |
| Ethane - 50,000  Gal/d       |       | Oct-Dec  2007            |       | 0.65      |       | —              |       |
|                         |       |                     |       |      |       | $                   | 7          |   |
|                              |            |                          |            |           |            |                     |            |  |  |

 
| Collars (4)        | ** ** | **Contract Period**                      | ** ** | **Floor (2)** | ** ** | **Cap (2)** | ** ** | **Fair Value** | ** ** |
|-------------------------|------------|-----------------------------------------------|------------|--------------------|------------|------------------|------------|---------------------|------------|
| Crude - 1,105  Bbl/d    |       | Jan-Dec  2007                                 |       | $                  | 69.08      |             | $          | 82.43               |       | $ | 2,469 |   |
|                    |       |                                          |       |               |       |             |       |                |       |
| Propane - 23,000  Gal/d |       | Jan-Mar  2007                                 |       | 1.05               |       | 1.28             |       | 286                 |       |
| Propane - 30,000  Gal/d |       | Apr-Jun  2007                                 |       | 0.96               |       | 1.16             |       | 240                 |       |
| Propane - 30,000  Gal/d |       | Jul-Sep  2007                                 |       | 0.97               |       | 1.16             |       | —              |       |
| Propane - 30,000  Gal/d |       | Oct-Dec  2007                                 |       | 0.98               |       | 1.18             |       | —              |       |
|                    |       |                                          |       |               |       |             |       | 2,995               |       |
|                    |       | Current Total – MarkWest Energy Partners |       | $                  | 4,120      |             |
|                         |            |                                               |            |                    |            |                  |            |                     |            |  |  |  |

 

----

(1)   Forward sales to hedge our production.

(2)   A weighted average is used for groupedpositions.

(3)   Purchase of puts to hedge our Ethaneproduction.

(4)   Forwardproducer collars to hedge our production.

The following tablesummarizes the non-current derivative positions specific to MarkWest Energy Partner’ssegment at December 31, 2006 (in thousands, except price data):
| Collars (1)     | ** ** | **Contract Period**                          | ** ** | **Floor (2)** | ** ** | **Cap (2)** | ** ** | **Fair Value** | ** ** |
|----------------------|------------|---------------------------------------------------|------------|--------------------|------------|------------------|------------|---------------------|------------|
| Crude - 1,476  Bbl/d |       | Jan-Mar  2008                                     |       | $                  | 69.76      |             | $          | 79.01               |       | $ | 688 |   |
| Crude - 550  Bbl/d   |       | Jan-Dec  2008                                     |       | 64.48              |       | 73.98            |       | 236                 |       |
| Crude - 1,473  Bbl/d |       | Apr-Jun  2008                                     |       | 69.48              |       | 78.66            |       | 627                 |       |
| Crude - 1,437  Bbl/d |       | Jul-Sep  2008                                     |       | 68.90              |       | 78.32            |       | 566                 |       |
| Crude - 1,473  Bbl/d |       | Oct-Dec  2008                                     |       | 68.41              |       | 77.85            |       | 550                 |       |
| Crude - 925  Bbl/d   |       | Jan-Dec  2008                                     |       | 65.00              |       | 68.78            |       | (172                | )          |
| Crude - 550  Bbl/d   |       | Jan-Dec  2009                                     |       | 63.13              |       | 72.58            |       | 92                  |       |
| Crude - 450  Bbl/d   |       | Jan-Mar  2009                                     |       | 63.00              |       | 70.00            |       | (72                 | )          |
| Crude - 1,925  Bbl/d |       | Jan-Dec  2009                                     |       | 63.96              |       | 68.90            |       | (844                | )          |
| Crude - 450  Bbl/d   |       | Apr-Jun  2009                                     |       | 63.00              |       | 70.00            |       | (82                 | )          |
| Crude - 450  Bbl/d   |       | Jul-Sep  2009                                     |       | 63.00              |       | 70.00            |       | (91                 | )          |
| Crude - 450  Bbl/d   |       | Oct-Dec  2009                                     |       | 63.00              |       | 70.00            |       | (101                | )          |
|                 |       | Non-Current – Total MarkWest Energy Partners |       | $                  | 1,397      |             |
|                      |            |                                                   |            |                    |            |                  |            |                     |            |  |  |  |

 

----

(1)Forward producer collars to hedge our production.

(2) A weighted average is used for grouped positions.

A summary of MarkWest Energy’s commodity derivativeinstruments is provided below (in thousands):

 

79

----

 
|                                        | ** ** | **December 31,** | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Fair value of  derivative instruments: |       |                  |       |   |   |
| Current asset                          |       | $                     | 4,211      |   | $ | — |   |
| Noncurrent asset                       |       | 2,759                 |       | 728 |   |
| Current  liability                     |       | 91                    |       | — |   |
| Noncurrent liability                   |       | 1,362                 |       | — |   |
|                                        |            |                       |            |  |  |  |  |

 

**14.****          Incometaxes**

The components of the income tax benefit (expense)from continuing operations are as follows (in thousands):
|                                         | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------|------------|--------------------------------------------|------------|
| ** **                              | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                    |       |                                       |       |   |   |   |   |
| Current income  tax benefit (expense):  |       |                                       |       |   |   |   |   |
| Federal                                 |       | $                                          | 288        |   | $ | (502 | ) | $ | (20 | ) |
| State                                   |       | (109                                       | )          | (52 | ) | — |   |
| Total current                           |       | 179                                        |       | (554 | ) | (20 | ) |
|                                    |       |                                       |       |   |   |   |   |
| Deferred income  tax benefit (expense): |       |                                       |       |   |   |   |   |
| Federal                                 |       | (5,416                                     | )          | 2,839 |   | 286 |   |
| State                                   |       | (15                                        | )          | (481 | ) | (344 | ) |
| Total deferred                          |       | (5,431                                     | )          | 2,358 |   | (58 | ) |
|                                    |       |                                       |       |   |   |   |   |
| Income tax benefit  (expense)           |       | $                                          | (5,252     | ) | $ | 1,804 |   | $ | (78 | ) |

 

Areconciliation of the actual income tax benefit (expense) from continuingoperations and the amount computed by applying the federal statutory rate of35% to the income (loss) before income taxes is as follows (in thousands):
|                                                   | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                        | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                              |       |                                       |       |   |   |   |   |
| Federal income  tax at statutory rate (1)         |       | $                                          | (5,176     | ) | $ | 2,926 |   | $ | 280 |   |
| State income  taxes, net of federal benefit       |       | (402                                       | )          | 294 |   | (7 | ) |
| Permanent items                                   |       | 61                                         |       | (16 | ) | — |   |
| Stock options  subject to variable accounting     |       | —                                     |       | — |   | (369 | ) |
| Percentage  depletion in excess of cost basis     |       | —                                     |       | — |   | 37 |   |
| Nondeductible  expenses                           |       | —                                     |       | — |   | (21 | ) |
| Prior year  adjustment for state NOL carryforward |       | —                                     |       | — |   | 1,085 |   |
| Change in  valuation allowance                    |       | 341                                        |       | (1,053 | ) | (1,121 | ) |
| Change in  federal / state statutory rate         |       | 41                                         |       | (117 | ) | (117 | ) |
| Impact of state  amended tax returns              |       | —                                     |       | — |   | (177 | ) |
| Alternative  minimum tax credit                   |       | —                                     |       | — |   | 373 |   |
| Texas margin tax  from the Partnership            |       | (129                                       | )          | — |   | — |   |
| Other                                             |       | 12                                         |       | (230 | ) | (41 | ) |
|                                              |       |                                       |       |   |   |   |   |
| Income tax  benefit (expense)                     |       | $                                          | (5,252     | ) | $ | 1,804 |   | $ | (78 | ) |

 

----

(1)                                  Thecalculation of federal income tax at statutory rate has been adjusted for thenon-controlling interest in net income of consolidated subsidiary.

Thedeferred tax assets and liabilities resulting from temporary book-taxdifferences are comprised of the following (in thousands):

80

----

 
|                                        | ** **   | **December 31,** | ** **   |
|----------------------------------------|--------------|-----------------------|--------------|
| ** **                             | ** **   | **2006**              | ** **   | **2005** | ** ** |
| *** ***                           | *** *** | *** ***          | *** *** | *** *** | *** *** |
| Current deferred  tax assets           |         |                  |         |   |   |
| Accruals and reserves                  |         | $                     | 143          |   | $ | 157 |   |
| Derivative instruments                 |         | 742                   |         | — |   |
| Stock compensation                     |         | 134                   |         | 32 |   |
| Other                                  |         | —                |         | 7 |   |
| Current deferred tax assets            |         | 1,019                 |         | 196 |   |
|                                   |         |                  |         |   |   |
| Current deferred  tax liabilities      |         |                  |         |   |   |
| Investment in third party partnerships |         | 529                   |         | 343 |   |
| Marketable securities                  |         | 670                   |         | 215 |   |
| Current deferred tax liabilities       |         | 1,199                 |         | 558 |   |
| Current subtotal - liability           |         | 180                   |         | 362 |   |
|                                   |         |                  |         |   |   |
| Long-term  deferred tax assets         |         |                  |         |   |   |
| Participation plan compensation        |         | 3,903                 |         | 1,626 |   |
| Property, plant, and equipment         |         | —                |         | 135 |   |
| Stock compensation                     |         | —                |         | 84 |   |
| Tax credit carryforward                |         | 2,664                 |         | 2,920 |   |
| Federal NOL carryforward               |         | —                |         | 6,145 |   |
| State NOL carryforward                 |         | 802                   |         | 2,278 |   |
| Long-term deferred tax assets          |         | 7,369                 |         | 13,188 |   |
| Valuation allowance                    |         | (802                  | )            | (2,278 | ) |
| Net long-term deferred tax assets      |         | 6,567                 |         | 10,910 |   |
|                                   |         |                  |         |   |   |
| Long-term  deferred tax liabilities    |         |                  |         |   |   |
| Property, plant, and equipment         |         | 82                    |         | — |   |
| Stock compensation                     |         | 19                    |         | — |   |
| Investment in consolidated subsidiary  |         | 15,890                |         | 14,397 |   |
| Other                                  |         | 129                   |         | — |   |
| Long-term deferred tax liabilities     |         | 16,120                |         | 14,397 |   |
| Long-term subtotal - liability         |         | 9,553                 |         | 3,487 |   |
|                                   |         |                  |         |   |   |
| Net deferred tax  liability            |         | $                     | 9,733        |   | $ | 3,849 |   |

 

At December 31, 2006 theCompany had state net operating loss carryforwards of approximately $14.6million that expire between 2011 and 2026. The Company expects that future taxable income will likely beapportioned to states other than those in which the net operating loss wasgenerated.  As a result, the Companybelieves it is more likely than not that the state net operating losses willnot be realized and has provided a 100% valuation allowance against thislong-term deferred tax asset.  TheCompany had federal alternative minimum tax credit carryforwards of $2.7million that have no expiration date and can be applied as a credit to reduceregular federal income tax.

**15.**       **Stock and Incentive Compensation Plans**

All previouslyawarded MarkWest Hydrocarbon restricted stock, stock options and othercompensation arrangements based on the market value of our common stock havebeen adjusted to reflect the May 2006 stock dividend.  Furthermore, all previously awardedPartnership units have been adjusted to reflect the February 2007 two-for-oneunit split (see Note 2 above).

Total compensationcost for share-based pay arrangements was as follows (in thousands):

|                                                     | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                          | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Stock options                                       |       | $                                          | (9         | ) | $ | 965 |   | $ | 1,994 |   |
| Restricted stock                                    |       | 410                                        |       | 84 |   | — |   |
| General partner  interests under Participation Plan |       | 20,715                                     |       | 3,192 |   | 3,481 |   |
| Subordinated  units under Participation Plan        |       | 28                                         |       | 52 |   | 230 |   |
| Restricted units                                    |       | 1,686                                      |       | 1,076 |   | 1,065 |   |
| Total  compensation cost                            |       | 22,830                                     |       | 5,369 |   | 6,770 |   |
| Income tax                                          |       | (8,630                                     | )          | (2,013 | ) | (2,606 | ) |
| Net compensation cost                               |       | $                                          | 14,200     |   | $ | 3,356 |   | $ | 4,164 |   |

 

Of the totalcompensation cost recognized for restricted units $0.1, $0.4 and $0.5 millionrelated to the accelerated vesting of restricted units for the years endedDecember 31, 2006, 2005 and 2004, respectively. The accelerated vesting of restricted units occurs when specificdistribution targets are achieved, as set forth in the individual grantagreements

81

----

Thefollowing summarizes the total compensation cost not yet recognized as ofDecember 31, 2006, related to nonvested awards (in thousands). The actualcompensation cost recognized might differ for the restricted units, as theyqualify as liability awards, which are affected by changes in the fair value.
|                  | ** ** | **Amount** | ** ** | **Weighted-  average  Remaining  Vesting  Period (years)** | ** ** |
|------------------|------------|------------|------------|-----------------------------------------------------------------|------------|
| Stock options    |       | $          | —     |                                                            | —     |   |
| Restricted stock |       | 362        |       | 2.2                                                             |       |
| Restricted units |       | 1,769      |       | 1.8                                                             |       |
| Total            |       | $          | 2,131      |                                                            |       |   |

 

AtDecember 31, 2006, the Company has three stock-based compensation plans, one ofwhich is through its consolidated subsidiary, MarkWest Energy Partners.

***2006 Stock Incentive Plan***

InJune 2006, the Company’s shareholders approved the 2006 Stock Incentive Plan (“2006Plan”), effective July 1, 2006.  The 2006Plan replaced both the 1996 Stock Incentive Plan and the 1996 Non-employeeDirector Stock Option Plan (together the “1996 Plans”).  Under the 2006 Plan the Company may grant amaximum of 1,000,000 restricted shares and stock options, subject to varyingvesting terms and expected terms as discussed below.

*StockOptions*

The Company issuedstock options under the 1996 Plans until 2005. While it was determined in 2005that the Company does not intend to issue stock options in the future, they areavailable for issuance under the 2006 Plan.  On December 1, 2006 a board resolution provided for the acceleratedvesting of 14,950 unvested stock option grants affecting eight employees.  Consequently, as of December 31, 2006 theCompany had no remaining unvested options or any unrecognized compensationexpense pertaining to options.  For theyear ended December 31, 2006, the Company received $0.3 million from theexercise of stock options.

Under SFAS 123R,the Company’s stock options are categorized as equity awards. Accordingly, compensation expense for options is measured based on the grantdate fair value and is amortized into earnings over the service period as theoptions vest.  The options historicallyvested at the rate of 25% per year for options granted in 1999 and thereafter,and 20% per year for options granted prior to 1999.  The fair value of the options is estimatedusing the Black-Scholes option-pricing model.  The options have a maximumterm of ten years and may, at the discretion of the Company, be exercised usingeither a Company-assisted or broker-assisted cashless exercise.

The followingsummarizes the impact of the Company’s stock option plan (in thousands ofshares):

|                              | ** ** | **Year ended December 31,** | ** ** |
|------------------------------|------------|--------------------------------------------|------------|
| ** **                   | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Options  exercised, cashless |       |                                       | 10         |   |   |   | 36 |   |   |   | 145 |   |   |
| Shares issued,  cashless     |       |                                       | 6          |   |   |   | 23 |   |   |   | 49 |   |   |
| Options  exercised, cash     |       |                                       | 39         |   |   |   | 16 |   |   |   | 193 |   |   |
| Shares issued, cash          |       |                                       | 39         |   |   |   | 16 |   |   |   | 193 |   |   |

 

TheCompany did not grant any stock options in 2006 or 2005.  The fair value of each option granted in 2004was estimated using the Black-Scholes option-pricing model.  The following assumptions were used tocompute the weighted average fair value of options granted:

|                           | ** ** | **2004**  | ** ** |
|---------------------------|------------|-----------|------------|
| Expected life of  options |       | 5.5 years |       |
| Risk free  interest rates |       | 4.35      | %          |
| Estimated  volatility     |       | 46.50     | %          |
| Dividend yield            |       | 2.0       | %          |

 

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A summary of the statusof the Company’s stock option plans as of December 31, 2006, 2005 and 2004, arepresented below.
|                                                   | ** ** | **Number of  Shares** | ** ** | **Weighted-  average  Exercise Price** | ** ** | **Weighted-  average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|---------------------------------------------------|------------|----------------------------|------------|---------------------------------------------|------------|------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at  January 1, 2004                   |       | 603,019                    |       | $                                           | 7.42       |                                                 |       |                            |       |   |
| Granted                                           |       | 41,085                     |       | 10.67                                       |       |                                                 |       |                            |       |
| Exercised                                         |       | (338,668                   | )          | 6.91                                        |       |                                                 |       |                            |       |
| Forfeited                                         |       | (21,940                    | )          | 7.03                                        |       |                                                 |       |                            |       |
| Expired                                           |       | (94,634                    | )          | 10.24                                       |       |                                                 |       |                            |       |
| Outstanding at  December 31, 2004                 |       | 188,862                    |       | 7.66                                        |       |                                                 |       |                            |       |
| Granted                                           |       | —                     |       | —                                      |       |                                                 |       |                            |       |
| Exercised                                         |       | (52,989                    | )          | 6.92                                        |       |                                                 |       |                            |       |
| Forfeited                                         |       | (10,011                    | )          | 13.35                                       |       |                                                 |       |                            |       |
| Expired                                           |       | (453                       | )          | 6.84                                        |       |                                                 |       |                            |       |
| Outstanding at  December 31, 2005                 |       | 125,409                    |       | 7.52                                        |       |                                                 |       |                            |       |
| Granted                                           |       | —                     |       | —                                      |       |                                                 |       |                            |       |
| Exercised                                         |       | (49,999                    | )          | 7.34                                        |       |                                                 |       |                            |       |
| Forfeited                                         |       | (8,168                     | )          | 9.00                                        |       |                                                 |       |                            |       |
| Expired                                           |       | (1,607                     | )          | 7.52                                        |       |                                                 |       |                            |       |
| Outstanding and  Exercisable at December 31, 2006 |       | 65,635                     |       | 7.48                                        |       | 5.3                                                  |       | $                               | 2,695,659  |   |
|                                                   |            |                            |            |                                             |            |                                                      |            |                                 |            |  |  |

 

|                                                                 | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                      | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Total fair value  of options vested   during the period         |       | $                                          | 439,458    |   | $ | 385,995 |   | $ | 631,685 |   |
| Total intrinsic value  of options   exercised during the period |       | 989,144                                    |       | 726,578 |   | 1,091,060 |   |
|                                                                 |            |                                            |            |  |  |  |  |  |  |  |

 

*Restricted Stock*

TheCompany issued restricted stock under the 1996 Plans until the adoption of the2006 Plan at which point all new shares are, and will be, issued pursuant tothe rules of the 2006 Plan.  Under SFAS123R, the restricted stock qualifies as an equity award.  Accordingly, restricted stock is measured atthe grant date fair value and the associated compensation expense is recognizedover the requisite service period, reduced for an estimate of expectedforfeitures.  The restricted stock vestsequally over a three year period.  Noshares were granted prior to 2005.

The followingsummarizes the impact of the Company’s restricted stock plans:
|                                | ** ** | **Number of  Shares** | ** ** | **Weighted-  average  Grant-date  Fair Value** | ** ** |
|--------------------------------|------------|----------------------------|------------|-----------------------------------------------------|------------|
| Unvested at  January 1, 2005   |       | —                     |       | $                                                   | —     |   |
| Granted                        |       | 28,237                     |       | 19.39                                               |       |
| Vested                         |       | (3,300                     | )          | 20.01                                               |       |
| Forfeited                      |       | —                     |       | —                                              |       |
| Unvested at  December 31, 2005 |       | 24,937                     |       | 19.31                                               |       |
| Granted                        |       | 28,109                     |       | 30.70                                               |       |
| Vested                         |       | (8,243                     | )          | 19.29                                               |       |
| Forfeited                      |       | (3,110                     | )          | 20.61                                               |       |
| Unvested at December  31, 2006 |       | 41,693                     |       | 26.89                                               |       |
|                                |            |                            |            |                                                     |            |  |

 

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|                                                                                                                                       | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                            | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| Weighted-average  grant-date fair value of restricted stock granted during the period                                                 |       | $                                          | 862,970    |   | $ | 547,498 |   |
| Total fair value of  restricted stock vested during the period / total intrinsic value of  restricted stock settled during the period |       | 159,010                                    |       | 66,033 |   |
|                                                                                                                                       |            |                                            |            |  |  |  |  |

 

Duringthe years ended December 31, 2006, 2005 and 2004, the Company received noproceeds for issuing restricted stock, and there were no cash settlements.

***Participation Plan***

TheCompany has also entered into arrangements with certain directors and employeesof the Company referred to as the Participation Plan.  Under it, theCompany sells subordinated units of the Partnership or interests in thePartnership’s general partner under a purchase and sale agreement.  Thereis no maximum contractual term under the Participation Plan. The Company’scapacity to grant further general partner interests is limited by its ownershipin the general partner.  The subordinatedunits are sold without any restrictions on transfer.

Both thesubordinated unit and general partner interest transactions are consideredcompensatory arrangements due to the put-and-call provisions and the associatedvaluation being based on a formula instead of an independent third partyvaluation. Under SFAS 123R, the subordinated units and general partnerinterests are classified as liability awards. As a result, the Company is required to mark to market the subordinatedunit and general partner interest valuations at the end of each period.  Compensation expense related to generalpartner interests is calculated as the difference in the formula value and theamount paid by those individuals.  The formula value is the amountMarkWest Hydrocarbon would have to pay the employees and directors torepurchase the general partner interests, and is based on the current marketvalue of the Partnership’s common units and the current quarterly distributionspaid.

The interest inthe Partnership’s general partner is sold with certain put-and-callprovisions.  These require MarkWestHydrocarbon to buy back, or require the individuals to sell back their interestin the general partner to MarkWest Hydrocarbon.  Specifically, theemployees and directors can exercise their put if (1) MarkWest Hydrocarbonor the Partnership’s general partner undergoes a change of control;(2) additional membership interests are issued that, on a pro forma basis,decrease the distributions to all the then existing members; (3) anyamendment, alteration or repeal of the provisions of the general partneragreement materially and adversely affects the then existing rights, duties,obligations or restrictions of the employees and directors; or (4) theemployee or director (i) becomes totally disabled while a director,officer or employee of the general partner, of MarkWest Hydrocarbon or of anyof their affiliates, or (ii) dies, or (iii) retires as a director,officer or employee of the general partner of MarkWest Hydrocarbon or of any oftheir affiliates after reaching the age of 60 years.  The employee or hisestate has 120 days after the put event to exercise the put under (4) and30 days after notice to exercise under (1) through (3). MarkWestHydrocarbon can exercise its call option if (i) the employee or director ceasesto be a director or employee of MarkWest Hydrocarbon or any of its affiliates,or (ii) if there is a change of control of MarkWest or of the Partnership’sgeneral partner. For the call option based upon a termination of employment ordirectorship, MarkWest Hydrocarbon has 12 months following the termination dateto exercise its call option. MarkWest Hydrocarbon has agreed to exempt thegeneral partner interests of three present or former directors from the calloption based upon a termination of employment or directorship.  Additionally, pursuant to the terms of ourcurrent CEO’s employment agreement with MarkWest Hydrocarbon, all of hisgeneral partner interest has become exempt from the call option based upon atermination of employment or directorship for reasons other than cause. For thecall option based upon a change of control of MarkWest or of the Partnership’sgeneral partner, MarkWest Hydrocarbon has 30 days following the change ofcontrol to exercise its call option.

On October 13,2006, the Company completed the repurchase of a 0.5% interest in thegeneral partner.  This purchase resultedin an increase in our ownership level in the general partner to 89.7%.  The Company did not sell any subordinatedunits to employees or directors in 2006 or 2005.  Likewise, the Companydid not reacquire any subordinated units in 2006 or 2005.

***MarkWest Energy Partners’ Long-Term Incentive Plan***

The number ofrestricted units available for issuance under the LTIP has been adjusted toreflect the February 2007 two-for-one unit split (see Note 2 above).

Thegeneral partner has adopted the MarkWest Energy Partners, L.P. Long-TermIncentive Plan for employees and directors of the general partner, as well asemployees of its affiliates who perform services for us. The plan consists of

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restricted units andunit options. It permits the grant of awards covering an aggregate of 1,000,000common units, comprised of 400,000 restricted units and 600,000 unit options.The Compensation Committee of the general partner’s Board of Directorsadministers the plan.

*Restricted Units*

Arestricted unit is a “phantom” unit that entitles the grantee to receive acommon unit of the Partnership upon the vesting of the phantom unit, or, at thediscretion of the Compensation Committee, cash equivalent to the value of acommon unit.  The restricted units vest over a service period of threeyears; however, vesting for certain awards may be accelerated if specificannualized distribution goals are met. During the vesting period, theserestricted units are entitled to receive distribution equivalents, whichrepresent cash equal to the amount of distributions made on common units.

UnderSFAS 123R, the restricted units are treated as liability awards.  As aresult, the Partnership is required to mark to market the awards at the end ofeach reporting period.  Compensationexpense is measured for the phantom unit grants using the market price ofMarkWest Energy Partners’ common units at each reporting date. The fair valueof the units awarded is amortized into earnings over the period of service andis adjusted monthly for the change in the fair value of the unvested unitsgranted.

Thefollowing is a summary of restricted unit activity under the Partnership’sLong-Term Incentive Plan:

|                                 | ** ** | **Number of Units** | ** ** | **Weighted-  average Grant-  date Fair Value** | ** ** |
|---------------------------------|------------|-------------------------------|------------|---------------------------------------------------------------|------------|
| Nonvested at  January 1, 2004   |       | 68,992                        |       | $                                                             | 13.73      |   |
| Granted                         |       | 55,800                        |       | 21.01                                                         |       |
| Vested                          |       | (54,906                       | )          | 12.73                                                         |       |
| Forfeited                       |       | (10,886                       | )          | 18.62                                                         |       |
| Nonvested at  December 31, 2004 |       | 59,000                        |       | 20.65                                                         |       |
| Granted                         |       | 40,278                        |       | 24.74                                                         |       |
| Vested                          |       | (18,200                       | )          | 18.95                                                         |       |
| Forfeited                       |       | (3,350                        | )          | 21.25                                                         |       |
| Nonvested at  December 31, 2005 |       | 77,728                        |       | 23.14                                                         |       |
| Granted                         |       | 81,886                        |       | 24.35                                                         |       |
| Vested                          |       | (26,986                       | )          | 22.25                                                         |       |
| Forfeited                       |       | (7,428                        | )          | 22.75                                                         |       |
| Nonvested at December  31, 2006 |       | 125,200                       |       | 24.14                                                         |       |
|                                 |            |                               |            |                                                               |            |  |

 
|                                                                                                                      | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                           | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Weighted-average  grant-date fair value of restricted units granted for the year ended                               |       | $                                          | 1,993,658  |   | $ | 996,423 |   | $ | 1,172,083 |   |
| Total fair value of  restricted units vested / total intrinsic value of restricted units settled  for the year ended |       | 636,713                                    |       | 444,550 |   | 1,165,067 |   |
|                                                                                                                      |            |                                            |            |  |  |  |  |  |  |  |

 

For the year endedDecember 31, 2006, the Partnership issued 26,986 common units for vestedrestricted units.  For the years endedDecember 31, 2005 and 2004 the partnership issued 17,700 and 54,596 commonunits, respectively and an additional 500 units were acquired in the openmarket in 2005.

Of the totalnumber of restricted units that vested in 2006, 2005 and 2004, the Partnershipreceived no proceeds for issuing restricted units (other than the contributionsby the general partner to maintain its 2% ownership interest), and there wereno cash settlements.  Additionally, in2004 the Partnership’s opted to redeem 310 restricted units for cash.

*Unit Options**.** *TheCompensation Committee has the authority to make grants of unit options underthe plan to employees and directors containing such terms as the committeeshall determine. Unit options are exercisable over a period determined by theCompensation Committee. Unit options also are exercisable upon a change incontrol of the Partnership, the general partner, MarkWest Hydrocarbon or uponthe achievement of specified financial objectives.

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As of December 31, 2006,the Partnership had not granted any unit options.

**16.****      ****Employee Benefit Plan**

TheCompany made contributions of $1.0 million, $1.0 million and $0.5 million to a401(k) savings and profit-sharing plan for the years ended December 31, 2006,2005 and 2004, respectively. The Company did not contribute any common sharesto a 401(k) savings or profit-sharing plan for the year ended December 31,2006.  The Company contributedapproximately 12,000 and 15,000 common shares to a 401(k) savings andprofit-sharing plan for the years ended December 31, 2005 and 2004,respectively, with an aggregate fair value of $1.0 million and $0.2 million,respectively.  The plan is discretionary, with annual contributionsdetermined by the Company’s Board of Directors.

**17.****       Stockholder’s equity**

***MarkWest Hydrocarbon***

*Cash Dividends*

The Company paidquarterly cash dividends for the years ended December 31, 2006, 2005 and2004, as retroactively restated to give effect to the 2006 and 2004 stockdividends (see below) as follows:

| Quarter ended       | ** ** | **Dividend** | ** ** | **Record Date**    | ** **              | **Payment Date** | ** **              |
|--------------------------|------------|--------------|------------|-------------------------|-------------------------|-----------------------|-------------------------|
| December 31,  2006  |       | $            | 0.300      |                    | February  9, 2007       |                  | February  21, 2007      |   |
| September 30,  2006 |       | 0.280        |       | November  9, 2006       |                    | November  21, 2006    |                    |
| June 30,  2006      |       | 0.240        |       | August  14, 2006        |                    | August  21, 2006      |                    |
| March 31,  2006     |       | 0.159        |       | May  26, 2006           |                    | June  5, 2006         |                    |
|                     |       |         |       |                    |                    |                  |                    |
| December 31,  2005  |       | $            | 0.114      |                    | February 15,  2006 |                  | February 22,  2006 |   |
| September 30,  2005 |       | 0.114        |       | November 15,  2005 |                    | November  22, 2005    |                    |
| June 30,  2005      |       | 0.091        |       | August 15,  2005   |                    | August 22,  2005 |                    |
| March 31,  2005     |       | 0.091        |       | May 16,  2005      |                    | May 23,  2005    |                    |
|                     |       |         |       |                    |                    |                  |                    |
| December 31,  2004  |       | $            | 0.068      |                    | February  9, 2005       |                  | February  21, 2005      |   |
| September 30,  2004 |       | 0.045        |       | November  24, 2004      |                    | December  6, 2004     |                    |
| June 30,  2004      |       | 0.021        |       | August  5, 2004         |                    | August  19, 2004      |                    |
| March 31, 2004      |       | 0.021        |       | May 5, 2004             |                    | May 19, 2004          |                    |

 

*Stock Dividends*

OnApril 27, 2006, MarkWest Hydrocarbon announced that its Board of Directorsapproved the issuance of one share of common stock for each ten shares ofcommon stock held by common stockholders. The stock was issued on May 23, 2006,to the stockholders of record as of the close of business on May 11, 2006; theex-dividend date was May 9, 2006.

OnOctober 28, 2004, the Company’s Board of Directors declared a stockdividend of one share of MarkWest Hydrocarbon’s common stock for each tenshares owned by stockholders.  The stock dividend of 976,974 shares waspaid on November 19, 2004 to the stockholders of record as of the close ofbusiness on November 9, 2004.

*Cash Dividend*

OnJanuary 22, 2004, the Board of Directors declared a one-time special cashdividend of $0.50 per share of common stock.  The dividend was paid onFebruary 18, 2004 to stockholders of record as of the close of business onFebruary 4, 2004, with an ex-dividend date of February 2, 2004.

***MarkWest Energy Partners***

*UnitSplit - February 28, 2007*

OnFebruary 28, 2007 the Partnership completed a two-for-one split of thePartnership’s Common Units, whereby holders of record at the close of businesson February 22, 2007 received one additional Common Unit for each Common Unitowned on that date.  The unit splitresulted in the issuance of an additional 15,603,257 common units and 600,000

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subordinatedunits.  For all periods presented, allPartnership specific references to the number of units and per unit net incomeand distribution amounts included in this report have been adjusted to give theeffect to the unit split.

*Public Offering – July 6, 2006*

The Partnership priced its offering of 6,000,000common units at $19.875 per unit. In addition, on July 12, 2006, thePartnership completed the sale of an additional 600,000 common units to coverover-allotments in connection with the Common Unit Offering. The sale of unitsresulted in total gross proceeds of $131.2 million, and net proceeds ofapproximately $125.9 million, after the underwriters’ commission and legal,accounting and other transaction expenses. The Partnership used the netproceeds from the offering, which includes a capital contribution from itsgeneral partner to maintain its 2% general partner interest in the Partnership,to repay a portion of the outstanding indebtedness under term debt on thePartnership Credit Facility.

*Private Placement –December 28, 2005*

The Partnership sold 1,149,428 common units to certainaccredited investors at $21.75 per common unit, for gross proceeds of $25.0million.  $20 million of the proceedswere received in December 2005.  Theremaining $5 million was accrued at December 31, 2005, and received inJanuary 2006.  Offering costs of$0.1 million reduced the aggregate gross proceeds of $25.0 million to $24.9million of net proceeds.

*Private Placement –November 11, 2005*

The Partnership sold 3,288,130 common units to certainaccredited investors at $22.11 per common unit, for gross proceeds of $72.7million.  Offering costs of $0.1 millionreduced the aggregate gross proceeds of $72.7 million to $72.6 million of netproceeds.

*Public Offering – September 21,2004*

ThePartnership priced its offering of 4,314,790 common units at $21.71 per unit.The Partnership sold 4,000,000 units, for gross proceeds of $86.8 million. Theremaining 314,790 were sold by certain unitholders, who retained the proceeds. In connection with the over-allotmentprovisions of the underwriting agreement, the Partnership issued an additional647,218 common units, for gross proceeds of $14.1 million. Underwriters’fees of $4.8 million, and professional fees and other offering costs of $0.4million, reduced the gross proceeds of $100.9 million to $95.7 million of net proceeds.The net proceeds of $95.7 million, and the $2.1 million contributed by thegeneral partner to maintain its 2% interest, resulted in total net proceedsassociated with the offering of $97.8 million.

*Private Placement – July 30,2004*

ThePartnership sold 2,608,876 common units to certain accredited investors at$17.25 per common unit, for gross proceeds of $45.0 million. Offering costs of$0.9 million reduced the aggregate gross proceeds of $45.0 million to $44.1million of net proceeds. The net proceeds of $44.1 million, and the $0.9million contributed by the general partner to maintain its 2% interest,resulted in total net proceeds associated with the private placement of $45.0million.

###### *Public Offering –**January 12, 2004*

ThePartnership priced its offering of 2,296,000 common units at $19.95 per unit.The Partnership sold 2,200,888 units, for gross proceeds of $43.9 million. Theremaining 95,112 were sold by certain unitholders, who retained the proceeds. In connection with the over-allotment provisionsof the underwriting agreement, the Partnership issued an additional 145,000common units, for gross proceeds of $2.9 million. Underwriters’ fees of$2.5 million, and professional fees and other offering costs of $1.3 million,reduced the gross proceeds of $46.8 million to $43.0 million of net proceeds.The net proceeds of $43.0 million, and the $0.9 million contributed by thegeneral partner to maintain its 2% interest, resulted in total net proceeds of$43.9 million.

**18.****       Commitments andcontingencies**

*Legal*

In the ordinarycourse of its business the Company is subject to a variety of risks anddisputes normal to its business and as a party to various legal proceedings. Wemaintain insurance policies in amounts and with coverage and deductibles as webelieve are reasonable and prudent. However, we cannot assure either that theinsurance companies will promptly honor their policy obligations or that thecoverage or levels of insurance will be adequate to protect us from allmaterial expenses related to future claims for property loss or businessinterruption to the Company; or for third-party claims of personal andproperty damage; or that the coverages or levels of insurance it currently haswill be available in the future at economical prices.

 

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In 2005 MarkWestHydrocarbon, the Partnership, several of its affiliates, and an unrelatedco-defendant, were served with three lawsuits, which in 2006 were consolidatedinto a single action captioned *Ricky J.Conn, et al. v. MarkWest Hydrocarbon, Inc. et al.,* FloydCircuit Court, Commonwealth of Kentucky, and Civil Action No. 05-CI-00137(consolidated March 27, 2006 of three cases originally filed February,2005).  These actions involved third-partyclaims of property and personal injury damages sustained as a consequence of anNGL pipeline leak and an ensuing explosion and fire that occurred onNovember 8, 2004 in Ivel Kentucky. The pipeline was owned by an unrelatedbusiness entity, Equitable Production Company, and leased and operated by thePartnership’s subsidiary, MarkWest Energy Appalachia, LLC (“MEA”). MEAtransports NGLs from the Maytown gas processing plant to MEA’s Siloamfractionator. The explosion and fire from the leaked vapors resulted inproperty damage to several residential structures and injuries to some of theresidents.

The Company notified its general liability insurancecarriers of the incident and the lawsuits in a timely manner and coordinatedits legal defense with the insurers. As of February 1, 2007, all of the claimsin the litigation were fully settled, with MarkWest’s insurance carrier and itsco-defendant and its separate insurance carrier, funding the settlements.

In June 2006, a Notice of Probable Violation andProposed Civil Penalty (NOPV) (CPF No. 2-2006-5001) was issued by OPS to bothMarkWest Hydrocarbon and Equitable Production Company, the owner of thepipeline, asserting six counts of violations of applicable regulations, and aproposed civil penalty in the aggregate amount of $1,070,000. An administrativehearing on the matter is presently set for the last week of March, 2007.  One of the counts of violations, which countinvolves $825,000 of the $1,070,000proposed penalty, concerns alleged activity in 1982 and 1987, which datespredate MarkWest’s leasing and operation of the pipeline.  MarkWest believes it has viable defenses tothe remaining counts and will vigorously defend all applicableassertions of violations at the hearing.

Related to the above referenced pipeline incident,MarkWest Hydrocarbon and the Partnership have filed an independent actioncaptioned *MarkWest Hydrocarbon, Inc.,et al. v. Liberty Mutual Ins. Co., et al.* (District Court, ArapahoeCounty, Colorado, Case No. 05CV3953 filed August 12, 2005), asremoved to the U.S. District Court for the District of Colorado, (Civil ActionNo. 1:05-CV-1948, on October 7, 2005) against its All-Risks Propertyand Business Interruption insurance carriers as a result of the insurancecompanies’ refusal to honor their insurance coverage obligation to pay theCompany for certain expenses related to the pipeline incident. These includethe Company’s internal expenses and costs incurred for damage to, and loss ofuse of the pipeline, equipment and products; the extra transportation costsincurred for transporting the liquids while the pipeline was out of service;the reduced volumes of liquids that could be processed; and the costs ofcomplying with the OPS Corrective Action Order (hydrostatic testing,repair/replacement and other pipeline integrity assurance measures). Theseexpenses and costs have been expensed as incurred and any potential recoveryfrom the All-Risks Property and Business Interruption insurance carriers willbe treated as “other income” if and when it is received. Following initialdiscovery, the Company was granted leave of the Court to amend its complaint toadd a bad faith claim, and a claim for punitive damages.  The Company has not provided for a receivablefor any of the claims in this action because of the uncertainty as to whetherand how much the Company will ultimately recover under the policies. Discoveryin the action is continuing.  The Companyhas also asserted that the cost of pipeline testing, replacement and repair aresubject to an equitable sharing arrangement with the pipeline owner, pursuantto the terms of the pipeline lease agreement.

The Company justrecently learned that a default judgment had been entered against it in May of2006, in an action entitled *Runyan v. Eclipse RealtyLLC et a*l, (Arapahoe County District Court, Colorado, Case No.06CV1054, filed February 2006). The Company was not aware of having everreceived a summons and was not given any notification of a motion for defaultjudgment.  The Company is stillinvestigating whether there ever was proper service of process.  The action involves a personal injury claimby an individual who allegedly slipped and fell due to snowy conditions whileapproaching the office building in which the Company was one of severaltenants.  Eclipse Realty, the landlord ofthe building, was responsible for the maintenance and upkeep of the commonareas of the office building.  TheCompany is seeking to have the default judgment vacated, and then having theCompany dismissed as an improper party to the action.  The Company also has a contractual indemnificationfrom Eclipse Realty, the landlord of the building, and we have demanded thatEclipse Realty defend and indemnify the Company.  We are unable to predict the outcome of ourmotion to vacate the default judgment or our indemnification claim, but theCompany does not expect at this time that the matter should have a materialadverse effect on our financial position.

The Partnership received notice from one of itscustomers of a potential gas measurement discrepancy and invoice errors,claiming it is owed several hundred thousand MMBtus as a result. ThePartnership generally disputes the claims under the facts and under the termsof the contract with the customer, but is in discussions with the customer toevaluate and resolve all issues, and it appearsat this time that this claim should not have a material adverse impact on thePartnership.

88

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With regard to the Partnership’s Javelina facility,MarkWest Javelina is a party with numerous other defendants to several lawsuitsbrought by various plaintiffs who had residences or businesses located near theCorpus Christi industrial area, an area which included the Javelina gasprocessing plant, and several petroleum, petrochemical and metal processing andrefining operations. These suits, *VictorHuff v. ASARCO Incorporated, et al*. (Cause No. 98-01057-F, 214th JudicialDist. Ct., County of Nueces, Texas, original petition filed in March 3,1998); *Hipolito Gonzales et al. v. ASARCOIncorporated, et al*., (Cause No. 98-1055-F, 214th JudicialDist. Ct., County of Nueces, Texas, original petition filed in 1998); *Jason and Dianne Gutierrez, individually and asrepresentative of the estate of Sarina Galan Gutierrez* (CauseNo. 05-2470-A, 28TH Judicial District, severed May 18, 2005,from the *Gonzales* case cited above);and *Esmerejilda G. Valasquez, et al. v. OccidentalChemical Corp., et al.,*Case No. A-060352-C, 128th Judicial District, Orange County, Texas,original petition filed July 10, 2006; as refiled from previously dismissedpetition captioned *Jesus Villarreal v. KochRefining Co. et al*., CauseNo. 05-01977-F, 214th Judicial Dist. Ct., County of Nueces, Texas,originally filed April 27, 2005), set forth claims for wrongful death,personal injury or property damage, harm to business operations and nuisance typeclaims, allegedly incurred as a result of operations and emissions from thevarious industrial operations in the area or from products Defendants allegedlymanufactured, processed, used, or distributed. The *Gonzales* action was settled in early 2006 pursuant to amediation held December 9, 2005. The other actions have been and are beingvigorously defended and, based on initial evaluation and consultations; itappears at this time that these actions should not have a material adverseimpact on the Partnership.

In the ordinary course of business, the Company is a party to variousother legal actions. While it is not possible to predict the outcome of thelegal actions with certainty, management is of the opinion that appropriateprovision and accruals for potential losses associated with all legal actionshave been made in the financial statements. In the opinion of management, none of these actions, either individuallyor in the aggregate, will have a material adverse effect on the Company’sfinancial condition, liquidity or results of operations.

*Lease Obligations*

*The Company has various non-cancelable operating lease agreements forequipment expiring at various times through fiscal 2015. Annual rent expenseunder these operating leases was $9.3 million, $7.0 million and $5.2 millionfor the years ended December 31, 2006, 2005, and 2004, respectively. Theminimum future lease payments under these operating leases as ofDecember 31, 2006, are as follows (in thousands):*

| Year ended December 31, | ** ** |
|----------------------------------------|------------|
| 2007                                   |       | $ | 9,415 |   |
| 2008                                   |       | 5,521 |   |
| 2009                                   |       | 2,973 |   |
| 2010                                   |       | 1,942 |   |
| 2011                                   |       | 1,595 |   |
| 2012 and  thereafter                   |       | 5,139 |   |
|                                   |       | $ | 26,585 |   |

 

***19.*****      ****Related party transactions**

Throughthe Company’s wholly owned subsidiary, Matrex, LLC, the Company held interestsin a few exploration and production assets in which MAK-J Energy Partners Ltd.(“MAK-J”) also owns interests.  These interests were sold onOctober 7, 2005.  The generalpartner of MAK-J is a corporation owned and controlled by the Company’s formerPresident and Chief Executive Officer and current Chairman of the Board ofDirectors.

Therewere no outstanding related party receivables as of December 31, 2006 or2005.  The Company also has payables toMAK-J, representing its share of revenues generated in the normal course ofbusiness, of zero and less than $0.1 million as of December 31, 2006 and2005, respectively.

***20.*****      ****Subsequent Events**

On February 16, 2007, the Company entered into thefirst amendment to the second amended and restated credit agreement, increasingthe term by one year to August 20, 2010, and providing an additional $50million of credit to enable the Company to meet margin requirements associatedwith its derivative instruments.

In thefirst quarter of 2007, the Partnership’s Gulf Coast business unit receivedproceeds of $5.5 million from a recently concluded rate case.  The proceeds will be recorded as a reductionof facilities expense and interest income in the first quarter results ofoperations.

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## **21.****       Segment Information**

MarkWestHydrocarbon’s operations are classified into two reportable segments:

1.               *MarkWest Hydrocarbon Standalone* – TheCompany sells its equity and third-party NGLs, purchases third-party naturalgas and sells its equity and third-party natural gas. Between February 2004 andJune 2006, when the agreement was terminated, the Company was engaged in thewholesale propane marketing business through a third party agency agreement.MarkWest Hydrocarbon Standalone operates MarkWest Energy Partners, a publiclytraded limited partnership.

2.               *MarkWest Energy Partners* – The Partnershipis engaged in the gathering, processing and transmission of natural gas; thetransportation, fractionation and storage of natural gas liquids; and thegathering and transportation of crude oil.

TheCompany evaluates the performance of its segments and allocates resources tothem based on operating income. The Company conducts its operations in theUnited States.

Thetables below present information about the net income or net loss for thereported segments for the three years ended December 31, 2006, 2005 and 2004(in thousands). Net income or net loss for each segment includes total revenuesminus purchased product costs, facility expenses, selling, general andadministrative expenses, depreciation, amortization of intangible assets,accretion of asset retirement obligations and impairments and excludes interestincome, interest expense, amortization of deferred financing costs, gain onsale of non-operating assets, non-controlling interest in net income of consolidatedsubsidiary, miscellaneous income or expense and income taxes.

Selling,general and administrative expenses are allocated to the segments based ondirect expenses incurred by the segments or allocated based on the percent of time that employees devote tothe segment in accordance with the Partnership’s services agreement with theCompany.
| ** **                                                                                              | ** ** | **MarkWest  Hydrocarbon  Standalone** | ** ** | **MarkWest  Energy  Partners** | ** ** | **Consolidating  Entries** | ** ** | **Total**  | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------|------------|----------------------------|------------|------------|------------|
| **Year  ended December 31, 2006:**                                                                      | ** ** | ** **                            | ** ** | ** **                     | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Revenues:                                                                                               |       |                                  |       |                           |       |                       |       |       |       |
| Revenue                                                                                                 |       | $                                     | 278,655    |                           | $          | 570,320                    |       | $          | (73,636    | ) | $ | 775,339 |   |
| Derivative gain                                                                                         |       | 4,751                                 |       | 5,632                          |       | —                     |       | 10,383     |       |
| Total revenue                                                                                           |       | 283,406                               |       | 575,952                        |       | (73,636                    | )          | 785,722    |       |
|                                                                                                    |       |                                  |       |                           |       |                       |       |       |       |
| Purchased product costs                                                                                 |       | 239,359                               |       | 322,278                        |       | (49,310                    | )          | 512,327    |       |
| Facility expenses                                                                                       |       | 21,617                                |       | 60,112                         |       | (24,326                    | )          | 57,403     |       |
| Selling, general and administrative expenses                                                            |       | 18,853                                |       | 44,185                         |       | —                     |       | 63,038     |       |
| Depreciation                                                                                            |       | 1,017                                 |       | 29,993                         |       | —                     |       | 31,010     |       |
| Amortization of intangible assets                                                                       |       | —                                |       | 16,047                         |       | —                     |       | 16,047     |       |
| Accretion of asset retirement and lease obligations                                                     |       | —                                |       | 102                            |       | —                     |       | 102        |       |
| Income from operations                                                                                  |       | 2,560                                 |       | 103,235                        |       | —                     |       | 105,795    |       |
|                                                                                                    |       |                                  |       |                           |       |                       |       |       |       |
| Other income  (expense):                                                                                |       |                                  |       |                           |       |                       |       |       |       |
| Earnings from  unconsolidated affiliates                                                                |       | —                                |       | 5,316                          |       | —                     |       | 5,316      |       |
| Interest income                                                                                         |       | 612                                   |       | 962                            |       | —                     |       | 1,574      |       |
| Interest expense                                                                                        |       | (276                                  | )          | (40,666                        | )          | —                     |       | (40,942    | )          |
| Amortization of deferred financing costs and  original issue discount (a component of interest expense) |       | (135                                  | )          | (9,094                         | )          | —                     |       | (9,229     | )          |
| Dividend income                                                                                         |       | 447                                   |       | —                         |       | —                     |       | 447        |       |
| Miscellaneous income                                                                                    |       | 437                                   |       | 11,100                         |       | —                     |       | 11,537     |       |
| Income before non-controlling interest in net income  of consolidated subsidiary and income taxes       |       | 3,645                                 |       | 70,853                         |       | —                     |       | 74,498     |       |
| Income tax expense                                                                                      |       | (5,124                                | )          | (769                           | )          | 641                        |       | (5,252     | )          |
| Non-controlling interest in net income of  consolidated subsidiary                                      |       | —                                |       | —                         |       | (59,709                    | )          | (59,709    | )          |
| Interest in net income of consolidated subsidiary                                                       |       | 11,016                                |       | —                         |       | (11,016                    | )          | —     |       |
| Net income                                                                                              |       | $                                     | 9,537      |                           | $          | 70,084                     |       | $          | (70,084    | ) | $ | 9,537 |   |

 

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| ** **                                                                                               | ** ** | **Markwest  Hydrocarbon  Standalone** | ** ** | **Markwest  Energy  Partners** | ** ** | **Consolidating  Entries** | ** ** | **Total**  | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------|------------|----------------------------|------------|------------|------------|
| **Year  ended December 31, 2005:**                                                                       | ** ** | ** **                            | ** ** | ** **                     | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Revenues:                                                                                                |       |                                  |       |                           |       |                       |       |       |       |
| Revenue                                                                                                  |       | $                                     | 281,362    |                           | $          | 500,935                    |       | $          | (64,922    | ) | $ | 717,375 |   |
| Derivative loss                                                                                          |       | (1,347                                | )          | (1,851                         | )          | —                     |       | (3,198     | )          |
| Total revenue                                                                                            |       | 280,015                               |       | 499,084                        |       | (64,922                    | )          | 714,177    |       |
|                                                                                                     |       |                                  |       |                           |       |                       |       |       |       |
| Purchased product costs                                                                                  |       | 258,188                               |       | 366,878                        |       | (41,982                    | )          | 583,084    |       |
| Facility expenses                                                                                        |       | 20,545                                |       | 47,972                         |       | (22,940                    | )          | 45,577     |       |
| Selling, general and administrative expenses                                                             |       | 11,777                                |       | 21,573                         |       | —                     |       | 33,350     |       |
| Depreciation                                                                                             |       | 1,295                                 |       | 19,534                         |       | —                     |       | 20,829     |       |
| Amortization of intangible assets                                                                        |       | —                                |       | 9,656                          |       | —                     |       | 9,656      |       |
| Accretion of asset retirement and lease obligations                                                      |       | 1                                     |       | 159                            |       | —                     |       | 160        |       |
| Income (loss) from operations                                                                            |       | (11,791                               | )          | 33,312                         |       | —                     |       | 21,521     |       |
|                                                                                                     |       |                                  |       |                           |       |                       |       |       |       |
| Other income  (expense):                                                                                 |       |                                  |       |                           |       |                       |       |       |       |
| Losses from unconsolidated affiliates                                                                    |       | —                                |       | (2,153                         | )          | —                     |       | (2,153     | )          |
| Interest income                                                                                          |       | 693                                   |       | 367                            |       | —                     |       | 1,060      |       |
| Interest expense                                                                                         |       | (153                                  | )          | (22,469                        | )          | —                     |       | (22,622    | )          |
| Amortization of deferred financing costs and  original issue discount (a component of interest expense)  |       | (199                                  | )          | (6,780                         | )          | —                     |       | (6,979     | )          |
| Dividend income                                                                                          |       | 392                                   |       | —                         |       | —                     |       | 392        |       |
| Miscellaneous income                                                                                     |       | 215                                   |       | 51                             |       | —                     |       | 266        |       |
| Income (loss) before non-controlling interest in net  income of consolidated subsidiary and income taxes |       | (10,843                               | )          | 2,328                          |       | —                     |       | (8,515     | )          |
| Income tax benefit                                                                                       |       | 1,804                                 |       | —                         |       | —                     |       | 1,804      |       |
| Non-controlling interest in net income of  consolidated subsidiary                                       |       | —                                |       | 27                             |       | (118                       | )          | (91        | )          |
| Interest in net income of consolidated subsidiary                                                        |       | 2,237                                 |       | —                         |       | (2,237                     | )          | —     |       |
| Net income  (loss)                                                                                       |       | $                                     | (6,802     | )                              | $          | 2,355                      |       | $          | (2,355     | ) | $ | (6,802 | ) |

 
| ** **                                                                                               | ** ** | **Markwest  Hydrocarbon  Standalone** | ** ** | **Markwest  Energy  Partners** | ** ** | **Consolidating  Entries** | ** ** | **Total**  | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------|------------|----------------------------|------------|------------|------------|
| **Year  ended December 31, 2004:**                                                                       | ** ** | ** **                            | ** ** | ** **                     | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Revenues:                                                                                                |       |                                  |       |                           |       |                       |       |       |       |
| Revenue                                                                                                  |       | $                                     | 222,082    |                           | $          | 302,134                    |       | $          | (59,538    | ) | $ | 464,678 |   |
| Derivative loss                                                                                          |       | (3,745                                | )          | (820                           | )          | —                     |       | (4,565     | )          |
| Total revenue                                                                                            |       | 218,337                               |       | 301,314                        |       | (59,538                    | )          | 460,113    |       |
|                                                                                                     |       |                                  |       |                           |       |                       |       |       |       |
| Purchased product costs                                                                                  |       | 185,951                               |       | 211,534                        |       | (34,224                    | )          | 363,261    |       |
| Facility expenses                                                                                        |       | 23,983                                |       | 29,911                         |       | (25,314                    | )          | 28,580     |       |
| Selling, general and administrative expenses                                                             |       | 11,999                                |       | 16,133                         |       | —                     |       | 28,132     |       |
| Depreciation                                                                                             |       | 1,339                                 |       | 15,556                         |       | —                     |       | 16,895     |       |
| Amortization of intangible assets                                                                        |       | —                                |       | 3,640                          |       | —                     |       | 3,640      |       |
| Accretion of asset retirement and lease obligations                                                      |       | 2                                     |       | 13                             |       | —                     |       | 15         |       |
| Impairments                                                                                              |       | —                                |       | 130                            |       | —                     |       | 130        |       |
| Income (loss) from operations                                                                            |       | (4,937                                | )          | 24,397                         |       | —                     |       | 19,460     |       |
|                                                                                                     |       |                                  |       |                           |       |                       |       |       |       |
| Other income  (expense):                                                                                 |       |                                  |       |                           |       |                       |       |       |       |
| Interest income                                                                                          |       | 560                                   |       | 87                             |       | —                     |       | 647        |       |
| Interest expense                                                                                         |       | (147                                  | )          | (9,236                         | )          | —                     |       | (9,383     | )          |
| Amortization of deferred financing costs and  original issue discount (a component of interest expense)  |       | (45                                   | )          | (5,236                         | )          | —                     |       | (5,281     | )          |
| Dividend income                                                                                          |       | 259                                   |       | —                         |       | —                     |       | 259        |       |
| Miscellaneous  income (expense)                                                                          |       | 838                                   |       | (50                            | )          | —                     |       | 788        |       |
| Income (loss) before non-controlling interest in net  income of consolidated subsidiary and income taxes |       | (3,472                                | )          | 9,962                          |       | —                     |       | 6,490      |       |
| Income tax  expense                                                                                      |       | (78                                   | )          | —                         |       | —                     |       | (78        | )          |
| Non-controlling  interest in net income of consolidated subsidiary                                       |       | 511                                   |       | —                         |       | (7,826                     | )          | (7,315     | )          |
| Interest in net  income of consolidated subsidiary                                                       |       | 2,136                                 |       | —                         |       | (2,136                     | )          | —     |       |
| Net income  (loss)                                                                                       |       | $                                     | (903       | )                              | $          | 9,962                      |       | $          | (9,962     | ) | $ | (903 | ) |

 

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***22.  Quarterly*****Results of Operations****(Unaudited)**

The followingsummarizes the Company’s quarterly results of operations for 2006 and 2005 (inthousands, except per share data):
|                               | ** ** | **Three months ended** | ** ** |
|-------------------------------|------------|----------------------------------|------------|
| **2006**                      | ** ** | **March 31**                | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| Revenue                       |       | $                                | 239,621    |   | $ | 173,533 |   | $ | 206,237 |   | $ | 166,331 |   |
| Income from  operations       |       | 21,955                           |       | 17,566 |   | 52,113 |   | 14,161 |   |
| Net income  (loss)            |       | 2,832                            |       | (2,132 | ) | 10,004 |   | (1,167 | ) |
|                          |       |                             |       |   |   |   |   |   |   |
| Net income  (loss) per share: |       |                             |       |   |   |   |   |   |   |
| Basic                         |       | $                                | 0.26       |   | $ | (0.18 | ) | $ | 0.84 |   | $ | (0.10 | ) |
| Diluted                       |       | $                                | 0.26       |   | $ | (0.18 | ) | $ | 0.83 |   | $ | (0.10 | ) |

 
|                                | ** ** | **Three months ended** | ** ** |
|--------------------------------|------------|----------------------------------|------------|
| **2005**                       | ** ** | **March 31**                | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| Revenue                        |       | $                                | 138,353    |   | $ | 141,040 |   | $ | 170,625 |   | $ | 264,159 |   |
| Income (loss)  from operations |       | 9,446                            |       | 1,475 |   | (2,485 | ) | 13,085 |   |
| Net income  (loss)             |       | 1,539                            |       | (1,609 | ) | (5,688 | ) | (1,044 | ) |
|                           |       |                             |       |   |   |   |   |   |   |
| Net income  (loss) per share:  |       |                             |       |   |   |   |   |   |   |
| Basic                          |       | $                                | 0.14       |   | $ | (0.14 | ) | $ | (0.48 | ) | $ | (0.09 | ) |
| Diluted                        |       | $                                | 0.14       |   | $ | (0.14 | ) | $ | (0.48 | ) | $ | (0.09 | ) |

 

**23.****       Valuation and QualifyingAccounts**

Activity in theallowance for doubtful accounts is as follows (in thousands):

|                                | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2006**              | ** ** | **2005** | ** ** | **2004** | ** ** |
| Balance,  beginning of period  |       | $                     | 175        |   | $ | 249 |   | $ | 120 |   |
| Charged to costs  and expenses |       | 141                   |       | 46 |   | 277 |   |
| Other charges  (1)             |       | (160                  | )          | (120 | ) | (148 | ) |
| Balance, end of period         |       | $                     | 156        |   | $ | 175 |   | $ | 249 |   |

 

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(1)       Bad debts written off (net of recoveries).

**Item 9. Changes in and Disagreements WithAccountants on Accounting and Financial Disclosure**

On September 20,2005, the Company engaged Deloitte & Touche LLP as the Registrant’sindependent registered public accounting firm for the year endingDecember 31, 2005, and to perform procedures related to the financialstatements included in the Company’s quarterly reports on Form 10-Q,beginning with the quarter ended September 30, 2005. The Audit Committeemade the decision to engage Deloitte & Touche and that decision was thenapproved, adopted and ratified by the Company’s Board of Directors. The Companyhad not consulted with Deloitte & Touche during the two most recent fiscalyears or during any subsequent interim period prior to its appointment asauditor regarding either (i) the application of accounting principles to aspecified transaction, either completed or proposed; or the type of auditopinion that might be

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rendered on theRegistrant’s consolidated financial statements, and neither a written reportwas provided to the Partnership nor oral advice was provided that Deloitte& Touche concluded was an important factor considered by the Partnership inreaching a decision as to the accounting, auditing or financial reportingissue; or (ii) any matter that was either the subject of disagreement (asdefined in Item 304(a)(1)(iv) of Regulation S-K and the relatedinstructions) or a reportable event (within the meaning ofItem 304(a)(1)(v) of Regulation S-K).

**Item 9A.Controls and Procedures**

**Evaluation of Disclosure Controlsand Procedures**

Disclosure controls and procedures (as defined inRule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)) are controls and other procedures that are designed to providereasonable assurance that the information that we are required to disclose in thereports that we file or submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the SEC’s rulesand forms, and that such information is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate to allow timely decisions regarding required disclosure.

In connection with the preparation of this AnnualReport, our management, with the participation of our Chief Executive Officerand our Chief Financial Officer, carried out an evaluation of the effectivenessof the design and operation of our disclosure controls and procedures as ofDecember 31, 2006. In making this evaluation, our management consideredmaterial weaknesses discussed in Management’s Report on Internal Control OverFinancial Reporting. Based on this evaluation, our Chief Executive Officer andChief Financial Officer concluded that our disclosure controls and procedureswere not effective at the reasonable assurance level as of December 31, 2006.

In light of thematerial weakness described in Management’s Report on Internal Control OverFinancial Reporting, through the date of the filing of this Form 10-K, wehave implemented remedial measures to address the material weakness in ourinternal controls that existed on December 31, 2006.  The remediationprocedures included detailed management review of substantially all contractsin effect at December 31, 2006, for the presence of derivatives or embeddedderivatives. In addition, we have enhanced The procedures around contractreviews and monitoring of new accounting guidance, including the development ofa newly designed contract review template. Based on these procedures,management has concluded that the material weakness that existed at December31, 2006 had been remediated prior to the filing of this report.  Accordingly, management believes that theconsolidated financial statements included in this Annual Report present fairly,in all material respects, our financial condition, results of operations andcash flows as of, and for, the periods presented in conformity with GAAP.

*Changesin Internal Control Over Financial Reporting*

There have been changesin our internal controls over financial reporting that occurred during thefiscal quarter ended December 31, 2006 and subsequent to that date thathave materially affected or are reasonably likely to materially affect ourinternal controls over financial reporting:

**Remediation of Prior Year’sMaterial Weaknesses in Internal Control**

As reported in *Item 9A. Controls and Procedures* of the Company’s 2005 Form10-K, material weaknesses existed in the Company’s control structure as ofDecember 31, 2005 and 2004.  Theremediation of these material weaknesses and underlying significantdeficiencies were addressed by a series of actions detailed in prior filings.

Although each ofthe individual control changes may not be material alone, in aggregate thecontrol changes implemented have had a material impact on the effectiveness ofthe control environment.

*Internal Control Environment.*  Inconnection with management’s assessment of the effectiveness of internalcontrol over financial reporting for the year ended December 31, 2005, weidentified and Deloitte & Touche LLP confirmed the presence of anongoing material weakness related to our internal control environment.Specifically, our control environment did not sufficiently promote effectiveinternal control over financial reporting through the management structure to preventa material misstatement, as was evidenced by deficiencies or significantdeficiencies.

In order to remediate this material weakness, we completed the followingactions between July 2005 and December 2006:

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*Deficiencyor significant deficiency identified at December 31, 2005, and the remediationactivity:*

*Entitylevel controls,**including the anti-fraudprogram and controls necessary to address the Committee of SponsoringOrganizations of the Treadway Commission (“COSO”) elements of risk assessment,information and communication, were inadequate.*

·                    We establisheda compliance office focused on the entity-level risk assessment, controldesign, deficiency identification and remediation, detailed review andre-documentation of all of our internal control processes and implementation ofsignificant internal control design changes to ensure that all internal controlobjectives are met.

·                    We conductedan entity-level risk assessment, established an internal audit plan andbegan to execute that internal audit plan. Results are reported directly to ourgeneral partner’s audit committee and to senior management.

·                    We establisheda Fraud Risk Assessment and Management Program and executed that program.

·                    We enhancedemployee awareness of our already existing Code of Conduct, ethics andanti-fraud policies, through a training program that we delivered tosubstantially all employees in the second and third quarters of 2006. Thistraining included heightened awareness of the ethics hotline availability andaccess options.

*Fixed assets controls including instances of inappropriateauthorization of invoices and improper reconciliation procedures.*

·                    Weformalized the monthly account reconciliation process for all balance sheetaccounts.  We implemented a formal review of reconciliations by ourbusiness unit accounting management.

·                    We conducted adetailed review and re-documentation of all of our control processes and madesignificant control design changes to ensure that all control objectives aremet.

*Controls over expenditures including instances ofinappropriate authorization of invoices and the inability to independentlyvalidate accuracy and validity of amounts recorded.*

·                    Westrengthened our expenditure controls and centralized all expenditureprocessing in the Denver office.

*Segregation of duties within certain key processes wasinadequate to support management’s assertions with respect to accuracy andcompleteness of financial records.*

·                    We establishedcontrols for the review of each process and software system to identifypotential segregation of duties issues and established proper segregation ofduties or mitigating controls throughout the organization.

*Application controls over financially significantapplications with respect to change management and information systemsoperations.*

·                    We establishedcontrols for the review of the access to and security of financially relevantsoftware systems.

*Financial reporting controls related to the closing process,including control over non-routine transactions, unusual journal entries andthe use of estimates and judgment.*

·                    Westrengthened our disclosure review committee charter to solicit and reviewinput from management personnel throughout the Company regarding possibleinstances of fraud or significant events requiring disclosure.

·                    We implementeda technical accounting issues forum to address non-routine transactions and theuse of critical estimates and judgment.

·                    We formalizedthe monthly account reconciliation process for all balance sheet accounts andhave implemented a formal review of reconciliations by accounting management.

·                    Weconsolidated substantially all accounting functions in the Denver office toprovide enhanced communication and reporting capability.

*Accounting for Income Taxes related to reconciliation of taxaccounts.*

·                    We formalizedthe monthly account reconciliation process for all balance sheet accounts andhave implemented a formal review of reconciliations by accounting management.

·                    An additionalreview of financial statement presentation classifications is conducted priorto presentation and disclosure.

*Spreadsheet controls related to change management within keyfinancial spreadsheets.*

·                    We adopted newpolicies and practices around spreadsheets supported by new controls governing change management within key financialspreadsheets.

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·                    We augmentedthe new spreadsheet change management controls by identifying compensatingcontrols for reliance during the controls maturation process.

*Risk Managementand Accounting for Derivative Financial Instruments.*  Inconnection with management’s assessment of the effectiveness of internalcontrol over financial reporting for the year ended December 31, 2005, weidentified and Deloitte & Touche LLP confirmed, as ofDecember 31, 2005, the presence of an additional material weakness relatedto our risk management and accounting for derivative financial instruments. Wedid not have adequate internal controls and processes in place to support ourmanagement’s assertions with respect to the completeness, accuracy and validityof commodity transactions. The design of internal controls over commoditytransactions did not support the independent validation of data or control andreview of transaction activity.  Inparticular, personnel responsible for executing and entering transactions intocommodity accounting systems also had duties that were not compatible withtransaction execution and entry.  Inorder to remediate this material weakness, we added the following personnel inJuly 2005, January and September 2006, respectively:

·                    Vice Presidentof Risk and Compliance, to oversee and ensure improvements in our commoditytransaction verification and monitoring capabilities.

·                    Director of Risk Management and staff to establishappropriate verification and monitoring activities associated with ourcommodity transactions.

·                    Credit Manager, to establish more robustmonitoring and reporting processes around our credit concentrations and risk.

In order to further remediatethis material weakness, we also completed the following actions between July2005 and December 2006:

·                    We enhancedour risk management and credit policies to more clearly define the oversightroles and define the relationships and responsibilities of all involvedparties.  These policies were approved atthe October 2006 Board of Directors meeting.

·                    We enhanced our risk management policies andprocedures related to the review and approval of material purchase or salecontracts that may meet the definition of derivatives.

·                    We segregated our front-office (the transactionpersonnel), mid-office (the controllers), and back-office (the accountants)processes related to our financial commodity transactions and our physicaltrading activities.

·                    We enhancedour financial analysis around commodity transactions and our reporting toexecutive management and the board of directors.

·                    We moved theresponsibility for credit risk management to the mid-office and establishedenhanced procedures for the management of credit risk.

Management testsof controls conducted in the fourth quarter of 2006 and as of December 31,2006, provide reasonable assurance that the enhanced and changed controls wereoperating effectively and that the material weaknesses identified at December31, 2005, except for the narrowly defined material weakness reported atDecember 31, 2006 and described in the 2006 Management’s Report on InternalControls Over Financial Reporting, have been remediated.

Because Javelinawas acquired late in 2005, management did not include the internal controlprocesses for the Javelina entities in its assessment of internal controls asof December 31, 2005.  Management hasincluded all aspects of internal controls for Javelina in its 2006 assessment.

**Remediation of Current Year’sMaterial Weakness in Internal Control**

As reported inManagement’s Report on Internal Controls Over Financial Reporting, a materialweakness existed related to accounting for derivatives as of December 31,2006.  Specifically, there was an issuerelated to our prior year material weakness that had not been fully remediatedprior to year-end.  As of year-end,management did not have a process in place to monitor old contracts in responseto changes in SFAS 133 and had not conducted a comprehensive review of allcontracts entered into prior to 2006 for the purpose of ensuring thatdeterminations about derivative implications and SFAS 133 issues had been madeappropriately and remained appropriate. The reason such a comprehensive review was deemed necessary as thedeterminations related to these historical contracts were originally made in anenvironment where material weaknesses are known to have existed.  Inappropriate conclusions could lead toerrors, the most significant of which would likely be in recognition ofunrealized gains or losses.  Theremediation of this material weakness was addressed and completed by managementbefore the filing of this Form 10-K.

Subsequent toyear-end, management has enhanced the process for identifying derivatives and conducteda comprehensive review of substantially all contracts across the Company todetermine whether derivatives and embedded derivatives have been appropriatelyidentified and that those determinations remain appropriate given evolvingliterature.  No errors with respect toderivatives and embedded derivatives were noted in

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that review process.  With the conclusion of this review process,management believes this review effectively remediates the material weaknessthat was identified in the year-end 2006 assessment. Deloitte & Touche, LLPhas not audited our remediation procedures and disclaims an opinion on ourassertion that the material weakness has been remediated.

**Management’sReport on Internal Control Over Financial Reporting**

Management of the Company is responsible for establishing and maintainingadequate internal control over financial reporting, as defined in Rule13a-15(f) under the Exchange Act. The Company’s internal control over financialreporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples in the United States of America and includes those policies andprocedures that:

·                    pertain to themaintenance of records that in reasonable detail, accurately and fairly reflectthe transactions and dispositions of the assets of the Company;

·                    providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the Company arebeing made only in accordance with authorizations of management and directorsof the Company; and

·                    providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of the Company’s assets that could have amaterial effect on the financial statements.

Management,including our CEO and CFO, does not expect that our internal controls willprevent or detect all errors and all fraud.  A control system, no matterhow well designed and operated, can provide only reasonable, not absolute,assurance that the objectives of the control system are met. Further, thedesign of a control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to theircosts. In addition, any evaluation of the effectiveness of controls is subjectto risks that those internal controls may become inadequate in future periodsbecause of changes in business conditions, or that the degree of compliancewith the policies or procedures deteriorates.

Managementassessed the effectiveness of our internal controls over financial reporting asof December 31, 2006. In making this assessment, management used thecriteria established in Internal Control-Integrated Framework issued by theCOSO.

A materialweakness is a significant deficiency (within the meaning of Public CompanyAccounting Oversight Board Auditing Standard No. 2), or combination ofsignificant deficiencies, that result in there being a more than remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected.

At December 31,2006, management identified and Deloitte & Touche confirmed in theiropinion on internal controls, the existence of a continuing material weaknessrelated to accounting for derivatives. Specifically, there was an issue related to our prior year materialweakness that had not been fully remediated at year-end.  As of year-end, management did not have aprocess for monitoring existing contracts in response to changes in SFAS 133and had not conducted a comprehensive review of substantially all contractsentered into prior to 2006 for the purpose of ensuring that determinationsabout derivative implications and SFAS 133 issues were made appropriately andremained appropriate.  A comprehensivereview was deemed necessary as the determinations related to these historicalcontracts were originally made in an environment where material weaknesses areknown to have existed.  Inappropriateconclusions could lead to errors, the most significant of which would likely bein recognition of unrealized gains or losses.

Deloitte &Touche LLP, the independent registered public accounting firm that audited theconsolidated financial statements of the Company included in this Annual Reporton Form 10-K, has issued an attestation report on management’s assessmentof the effectiveness of the Company’s internal control over financial reportingas of December 31, 2006. The report, which expresses unqualified opinionson management’s assessment and an adverse opinion on the effectiveness of theCompany’s internal control over financial reporting as of December 31,2006, is included in this Item under the heading “Report of IndependentRegistered Public Accounting Firm”.
| Date: March 7, 2007  |   | By:    |   /s/FRANK M. SEMPLE      |   |
|---------------------------|--------|--------|-------------------------------------|--------|
|                      |   |   |   Frank M. Semple         |
|                      |   |   |   Chief Executive Officer |
|                      |   |   |                                |
| Date:  March 7, 2007 |   | By:    |   /s/NANCY K. BUESE       |   |
|                      |   |   |   Nancy K. Buese          |
|                      |   |   |   Chief Financial Officer |

 

**Report ofIndependent Registered Public Accounting Firm**

** **

To the Board ofDirectors and Stockholders of

MarkWest Hydrocarbon,Inc.

Denver, Colorado

 

We have auditedmanagement’s assessment, included in the accompanying****Management’sReport on Internal Control Over Financial Reporting,****thatMarkWest Hydrocarbon, Inc. and subsidiaries (the “Company”) did not maintaineffective internal control over financial reporting as of December 31, 2006,because of the effect of the material weakness identified in management’sassessment based on criteria established in *Internal Control -Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission. The Company’s management is responsible for maintaining 

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effective internalcontrol over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting. Our responsibility is to express an opinion on management’s assessmentand an opinion on the effectiveness of the Company’s internal control overfinancial reporting based on our audit.

 

We conducted ouraudit in accordance with the standards of the Public Company AccountingOversight Board (United States).  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects.  Ouraudit included obtaining an understanding of internal control over financialreporting, evaluating management’s assessment, testing and evaluating thedesign and operating effectiveness of internal control, and performing suchother procedures as we considered necessary in the circumstances.  We believe that our audit provides areasonable basis for our opinion.  

 

A company’sinternal control over financial reporting is a process designed by, or underthe supervision of, the company’s principal executive and principal financialofficers, or persons performing similar functions, and effected by thecompany’s board of directors, management, and other personnel to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control over financial reporting includes thosepolicies and procedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, andthat receipts and expenditures of the company are being made only in accordancewith authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

 

Because of theinherent limitations of internal control over financial reporting, includingthe possibility of collusion or improper management override of controls,material misstatements due to error of fraud may not be prevented or detectedon a timely basis.  Also, projections ofany evaluation of the effectiveness of the internal control over financialreporting to future periods are subject to the risk that the controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.  

 

A materialweakness is a significant deficiency, or combination of significantdeficiencies, that results in more than a remote likelihood that a materialmisstatement of the annual or interim financial statements will not be preventedor detected.  The following materialweakness has been identified and included in management’s assessment: At December31, 2006, management identified and we confirmed the existence of a continuingmaterial weakness related to accounting for derivatives.  Specifically, there was an issue related tothe prior year material weakness in accounting for derivative financialinstruments that had not been fully remediated at December 31, 2006.  As of December 31, 2006, management did nothave a process for monitoring existing contracts in response to changes in SFAS No. 133and had not conducted a comprehensive review of substantially all contractsentered into prior to 2006 for the purpose of ensuring that determinationsabout derivative implications and SFAS No. 133 issues were madeappropriately and remained appropriate. A comprehensive review was deemed necessary because the determinationsrelated to these historical contracts were originally made in an environmentwhere material weaknesses are known to have existed.  Inappropriate conclusions could lead toerrors, the most significant of which would likely be in recognition ofunrealized gains or losses.

 

The materialweakness resulted from deficiencies in the design and operating effectivenessof controls relating to the ongoing monitoring of contracts to updateaccounting positions based on changes in SFAS No. 133.  The operating effectiveness deficienciesrelate to the application of normal purchase/normal sale provisions of SFAS No. 133.  While this control deficiency could result inmaterial unrealized gains or losses going undetected, no material errors wereidentified.

 

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This materialweakness was considered in determining the nature, timing, and extent of audittests applied to our audit of the consolidated financial statements as of andfor the year ended December 31, 2006, of the Company and this report does notaffect our report on such financial statements.

 

Within the sectiontitled “Remediation of Current Year’s Material Weakness in Internal Control” of*Item 9A. Controls and Procedures*,management discloses the steps taken to remediate this material weakness priorto the filing of this 10-K.  As theseprocedures were performed subsequent to December 31, 2006, and thus, notsubject to our audit procedures, we disclaim an opinion with respect to anyrepresentations by management concerning the remediation of the materialweakness in existence at December 31, 2006.

 

In our opinion,management’s assessment that the Company did not maintain effective internalcontrol over financial reporting as of December 31, 2006, is fairly stated, inall material respects, based on the criteria established in *Internal Control — Integrated Framework*issued by theCommittee of Sponsoring Organizations of the Treadway Commission.  Also, in our opinion because of the effect ofthe material weakness described above on the achievement of the objectives ofthe control criteria, the Company has not maintained effective internal controlover financial reporting as of December 31, 2006, based on the criteriaestablished in *Internal Control*— *Integrated Framework*issued by the Committee of SponsoringOrganization of the Treadway Commission. 

 

We have alsoaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the consolidated financial statements as ofand for the year ended December 31, 2006, of the Partnership and our reportdated March 7, 2007 (March 21, 2007 as to Note 13) expressed an unqualifiedopinion on those financial statements.

 

*/s/ DELOITTE& TOUCHE LLP*

 

Denver, Colorado

March 7, 2007

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**Item 9B. Other Information**

None.

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**PARTIII**

**Item 10. Directors, ExecutiveOfficers and Corporate Governance**

Thefollowing table shows information for the directors and executive officers ofMarkWest Hydrocarbon, Inc. Executive officers are appointed and directorsare elected for three-year terms.
| **Name**              | ** ** | **Age** | ** ** | **Position**                                               | ** ** | **Director  Since** |
|-----------------------|------------|---------|------------|------------------------------------------------------------|------------|---------------------|
| John M. Fox           |       | 66      |       | Chairman of the Board of Directors                         |       | 1988                |
| Michael L.  Beatty    |       | 59      |       | Director                                                   |       | 2005                |
| Donald C.  Heppermann |       | 64      |       | Director                                                   |       | 2002                |
| William A.  Kellstrom |       | 65      |       | Director                                                   |       | 2000                |
| Anne E. Mounsey       |       | 40      |       | Director                                                   |       | 2004                |
| Karen L. Rogers       |       | 50      |       | Director                                                   |       | 2000                |
| William F.  Wallace   |       | 67      |       | Director                                                   |       | 2004                |
| Donald D. Wolf        |       | 63      |       | Director                                                   |       | 1999                |
| Frank M. Semple       |       | 55      |       | President, Chief Executive Officer and Director            |       | 2003                |
| C. Corwin  Bromley    |       | 49      |       | Senior Vice President, General Counsel and Secretary       |       | NA                  |
| Nancy K. Buese        |       | 37      |       | Senior Vice President, Chief Financial Officer             |       | NA                  |
| John C.  Mollenkopf   |       | 45      |       | Senior Vice President, Chief Operations Officer            |       | NA                  |
| Randy S.  Nickerson   |       | 45      |       | Senior Vice President, Chief Commercial Officer            |       | NA                  |
| David L. Young        |       | 47      |       | Senior Vice President, Corporate Services                  |       | NA                  |
| Richard A.  Ostberg   |       | 41      |       | Vice President, Compliance and Risk Management             |       | NA                  |
| Andrew L.  Schroeder  |       | 48      |       | Vice President, Finance, Treasurer and Investor  Relations |       | NA                  |

 

**John M. Fox** hasserved as MarkWest Hydrocarbon’s Chairman of the Board of Directors since itsinception in April 1988, and in the same capacity for the general partnerof MarkWest Energy since May 2002. Mr. Fox also served as Presidentand Chief Executive Officer of MarkWest Hydrocarbon and the general partner ofMarkWest Energy from April 1988 until his retirement as President onNovember 1, 2003 and his resignation as Chief Executive Officer effectiveDecember 31, 2003. Mr. Fox was a founder of Western GasResources, Inc. and was its Executive Vice President and Chief OperatingOfficer from 1972 to 1986.

**MichaelL. Beatty**has served as a member of the Board of Directors atMarkWest Hydrocarbon sine June 2005.  Mr.Beatty is currently Chairman and CEO of the law firm of Beatty & Wozniak,P.C. located in Denver, Colorado, with a practice focused on energy and naturalresources.  Mr. Beatty began his careerat Vinson & Elkins and later became a professor of law at the University ofIdaho before joining the legal department of Colorado Interstate Gas Company, asubsidiary of The Coastal Corporation. Mr. Beatty thereafter served in a variety of legal positions with Coastal,ultimately becoming Executive Vice President, General Counsel and a Director ofthe company.  Mr. Beatty also served asChief of Staff to Colorado Governor Roy Romer from 1993 to 1995.

**Donald C. Heppermann**served as Executive Vice President, Chief Financial Officer and Secretary ofMarkWest Hydrocarbon, Inc. and the general partner of MarkWest Energysince October 2003 until his retirement in March 2004.Mr. Heppermann joined MarkWest Hydrocarbon and the general partner of thePartnership in November 2002 as Senior Vice President and Chief FinancialOfficer, and served as Senior Executive Vice President beginning inJanuary 2003. Mr. Heppermann has served as a member of the Company’sBoard of Directors since November 2002 and the general partner of thePartnership’s board of directors since its inception in May 2002 andserves as Chairman of the Finance Committee. Prior to joining MarkWestHydrocarbon and the general partner of MarkWest Energy, Mr. Heppermann wasa private investor and a career executive in the energy industry withresponsibilities in operations, finance, business development and strategicplanning. From 1990 to 1997, Mr. Heppermann served as President and ChiefOperating Officer for InterCoast Energy Company, an unregulated subsidiary ofMid American Energy Company. From 1987 to 1990, Mr. Heppermann wasemployed by Pinnacle West Capital Corporation, the holding company for ArizonaPublic Service Company, where he was Vice President of Finance. From 1965 to1987, Enron Corporation and its predecessors employed Mr. Heppermann in avariety of positions, including Executive Vice President, Gas Pipeline Group.

**William A. Kellstrom**has served as a member of the Board of Directors of MarkWest Hydrocarbon sinceMay 2000 and the general partner of MarkWest Energy since its inception inMay 2002. Mr. Kellstrom has held a variety of managerial positions inthe natural gas industry since 1968. They include distribution, pipelines andmarketing. He held

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variousmanagement and executive positions with Enron Corporation, including ExecutiveVice President, Pipeline Marketing and Senior Vice President, InterstatePipelines. In 1989, he created and was President of Tenaska Marketing Ventures,a gas marketing company for the Tenaska Power Group. From 1992 until 1997 hewas with NorAm Energy Corporation (since merged with Reliant Energy,Incorporated) where he was President of the Energy Marketing Company and SeniorVice President, Corporate Development. Mr. Kellstrom retired in 1997 andis periodically engaged as a consultant to energy companies.

**Anne E. Mounsey**has served as a member of the Company’s Board of Directorssince October 2004. From 1991 to 2003, Ms. Mounsey held variouspositions with the Company, her most recent as Manager of Marketing and BusinessDevelopment. Ms. Mounsey is the daughter of John M. Fox, the Company’sChairman of the Board of Directors.

**Karen L. Rogers**hasserved as a member of the Board of Directors of MarkWest Hydrocarbon sinceJune 2000.  Ms. Rogers serves on theBoard’s Audit Committee.  Ms. Rogers alsoserves as the Chief Financial Officer for Winter Ridge Energy since October2006.  In June 2005, Ms. Rogersjoined Blacksand Energy, Inc., a privately held oil and gas developmentand production company, as the Chief Financial Officer.  Prior to joining Blacksand Energy, Inc.Ms. Rogers was employed since 2000 as Vice President, Energy Group, forWells Fargo Bank N.A. Prior to 1997, Ms. Rogers was Senior Vice Presidentand Manager of NationsBank Energy Group Denver, Inc. She has more than 25years of experience in energy finance and corporate banking.

**William F. Wallace**has served as a member of the Board of Directors of MarkWestHydrocarbon since June 2004. Prior to his retirement in 2001,Mr. Wallace was Vice Chairman of the board of directors of BarrettResources Corp. since 1996, after being named to that position in 1995following the merger of Barrett Resources and Plains Petroleum Co., both oiland gas exploration companies. From 1994 to 1995, Mr. Wallace was President,Chief Operating Officer and a Director of Plains Petroleum Co. Prior to joiningPlains Petroleum; Mr. Wallace spent 23 years with Texaco Inc., anintegrated oil and gas company, including six years as Vice President ofExploration for Texaco USA and as Regional Vice President of Texaco’s EasternRegion. Mr. Wallace served on the Kerr-McGee Corporation board ofdirectors from 2004 until its merger with Anadarko in 2006. Previously, heserved as a director of Westport Resources Corporation from 1997 until Westport’smerger with Kerr-McGee Corporation in 2004.

**Donald D. Wolf**has served as a member of the Company’s Board of Directorssince June 1996. In September 2004, Mr. Wolf joined AspectEnergy as President and Chief Executive Officer.  Mr. Wolf also serves as the Chief ExecutiveOfficer of Quantum Resources, a private oil and gas acquisitionpartnership.   Mr. Wolf served asChairman, Chief Executive Officer and Director of Westport ResourcesCorporation from April 2000 until Westport’s merger with Kerr-McGee Corporationin 2004. He joined Westport Oil and Gas Company, Inc. in June 1996 asChairman and Chief Executive Officer and has a diversified 35-year career inthe oil and natural gas industry.

**Frank M. Semple**, President, Chief ExecutiveOfficer and Director, was appointed as President of both MarkWest Hydrocarbonand the general partner of MarkWest Energy on November 1, 2003.Mr. Semple also became Chief Executive Officer of both MarkWestHydrocarbon and the general partner of MarkWest Energy on January 1, 2004.Prior to his appointment, Mr. Semple served in various capacities, mostrecently as Chief Operating Officer of WilTel Communications, formerly WilliamsCommunications Group, Inc. (“WCG”) from 1997 to 2003. Prior to his tenureat WilTel Communications, he was the Senior Vice President/General Manager ofWilliams Natural Gas from 1995 to 1997, Vice President of Marketing and VicePresident of Operations and Engineering for Northwest Pipeline, and Director ofProduct Movements and Division Manager for Williams Pipeline during his 22-yearcareer with The Williams Companies. During his tenure at WilliamsCommunications, he also served on the board of directors for PowerTelCommunications and the Competitive Telecommunications Association (Comptel). OnApril 22, 2002, WCG and one of its subsidiaries (“Debtors”) filed apetition for relief under the Bankruptcy Code with the United States BankruptcyCourt for the Southern District of New York. On September 30, 2002, theBankruptcy Court entered an order confirming the Debtors’ plan ofreorganization that became effective October 15, 2002. Mr. Sempleholds a Mechanical Engineering degree from the United States Naval Academy andis a professional engineer registered in the State of Kansas.

**C. Corwin Bromley**, Senior Vice President,General Counsel and Secretary, was appointed as General Counsel of MarkWestHydrocarbon MarkWest Energy in October 2004. Prior to joining MarkWest,Mr. Bromley served as Assistant General Counsel at RAG American CoalHolding, Inc. from 1999 through 2004, and as General-Managing Attorney andSr. Environmental Attorney at Cyprus Amax Minerals Company from 1989 to 1999.Prior to that, Mr. Bromley was in private practice with the law firmPopham, Haik, Schnobrich & Kaufman from 1984 through 1989. Preceding hislegal career, Mr. Bromley worked as a structural/design engineer involvedin several domestic and international LNG and energy projects with the firmsCBI, Inc. and Chicago Bridge and Iron Company. Mr. Bromley received hisJ.D. degree from the University of Denver and his bachelor’s degree in civilengineering from the University of Wyoming.

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**Nancy K.Buese**(formerly Masten), Senior Vice President, ChiefFinancial Officer,****was appointedChief Financial Officer of both MarkWest Hydrocarbon and the general partner ofMarkWest Energy in October 2006.  Priorto her appointment as CFO, Ms. Buese served as Chief Accounting Officer of theCompany and the Partnership’s general partner since November 2005. Prior tojoining MarkWest, Ms. Buese was the Chief Financial Officer forExperimental and Applied Sciences (“EAS”) in Golden, Colorado. EAS is a whollyowned subsidiary of the Ross Product Division of Abbott Laboratories. Prior toher employment at EAS, Ms. Buese was a Vice President with TransMontaigneInc. in Denver, Colorado. Preceding this appointment, Ms. Buese was aPartner with Ernst & Young LLP, having spent time in the firm’s Denver,London, New York and Washington, D.C. offices.

**John C.Mollenkopf**, SeniorVice President, Chief Operations Officer,****wasappointed as Chief Operations Officer of both MarkWest Hydrocarbon and thegeneral partner of MarkWest Energy in October 2006.  Prior to his appointment as COO, Mr.Mollenkopf served as Senior Vice President, Southwest Business Unit sinceJanuary 2004 and as Vice President, Business Development since January 2003.Prior to these positions he served as Vice President, Michigan Business Unit,of MarkWest Energy’s general partner since its inception in May 2002 andin the same capacity with MarkWest Hydrocarbon since December 2001. Priorto that, Mr. Mollenkopf was General Manager of the Michigan Business Unitof MarkWest Hydrocarbon since 1997. He joined MarkWest Hydrocarbon in 1996 asManager, New Projects. From 1983 to 1996, Mr. Mollenkopf worked for ARCOOil and Gas Company, holding various positions in process and projectengineering, as well as operations supervision.

**Randy S.Nickerson**, SeniorVice President, Chief Commercial Officer, was appointed as ChiefCommercial Officer of both MarkWest Hydrocarbon and the general partner ofMarkWest Energy in October 2006.  Priorto his appointment as CCO, Mr. Nickerson served as Senior Vice President,Corporate Development of MarkWest Hydrocarbon since October 2003, and asExecutive Vice President, Corporate Development of the Partnership’s generalpartner since January 2003. Prior to these positions, Mr. Nickerson servedas Senior Vice President of the Partnership’s general partner since itsinception in May 2002 and served in the same capacity with MarkWestHydrocarbon since December 2001. Prior to that, Mr. Nickerson servedas MarkWest Hydrocarbon’s Vice President and the General Manager of theAppalachia Business Unit since June 1997. Mr. Nickerson joinedMarkWest Hydrocarbon in July 1995 as Manager, New Projects and served asGeneral Manager of the Michigan Business Unit from June 1996 untilJune 1997. From 1990 to 1995, Mr. Nickerson was a Senior ProjectManager and Regional Engineering Manager for Western Gas Resources, Inc.From 1984 to 1990, Mr. Nickerson worked for Chevron USA and Meridian OilInc. in various process and project engineering positions.

**David L. Young**, Senior Vice President,Corporate Services, was appointed to that position for both MarkWestHydrocarbon and the Partnership’s general partner effective October 2006.  Prior to that Mr. Young served as Senior VicePresident, Northeast Business Unit, since February 1, 2004. Prior tojoining MarkWest, Mr. Young spent eighteen years at The WilliamsCompanies, Inc. in Tulsa, Oklahoma, having served most recently as VicePresident and General Manager of the video services business for WilTelCommunications, formerly WCG from 1997 to 2003. Prior to that, Mr. Young’smanagement positions at The Williams Companies included serving as Senior Vice Presidentand General Manager for Texas Gas Pipeline and Williams Central PipelineCompany. On April 22, 2002, the Debtors filed a petition for relief underthe Bankruptcy Code with the United States Bankruptcy Court for the SouthernDistrict of New York. On September 30, 2002, the Bankruptcy Court enteredan order confirming the Debtors’ plan of reorganization that became effectiveOctober 15, 2002.

**Richard A. Ostberg**, Vice President of Riskand Compliance, was appointed the Risk and Compliance Officer of both MarkWestHydrocarbon and the general partner of MarkWest Energy in July 2005. Prior tothat, Mr. Ostberg served as Vice President and Controller of Black HillsEnergy. Prior to Black Hills, Mr. Ostberg spent four years with PacificMinerals, Inc, the operator of the Bridger Coal mine and spent eight years withDeloitte & Touche in their audit practice, including two years consultingfrom his national office assignment in Washington, D.C.

**Andrew L. Schroeder**, Vice PresidentFinance, Investor Relations, Treasurer, and Assistant Secretary has served inthese with MarkWest Hydrocarbon and the Partnership’s general partner sinceFebruary 2003. Prior to his appointment, he was Director ofFinance/Business Development at Crestone Energy Ventures from 2001 through2002. Prior to that, Mr. Schroeder worked at Xcel Energy for two years asDirector of Corporate Financial Analysis. Prior to that, he spent seven yearsworking with various energy companies. He began his career with Touche,Ross & Co. and spent eight years in public accounting. He is aCertified Public Accountant licensed in the State of Colorado.

# **Audit Committee Financial Expert**

The members of the Company’s Audit Committee of theBoard of Directors are Mr. Kellstrom (chairman), Mr. Beatty,Ms. Rogers, Mr. Wallace and Mr. Wolf. Each of the individualsserving on our Audit Committee satisfies the standards for independence of theAMEX and the SEC as they relate to audit committees. Our Board of Directorsbelieves each of the members of the Audit Committee is financially literate. Inaddition, our Board of Directors has determined that

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Mr. Kellstromis financially sophisticated and qualifies as an “audit committee financialexpert” within the meaning of the regulations of the SEC.

**Audit Committee Pre-Approval Policy**

 The Audit Committee pre-approves all audit andpermissible non-audit services provided by the independent registered publicaccounting firm on a case-by-case basis. These services may include auditservices, audit-related services, tax services and other services. Our ChiefAccounting Officer is responsible for presenting the Audit Committee with anoverview of all proposed audit, audit-related, tax or other non-audit servicesto be performed by the independent registered public accounting firm. Thepresentation must be in sufficient detail to define clearly the services to beperformed. The Audit Committee does not delegate its responsibilities topre-approve services performed by the independent registered public accountingfirm  to management or to an individualmember of the Audit Committee. The Audit Committee may, however, from time totime delegate its authority to the Audit Committee Chairman, who reports on theindependent registered public accounting firm services approved by the Chairmanat the next Audit Committee meeting.

**Code of Conduct and Ethics**

We have adopted a Code of Conduct and Ethics thatcomplies with SEC standards, applicable to the persons serving as ourdirectors, officers (including, without limitation, our CEO, CFO and PrincipalOperations Officers) and employees. This includes the prompt disclosure to theSEC of a Current Report on Form 8-K of any waiver of the code forexecutive officers or directors approved by the board of directors. A copy ofour Code of Business Conduct and Ethics is available free of charge in print toany shareholder who sends a request to the office of the Secretary of MarkWestHydrocarbon, Inc. at 1515 Arapahoe Street, Suite 700, Denver, Colorado80202. The Code of Conduct and Ethics is also posted on our website,www.markwest.com.

**Section 16(a) Beneficial Ownership ReportingCompliance**

Section 16(a) ofthe Securities Exchange Act of 1934, as amended, requires our directors,executive officers, and persons who own more than 10% of a registered class ofour equity securities registered under Section 12 of the Exchange Act, tofile with the SEC initial reports of ownership and reports of changes inownership in such securities. SEC regulations also require directors, executiveofficers and greater than 10% stockholders to furnish us with copies of allSection 16(a) reports they file.

To our knowledge,based solely on review of the copies of such reports furnished to us andwritten representations that no other reports were required, we believe our directors,executive officers and greater than 10% stockholders complied with allSection 16(a) filing requirements during the year endedDecember 31, 2006, except as noted:

·                  Mr. Heppermann,a Director of the Company, filed one late report, which covered one transactionresulting in an increase of 6,654 shares.

·                  Mr. Ivey, whoretired as Chief Financial Officer of the Company on October 1, 2006, filed onelate report, which covered one transaction resulting in a decrease of 2,547shares.

·                  Ms. Marle, aVice President of the Company, filed one late report, which covered onetransaction resulting in a decrease of 3,904 shares.

·                  Mr.Young, a Senior Vice President of the Company, filed one late report, whichcovered one transaction resulting in a decrease of 156 shares.

We are not awareof any other failure to file a Section 16(a) form with the SEC, orany transaction that was required to be reported, but that was not reported ona timely basis.

**Item 11.  Executive Compensation.**

**Compensation Discussion andAnalysis**

**Introduction**

MarkWestHydrocarbon has developed a total compensation philosophy and structure whichis designed to be both market responsive and performance based.  All our employees, including the executivesare employed by MarkWest Hydrocarbon, and are compensated by MarkWestHydrocarbon.  However, the executiveofficers are also executive officers for the General Partner and performmanagement services for the Partnership. The Partnership and its general partner, have no direct officers oremployees, but instead have entered into a Services Agreement with us toprovide the day to day operational, management, accounting, personnel andrelated administrative services to the Partnership.  Under the Services Agreement, the GeneralPartner reimburses us for an allocated portion of our employees’ and executives’base and incentive

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compensation.  Further, due to the relatively greater amountof cash flow and income generated by the Partnership, the Partnership funds aproportional share of the short-term cash incentive pool available for ouremployees, including the executive officers.  Accordingly, the General Partner’s Compensation Committees and Boards ofDirectors have a significant interest in and participate with us, in thedetermination of the compensation of our executive officers and employees. Thecompensation of named executive officers presented in this CompensationDiscussion and Analysis and the accompanying tables, reflect the total combinedcompensation for the named executive officers’ services to both the Partnershipand MarkWest Hydrocarbon.

**Compensation Committee**

*CommitteeMembers and Independence*

The CompensationCommittee consists of three members of the board of directors, Donald D. Wolf(Chairman), William F. Wallace, and William A. Kellstrom.  The Compensation Committee is charged withoverseeing the compensation of the Company’s directors and executives, and withadministering the Company’s incentive-compensation plans, including itsequity-based plan, the MarkWest Hydrocarbon, Inc. 2006 Stock IncentivePlan.  Each member of the CompensationCommittee qualifies as an independent director under the requirements of the Securities and ExchangeCommission, and the American Stock Exchange.

*Role ofCommittee*

The Compensation Committee discharges the Board’s responsibilitiesrelating to general compensation policies and practices and to compensation ofour directors and executives.  TheCompensation Committee also administers our incentive-compensation plans andequity-based plans.  In discharging its responsibilities, the CompensationCommittee establishes principles and procedures in order to ensure to the Boardand the unitholders that the compensation practices of the Company areappropriately designed and implemented to attract, retain and reward highquality directors and executives, and are in accordance with all applicablelegal and regulatory requirements.  Inthis context, the Compensation Committee’s authority, duties andresponsibilities are:

·                    To annuallyreview the Company’s philosophy regarding executive compensation.

·                    Toperiodically review market and industry data to assess the Company’scompetitive position, and to retain any compensation consultant to be used toassist in the evaluation of directors’ and executive officers’ compensation.

·                    To establishand approve the Company goals and objectives, and associated measurementmetrics relevant to compensation of the Company’s executive officers.

·                    To establishand approve incentive levels and targets relevant to compensation of theexecutive officers.

·                    To annuallyreview and make recommendations to the Board to approve, for all principalexecutives and officers, the base and incentive compensation, taking intoconsideration the judgment and recommendation of the Chief Executive Officerfor the compensation of the principal executives and officers.

·                    To separatelyreview, determine and approve the Chief Executive Officer’s applicablecompensation levels based on the Committee’s evaluation of the ChiefExecutive Officer’s performance in light of the Company’s and the individualgoals and objectives.

·                    Toperiodically review and make recommendations to the Board with respect to thecompensation of directors, including board and committee retainers, meetingfees, equity-based compensation, and such other forms of compensation as theCompensation Committee may consider appropriate.

·                    To administerand annually review the Company’s incentive compensation plans and equity-basedplans.

·                    To review andmake recommendations to the Board regarding any executive employmentagreements, any proposed severance arrangements or change in control andsimilar agreements/provisions, and any amendments, supplements or waivers tothe foregoing agreements, and any perquisites, special or supplemental benefits.

·                    To review anddiscuss with management, the Compensation Disclosure and Analysis (CD&A),and determine the Committee’s recommendation for the CD&A’s inclusion inthe Company’s annual report filed on Form 10-K with the SEC.

## *Committee Meetings*

Our CompensationCommittee meets as often as necessary to perform its duties andresponsibilities.  The CompensationCommittee held eight meetings during fiscal 2006, and the chairman of theGeneral Partner’s Compensation Committee also attended four meetings of theMarkWest Hydrocarbon Compensation Committee.

Our CompensationCommittee receives and reviews materials prepared by management, consultants,or committee members, in advance of each meeting.  Depending on the agenda for the particularmeeting, these materials may include:

·                    Minutes andmaterials from the previous meeting(s);

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·                    Reports onyear-to-date Company and Partnership financial performance versus budget;

·                    Reports onprogress and levels of performance of individual and Company/Partnershipperformance objectives;

·                    Reports on theCompany’s financial and stock performance versus a peer group of companies;

·                    Reports fromthe Committee’s compensation consultant regarding market and industry datarelevant to executive officer compensation;

·                    Reports and executivecompensation summary worksheets, which sets forth for each executive officer:current total compensation and incentive compensation target percentages,current equity ownership holdings and general partner ownership interest, andcurrent and projected value of each and all such compensation elements,including distributions and dividends there from, over a five year period.

**Compensation Philosophy**

*GeneralPhilosophy*

The primaryobjectives of our compensation program are to attract, retain and challengehigh quality executives through a total compensation plan that is both marketcompetitive and performance-based.  Westrive to accomplish these objectives by compensating all employees, includingour Named Executive Officers (the “NEOs”); with total compensation packagesconsisting of a combination of competitive base salary and incentivecompensation.  We believe thatcompensation should be designed to reward executives for achievement of theCompany’s financial plans and strategic objectives, and to provideopportunities for increased compensation based on extraordinary performance byour employees, including our NEOs.

*Pay forPerformance*

At the core of ourcompensation philosophy is our strong belief that pay should also be directlylinked to performance.  We believe in apay for performance culture that places a significant portion of executiveofficer total compensation as contingent upon, or variable with, individualperformance, Company performance and achievement of strategic goals includingincreasing shareholder value.

The performancebased compensation for our executives is in the form of (i) annual cashincentives to promote achievement of, and accountability for, shorter termperformance plans and strategic goals, and (ii) equity grants, designed toalign the long-term interests of our executive officers with those of ourshareholders, by creating a strong and direct link between executivecompensation and shareholder return over a multiple year performancecycle.  Long term incentive equity awardsare granted in restricted stock issued under the MarkWest Hydrocarbon 2006Stock Incentive Plan and phantom units issued under the Partnership’s Long-TermIncentive Plan... These shares/units vest one-third annually over athree-year period.  In addition to theperformance based equity grants, the NEOs and other key members of managementhave had the opportunity to purchase from the Company membership interests inthe Partnership’s general partner. This opportunity for General Partnerownership was provided in order to incent and retain key employees and aligntheir interests with our long term strategic goals. The purchase arrangementsare referred to as the Participation Plan and are discussed in further detailbelow.

*Base Compensation to Reflect Position and Responsibility andCompetitiveness within Industry*

A key component of an executive’s total compensation, base salaries aredesigned to compensate executives commensurate with their respective level ofexperience, scope of responsibilities, sustained individual performance andfuture potential.  The goal hasbeen to provide for base salaries that are sufficiently competitive with othersimilar-sized energy companies and/or partnerships, both regionally andnationally, in order to attract and retain talented leaders.

*Overall**Philosophy*

Our compensation philosophy is based on thepremise of attracting and motivating exceptional leaders, setting high goals,working toward the common objectives of meeting the expectations of customersand stockholders, and rewarding outstanding performance.  Following this philosophy, indetermining NEO compensation, we consider all relevant factors, such as thecompetition for talent, our desire to link pay with performance, the use ofequity to align NEO interests with those of our stockholders, individualcontributions, teamwork and performance, each NEO’s total compensation package,and internal pay equity.

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**Compensation Setting Process**

*Management’sRole in the Compensation Setting Process.*

Managementplays a significant role in the compensation-setting process.  The most significant aspects of managementrole are:

·                    Assisting inestablishing business performance goals and objectives;

·                    Evaluatingemployee and company performance;

·                    CEOrecommending compensation levels and awards for executive officers;

·                    Implementingthe Board approved compensation plans; and

·                    Assistance inpreparing agenda and materials for the Committee meetings.

The Chief Executive Officer and the GeneralCounsel and Secretary generally attend the Committee meetings.  However, the Committee also regularly meetsin executive session.  The ChiefExecutive Officer makes recommendations with respect to financial andcorporate goals and objectives, and makes non CEO executive compensationrecommendations to the Compensation Committee based on company performance,individual performance and the peer group compensation market analysis. TheCompensation Committee considers and deliberates on this information and inturn makes recommendations to the Board of Directors, for the Board’sdetermination and approval of the NEO’s and other members of senior management’scompensation, including base compensation, short-term cash incentives andlong-term equity incentives.  The ChiefExecutive Officer’s performance and compensation is reviewed, evaluatedand established separately by the Compensation Committee and ratified andapproved by the Board of Directors.

*CommitteeConsultants - Benchmarking*

To evaluate allareas of executive compensation, the Compensation Committee seeks theadditional input of outside compensation consultants and available comparativeinformation.  In 2006, our CompensationCommittee engaged Towers Perrin as a compensation consultant, primarily toprovide and analyze peer group data to assist our Compensation Committee inassessing executive compensation levels, for total compensation as well as theindividual base and incentive components. The peer group data assembled by Towers Perrin included data fromsixteen midstream pipeline/energy companies, replicating our industrycompetitors and giving a large sample size, but which included companies ofvarying revenue and market-cap sizes, with varying market maturity fromstart-up to very mature companies.  Weselected these companies because they are essentially the same set of companiesagainst which we also compare our overall performance as a performanceobjective. These peer group companies include: ONEOK Partners, Hiland Partners,DCP Midstream, Regency Energy, Sunoco Logistics, Williams Partners, MagellanMidstream, Atlas Pipeline, TEPPCO Partners, TransMontaigne Partners, CrosstexEnergy, Martin Midstream, Buckeye Partners, Holly Energy, Valero, L.P., andEagle Rock.  To normalize the data forcomparison, Towers Perrin size adjusted the data using regression analysis to arevenue scope of $1 billion.  While theTowers Perrin data was provided to the Compensation Committee to demonstratethe market levels within our industry, the consultant did not providerecommendations in terms of pay package for the NEOs.  Towers-Perrin did not make recommendationsregarding any element of the NEO compensation package.

We also take intoaccount broader based survey data for executive compensation among publiccompanies in the energy industry, both regionally and nationally, such as the “ECILiquid Pipeline Roundtable 2006 Compensation Survey,” conducted by EffectiveCompensation, Incorporated, and the Altman Weil, Inc. “CompensationBenchmarking Survey for 2006,” as we believe that this information provides uswith a statistically significant sample that supplements the Towers Perrin peergroup data.

*SettingTotal Compensation Levels and Targets*

To evaluate ourtotal compensation is competitive and provides appropriate rewards to attractand retain talented leaders, as discussed above, we rely on analyses of peercompanies performed by our independent compensation consultants and on otherindustry and occupation specific survey data available to us.  Our general benchmark is to establish bothbase salary and total compensation for the executive officers at the 50th percentile of the peer group data, recognizingthat a significant portion of executive officer total compensation should becontingent upon, or variable with, achievement of individual and Companyperformance objectives and strategic goals, as well as being variable withstockholder value.  Further, while theobjective for base salary is at the 50th percentile of the peer group data, Executives’base salaries are designed to reward core competencies and contributions to theCompany, and may be increased above this general benchmark based on(i) the individual’s increased contribution over the preceding year;(ii) the individual’s increased responsibilities over the preceding year;and (iii) any increase in median competitive pay levels.

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*SettingPerformance Objectives*

The Company’sannual and five year business plans and strategic objectives are presented bymanagement at the Company’s January board meeting.  The board engages in an active discussionconcerning the financial targets, the appropriateness of the strategicobjectives, and the difficulty in achieving same.  After making changes it deems appropriate,the board adopts the Company’s annual business plan.  In establishing the compensation plan, ourCompensation Committee then utilizes the primary financial objectives from theadopted business plan, operating cash flow, as the primary targets fordetermining the executive officers’ short-term cash incentives and long termequity incentive compensation.  TheCommittee also establishes additional non-financial performance goals andobjectives, the achievement of which is required for funding of a significantportion (25%) of the executive officers’ incentive compensation.   In 2006, these non financial performancegoals and objectives included achieving accurate financial reporting and timelySEC filings; demonstrating full compliance and superior performance in thePartnership’s environmental, health and safety practices; performingappropriate SOX/404 remediation activities and achieving successful testing ofand compliance with SOX requirements; and general and administrative expensemanagement.

*AnnualEvaluation*

The ChiefExecutive Officer recommends the actual incentive award amounts for all otherNEOs based on actual company performance relative to the targets as well as onindividual performance, and recommends the NEOs’ base salaries levels for thecoming year.  The Compensation Committeeconsiders these recommendations at the end of each fiscal year in determiningits recommendations to the Board of Directors for the final short-term cashincentive and long-term equity award amounts for each NEO and for the NEO’sbase salary levels. The actual incentive amounts awarded to each NEO areultimately subject to the discretion of the Compensation Committee and theBoard of Directors.  The incentive awardsfor the Chief Executive Officer are separately evaluated and determined by theCompensation Committee using similar metrics, and ratified and approved by theBoard of Directors.

*OtherCompensation*

Additionalequity-based awards may be also granted to NEOs, as well as other employees,upon commencement of employment, for promotions or special performancerecognition, or for retention purposes, based on the recommendation of theChief Executive Officer.  In determiningwhether to recommend additional grants to an NEO, the Chief Executive Officertypically considers the individual’s performance and any planned change infunctional responsibility.

*Coordinationwith MarkWest Energy GP, L.L.C. and MarkWest Energy Partners, L.P.*

As noted above, our executive officers are also executive officersfor the General Partner and these executive officers and our employees performmanagement, accounting, personnel and related administrative services for thePartnership pursuant to a Services Agreement between us and the GeneralPartner.  Under the Services Agreement,the General Partner reimburses us for an allocated portion of our employees’and executives’ base and incentive compensation.  Further, due to the relatively greater amountof cash flow and income generated by the Partnership, the Partnership funds aproportional share of the short-term cash incentive pool available for ouremployees, including the executive officers. Accordingly, the General Partner’sCompensation Committee participates with us in the determination of theemployees’ and executives’ base and incentive compensation and the GeneralPartner and Partnership participates in an allocated portion of the funding ofshort term incentive cash compensation payments, as well as the long termequity incentive awards provided to our executives and key managementemployees.

**Elements of ExecutiveCompensation**

*TotalCompensation*

Total compensationfor our NEOs consists of four elements: (i) base salary; (ii) an annualshort-term incentive cash award based on achieving specific performance targetsas measured by cash flow and other objectives; (iii) an annual long-term equityincentive award, which is also performance based and paid out over a futureperiod in the form of restricted units; and finally (iv) the fair value of eachNEO’s investment in the General Partner under the Participation Plan (discussedbelow).  Base salaries are the value uponwhich both the short-term and long term incentive compensation percentagetargets are measured against.  See tableunder section entitled *Allocation Among Elements*,below.  For evaluation and comparison ofoverall compensation of the executives, and to assist it in making itscompensation decisions, the Compensation Committee reviews an executivecompensation summary worksheet, which sets forth for each NEO: currentcompensation and compensation target percentages, current equity ownershipholdings and GP interest, and current and projected value of each and all suchcompensation elements, including distributions and dividends therefrom, over a fiveyear period.

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*BaseSalaries.*

Base salaries are designed to compensate executives commensurate withtheir respective level of experience, scope of responsibilities, and to rewardsustained individual performance and future potential.  The goal has been to provide for basesalaries that are sufficiently competitive with other similar-sized energycompanies and/or partnerships, both regionally and nationally, in order toattract and retain talented leaders.

*IncentiveCompensation*

Incentive compensation is intended to align compensation withbusiness objectives and performance and enable the company to attract, retainand reward high quality executive officers whose contributions are critical toshort and long-term success of the Company. The NEOs incentive awards are based upon four key performance metrics:1) the Company’s operating cash flow; 2) MarkWest Hydrocarbon’s operating cashflow; 3) achievement of agreed-upon strategic and corporate performance goals;and 4) each executive’s departmental and individual goals andperformance.  The actual incentive amounts awarded to each NEO areultimately subject to the discretion of the Compensation Committee and theBoard of Directors.

*Short-TermCash Incentive Plan Compensation*

Short-termincentive awards are paid out in annual cash awards.  The short-term cash incentive award targetsfor the NEOs are established at the beginning of the year as a percentage oftheir base salary, and the actual awards are determined at the following year’sJanuary Board of Directors meetings based on actual company performancerelative to established goals and objectives, as well as on evaluation of theNEO’s relevant departmental and individual performance during the pastyear.  The short-term cash incentive poolis funded only if a minimum of 75% of the respective cash flow targets of thePartnership and of MarkWest Hydrocarbon is met. Once the threshold is met, then the size of the fund available for allcash incentive awards increases in relation to the extent to which financialtargets and non financial objectives are achieved and exceeded, in a linearfashion from threshold through to full stretch, which is capped at 125% of therespective cash flow targets.  Short-termcash incentive awards for the NEOs in 2006 were targeted at 40%-50% of basesalary for achievement of base-plan performance goals and at up to anadditional 40%-50% of base salary for achievement of stretch performance.

*Long-TermEquity Incentive Program*

In addition to thebase salary and short-term cash incentive payments, our NEOs and other membersof senior management are awarded long-term equity compensation based uponmeeting or exceeding financial and operational targets that are established bythe Board of Directors at the outset of the year.  Long term incentive equity awards are grantedin phantom units issued under the Partnership’s Long-Term Incentive Plan, andin restricted stock issued under the MarkWest Hydrocarbon 2006 Stock IncentivePlan. Allocation of value of long-term equity awards between Partnershipphantom units and MarkWest Hydrocarbon shares of restricted stock is based upontime devoted by the individual NEO to the respective entities’ business andaffairs.  Both the phantom units ofPartnership and the restricted shares of MarkWest Hydrocarbon vest in equalinstallments over a three-year period. Recipients are eligible to collect stock dividends and/or common unitdistribution payments on these awards during the vesting period. The awards areintended to serve as a means of incentive compensation for performance and notprimarily as an opportunity to participate in the equity appreciation of theshares or units.  Recipients do not payany consideration for the shares or units they receive.  Long-term equity incentive award targets forthe NEOs in 2006 were targeted at a value of at 40-75% of base salary forachievement of the base-plan goals, and the opportunity for stretch long-termequity incentive awards are left to the discretion of the CompensationCommittee and the Board.

*ParticipationPlan*

To enableexecutives to develop and maintain a significant long-term ownership positionand alignment with our long term strategic goals, each of the NEOs have beenpermitted to purchase from the Company membership interests in the Partnership’sGeneral Partner (“GP interest”), which purchase arrangements are in generalreferred to as the Participation Plan.  The purchase and sale price of aGP Interest is based upon a formula which is derived from the then currentmarket value of the Partnership’s common units, and the then quarterlydistributions previously paid by the Partnership.   The GP Interests were purchased by each NEOat different times and in different percentage levels.   The fair value of each NEO’s GP Interestinvestment under the Participation Plan is included in the Summary CompensationTable under the column “Other Compensation.”   Our Board of Directors have determined at this time to cease any furthersales of GP Interests.

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Due to thedifferences in each of the NEOs individual level of membership GP interests andthe nature and value of such GP Interest as opposed to the incentive grants ofphantom units, an NEOs individual GP Interest level is taken into account insetting an executive’s long-term equity incentive target percentages; i.e.generally the higher the individual general partner membership interest, thelower the long-term equity incentive target percentage.

*Allocationamong Compensation Elements*

Under our 2006compensation structure, the mix and allocation of base salary, short-termincentive, and long-term incentive for our NEOs is shown in the followingtable.  Base salary is the value uponwhich the incentive award amounts are based. The long-term equity award target percentages of base salary levels forperformance achievement of base-plan objectives are generally higher than thetarget percentage levels for short-term cash incentive awards, but as notedabove, the long-term equity incentive target percentage levels aredifferentiated amongst the NEOs to take into account the individual NEO’s GPInterest values in an effort to partially ameliorate internal inequities forthe GP interest values.  Opportunitiesfor stretch awards for short-term cash incentive awards for the NEOs aregenerally targeted up to double of the base-plan target percentages (e.g. anadditional incremental target percentage of 40% to 50% of base salary), whilethe opportunity for stretch awards for long-term equity awards are left to thediscretion of the compensation committee and the Board.
|                                    | ** ** | **Base Salary** | ** ** | **Short-Term  Incentive Target** | ** ** | **Equity Target** |
|------------------------------------|------------|-----------------|------------|----------------------------------|------------|-------------------|
| Chief Executive  Officer           |       | Value           |       | Value X 50%                      |       | Value X TBD%      |
| Chief Financial  Officer           |       | Value           |       | Value X 40%                      |       | Value X 70%       |
| Chief Financial  Officer (retired) |       | Value           |       | Value X 40%                      |       | Value X 40%       |
| Chief Commercial  Officer          |       | Value           |       | Value X 40%                      |       | Value X 40%       |
| Chief Operations  Officer          |       | Value           |       | Value X 40%                      |       | Value X 40%       |
| General Counsel                    |       | Value           |       | Value X 40%                      |       | Value X 75%       |

 

**Compensation Decisions for 2006**

*Short-TermCash Incentive Awards*

Short-term cashincentive awards for the NEOs for 2006 were targeted at 40% -50% of base salaryfor achievement of base-plan performance goals and at up to an additional 40% -50% of base salary for achievement of stretch performance.  In 2006, we exceeded all of our base-plangoals and achieved stretch performance levels in financial and operationaltargets.  The Compensation Committees andthe Boards of Directors of the General Partner and of MarkWest Hydrocarbonapproved the NEOs short-term cash incentive awards for 2006 at 40% of basesalary.  For achieving stretchperformance in 2006, incremental stretch short term cash incentive awards forthe NEOs were granted in the range of approximately 30% to 45% of basesalary.  The Compensation Committeesseparately derived the CEO’s base, short-term, and long-term incentive.  The CEO’s short-term cash incentive award for2006, including the incremental stretch component, was granted at 91% of basesalary.

*Long-TermEquity Incentive Awards*

The CompensationCommittee set the 2006 long-term incentive award targets for NEOs having avalue of at 40-75% of base salary for achievement of the base-plan goals, andthe opportunity for stretch long-term equity incentive awards are left to thediscretion of the Compensation Committee and the Board. For 2006, we exceeded all of our base-plan goals and achievedstretch performance levels in financial and operational targets.  The Compensation Committees and the Boards ofDirectors of MarkWest Hydrocarbon and the General Partner approved the NEOslong-term equity incentive awards in the range from 40% to 75% of basesalary.  For achieving stretchperformance in 2006, incremental stretch long-term equity incentive awards weregranted in the range of approximately 10% to 20% of their base salary.  The Compensation Committees separatelyderived the CEO’s long-term incentive, and these are granted at the Board’sdiscretion.  The CEO’s long-termincentive award for 2006, including the incremental stretch component, was grantedat 100% of base salary.

**Other Compensation Components**

*SeverancePlan*

**Directors, executive officers and certain designated keyemployees are covered under the MarkWest Hydrocarbon, Inc.1997 SeverancePlan.  The 1997 Severance Plan providesfor payment of benefits in the event that (i) the covered personterminates his or her employment for “good reason” (as defined), (ii) thecovered person’s employment is terminated “without cause” (as defined),(iii) the covered person’s employment is terminated by reason of death ordisability or (iv) the**

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**coveredperson voluntarily resigns. In the case of (i), (ii) and (iii) above,the covered person shall be entitled to receive base salary and continuedmedical benefits for a period ranging from six months to twenty-four months,depending upon the covered person’s status at the time of the termination. Inthe case of (iv) above, the covered person shall be entitled to receivebase salary for a period ranging from one month to six months and continuedmedical benefits for a period ranging from one month to six months. In eithercase, the aggregate amount of benefits paid to an employee shall in no eventexceed twice the employee’s annual compensation during the year immediatelypreceding the termination.   The eligibilityfor qualifying for these benefits is subject to the covered person enteringinto acceptable non-compete and release agreements with the Company.**

**A few of our General Partner’s named executive officers arealready party to a Non-Competition, Non-Solicitation and ConfidentialityAgreement. As a result of signing the Non-Competition, Non-Solicitation andConfidentiality Agreement, they are eligible to receive severance paymentsunder the above described MarkWest Hydrocarbon 1997 Severance Plan.**

*EmploymentAgreements*

Except for theChief Executive Officer, none of the NEOs have an employment agreement.

*CEOEmployment Agreement*

Mr. Sempleentered into an executive employment agreement with MarkWest Hydrocarbon onNovember 1, 2003, pursuant to which Mr. Semple serves as MarkWestHydrocarbon’s President and Chief Executive Officer and pursuant to which theBoard of Directors of MarkWest Hydrocarbon appointed Mr. Semple to serveas the President and Chief Executive Officer of our general partner.

Under theemployment agreement, Mr. Semple receives an annual base salary and isentitled to receive benefits for which employees and/or executive officers aregenerally eligible. In addition, Mr. Semple was awarded phantom units in thegeneral partner under the general partner’s long-term incentive plan and stockoptions under the MarkWest Hydrocarbon incentive stock plan. Mr. Semplealso agreed to purchase from MarkWest Hydrocarbon an interest in each of thegeneral partner and the Partnership, subject to certain repurchase rights byMarkWest Hydrocarbon following the termination of his employment.

Under his employmentagreement, in the event Mr. Semple’s employment is terminated withoutcause, or if he resigns for good reason, he is entitled to severance paymentsequal to his base salary for a period of thirty-six months. In addition,Mr. Semple is entitled to COBRA benefits for a period of twenty-fourmonths. In the event Mr. Semple voluntarily resigns, he is entitled to receiveseverance payments equal to his base salary and COBRA benefits for a period ofsix months. In the event Mr. Semple is terminated for cause, he shall notbe entitled to receive any severance or COBRA benefits.

*Indemnification Agreements*

In January 2007,the Partnership, our General Partner and MarkWest Hydrocarbon entered intoIndemnification Agreements with certain directors and officers (“Indemnitees”). By the terms of the Indemnification Agreements, the companies shall indemnifyIndemnitees to the fullest extent permitted by law against all expenses andliabilities (as defined in the Indemnification Agreement) if Indemnitees wereor are, or are threatened to be made a party to, any threatened, pending orcompleted action, suit, proceeding, or alternative dispute resolutionmechanism, whether civil, criminal, administrative, investigative or other andwhether brought by or in the right of the companies or otherwise, by reason of(or arising in part out of) any event or occurrence related to the fact thatIndemnitees are or were a director, officer, employee, agent or fiduciary ofthe companies, or any subsidiary of the companies, or are or were serving atthe request of the companies as a director, officer, employee, agent orfiduciary of another corporation, partnership, joint venture, trust or otherenterprise, or by reason of any action or inaction on the part of theIndemnitees while serving in such capacity.

*RetirementPlans*

MarkWestHydrocarbon maintains a 401(k) plan to which MarkWest matches employee contributionsup to the first 6% of an employee’s annual base salary.  We do not provide any supplemental retirementbenefits to our senior executives.

*Change inControl Agreements*

Our executives arenot awarded any type of protection upon a change in control other than what isoffered by the 1997 Severance Plan and the vesting of phantom units upon achange in control.

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*Perquisites*

MarkWest does notprovide for any perquisites or any other benefits for its senior executivesthat are not generally available to all employees.

*InternalPay Equity*

We believe thatinternal equity is an important factor to be considered in establishingcompensations for the executive officers. We have not adopted a policy; however, we do review compensation levelsto ensure that appropriate equity exists.

*TaxDeductibility of Compensation*

We generally willseek to maximize the deductibility for tax purposes all elements ofcompensation.  Section 162(m) of theInternal Revenue Code places a $1,000,000 annual limit on the compensation deductibleby the Company paid to certain of its executives.  The limit, however, does not apply to “qualifiedperformance-based compensation.”  Wereview compensation plans in light of applicable tax provisions and may reviseplans to maximize deductibility. However, we may approve compensation that does not qualify fordeductibility when we deem it in the best interests of MarkWest.

*OptionGrants*

Although we havegranted stock options in the past, we ceased granting stock options after 2004as incentive awards as a result of accounting, tracking and expensing issuesassociated with stock options under Statement of Financial Accounting StandardsNo. 123R.  All stock options which weregranted in the past were granted at an option price at least equal to the fairmarket value of our common stock on the date of grant.  To further reduce ongoing accounting,tracking and expensing burdens, we vested the remaining 14,950 unvested optionsin December 2006, which affected a total of eight individuals, including twoNEOs and three current****directors.  As a result of this action described above,these options, with varying remaining vesting schedules, have becomeimmediately exercisable.

Although permittedunder MarkWest Energy, L.P.’s Long Term Incentive Plan, no options have beengranted by the Partnership.

**CompensationCommittee Report**

**We havereviewed and discussed the foregoing Compensation Discussion and Analysis withmanagement.  Based on our review anddiscussion with management, we have recommended to the Board of Directors thatthe Compensation Discussion and Analysis be included in the Company’s ProxyStatement and its Annual Report on Form 10-K for the year ended December 31,2006.**
| Submitted by: | Donald D. Wolf                         |       |
|---------------|----------------------------------------|------------|
|          | William F.  Wallace                    | ** ** |
|          | William A.  Kellstrom                  | ** ** |
|          | Members of the  Compensation Committee | ** ** |

 

**Summary Compensation Table**

The followingtable sets forth the cash and non cash compensation earned for the year endedDecember 31, 2006 by each person who served as the Chief Executive Officer,Chief Financial Officer during 2006 and the three other highest paid officers(the “Named Executive Officers”).

111

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|                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **       | ** ** | ** **       | ** ** | ** **              | ** ** | **Change in ** | ** ** | ** **                                   | ** ** | ** ** | ** ** |
|--------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------------|------------|------------------|------------|-------------------------|------------|--------------------------|------------|----------------------------------------------|------------|------------|------------|
| ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **       | ** ** | ** **       | ** ** | ** **              | ** ** | **Pension Value**   | ** ** | ** **                                   | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **       | ** ** | ** **       | ** ** | ** **              | ** ** | **and Non-**        | ** ** | ** **                                   | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **       | ** ** | ** **       | ** ** | ** **              | ** ** | **qualified**            | ** ** | ** **                                   | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **       | ** ** | ** **       | ** ** | **Non-Equity**          | ** ** | **Deferred**             | ** ** | **All Other**                           | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Stock**        | ** ** | **Option**       | ** ** | **Incentive Plan** | ** ** | **Compensation**         | ** ** | **Compensation**                             | ** ** | ** ** | ** ** |
| ** **                                       | ** ** | ** ** | ** ** | **Salary** | ** ** | **Bonus**  | ** ** | **Awards**       | ** ** | **Awards**       | ** ** | **Compensation**        | ** ** | **Earnings**             | ** ** | **($) (3) (4) (5)**           | ** ** | **Total**  | ** ** |
| **Name and Principal Position**   | ** ** | **Year**   | ** ** | **($)**    | ** ** | **($)**    | ** ** | **($) (1)** | ** ** | **($) (2)** | ** ** | **($)**                 | ** ** | **($)**                  | ** ** | **(6) (7) (8) (9) (10)** | ** ** | **($)**    | ** ** |
| Frank M. Semple                                  |       |       |       |       |       |       |       |             |       |             |       |                    |       |                     |       |                                         |       |       |       |
| President and Chief Executive Officer            |       | 2006       |       | 351,800    |       | —     |       | 255,219          |       | 20,536           |       | 319,141                 |       | —                   |       | 6,792,797                                    |       | 7,739,493  |       |
|                                             |       |       |       |       |       |       |       |             |       |             |       |                    |       |                     |       |                                         |       |       |       |
| James G. Ivey                                    |       |       |       |       |       |       |       |             |       |             |       |                    |       |                     |       |                                         |       |       |       |
| Chief Financial Officer (Retired)                |       | 2006       |       | 166,351    |       | —     |       | 82,780           |       | (34,874          | )          | 60,363                  |       | —                   |       | 1,093,380                                    |       | 1,368,000  |       |
|                                             |       |       |       |       |       |       |       |             |       |             |       |                    |       |                     |       |                                         |       |       |       |
| Nancy K. Buese                                   |       |       |       |       |       |       |       |             |       |             |       |                    |       |                     |       |                                         |       |       |       |
| Senior Vice President, Chief Financial  Officer  |       | 2006       |       | 226,800    |       | —     |       | 352,072          |       | —           |       | 190,000                 |       | —                   |       | 1,057,258                                    |       | 1,826,130  |       |
|                                             |       |       |       |       |       |       |       |             |       |             |       |                    |       |                     |       |                                         |       |       |       |
| Randy S.  Nickerson                              |       |       |       |       |       |       |       |             |       |             |       |                    |       |                     |       |                                         |       |       |       |
| Senior Vice  President, Chief Commercial Officer |       | 2006       |       | 211,800    |       | —     |       | 114,772          |       | —           |       | 162,933                 |       | —                   |       | 4,957,476                                    |       | 5,446,981  |       |
|                                             |       |       |       |       |       |       |       |             |       |             |       |                    |       |                     |       |                                         |       |       |       |
| John C. Mollenkopf                               |       |       |       |       |       |       |       |             |       |             |       |                    |       |                     |       |                                         |       |       |       |
| Senior Vice President, Chief Operations  Officer |       | 2006       |       | 201,800    |       | —     |       | 101,444          |       | —           |       | 155,240                 |       | —                   |       | 4,891,528                                    |       | 5,350,012  |       |
|                                             |       |       |       |       |       |       |       |             |       |             |       |                    |       |                     |       |                                         |       |       |       |
| C. Corwin Bromley                                |       |       |       |       |       |       |       |             |       |             |       |                    |       |                     |       |                                         |       |       |       |
| Senior Vice President, General Counsel           |       | 2006       |       | 217,000    |       | —     |       | 376,684          |       | 7,425            |       | 167,000                 |       | —                   |       | 767,546                                      |       | 1,535,655  |       |

----

(1)**               **See footnote 2 to the consolidated financial statementsfor a description of our SFAS 123R valuation assumptions.

(2)**               **A credit to compensation expense was recognized for Mr.Ivey's forfeiture of 6,050 stock options at his retirement, which was effectiveOctober 1, 2006.  In accordance with SFAS123R the compensation cost recognized in prior periods was reversed for onlythe unvested portion of the award.

(3)**               **As of December 31, 2006 the fair value of eachexecutive’s investment in the Participation Plan was as follows: Mr. Semple$5,302,255; Ms. Buese $385,098; Mr. Nickerson $4,297,984; Mr. Mollenkopf$4,297,984 and Mr. Bromley $192,549, respectively.  Mr. Ivey realized $981,776 upon hisretirement, which was effective October 1, 2006.

(4)**               **For the year ended December 31, 2006 the amount of MWPdividends received was as follows: Mr. Semple $10,626.

(5)**               **For the year ended December 31, 2006 our matchingcontribution to the named executive's 401(k) plan was as follows: Mr. Semple$12,103; Mr. Ivey $10,951; Ms. Buese $13,200; Mr. Nickerson $13,000; Mr.Mollenkopf $12,412 and Mr. Bromley $13,194.

(6)**               **Post termination payments as of December 31, 2006 underthe 1997 Severance Plan would be as follows: Mr. Semple $1,055,400; Ms. Buese$170,100; Mr. Nickerson $317,700; Mr. Mollenkopf $302,700 and Mr. Bromley$162,750.

(7)**               **Change in control payments under the MarkWest EnergyPartners Long-Term Incentive Plan as of December 31, 2006 would be asfollows:  Mr. Semple $224,165; Ms. Buese$469,028; Mr. Nickerson $176,385; Mr. Mollenkopf $125,802 and Mr. Bromley$387,188.  These dollar amounts are thefair value of unvested restricted (phantom) units as of December 31, 2006 andare also reported in the Outstanding Equity Awards at Year End Table.       

(8)**               **Compensation received (net of capital calls) during theyear ended December 31, 2006 under the Participation Plan was as follows: Mr.Semple $188,248; Mr. Ivey $23,911; Ms. Buese $16,341; Mr. Nickerson $150,599and Mr. Mollenkopf $150,599.

(9)**               **Compensation received pursuant to a Consulting ServicesAgreement for the year ended December 31, 2006 was as follows: Mr. Ivey$19,850.

(10)**          **Compensation received pursuant to aSeparation Agreement for the year ended December 31, 2006 was as follows: Mr.Ivey $55,449.

**Grantof Plan-Based Awards Table**

The following table sets forth the stock awardsgranted for the year ended December 31, 2006 and estimated future paymentsunder our non-equity incentive compensation plan for the Named ExecutiveOfficers.  Previously awarded Partnershipunits have been adjusted to reflect the February 2007 two-for-one unit split(see Note 2 to the consolidated financial statements).

112

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| ** **                                                          | ** ** | ** ** | ** ** | ** **   | ** ** | **Estimated Future Payouts Under  Non-Equity Incentive Plan Awards** | ** ** | **Estimated Future Payouts Under  Equity Incentive Plan Awards (1)** | ** ** | **All Other  Stock  Awards:  Number of  Shares of  Stock or** | ** ** | **All Other  Option  Awards:  Number of  Securities  Underlying** | ** ** | **Exercise  or Base  Price of  Option** | ** ** |
|---------------------------------------------------------------------|------------|------------|------------|--------------|------------|----------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                          | ** ** | **Grant**  | ** ** | **Approval** | ** ** | **Threshold**                                                                                      | ** ** | **Target**                                                                                              | ** ** | **Maximum**                                                                       | ** ** | **Threshold**                                                               | ** ** | **Target**                                        | ** ** | **Maximum** | ** ** | **Units** | ** ** | **Options** | ** ** | **Awards** | ** ** |
| **Name and Principal Position**                      | ** ** | **Date**   | ** ** | **Date**     | ** ** | **($)**                                                                                            | ** ** | **($)**                                                                                                 | ** ** | **($)**                                                                           | ** ** | **(#)**                                                                     | ** ** | **(#)**                                           | ** ** | **(#)** | ** ** | **(#) (2) (3)** | ** ** | **(#)** | ** ** | **($/Sh)** | ** ** |
| Frank M. Semple  President and Chief Executive Officer              |       |       |       |         |       | 87,950                                                                                             |       | 175,900                                                                                                 |       | NA                                                                                |       | NA                                                                          |       | NA                                                |       | NA |   | — |   | — |   | — |   | — |   |
|                                                                |       |       |       |         |       |                                                                                               |       |                                                                                                    |       |                                                                              |       |                                                                        |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
|                                                                |       | 1/31/06    |       | 1/26/06      |       | —                                                                                             |       | —                                                                                                  |       | —                                                                            |       | —                                                                      |       | —                                            |       | — |   | 3,337 |   | MWP |   | — |   | — |   |
|                                                                |       | 1/31/06    |       | 1/25/06      |       | —                                                                                             |       | —                                                                                                  |       | —                                                                            |       | —                                                                      |       | —                                            |       | — |   | 3,088 |   | MWE |   | — |   | — |   |
|                                                                |       |       |       |         |       |                                                                                               |       |                                                                                                    |       |                                                                              |       |                                                                        |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
| James G. Ivey  Chief Financial Officer (Retired)                    |       | 1/31/06    |       | 1/26/06      |       | —                                                                                             |       | —                                                                                                  |       | —                                                                            |       | —                                                                      |       | —                                            |       | — |   | 2,026 |   | MWP |   | — |   | — |   |
|                                                                |       | 1/31/06    |       | 1/25/06      |       | —                                                                                             |       | —                                                                                                  |       | —                                                                            |       | —                                                                      |       | —                                            |       | — |   | 1,874 |   | MWE |   | — |   | — |   |
|                                                                |       |       |       |         |       |                                                                                               |       |                                                                                                    |       |                                                                              |       |                                                                        |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
| Nancy K. Buese  Senior Vice President, Chief Financial Officer      |       |       |       |         |       | 56,700                                                                                             |       | 90,720                                                                                                  |       | 181,440                                                                           |       | NA                                                                          |       | NA                                                |       | NA |   | — |   | — |   | — |   | — |   |
|                                                                |       |       |       |         |       |                                                                                               |       |                                                                                                    |       |                                                                              |       |                                                                        |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
|                                                                |       | 1/31/06    |       | 1/26/06      |       | —                                                                                             |       | —                                                                                                  |       | —                                                                            |       | —                                                                      |       | —                                            |       | — |   | 783 |   | MWP |   | — |   | — |   |
|                                                                |       | 1/31/06    |       | 1/25/06      |       | —                                                                                             |       | —                                                                                                  |       | —                                                                            |       | —                                                                      |       | —                                            |       | — |   | 10,726 |   | MWE |   | — |   | — |   |
|                                                                |       | 11/1/06    |       | 10/26/06     |       | —                                                                                             |       | —                                                                                                  |       | —                                                                            |       | —                                                                      |       | —                                            |       | — |   | 2,500 |   | MWP |   | — |   | — |   |
|                                                                |       | 11/1/06    |       | 10/25/06     |       | —                                                                                             |       | —                                                                                                  |       | —                                                                            |       | —                                                                      |       | —                                            |       | — |   | 5,000 |   | MWE |   | — |   | — |   |
|                                                                |       |       |       |         |       |                                                                                               |       |                                                                                                    |       |                                                                              |       |                                                                        |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
| Randy S. Nickerson  Senior Vice President, Chief Commercial Officer |       |       |       |         |       | 52,950                                                                                             |       | 84,720                                                                                                  |       | 169,440                                                                           |       | NA                                                                          |       | NA                                                |       | NA |   | — |   | — |   | — |   | — |   |
|                                                                |       |       |       |         |       |                                                                                               |       |                                                                                                    |       |                                                                              |       |                                                                        |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
|                                                                |       | 1/31/06    |       | 1/26/06      |       | —                                                                                             |       | —                                                                                                  |       | —                                                                            |       | —                                                                      |       | —                                            |       | — |   | 1,399 |   | MWP |   | — |   | — |   |
|                                                                |       | 1/31/06    |       | 1/25/06      |       | —                                                                                             |       | —                                                                                                  |       | —                                                                            |       | —                                                                      |       | —                                            |       | — |   | 1,942 |   | MWE |   | — |   | — |   |
|                                                                |       |       |       |         |       |                                                                                               |       |                                                                                                    |       |                                                                              |       |                                                                        |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
| John C. Mollenkopf  Senior Vice President, Chief Operations Officer |       |       |       |         |       | 50,450                                                                                             |       | 80,720                                                                                                  |       | 161,440                                                                           |       | NA                                                                          |       | NA                                                |       | NA |   | — |   | — |   | — |   | — |   |
|                                                                |       |       |       |         |       |                                                                                               |       |                                                                                                    |       |                                                                              |       |                                                                        |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
|                                                                |       | 1/31/06    |       | 1/26/06      |       | —                                                                                             |       | —                                                                                                  |       | —                                                                            |       | —                                                                      |       | —                                            |       | — |   | 1,706 |   | MWP |   | — |   | — |   |
|                                                                |       | 1/31/06    |       | 1/25/06      |       | —                                                                                             |       | —                                                                                                  |       | —                                                                            |       | —                                                                      |       | —                                            |       | — |   | 1,578 |   | MWE |   | — |   | — |   |
|                                                                |       |       |       |         |       |                                                                                               |       |                                                                                                    |       |                                                                              |       |                                                                        |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
| C. Corwin Bromley  Senior Vice President, General Counsel           |       |       |       |         |       | 54,250                                                                                             |       | 86,800                                                                                                  |       | 173,600                                                                           |       | NA                                                                          |       | NA                                                |       | NA |   | — |   | — |   | — |   | — |   |
|                                                                |       |       |       |         |       |                                                                                               |       |                                                                                                    |       |                                                                              |       |                                                                        |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
|                                                                |       | 1/31/06    |       | 1/26/06      |       | —                                                                                             |       | —                                                                                                  |       | —                                                                            |       | —                                                                      |       | —                                            |       | — |   | 1,642 |   | MWP |   |   |   |   |   |
|                                                                |       | 1/31/06    |       | 1/25/06      |       | —                                                                                             |       | —                                                                                                  |       | —                                                                            |       | —                                                                      |       | —                                            |       | — |   | 11,520 |   | MWE |   | — |   | — |   |

 

----

(1)                The equity component of our long-termequity incentive plan is granted in MarkWest Hydrocarbon, Inc. (MWP) restrictedstock and MarkWest Energy Partners, L.P. (MWE) phantom units after theperformance based conditions are satisfied, however, the awards remain subjectto forfeiture and service based vesting conditions (these shares/units vestone-third annually over a three-year period). These equity awards are granted pursuant to targets multiples of basesalary at achievement of base-plan performance (converted into shares/unitsvalued at date of grant) and the allocations between MWP and MWE shares/unitesare based upon time devoted by the individual NEO to the respective entities’business and affairs during the year. See discussion in the Compensation Discussion and Analysis precedingthese tables.  Recipients are eligible tocollect stock dividends and/or common unit distribution payments on theseawards during the vesting period.

(2)                MWP stock awards granted on January 31,2006 were issued under the MarkWest Hydrocarbon 1996 Employee Stock IncentivePlan.  The grant on November 1, 2006 wasissued under the MarkWest Hydrocarbon 2006 Stock Incentive Plan, which becameeffective on July 1, 2006.

(3)                MWE unit awards were granted under theMarkWest Energy Partners, L.P. Long-Term Incentive Plan.

**Outstanding EquityAwards at Year End Table**

Thefollowing table summarizes the options and stock awards outstanding as ofDecember 31, 2006 for the Named Executive Officers.  The market value was determined using the closingprices on MWP and MWE on December 29, 2006. Previouslyawarded Partnership units have been adjusted to reflect the February 2007two-for-one unit split (see Note 2 to the consolidated financial statements).

113

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|                                                                     | ** ** | **Option Awards**                                                    | ** ** | **Stock Awards**                                                     | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **Number of  Securities  Underlying  Unexercised  Options (#)** | ** ** | **Number of  Securities  Underlying  Unexercised  Options (#)** | ** ** | **Equity Incentive  Plan Awards:  Number of  Securities  Underlying  Unexercised  Unearned  Options** | ** ** | **Option  Exercise  Price** | ** ** | **Option  Expiration** | ** ** | **Number of  Shares or Units  of Stock That  Have Not  Vested** | ** ** | **Market Value of  Shares or Units  of Stock That  Have Not Vested** | ** ** | **Equity Incentive  Plan Awards:  Number of  Unearned Shares,  Units or Other  Rights That Have  Not Vested** | ** ** | **Equity Incentive  Plan Awards:  Number of  Unearned Shares,  Units or Other  Rights That Have  Not Vested** | ** ** |
| **Name and Principal Position**                      | ** ** | **Exercisable**                                                           | ** ** | **Unexercisable**                                                         | ** ** | **(#)** | ** ** | **($)** | ** ** | **Date** | ** ** | **(#) (1) (2)** | ** ** | **($)** | ** ** | **(#)** | ** ** | **($)** | ** ** |
| Frank M. Semple  President and Chief Executive Officer              |       | 12,100                                                                    |       | —                                                                    |       | N/A |   | $ | 8.41 |   | 11/3/2013 |   | 4,927 |   | 239,206 |   | MWP |   | N/A |   | N/A |   |
|                                                                     |       |                                                                      |       |                                                                      |       |   |   |   |   |   |   | 7,516 |   | 224,165 |   | MWE |   |   |   |   |   |
|                                                                |       |                                                                      |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| James G. Ivey  Chief Financial Officer (Retired)                    |       | —                                                                    |       | —                                                                    |       | N/A |   | — |   | — |   | — |   | — |   | MWP |   | N/A |   | N/A |   |
|                                                                     |       |                                                                      |       |                                                                      |       |   |   |   |   |   |   | — |   | — |   | MWE |   |   |   |   |   |
|                                                                |       |                                                                      |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Nancy K. Buese  Senior Vice President, Chief Financial Officer      |       | —                                                                    |       | —                                                                    |       | N/A |   | — |   | — |   | 5,116 |   | 248,382 |   | MWP |   | N/A |   | N/A |   |
|                                                                     |       |                                                                      |       |                                                                      |       |   |   |   |   |   |   | 15,726 |   | 469,028 |   | MWE |   |   |   |   |   |
|                                                                |       |                                                                      |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Randy S. Nickerson  Senior Vice President, Chief Commercial Officer |       | 998                                                                       |       | —                                                                    |       | N/A |   | $ | 6.58 |   | 7/26/2010 |   | 2,017 |   | 97,925 |   | MWP |   | N/A |   | N/A |   |
|                                                                     |       | 1,742                                                                     |       | —                                                                    |       |   |   | $ | 8.45 |   | 12/7/2010 |   | 5,914 |   | 176,385 |   | MWE |   |   |   |   |   |
|                                                                     |       | 1,506                                                                     |       | —                                                                    |       |   |   | $ | 5.75 |   | 8/1/2011 |   |   |   |   |   |   |   |   |   |   |   |
|                                                                |       |                                                                      |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| John C. Mollenkopf  Senior Vice President, Chief Operations Officer |       | 867                                                                       |       | —                                                                    |       | N/A |   | $ | 7.89 |   | 12/10/2008 |   | 2,324 |   | 112,830 |   | MWP |   | N/A |   | N/A |   |
|                                                                     |       | 1,044                                                                     |       | —                                                                    |       |   |   | $ | 4.04 |   | 11/30/2009 |   | 4,218 |   | 125,802 |   | MWE |   |   |   |   |   |
|                                                                     |       | 1,044                                                                     |       | —                                                                    |       |   |   | $ | 6.58 |   | 7/26/2010 |   |   |   |   |   |   |   |   |   |   |   |
|                                                                     |       | 2,408                                                                     |       | —                                                                    |       |   |   | $ | 8.45 |   | 12/7/2010 |   |   |   |   |   |   |   |   |   |   |   |
|                                                                     |       | 2,469                                                                     |       | —                                                                    |       |   |   | $ | 5.75 |   | 8/1/2011 |   |   |   |   |   |   |   |   |   |   |   |
|                                                                |       |                                                                      |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| C. Corwin Bromley  Senior Vice President, General Counsel           |       | 2,420                                                                     |       | —                                                                    |       | N/A |   | $ | 12.05 |   | 9/27/2014 |   | 3,664 |   | 177,887 |   | MWP |   | N/A |   | N/A |   |
|                                                                     |       |                                                                      |       |                                                                      |       |   |   |   |   |   |   | 12,982 |   | 387,188 |   | MWE |   |   |   |   |   |

 

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(1)                Awards granted in MWP stock have a threeyear vesting schedule, with one third of the award vesting on the anniversarydate of the award each year.

(2)                Awards granted in MWE units have a threeyear vesting schedule, with the vesting period commencing, depending upon thegrant date, on the first either January 31st or July 31st of or following thegrant date, with one third of the award vesting on the anniversary of suchvesting period commencement date each year.

(3)                The market value of unvested MarkWestEnergy Partners (MWE) units is included in "All Other Compensation"in the Summary Compensation Table.  Underthe provisions of the Partnership's Long-Term Incentive Plan, these unvestedrestricted (phantom) units would vest in the event of a change in control.

**Option Exercise and Stock Vesting Table**

**The following table summarizes the option and stockaward activity during the year ended December 31, 2006 for the Named ExecutiveOfficers.  Partnership units that vestedduring the year have been adjusted to reflect the February 2007 two-for-one unitsplit (see Note 2 to the consolidated financial statements).**
|                                                  | ** ** | **Option Awards**                                      | ** ** | **Stock Awards**                      | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------------|------------|
| **Name and Principal Position**   | ** ** | **Number of  Shares  Acquired on  Exercise  (#)** | ** ** | **Value  Realized on  Exercise  ($)** | ** ** | **Number of  Shares Acquired  on Vesting  (#)** | ** ** | **Value Realized on  Vesting  ($)** | ** ** |
| Frank M. Semple                                  |       | 12,100                                                      |       | 170,308                                    |       | — |   | — |   | MWP |   |
| President and Chief  Executive Officer           |       | —                                                      |       | —                                     |       | 5,968 |   | 142,540 |   | MWE |   |
|                                             |       |                                                        |       |                                       |       |   |   |   |   |   |   |
| James G. Ivey                                    |       | 6,050                                                       |       | 233,925                                    |       | 260 |   | 5,673 |   | MWP |   |
| Chief Financial Officer  (Retired)               |       | —                                                      |       | —                                     |       | 3,680 |   | 88,053 |   | MWE |   |
|                                             |       |                                                        |       |                                       |       |   |   |   |   |   |   |
| Nancy K. Buese                                   |       | —                                                      |       | —                                     |       | 917 |   | 37,597 |   | MWP |   |
| Senior Vice President, Chief  Financial Officer  |       | —                                                      |       | —                                     |       | — |   | — |   | MWE |   |
|                                             |       |                                                        |       |                                       |       |   |   |   |   |   |   |
| Randy S. Nickerson                               |       | —                                                      |       | —                                     |       | 310 |   | 6,764 |   | MWP |   |
| Senior Vice President, Chief  Commercial Officer |       | —                                                      |       | —                                     |       | 1,988 |   | 46,420 |   | MWE |   |
|                                             |       |                                                        |       |                                       |       |   |   |   |   |   |   |
| John C. Mollenkopf                               |       | —                                                      |       | —                                     |       | 310 |   | 6,764 |   | MWP |   |
| Senior Vice President, Chief  Operations Officer |       | —                                                      |       | —                                     |       | 1,320 |   | 30,822 |   | MWE |   |
|                                             |       |                                                        |       |                                       |       |   |   |   |   |   |   |
| C. Corwin Bromley                                |       | —                                                      |       | —                                     |       | 1,011 |   | 39,648 |   | MWP |   |
| Senior Vice President,  General Counsel          |       | —                                                      |       | —                                     |       | 734 |   | 17,139 |   | MWE |   |

 

**Pension BenefitsTable**

The Partnership does not offer any pension benefits.

114

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| **Name and Principal Position**                       | ** ** | **Plan Name** | ** ** | **Number of Years  Credited Service  (#)** | ** ** | **Present Value of  Accumulated Benefit  ($)** | ** ** | **Payments During Last  Fiscal Year  ($)** | ** ** |
|----------------------------------------------------------------------|------------|--------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                           | ** ** | ** **         | ** ** | ** **                                                | ** ** | ** **                                                    | ** ** | ** **                                                | ** ** |
| Frank M. Semple  President and Chief Executive Officer               |       | N/A                |       | N/A                                                       |       | N/A                                                           |       | N/A                                                       |       |
|                                                                 |       |               |       |                                                      |       |                                                          |       |                                                      |       |
| James G. Ivey  Chief Financial Officer (Retired)                     |       | N/A                |       | N/A                                                       |       | N/A                                                           |       | N/A                                                       |       |
|                                                                 |       |               |       |                                                      |       |                                                          |       |                                                      |       |
| Nancy K. Buese  Senior Vice President, Chief Financial Officer       |       | N/A                |       | N/A                                                       |       | N/A                                                           |       | N/A                                                       |       |
|                                                                 |       |               |       |                                                      |       |                                                          |       |                                                      |       |
| Randy S. Nickerson  Senior Vice President, Chief Commercial Officer  |       | N/A                |       | N/A                                                       |       | N/A                                                           |       | N/A                                                       |       |
|                                                                 |       |               |       |                                                      |       |                                                          |       |                                                      |       |
| John C. Mollenkopf  Senior Vice President, Chief Operations  Officer |       | N/A                |       | N/A                                                       |       | N/A                                                           |       | N/A                                                       |       |
|                                                                 |       |               |       |                                                      |       |                                                          |       |                                                      |       |
| C. Corwin  Bromley  Senior Vice President, General Counsel           |       | N/A                |       | N/A                                                       |       | N/A                                                           |       | N/A                                                       |       |

 

**Non-QualifiedDeferred Compensation**

The Partnership has no non-qualified deferredcompensation plans.
| **Name and Principal Position**                      | ** ** | **Executive  Contributions in  Last FY  ($)** | ** ** | **Registrant  Contributions in  Last FY  ($)** | ** ** | **Aggregate  Earnings in  Last FY  ($)** | ** ** | **Aggregate  Withdrawls /  Distributions  ($)** | ** ** | **Aggregate  Balance at  Last FYE  ($)** | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------|------------|
| Frank M. Semple  President and Chief Executive Officer              |       | N/A                                                     |       | N/A                                                      |       | N/A                                                |       | N/A                                                  |       | N/A                                                |       |
|                                                                |       |                                                    |       |                                                     |       |                                               |       |                                                 |       |                                               |       |
| James G. Ivey  Chief Financial Officer (Retired)                    |       | N/A                                                     |       | N/A                                                      |       | N/A                                                |       | N/A                                                  |       | N/A                                                |       |
|                                                                |       |                                                    |       |                                                     |       |                                               |       |                                                 |       |                                               |       |
| Nancy K. Buese  Senior Vice President, Chief Financial Officer      |       | N/A                                                     |       | N/A                                                      |       | N/A                                                |       | N/A                                                  |       | N/A                                                |       |
|                                                                |       |                                                    |       |                                                     |       |                                               |       |                                                 |       |                                               |       |
| Randy S. Nickerson  Senior Vice President, Chief Commercial Officer |       | N/A                                                     |       | N/A                                                      |       | N/A                                                |       | N/A                                                  |       | N/A                                                |       |
|                                                                |       |                                                    |       |                                                     |       |                                               |       |                                                 |       |                                               |       |
| John C. Mollenkopf  Senior Vice President, Chief Operations Officer |       | N/A                                                     |       | N/A                                                      |       | N/A                                                |       | N/A                                                  |       | N/A                                                |       |
|                                                                |       |                                                    |       |                                                     |       |                                               |       |                                                 |       |                                               |       |
| C. Corwin  Bromley  Senior Vice President, General Counsel          |       | N/A                                                     |       | N/A                                                      |       | N/A                                                |       | N/A                                                  |       | N/A                                                |       |

 

**Director Compensation Table**

The following table sets forth the cash and non cash compensation earnedfor the year ended December 31, 2006 by each person who served as aNon-employee Director of MarkWest Hydrocarbon, Inc.

115

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| Name                               | ** ** | **Fees Earned  or Paid in   Cash  ($)** | ** ** | **Stock Awards  ($) (1) (2)** | ** ** | **Option Awards  ($) (3)** | ** ** | **All Other  Compensation  ($) (4) (5) (6) (7)** | ** ** | **Total  ($)** | ** ** |
|------------------------------------|------------|-------------------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------|------------|---------------------------------------------------------------------------|------------|----------------|------------|
| ** **                         | ** ** | ** **                                                  | ** ** | ** **                                   | ** ** | ** **                           | ** ** | ** **                                                                | ** ** | ** **     | ** ** |
| John M. Fox  Chairman of the Board |       | 37,000                                                      |       | 13,427                                       |       | —                               |       | 4,482,630                                                                 |       | 4,533,057      |       |
|                               |       |                                                        |       |                                         |       |                                 |       |                                                                      |       |           |       |
| Michael L. Beatty                  |       | 39,000                                                      |       | 13,427                                       |       | —                               |       | 869                                                                       |       | 53,296         |       |
|                               |       |                                                        |       |                                         |       |                                 |       |                                                                      |       |           |       |
| Donald C. Heppermann               |       | 34,000                                                      |       | 13,427                                       |       | 6,304                                |       | 2,809,408                                                                 |       | 2,863,139      |       |
|                               |       |                                                        |       |                                         |       |                                 |       |                                                                      |       |           |       |
| William A. Kellstrom               |       | 54,000                                                      |       | 13,427                                       |       | —                               |       | 7,625                                                                     |       | 75,052         |       |
|                               |       |                                                        |       |                                         |       |                                 |       |                                                                      |       |           |       |
| Anne E. Mounsey                    |       | 37,000                                                      |       | 13,427                                       |       | 3,129                                |       | 5,154                                                                     |       | 58,710         |       |
|                               |       |                                                        |       |                                         |       |                                 |       |                                                                      |       |           |       |
| Karen L. Rogers                    |       | 42,000                                                      |       | 13,427                                       |       | —                               |       | 5,945                                                                     |       | 61,372         |       |
|                               |       |                                                        |       |                                         |       |                                 |       |                                                                      |       |           |       |
| William F. Wallace                 |       | 46,000                                                      |       | 13,427                                       |       | 3,129                                |       | 1,304                                                                     |       | 63,860         |       |
|                               |       |                                                        |       |                                         |       |                                 |       |                                                                      |       |           |       |
| Donald D. Wolf                     |       | 48,000                                                      |       | 13,427                                       |       | —                               |       | 8,908                                                                     |       | 70,335         |       |

 

----

(1)               See Note 2 to theconsolidated financial statements for a description of our SFAS 123R valuationassumptions.

(2)               As of December 31,2006 the aggregate number of stock awards held by each member of our board ofdirectors was 1,733.

(3)               As of December 31,2006 the aggregate number of option awards held was: Mr. Fox 5,091; Mr.Heppermann 6,655; Mr. Kellstrom 1,210; Ms. Mounsey 1,210; Ms. Rogers 1,210 andMr. Wallace 1,210.

(4)               As of December 31,2006 the fair value of the named director’s investment in the ParticipationPlan was as follows: Mr. Fox $4,297,984 and Mr. Heppermann $2,681,403.

(5)               For the year endedDecember 31, 2006 the amount of MWP dividends received was as follows: Mr. Fox$34,047 and Mr. Heppermann $15,882.

(6)               Compensationreceived (net of capital calls) during the year ended December 31, 2006 underthe Participation Plan was as follows: Mr. Fox $150,599 and Mr. Heppermann$94,124.

(7)               Compensationreceived pursuant to a Consulting Agreement for the year ended December 31,2006 was a follows: Mr. Heppermann $18,000.

**MarkWestEnergy G.P., L.L.C.**

The followingtable sets forth the cash and non cash compensation earned for the year ended December31, 2006 by each person who served as a Non-employee Director of MarkWestEnergy G.P., L.L.C.

|                       | ** ** | **Fees Earned   or Paid in   Cash** | ** ** | **Unit Awards**      | ** ** | **All Other   Compensation** | ** ** | **Total** | ** ** |
|-----------------------|------------|--------------------------------------------------------------|------------|---------------------------|------------|----------------------------------------|------------|-----------|------------|
| **Name**              | ** ** | **($)**                                                      | ** ** | **($) (1) (2)** | ** ** | **($) (3) (4) (5)**     | ** ** | **($)**   | ** ** |
| John M. Fox           |       |                                                         |       |                      |       |                                   |       |      |       |
| Chairman of the Board |       | 34,000                                                       |       | 26,246                    |       | 4,508,233                              |       | 4,568,479 |       |
|                  |       |                                                         |       |                      |       |                                   |       |      |       |
| Keith E. Bailey       |       | 52,000                                                       |       | 18,193                    |       | 29,825                                 |       | 100,018   |       |
|                  |       |                                                         |       |                      |       |                                   |       |      |       |
| Charles K. Dempster   |       | 55,000                                                       |       | 28,036                    |       | 74,563                                 |       | 157,599   |       |
|                  |       |                                                         |       |                      |       |                                   |       |      |       |
| Donald C. Heppermann  |       | 34,000                                                       |       | 26,246                    |       | 2,835,177                              |       | 2,895,423 |       |
|                  |       |                                                         |       |                      |       |                                   |       |      |       |
| William A. Kellstrom  |       | 34,000                                                       |       | 28,036                    |       | 74,563                                 |       | 136,599   |       |
|                  |       |                                                         |       |                      |       |                                   |       |      |       |
| William P. Nicoletti  |       | 50,000                                                       |       | 28,036                    |       | 74,563                                 |       | 152,599   |       |

----

(1)             Seefootnote 2 to the consolidated financial statements for a description of ourSFAS 123R valuation assumptions.

(2)             Asof December 31, 2006 the aggregate number of unit awards held, retroactivelyadjusted for the February 2007 unit split were: Mr. Fox 1,666; Mr. Bailey1,000; Mr. Dempster 1,916; Mr. Heppermann 1,666; Mr. Kellstrom 1,916 and Mr.Nicoletti 1,916.

(3)             Changein control payments under the MarkWest Energy Partners Long-Term Incentive Planas of December 31, 2006 would be as follows: Mr. Fox $59,650; Mr. Bailey $29,825; Mr. Dempster $74,563; Mr.Heppermann $59,650; Mr. Kellstrom $74,563 and Mr. Nicoletti $74,563.  These dollar amounts are the fair value ofunvested restricted (phantom) units as of December 31, 2006.  

(4)             Asof December 31, 2006 the fair value of the named director's investment in theParticipation Plan was as follows: Mr. Fox $4,297,984 and Mr. Heppermann$2,681,403.

(5)    Compensationreceived (net of capital calls) during the year ended December 31, 2006 underthe Participation Plan was as follows: Mr. Fox $150,599 and Mr. Heppermann$94,124.

**Item 12. Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters**

The following table sets forth certain information asof February 15, 2007, regarding the beneficial ownership of our common stockheld by beneficial owners of 5% or more of common stock, by each director, byeach Named Executive Officer and by all of the directors and officers of theCompany as a group.

116

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| Name and Address of Beneficial Owner (1)                                   | ** ** | **Common  Shares  Beneficially  Owned (2)** | ** ** | **Percent of  Class (3)** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------|------------|
| John M. Fox (4)                                                                                          |       | 5,377,446                                        |       | 44.6                                | %          |
| Kayne Anderson Capital Advisors, L.P.  1800 Avenue of the Stars, Second Floor  Los Angeles, CA 90067 (5) |       | 908,099                                          |       | 7.5                                 | %          |
| Richard A. Kayne  1800 Avenue of the Stars, Second Floor  Los Angeles, CA 90067 (5)                      |       | 908,099                                          |       | 7.5                                 | %          |
| Michael L. Beatty                                                                                        |       | 2,100                                            |       | *                                   |       |
| Donald C. Heppermann                                                                                     |       | 29,599                                           |       | *                                   |       |
| William A. Kellstrom                                                                                     |       | 20,921                                           |       | *                                   |       |
| Anne E. Mounsey                                                                                          |       | 13,816                                           |       | *                                   |       |
| Karen L. Rogers                                                                                          |       | 15,597                                           |       | *                                   |       |
| William F. Wallace                                                                                       |       | 8,710                                            |       | *                                   |       |
| Donald D. Wolf                                                                                           |       | 37,548                                           |       | *                                   |       |
| Frank M. Semple                                                                                          |       | 40,556                                           |       | *                                   |       |
| C. Corwin Bromley                                                                                        |       | 9,246                                            |       | *                                   |       |
| Nancy K. Buese                                                                                           |       | 8,175                                            |       | *                                   |       |
| John C. Mollenkopf                                                                                       |       | 12,232                                           |       | *                                   |       |
| Randy S. Nickerson                                                                                       |       | 15,495                                           |       | *                                   |       |
| All directors and named  executive officers as a group (13 persons)                                      |       | 5,591,441                                        |       | 46.4                                | %          |

 

----

* Indicates less than 1.0%

(1)                                  Unless otherwise noted, the address for thebeneficial owner is c/o MarkWest Hydrocarbon, Inc., 1515 Arapahoe St., Tower 2,Suite 700, Denver, CO 80202.

(2)                                  Beneficial ownership for the purposes of theforegoing table is defined by Rule 13d-3 under the Securities and Exchange Actof 1934, as amended.  Under that rule, aperson is generally considered to be the beneficial owner of a security if heor she shares the power to vote or direct the voting thereof or to dispose ordirect the disposition thereof or has the right to acquire either of thosepowers within sixty days of February 15, 2007. For executive officers and certain directors, the common stockbeneficially owned includes interests in shares held in employee benefitplans.  Unless otherwise indicated, thedirectors and named executive officers have sole voting and dispositive powerover the shares listed above, other than shared rights created under jointtenancy or marital property laws as between the directors or named executiveofficers and their respective spouses.

(3)                                  All percentages have been determined as ofFebruary 15, 2007, in accordance with Rule 13d-3 under the Securities ExchangeAct of 1934, as amended. For purposes of this table, a person or group ofpersons is deemed to have beneficial ownership of any share of common stockthat such person or group has the right to acquire within sixty days afterFebruary 15, 2007.  For purposes ofcomputing the percentage of outstanding shares of common stock held by eachperson or group of persons named above, any security which such person or grouphas the right to acquire within sixty days after February 15, 2007, is deemedto be outstanding for the purpose of computing the percentage of ownership ofsuch person or group.  At February 15,2007 11,992,520 shares were outstanding. Rights to acquire a total of 65,532 shares of common stock wereexercisable within sixty days.

(4)                                  Includes an aggregate of (i) 4,842,387 sharesowned directly by MWHC Holding, Inc., an entity controlled by Mr. Fox, of whichMr. Fox is also considered a beneficial owner (Mr. Fox has an indirectpecuniary interest in the MWHC shares); (ii) 81,250 shares held in theaggregate in the Brian T. Crabtree Trust which Mr. Fox is the Trustee; (iii)118,000 shares held in the aggregate in the Fox Family Foundation; (iv) 1,452shares held in the aggregate by Bode Blanco, L.L.C.; and (v) 124,235 sharesheld by the MaggieGeorge Foundation, for which certain family members of Mr.Fox are directors.  Mr. Fox disclaimsbeneficial ownership of the shares held in the MaggieGeorge Foundation withinthe meaning of Rule 13d-3 under the Exchange Act.

(5)                                  Information is based solely on aSchedule 13G/A filed with the Securities and Exchange Commission by KayneAnderson Capital Advisors, L.P. and Richard A. Kayne, on February 5, 2007,with respect to shares held as of December 31, 2006. The Schedule 13G/Aindicates that Kayne Anderson Capital Advisors, L.P. and Richard A. Kayne haveshared voting power and dispositive power with respect to 908,099 shares. The reported shares are owned by investment accounts managed, with discretionto purchase or sell securities, by Kayne Anderson Capital Advisors, L.P., as aregistered investment advisor.  Kayne Anderson Capital Advisors, L.P. isthe general partner of the limited partnerships and investment adviser to theother accounts.  Richard A. Kayne is the controlling shareholder of thecorporate owner of Kayne Anderson Investment Management, Inc., the generalpartner of Kayne Anderson Capital Advisors, L.P.  Mr. Kayne is also alimited partner of each of the limited partnerships and a shareholder of theregistered investment company.  Kayne Anderson Capital Advisors, L.P.disclaims beneficial ownership of the shares reported, except those sharesattributable to it by virtue of its general partner interests in the limitedpartnerships.  Mr. Kayne disclaims beneficial ownership of the sharesreported, except those shares held by him or attributable to him by virtue ofhis limited partnership interests in the limited partnerships, his indirectinterest in the interest of Kayne Anderson Capital Advisors, L.P. in the limitedpartnership, and his ownership of common stock of the registered investmentcompany.

***MarkWest GP, L.L.C.***

Thefollowing table sets forth the beneficial ownership of the Partnership’sgeneral partner as of February 15, 2007, held by the directors, each namedexecutive officer and by all directors and officers as a group.

117

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| Name of Beneficial Owner                             | ** ** | **Percentage of  Limited Liability  Company Interests  Owned** | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| John M. Fox (1)                                                     |       | 91.3                                                                          | %          |
| Donald C.  Heppermann                                               |       | 1.0                                                                           | %          |
| Keith E. Bailey                                                     |       | —                                                                        |       |
| Charles K.  Dempster                                                |       | —                                                                        |       |
| William A.  Kellstrom                                               |       | —                                                                        |       |
| William P.  Nicoletti                                               |       | —                                                                        |       |
| Frank M. Semple                                                     |       | 2.0                                                                           | %          |
| John C.  Mollenkopf                                                 |       | 1.6                                                                           | %          |
| Randy S.  Nickerson                                                 |       | 1.6                                                                           | %          |
| Nancy K. Buese                                                      |       | 0.2                                                                           | %          |
| C. Corwin  Bromley                                                  |       | 0.1                                                                           | %          |
| All Directors and Named  Executive Officers as a Group (11 persons) |       | 97.8                                                                          | %          |

 

----

(1)                                  Includes a 1.6% ownership interest helddirectly by Mr. Fox and an 89.7% ownership interest held by MarkWestHydrocarbon. As of February 15, 2007, Mr. Fox beneficially ownedapproximately 45% of the voting securities of MarkWest Hydrocarbon.Mr. Fox currently serves as MarkWest Hydrocarbon’s Chairman of the Boardof Directors.   Mr. Fox resigned asPresident of MarkWest Hydrocarbon effective November 1, 2003, and as ChiefExecutive Officer effective January 1, 2004. As a result, Mr. Foxmay be deemed to be the beneficial owner of the ownership interests ownedby MarkWest Hydrocarbon.

***MarkWest Energy Partners***

Thefollowing table sets forth the beneficial ownership of units as of March 1,2007, held by beneficial owners of 5% or more of the units; by directors of ourgeneral partner; by each named executive officer listed in the summary compensation table included in this Form 10-K; and byall directors and officers of our general partner as a group.  The units reported have been adjusted toreflect the February 2007 two-for-one unit split (see Note 2 to theconsolidated financial statements).
| Name and Address of Beneficial Owner (1)                                     | ** ** | **Common Units  Beneficially  Owned (2)** | ** ** | **Percent of  Class** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|----------------------------|------------|
|                                                                                                       |       |                                                |       |                       |       |
| MarkWest Energy  GP, L.L.C.                                                                                |       | —                                              |       | —                     |       |
| MarkWest  Hydrocarbon, Inc. (3)                                                                            |       | 4,938,992                                           |       | 15.2                       | %          |
| John M. Fox (4)                                                                                            |       | 5,029,454                                           |       | 15.5                       | %          |
| Tortoise Capital Advisors, L.L.C.  10801 Mastin Boulevard, Suite 222  Overland Park, KS 66210 (5)          |       | 3,128,470                                           |       | 9.7                        | %          |
| Tortoise Energy Infrastructure Corporation  10801 Mastin Boulevard, Suite 222  Overland Park, KS 66210 (5) |       | 2,080,354                                           |       | 6.4                        | %          |
| Kayne Anderson Capital Advisors, L.P.  1800 Avenue of the Stars, Second Floor  Los Angeles, CA 90067 (6)   |       | 2,831,560                                           |       | 8.7                        | %          |
| Richard A. Kayne  1800 Avenue of the Stars, Second Floor  Los Angeles, CA 90067 (6)                        |       | 2,831,560                                           |       | 8.7                        | %          |
| Keith E. Bailey                                                                                            |       | 21,734                                              |       | *                          |       |
| Charles K.  Dempster                                                                                       |       | 3,000                                               |       | *                          |       |
| Donald C.  Heppermann                                                                                      |       | 24,000                                              |       | *                          |       |
| William A.  Kellstrom                                                                                      |       | 9,000                                               |       | *                          |       |
| William P.  Nicoletti                                                                                      |       | 8,000                                               |       | *                          |       |
| Frank M. Semple                                                                                            |       | 33,742                                              |       | *                          |       |
| C. Corwin  Bromley                                                                                         |       | 5,304                                               |       | *                          |       |
| Nancy K. Buese                                                                                             |       | 4,196                                               |       | *                          |       |
| John C.  Mollenkopf                                                                                        |       | 17,718                                              |       | *                          |       |
| Randy S.  Nickerson                                                                                        |       | 14,978                                              |       | *                          |       |
| All Directors and  Executive Officers as a Group (11 persons)                                              |       | 5,171,126                                           |       | 16.0                       | %          |

 

----

* Indicates less than 1.0%

118

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(1)                                  Unless otherwise noted, the address for thebeneficial owner is c/o MarkWest Hydrocarbon, Inc., 1515 Arapahoe St., Tower 2,Suite 700, Denver, CO 80202.

(2)                                  Beneficial ownership for the purposes of theforegoing table is defined by Rule 13d-3 under the Securities and Exchange Actof 1934, as amended.  Under that rule, aperson is generally considered to be the beneficial owner of a security if heor she shares the power to vote or direct the voting thereof or to dispose ordirect the disposition thereof or has the right to acquire either of thosepowers within sixty days of March 1, 2007.

(3)                                  Ownership is made up of common units and1,200,000 subordinated units held directly and indirectly through subsidiaries.

(4)                                  Includes 3,738,992 common units and 1,200,000subordinated units owned by MarkWest Hydrocarbon and its subsidiaries. As of March 1,2007, Mr. Fox beneficially owned approximately 45% of the votingsecurities of MarkWest Hydrocarbon. Mr. Fox currently serves as MarkWestHydrocarbon’s Chairman of the Board. Mr. Fox resigned as President ofMarkWest Hydrocarbon effective November 1, 2003, and as Chief ExecutiveOfficer effective January 1, 2004. As a result, Mr. Fox may bedeemed to be the beneficial owner of the subordinated units owned by MarkWestHydrocarbon.

(5)                                  Tortoise Capital Advisors LLC (“TCA”) acts asan investment advisor to Tortoise Energy Infrastructure Corporation (“TYG”), aclosed-end investment company. TCA, by virtue of an Investment AdvisoryAgreement with TYG, has all investment and voting power over securities ownedof record by TYG. Despite its delegation of investment and voting power to TCA,however, TYG may be deemed to be the beneficial owner underRule 13d-3 of the Securities and Exchange Act of 1940, of the securitiesit owns of record because it has the right to acquire investment and votingpower through termination of the Investment Advisory Agreement. Thus, TCA andTYG have reported that they share voting power and dispositive power over thesecurities owned of record by TYG. TCA also acts as an investment advisor tocertain managed accounts. Under contractual agreements with individual accountholders, TCA, with respect to the securities held in the managed accounts,shares investment and voting power with certain account holders, and has novoting power but shares investment power with certain other account holders.TCA may be deemed the beneficial owner of the securities covered by thisstatement under Rule 13d-3 of the Act. None of the securities are owned ofrecord by TCA, and TCA disclaims any beneficial interest in such shares.

(6)                                  Information is based on a Schedule 13G/Afiled with the Securities and Exchange Commission by Kayne Anderson CapitalAdvisors, L.P. and Richard A. Kayne, on February 5, 2007, with respect tounits held as of December 31, 2006. The Schedule 13G/A indicates thatKayne Anderson Capital Advisors, L.P. and Richard A. Kayne have shared votingpower and dispositive power with respect to 1,415,780 units. The number ofreported units has been adjusted to reflect a 2 for 1 unit split which was paidon February 28, 2007 to unitholders of record on February 22, 2007.  The reported units are owned by investmentaccounts managed, with discretion to purchase or sell securities, by KayneAnderson Capital Advisors, L.P., as a registered investment advisor. KayneAnderson Capital Advisors, L.P. is the general partner of the limitedpartnerships and investment adviser to the other accounts. RichardA. Kayne is the controlling shareholder of the corporate owner of KayneAnderson Investment Management, Inc., the general partner of KayneAnderson Capital Advisors, L.P. Mr. Kayne is also a limited partner ofeach of the limited partnerships and a shareholder of the registered investmentcompany. Kayne Anderson Capital Advisors, L.P. disclaims beneficial ownershipof the units reported, except those units attributable to it by virtue of itsgeneral partner interests in the limited partnerships. Mr. Kayne disclaimsbeneficial ownership of the units reported, except those units held by him orattributable to him by virtue of his limited partnership interests in thelimited partnerships, his indirect interest in the interest of Kayne AndersonCapital Advisors, L.P. in the limited partnership, and his ownership of commonunits of the registered investment company.

**Item 13. Certain Relationships,Related Transactions and Director Independence**

**Transactions with Management and Others**

In September 2006 the Company entered into aConsulting Services Agreement and Separation Agreement with James G. Ivey.  Pursuant to the Consulting ServicesAgreement, Mr. Ivey provided consulting services to the Company from October 2through October 31, 2006, and received compensation in the amount of$19,850.  Pursuant to the Separation Agreement, the Company agreed to payMr. Ivey his base salary for a period of eighteen months, through March 2008,or approximately $0.3 million.  Alsopursuant to the Separation Agreement, Mr. Ivey executed a release and waiver ofclaims against the Company and provided non-compete and non-solicitationcovenants for the eighteen-month period of separation payments referencedabove.

**Participation Plan**

From time to time, MarkWest Hydrocarbon sells tocertain of its executive officers and directors (i) a certain amount ofthe subordinated units the Company obtained during the formation of MarkWestEnergy in May 2002 and (ii) a portion of its ownership interest inthe general partner, which was also obtained by the Company during theformation of the Partnership.  These transactions are accounted for ascompensatory arrangements, consistent with the guidance in APB No. 25, *Accounting for Stock Issued to Employees*andEITF No 95-16, *Accounting for StockCompensation Arrangements with Employer Loan Features under APB OpinionNo. 25,*which requires the Company to record compensationexpense based on the market value of the subordinated Partnership units and theformula value of the general partner interests held by the employees anddirectors, at the end of each reporting period. The sales are governed by apurchase and sales agreement that outlines the terms and conditions.Immediately after MarkWest Energy’s initial public offering on May 24,2002, MarkWest Hydrocarbon sold an 8.6% interest in the general partner of thePartnership and 49,728 of its Partnership subordinated units, to certainofficers of MarkWest Hydrocarbon.  Theofficers and executives paid approximately 30% of the purchase price in cashand financed the remainder with loans from MarkWest Hydrocarbon.  Theloans were evidenced by non-recourse promissory notes requiring the principalbalance to be repaid no later than June 30, 2009 and bearing interest atthe rate of 7% per annum on the unpaid balance.   As of December 31, 2006, there was no loansoutstanding related to the initial purchase of the general partner interests orsubordinated units by the executives and officers.  In accordance with the Sarbanes-Oxley Act of2002, the Company no longer grants loans to employees.

119

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Since May 2002, MarkWest Hydrocarbon has soldadditional interests in the general partner to employees and directors of 5.0%and has repurchased ownership interests from employees and directors of3.3%.  During the same timeframe, thePartnership has sold an additional 28,000 subordinated units and repurchased16,720.  As of December 31, 2006, 10.3%of the general partner is currently held by employees and directors.  The Board of Directors of the Partnership’sgeneral partner has determined at this time to cease any further sales of GPInterests.

# **Item 14.  Principal Accountant Fees and Services**

For the years ended December 31, 2006 and 2005, consolidatedaccounting fees and services for the Company were as follows (in thousands):
|                                     | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------|------------|--------------------------------------------|------------|
| ** **                          | ** ** | **2006**                                   | ** ** | **2005 (4)** | ** ** |
| Audit fees                          |       | $                                          | 3,135      |   | $ | 3,282 |   |
| Audit-related  fees (1)             |       | 414                                        |       | 125 |   |
| Tax fees (2)                        |       | 15                                         |       | — |   |
| All other fees  (3)                 |       | 2                                          |       | 5 |   |
| Total accounting fees  and services |       | $                                          | 3,566      |   | $ | 3,412 |   |

 

----

(1)             Audit-related fees include fees for reviews ofregistration statements and issuances of consents, reviews of private placementoffering documents, benefit plan audits, issuance of letter to underwriters,due diligence pertaining to potential business acquisitions and a review ofrisk management policies and procedures.

(2)             Tax fees include fees for tax returnpreparation and technical tax advice.

(3)             All other fees consist of a subscription to anon-line accounting research tool.

(4)             For the year ended December 31, 2005, auditservices were provided by KPMG, LLP and Deloitte & Touche, LLP as ourprincipal accountants.

*Pre-Approval of Audit and PermittedNon-Audit Services.*The Audit Committee is responsible forappointing, setting compensation and overseeing the work of the independentpublic accountants. The Audit Committee established a policy that requires thePartnership to have the Audit Committee pre-approve all audit and permittednon-audit services from the independent public accountants. The Company’smanagement submits request to the Audit Committee for pre-approval of any suchallowable services. The Audit Committee considers whether the provision ofnon-audit services by the independent public accountants is compatible withmaintaining the accountants’ independence. The Audit Committee considers eachengagement of the independent public accountants on a case-by-case basis. TheAudit Committee pre-approved the performance of the services described above.

120

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**PART IV**

# **Item 15. Exhibits and Financial Statement Schedules**

(a)                                  Thefollowing documents are filed as part of this report:

(1) Financial Statements:

You should read the Index toConsolidated Financial Statements included in Item 8 of this Form 10-K for a listof all financial statements filed as a part of this report, which isincorporated herein by reference.

(2) Financial Statement Schedules: All omitted schedules have beenomitted because they are not required or because the required information iscontained in the financial statements or notes thereto.

(3) Exhibits:  See (b) below.

(b) Exhibits required by Item 601 of Regulation S-K.
| Exhibit  Number | ** ** | **Description**                                                                                                                                                                                                                                                                                             |
|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                                                                                                                                                                        |
| 2.1(6)          |       | Purchase Agreement dated as of March 24, 2003,  among PNG Corporation, Energy Spectrum Partners LP, MarkWest Energy GP,  L.L.C., MW Texas Limited, L.L.C. and MarkWest Energy Partners, L.P.                                                                                                           |
|            |       |                                                                                                                                                                                                                                                                                                        |
| 2.2(6)          |       | Plan of Merger entered into as of March 28,  2003, by and among MarkWest Blackhawk L.P., MarkWest Pinnacle L.P., MarkWest  PNG Utility L.P., MarkWest Texas PNG Utility L.P., Pinnacle Natural Gas  Company, Pinnacle Pipeline Company, PNG Transmission Company and Bright Star  Gathering, Inc. |
|            |       |                                                                                                                                                                                                                                                                                                        |
| 2.3(11)         |       | Purchase and Sale Agreement, dated as of  November 7, 2003, by and between Shell Pipeline Company, LP and Equilon  Enterprises L.L.C., dba Shell Oil Products US, and MarkWest Michigan Pipeline  Company, L.L.C.                                                                                      |
|            |       |                                                                                                                                                                                                                                                                                                        |
| 2.4(10)         |       | Asset Purchase and Sale Agreement dated as of  November 18, 2003, by and between American Central Western Oklahoma Gas  Company, L.L.C., MarkWest Western Oklahoma Gas Company, L.L.C. and American  Central Gas Technologies, Inc.                                                               |
|            |       |                                                                                                                                                                                                                                                                                                        |
| 2.5(13)         |       | Asset Purchase and Sale Agreement and addendum,  thereto, dated as of July 1, 2004 by and between American Central  Eastern Texas Gas Company Limited Partnership, ACGC Gathering Company, L.L.C.  and MarkWest Energy East Texas Gas Company’s L.P.                                              |
|            |       |                                                                                                                                                                                                                                                                                                        |
| 2.6(20)         |       | Purchase and Sale Agreement dated as of September  16, 2005 by and between El Paso Corporation, as seller, and MarkWest Energy  Partners, L.P. as buyer.                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                        |
| 2.7(20)         |       | Purchase and Sale Agreement dated as of September  16, 2005 by and between Kerr-McGee Corp., KM Investment Corp., and Javelina  Holdings Corp., as joint sellers, and MarkWest Energy Partners, L.P. as  buyer.                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                        |
| 2.8(20)         |       | Purchase and Sale Agreement dated as of September  16, 2005 by and between Valero Energy Corp., and Valero Javelina, L.P., as  sellers, and MarkWest Energy Partners, L.P. as buyer.                                                                                                                        |
|            |       |                                                                                                                                                                                                                                                                                                        |
| 3.1(1)          |       | Certificate of Incorporation of MarkWest  Hydrocarbon, Inc.                                                                                                                                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                                                                        |
| 3.2(1)          |       | Bylaws of MarkWest Hydrocarbon, Inc.                                                                                                                                                                                                                                                                   |
|            |       |                                                                                                                                                                                                                                                                                                        |
| 4.1(5)          |       | Subordinated Unit Purchase Agreement among MarkWest  Hydrocarbon, Inc. and Tortoise MWEP, L.P., dated as of November 20,  2002.                                                                                                                                                                   |
|            |       |                                                                                                                                                                                                                                                                                                        |
| 4.2(7)          |       | Purchase Agreement dated as of June 13, 2003,  by and among MarkWest Energy Partners, L.P. and Tortoise Capital Advisors,  LLC as attorney-in-fact for the Purchasers.                                                                                                                                 |

 

121

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| 4.3(7)   |   | Registration Rights Agreement dated as of  June 13, 2003, by and among MarkWest Energy Partners, L.P. and Tortoise  Capital Advisors, LLC as attorney-in-fact for the Purchasers.                                                                                                                                                                                                                                                                                                                                                                        |
|----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.4(13)  |   | Unit Purchase Agreement dated as of July 29,  2004 among MarkWest Energy Partners, L.P., and MarkWest Energy GP, L.L.C. and  each of Kayne Anderson Energy Fund II, L.P., and MarkWest Energy GP, L.L.C.  and each of Kayne Anderson Energy Fund II, L.P., Kayne Anderson Capital  Income Partners, L.P., Kayne Anderson MLP Fund, L.P., Kayne Anderson Capital  Income Fund, LTD., Kayne Anderson Income Partners, L.P., HFR RV Performance  Master Trust, Tortoise Energy Infrastructure Corporation and Energy Income  and Growth Fund as Purchasers. |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.5(13)  |   | Registration Rights Agreement dated as of  July 29, 2004 among MarkWest Energy Partners, L.P., and each of Kayne  Anderson Energy Fund II, L.P., Kayne Anderson Capital Income Fund, LTD.,  Kayne Anderson Income Partners, L.P., HFR RV Performance Master Trust,  Tortoise Energy Infrastructure Corporation and Energy Income and Growth Fund.                                                                                                                                                                                                        |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.6(14)  |   | Purchase Agreement dated October 19, 2004,  among MarkWest Energy Partners, L.P., MarkWest Energy Finance Corporation,  the Guarantors named therein and the Initial Purchasers named therein.                                                                                                                                                                                                                                                                                                                                                           |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.7(14)  |   | Registration Rights Agreement dated October 25,  2004, among MarkWest Energy Partners, L.P., MarkWest Energy Finance  Corporation, the Guarantors named therein and the Initial Purchasers named  therein.                                                                                                                                                                                                                                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.8(14)  |   | Indenture dated as of October 25, 2004, among  MarkWest Energy Partners, L.P., MarkWest Energy Finance Corporation, the  Guarantors named therein and Wells Fargo Bank, National Association, as  Trustee.                                                                                                                                                                                                                                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.9(14)  |   | Form of 6.875% Series A Senior Notes due  2014 with attached notation of Guarantees (incorporated by Reference to  Exhibits A and D of Exhibit 4.8 hereto).                                                                                                                                                                                                                                                                                                                                                                                    |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.10(27) |   | Registration Rights Agreement dated as of  July 6, 2006 among MarkWest Energy Partners, L.P., with MarkWest Energy  Finance Corporation as the Issuers, the Guarantors named therein, and each of  RBC Capital Markets Corporation, J.P. Morgan Securities Inc., Wachovia Capital  Markets, LLC, A.G. Edwards & Sons, Inc., Credit Suisse  Securities (USA) LLC, Fortis Securities LLC, Mizuho International plc, Piper  Jaffray & Co. and SG Americas Securities, LLC collectively as  Initial Purchasers.                       |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.11(27) |   | Indenture dated as of July 6, 2006, among MarkWest  Energy Partners, L.P., MarkWest Energy Finance Corporation, as Issuers, the  Guarantors named therein, and Wells Fargo Bank, National Association, as  Trustee.                                                                                                                                                                                                                                                                                                                                           |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.12(27) |   | Form of 8.5% Series A and Series B Senior  Notes due 2016 with attached notation of Guarantees (incorporated by  Reference to Exhibits A and D of Exhibit 4.11 hereto).                                                                                                                                                                                                                                                                                                                                                                        |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.13(29) |   | Registration Rights Agreement dated as of October  20, 2006 among MarkWest Energy Partners, L.P., with MarkWest Energy Finance  Corporation as the Issuers, the Guarantors named therein, and RBC Capital  Markets Corporation as the Initial Purchaser.                                                                                                                                                                                                                                                                                                      |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1(1)^ |   | 1996 Incentive Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.2(1)^ |   | 1996 Stock Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.3(1)^ |   | 1996 Non-employee Director Stock Option Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.4(1)  |   | Form of Non-Compete Agreement between John M.  Fox and MarkWest Hydrocarbon, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.5(2)^ |   | MarkWest Hydrocarbon, Inc., 1997 Severance  Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.6+    |   | Amendment to Gas Processing Agreement (Maytown)  dated as of March 26, 2002, between Equitable Production Company and  MarkWest Hydrocarbon, Inc.                                                                                                                                                                                                                                                                                                                                                                                                   |

 

122

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| 10.7(3)         |   | Contribution, Conveyance and Assumption Agreement  dated as of May 24, 2002, among MarkWest Energy Partners, L.P.; MarkWest  Energy Operating Company, L.L.C; MarkWest Energy GP, L.L.C.; MarkWest  Michigan, Inc.; MarkWest Energy Appalachia, L.L.C.; West Shore  Processing Company, L.L.C.; Basin Pipeline, L.L.C.; and MarkWest  Hydrocarbon, Inc.                                                                                                                                            |
|-----------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.8(4)         |   | Fifth Amended and Restated Credit Agreement among  MarkWest Hydrocarbon, Inc. and Certain Financial Institutions as the  Lenders, Bank of America, N.A., as the Administrative Agent of the Lenders,  and Bank of America Securities, L.L.C., as Lead Arranger and Sole Book  Manager, dated as of May 24, 2002.                                                                                                                                                                                        |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.9(3)         |   | Omnibus Agreement dated as of May 24, 2002,  among MarkWest Hydrocarbon, Inc.; MarkWest Energy GP, L.L.C.; MarkWest  Energy Partners, L.P.; and MarkWest Energy Operating Company, L.L.C.                                                                                                                                                                                                                                                                                                               |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.10(3)+       |   | Fractionation, Storage and Loading Agreement dated as  of May 24, 2002, between MarkWest Energy Appalachia, L.L.C. and MarkWest  Hydrocarbon, Inc.                                                                                                                                                                                                                                                                                                                                                      |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.11(3) + |   | Gas Processing Agreement dated as of May 24,  2002, between MarkWest Energy Appalachia, L.L.C. and MarkWest  Hydrocarbon, Inc.                                                                                                                                                                                                                                                                                                                                                                          |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.12(3) + |   | Pipeline Liquids Transportation Agreement dated as  of May 24, 2002, between MarkWest Energy Appalachia, L.L.C. and MarkWest  Hydrocarbon, Inc.                                                                                                                                                                                                                                                                                                                                                         |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.13(3)        |   | Natural Gas Liquids Purchase Agreement dated as of  May 24, 2002, between MarkWest Energy Appalachia, L.L.C. and MarkWest  Hydrocarbon, Inc.                                                                                                                                                                                                                                                                                                                                                            |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.14++         |   | Gas Processing Agreement (Maytown) dated as of  May 28, 2002, between Equitable Production Company and MarkWest  Hydrocarbon, Inc.                                                                                                                                                                                                                                                                                                                                                                      |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.15(8)        |   | Purchase and Sale Agreement, dated as of  June 5, 2003, by and among MarkWest Hydrocarbon, Inc., MarkWest  Resources, Inc., and XTO Energy Inc.                                                                                                                                                                                                                                                                                                                                                    |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.16(9)        |   | Purchase and Sale Agreement dated as of  July 31, 2003, among Raptor Natural Plains Marketing LLC, Raptor Gas  Transmission LLC, Power-Tex Joint Venture and MarkWest Pinnacle L.P.                                                                                                                                                                                                                                                                                                                          |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.17(10)       |   | Amended and Restated Credit Agreement dated as of  December 1, 2003, among MarkWest Energy Operating Company, L.L.C., as  Borrower, MarkWest Energy Partners, L.P., as Guarantor, Royal Bank of Canada,  as Administrative Agent, Bank One, NA, as Syndication Agent, and Fortis  Capital Corp., as Documentation Agent, to the $140,000,000 Senior Credit  Facility.                                                                                                                                        |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.18(12) ^     |   | Executive Employment Agreement effective  November 1, 2003 between MarkWest Hydrocarbon, Inc. and Frank Semple.                                                                                                                                                                                                                                                                                                                                                                                         |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.19(13)       |   | Second Amended and Restated Credit Agreement dated  as of July 30, 2004 among MarkWest Energy Operating Company, L.L.C., as  Borrower, MarkWest Energy Partners, L.P., as Guarantor, Royal Bank of Canada,  as Administrative Agent, Fortis Capital Corp., as Syndication Agent, Bank  One, NA, as Documentation Agent and Societe Generale, as Documentation Agent  to the $315,000,000 Senior Credit Facility.                                                                                             |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.20(13)       |   | First Amendment to the Second Amended and Restated  Credit Agreement dated as of August 20, 2004, among MarkWest Energy  Operating Company, L.L.C., as Borrower, MarkWest Energy Partners, L.P., as  Guarantor, Royal Bank of Canada, as Administrative Agent, Fortis Capital  Corp., as Syndication Agent, Bank One, NA, as Documentation Agent and Societe  Generale, as Documentation Agent.                                                                                                              |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.21(15)       |   | Third Amended and Restated Credit Agreement dated as  of October 25, 2004 among MarkWest Energy Operating Company, L.L.C., as  Borrower, MarkWest Energy Partners, L.P., as Guarantor, Royal Bank of Canada,  as Administrative Agent, Bank One, N.A., as Syndication Agent, Fortis Capital  Corp., as Documentation Agent, U.S. Bank National Association, as  Documentation Agent, Societe Generale, as Documentation Agent, and Wachovia  Bank, National Association, as Documentation Agent, RBC Capital |

 

123

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|                 |   | Markets and J.P. Morgan Securities Inc., as Lead  Arrangers and Joint Bookrunners, to the $200,000,000 Senior Credit Facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.22(3) ^ |   | MarkWest Energy Partners, L.P. Long-Term Incentive  Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.23(3) ^ |   | First Amendment to MarkWest Energy Partners, L.P.  Long-Term Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.24(16)       |   | Credit Agreement among MarkWest  Hydrocarbon, Inc. as the Borrower, Royal Bank of Canada, as  Administrative Agent and RBC Capital Markets, as Lead Arranger and Sole  Bookrunner, to the $25,000,000 Senior Credit Facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.25++         |   | Purchase and Sale of Natural Gas Agreement dated as  of September 24, 2004, between MarkWest Hydrocarbon, Inc. and  Equitable Production Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.26++         |   | A Firm Natural Gas Processing Agreement dated as of  September 24, 2004, between MarkWest Hydrocarbon, Inc. and  Equitable Production Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.27++         |   | A Netting, Financial and Security Agreement dated as  of September 24, 2004, between MarkWest Hydrocarbon, Inc. and  Equitable Production Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.28(17)       |   | Purchase and Sale Agreement dated as of January 24,  2005 by and among Enterprise Products Operating, L.P., as seller and MarkWest  Energy Partners, L.P., as buyer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.29(19)       |   | Fourth Amended and Restated Credit Agreement, dated  as of November 1, 2005, among MarkWest Energy Operating Company, L.LC., as  Borrower, MarkWest Energy Partners, L.P., as Guarantor, Royal Bank of Canada,  as Administrative Agent, JP Morgan Chase Bank, N.A., as Co-Syndication Agent,  Fortis Capital Corp., as Co-Syndication Agent, Societe Generale, as  Co-Documentation Agent, Wachovia Bank, National Association, as  Co-Documentation Agent and RBC Capital Markets, as Sole Lead Arranger and  Bookrunner to the $100,000,000 Revolver Facility and $400,000 Term Loan                                                                                                       |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.30(21)       |   | Fifth Amended and Restated Credit Agreement dated as  of December 29, 2005, among MarkWest Energy Operating Company, L.L.C., as  Borrower, MarkWest Energy Partners, L.P., as Guarantor, Royal Bank of Canada,  as Administrative Agent and Collateral Agent, JP Morgan Chase Bank, N.A., as  Syndication Agent, Fortis Capital Corp., as Co-Documentation Agent, U.S.  Bank, National Association, as Co-Documentation Agent, Societe Generale, as  Co-Documentation Agent, and Wachovia Bank, National Association, as  Co-Documentation Agent, RBC Capital Markets and J.P. Morgan Securities Inc.,  as Lead Arrangers and Joint Bookrunners, to the $615,000,000 Senior Credit  Facility. |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.31(21)       |   | Third Amendment to Credit Agreement dated as of  December 30, 2005, among MarkWest Hydrocarbon, Inc., as Borrower, MarkWest  Energy, G.P., L.L.C., as Co-Guarantor, MarkWest Michigan, Inc., as  Co-Guarantor, MarkWest Resources, Inc., as Co-Guarantor, Matrex, L.L.C., as  Co-Guarantor, Royal Bank of Canada, as Administrative Agent for the Lenders,  U.S. Bank, National Association and Bank of Oklahoma, N.A. as Lenders to the  $25,000,000 Senior Credit Facility.                                                                                                                                                                                                                 |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.32(22)       |   | First Amended and Restated Credit Agreement dated as  of January 31, 2006, among MarkWest Hydrocarbon, Inc., as Borrower, Royal  Bank of Canada, as Administrative Agent for the Lenders, U.S. Bank, National  Association and Bank of Oklahoma, N.A. as Lenders to the $25,000,000 Senior  Credit Facility.                                                                                                                                                                                                                                                                                                                                                                                  |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.33(23)       |   | Amendment No. 1 to the First Amended and Restated  Credit Agreement dated as of March 23, 2006, among MarkWest Hydrocarbon,  Inc., as Borrower, Royal Bank of Canada, as Administrative Agent for the  Lenders, U.S. Bank, National Association and Bank of Oklahoma, N.A. as  Lenders to the $25,000,000 Senior Credit Facility.                                                                                                                                                                                                                                                                                                                                                             |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.34(24)       |   | Lease Agreement dated as of April 19, 2006 between  MarkWest Energy Partners, L.P., and Park Central Property, L.L.C.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.35(25)^      |   | 2006 Stock Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

 

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| 10.36(26)+ |   | Gas Processing Agreement dated as of May 10, 2006  between MarkWest Pinnacle, L.P., and Chesapeake Exploration, L.P.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.37(28)  |   | Second Amended and Restated Credit Agreement dated  as of August 18, 2006 among MarkWest Hydrocarbon, Inc., as Borrower, Royal  Bank of Canada, as Administrative Agent and Collateral Agent, and the Lenders  party thereto the $65,000,000 Senior Credit Facility.                                                                                                                                                                                                                                                                                                                                                                                                                               |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.38(30)+ |   | Construction, Operation and Gas Gathering Agreement  dated as of September 21, 2006 between MarkWest Western Oklahoma Gas Company,  L.L.C., and Newfield Exploration Mid-Continent, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.39 *    |   | Form of Indemnification Agreement between MarkWest  Hydrocarbon, Inc. and each Non-employee Director and the following Officers  of the Company: Frank Semple, President and Chief Executive Officer; Nancy  Buese, Senior Vice President and Chief Financial Officer; Randy Nickerson,  Senior Vice President and Chief Commercial Officer; John Mollenkopf, Senior  Vice President and Chief Operations Officer; C. Corwin Bromley, Senior Vice  President, General Counsel and Secretary; David Young, Senior Vice President  of Corporate Services; Richard Ostberg, Vice President of Risk and  Compliance, and Andrew Schroeder, Vice President and Treasurer dated as of  January 26, 2007. |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.40(31)  |   | First Amendment to the Second Amended and Restated  Credit Agreement entered into as of February 16, 2007, among MarkWest  Hydrocarbon, Inc., as borrower, the undersigned Guarantors, Royal Bank of  Canada, as Administrative Agent and Collateral Agent and the undersigned  Issuer and Lenders party thereto the $50,000,000 Revolving Credit Facility.                                                                                                                                                                                                                                                                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 16.1(18)   |   | Letter from KPMG, LLP regarding Change in Certifying  Accountants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 21.1 *     |   | List of Subsidiaries of MarkWest  Hydrocarbon, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 23.1 *     |   | Consent of Deloitte & Touche, LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 23.2 *     |   | Consent of KPMG, LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.1 *     |   | Chief Executive Officer Certification Pursuant to  Rule 13a-14(a) of the Securities Exchange Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.2 *     |   | Chief Financial Officer Certification Pursuant to  Rule 13a-14(a) of the Securities Exchange Act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 32.1 *     |   | Certification of the Chief Executive Officer  Pursuant to 18 U.S. C. Section 1350, as adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 32.2 *     |   | Certification of the Chief Financial Officer  Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

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| (1) |   | Incorporated by reference to MarkWest  Hydrocarbon, Inc.’s Registration Statement on Form S-1,  Registration No. 333-09513, filed with the Commission on August 2,  1996.             |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Incorporated by reference to MarkWest  Hydrocarbon, Inc.’s Quarterly Report on Form 10-Q for the three  months ended September 30, 1997, filed with Commission on  November 13, 1997. |
| (3) |   | Incorporated by reference to MarkWest Energy  Partners, L.P.’s Current Report on Form 8-K, filed with the Commission  on June 7, 2002.                                                          |
| (4) |   | Incorporated by reference to MarkWest  Hydrocarbon, Inc.’s Quarterly Report on Form 10-Q for the three  months ended June 30, 2002, filed with the Commission on August 14,  2002.    |
| (5) |   | Incorporated by reference to MarkWest  Hydrocarbon, Inc.’s Current Report on Form 8-K, filed with the  Commission on November 25, 2002.                                                    |
| (6) |   | Incorporated by reference to MarkWest Energy  Partners, L.P.’s Current Report on Form 8-K, filed with the Commission  on April 14, 2003.                                                        |
| (7) |   | Incorporated by reference to MarkWest Energy  Partners, L.P.’s Current Report on Form 8-K filed with the Commission on  June 19, 2003.                                                               |
| (8) |   | Incorporated by reference to MarkWest Hydrocarbon, Inc.’s  Current Report on Form 8-K, filed with the Commission on July 15,  2003.                                                        |
| (9) |   | Incorporated by reference to MarkWest Energy  Partners, L.P.’s Current Report on Form 8-K filed with the Commission on  September 17, 2003.                                                          |

 

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| (10)   |   | Incorporated by reference to MarkWest Energy  Partners, L.P.’s Current Report on Form 8-K, filed with the Commission  on December 16, 2003.                                                                                                                                   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (11)   |   | Incorporated by reference to MarkWest Energy  Partners, L.P.’s Current Report on Form 8-K, filed with the Commission  on December 31, 2003.                                                                                                                              |
| (12)   |   | Incorporated by reference to MarkWest  Hydrocarbon, Inc.’s Annual Report on Form 10-K filed with the  Commission on March 30, 2004.                                                                                                                                 |
| (13)   |   | Incorporated by reference to MarkWest Energy  Partners, L.P.’s Current Report on Form 8-K/A filed with the Commission  on September 13, 2004.                                                                                                                            |
| (14)   |   | Incorporated by reference to MarkWest Energy  Partners, L.P.’s Current Report on Form 8-K filed with the Commission on  October 25, 2004.                                                                                                                                |
| (15)   |   | Incorporated by reference to MarkWest Energy Partners,  L.P.’s Current Report on Form 8-K filed with the Commission on  October 29, 2004.                                                                                                                                |
| (16)   |   | Incorporated by reference to MarkWest  Hydrocarbon, Inc.’s Current Report on Form 8-K filed with the  Commission on October 29, 2004.                                                                                                                               |
| (17)   |   | Incorporated by reference to MarkWest Hydrocarbon,  Inc.’s Current Report on Form 8-K filed with the Commission on April 6, 2005.                                                                                                                                                  |
| (18)   |   | Incorporated by reference to MarkWest  Hydrocarbon, Inc.’s Current Report on Form 8-K, filed with the  Commission on September 23, 2005.                                                                                                                                 |
| (19)   |   | Incorporated by reference to MarkWest Energy  Partners, L.P.’s Current Report on Form 8-K filed with the Commission on  November 7, 2005.                                                                                                                                     |
| (20)   |   | Incorporated by reference to MarkWest Hydrocarbon,  Inc.’s Current Report on Form 8-K filed with the Commission on September  21, 2005.                                                                                                                                       |
| (21)   |   | Incorporated by reference to MarkWest Hydrocarbon,  Inc.’s Current Report on Form 8-K filed with the Commission on January  5, 2006.                                                                                                                                          |
| (22)   |   | Incorporated by reference to MarkWest  Hydrocarbon, Inc.’s Current Report on Form 8-K, filed with the  Commission on February 6, 2006.                                                                                                                                   |
| (23)   |   | Incorporated by reference to MarkWest  Hydrocarbon, Inc.’s Current Report on Form 8-K, filed with the  Commission on March 29, 2006.                                                                                                                                     |
| (24)   |   | Incorporated by reference to MarkWest  Hydrocarbon, Inc.’s Current Report on Form 8-K, filed with the  Commission on April 25, 2006.                                                                                                                                     |
| (25)   |   | Incorporated by reference to MarkWest  Hydrocarbon, Inc.’s Definitive Proxy Statement, filed with the  Commission on May 1, 2006.                                                                                                                                             |
| (26)   |   | Incorporated by reference to MarkWest  Hydrocarbon, Inc.’s Quarterly Report on Form 10-Q for the three  months ended June 30, 2006, filed with the Commission on August 7, 2006.                                                                                         |
| (27)   |   | Incorporated by reference to MarkWest Energy  Partners, L.P.’s Current Report on Form 8-K filed with the Commission on  July 7, 2006.                                                                                                                                         |
| (28)   |   | Incorporated by reference to MarkWest  Hydrocarbon, Inc.’s Current Report on Form 8-K, filed with the  Commission on August 23, 2006.                                                                                                                                    |
| (29)   |   | Incorporated by reference to MarkWest Energy  Partners, L.P.’s Current Report on Form 8-K filed with the Commission on  October 24, 2006.                                                                                                                                     |
| (30)   |   | Incorporated by reference to MarkWest  Hydrocarbon, Inc.’s Quarterly Report on Form 10-Q for the three  months ended September 30, 2006, filed with the Commission on November 7,  2006.                                                                                 |
| (31)   |   | Incorporated by reference to MarkWest  Hydrocarbon, Inc.’s Current Report on Form 8-K, filed with the  Commission on February 23, 2007.                                                                                                                                  |
| +      |   | Application has been made to the Securities and  Exchange Commission for confidential treatment of certain provisions of these  exhibits. Omitted material for which confidential treatment has been  requested has been filed separately with the Securities and Exchange  Commission. |
| ++     |   | Application has been made to the Securities and  Exchange Commission for confidential treatment of these exhibits in their  entirety. Each exhibit has been filed separately with the Securities and  Exchange Commission.                                                              |
| *      |   | Filed herewith.                                                                                                                                                                                                                                                                         |
| ^      |   | Identifies each management contract or compensatory  plan or arrangement.                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                    |
| (b)    |   | The following exhibits are filed as part of this  report:  See Item 15(a)(2) above.                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                    |
| (c)    |   | The following financial statement schedules are  filed as part of this report:  None  required.                                                                                                                                                                                    |

 

126

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**SIGNATURES**

Pursuant to the requirements of section 13 or 15(d) ofthe Securities Exchange Act of 1934, the Registrant has duly caused this Reportto be signed on its behalf by the undersigned, thereunto duly authorized.
|                      |   | MarkWest Hydrocarbon, Inc.                        |
|----------------------|--------|---------------------------------------------------|
|                 |   | (Registrant)                                      |
|                 |   |                                              |
| Date: March 21, 2007 | By:    |   /S/FRANK M. SEMPLE                    |   |
|                 |   |   Frank M. Semple                       |
|                 |   |   President and Chief Executive Officer |
|                 |   |   (Principal Executive Officer)         |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the Registrant and in the capacities with MarkWestHydrocarbon Inc., the Registrant, and on the dates indicated.
| Date: March 21, 2007 | By:    | /S/FRANK M. SEMPLE                                              |   |
|----------------------|--------|-----------------------------------------------------------------|--------|
|                 |   | Frank M. Semple                                                 |
|                 |   | President and Chief  Executive Officer                          |
|                 |   | (Principal Executive  Officer)                                  |
|                 |   |                                                            |
| Date: March 21, 2007 | By:    | /S/NANCY K. BUESE                                               |   |
|                 |   | Nancy K. Buese                                                  |
|                 |   | Chief Financial Officer                                         |
|                 |   | (Principal Financial  Officer and Principal Accounting Officer) |
|                 |   |                                                            |
| Date: March 21, 2007 | By:    | /S/JOHN M. FOX                                                  |   |
|                 |   | John M. Fox                                                     |
|                 |   | Chairman of the Board  and Director                             |
|                 |   |                                                            |
| Date: March 21, 2007 | By:    | /S/MICHAEL L. BEATTY                                            |   |
|                 |   | Michael L. Beatty                                               |
|                 |   | Director                                                        |
|                 |   |                                                            |
| Date: March 21, 2007 | By:    | /S/DONALD C. HEPPERMANN                                         |   |
|                 |   | Donald C. Heppermann                                            |
|                 |   | Director                                                        |
|                 |   |                                                            |
| Date:                | By:    |                                                            |   |
|                 |   | William A. Kellstrom                                            |
|                 |   | Director                                                        |
|                 |   |                                                            |
| Date:                | By:    |                                                            |   |
|                 |   | Anne E. Mounsey                                                 |
|                 |   | Director                                                        |
|                 |   |                                                            |
| Date: March 21, 2007 | By:    | /S/KAREN L. ROGERS                                              |   |
|                 |   | Karen L. Rogers                                                 |
|                 |   | Director                                                        |
|                 |   |                                                            |
| Date: March 21, 2007 | By:    | /S/WILLIAM  F. WALLACE                                          |   |
|                 |   | William  F. Wallace                                             |
|                 |   | Director                                                        |
|                 |   |                                                            |
| Date: March 21, 2007 | By:    | /S/DONALD  D. WOLF                                              |   |
|                 |   | Donald  D. Wolf                                                 |
|                 |   | Director                                                        |

 

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