** **

**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-Q**

 

| **ý** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 or 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                 |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                          |
|       |       | **For the quarterly period ended June 30,  2004**                                                                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                          |
|       |       | **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 itscharter)

 

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

 

**155 Inverness Drive West, Suite 200, Englewood, CO  80112-5000**

(Address of principal executive offices)

 

**Registrant’s telephone number, including area code:  303-290-8700**

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.

Yes         ý            No  o

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes         o            No  ý

 

The registrant had 9,758,674shares of common stock, $.01 per share par value, outstanding as of July 31,2004.

 

 

----

 
| **PART I—FINANCIAL INFORMATION**                                                                                    | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                                     |       |
| Item 1.   Consolidated Financial Statements                                                                         |       |
| Consolidated Balance Sheets at June 30, 2004 and December 31, 2003                                                       |       |
| Consolidated Statements of Operations for  the Three and Six Months Ended June 30, 2004 and 2003                         |       |
| Consolidated Statements of Other  Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2004  and 2003 |       |
| Consolidated Statements of Cash Flows for  the Six Months Ended June 30, 2004 and 2003                                   |       |
| Consolidated Statement of Changes in  Stockholders’ Equity for the Six Months Ended June 30, 2004                   |       |
| Notes to the Consolidated Financial  Statements                                                                          |       |
|                                                                                                                     |       |
| Item 2.   Management’s Discussion and Analysis of Financial Condition and  Results of Operations               |       |
| Item 3.   Quantitative and Qualitative Disclosures about Market Risk                                                |       |
| Item 4.   Controls and Procedures                                                                                   |       |
|                                                                                                                     |       |
| **PART II—OTHER INFORMATION**                                                                                       | ** ** |
|                                                                                                                     |       |
| Item  1.  Legal Proceedings                                                                                         |       |
| Item 4.   Submission of Matters to a Vote of Security Holders                                                       |       |
| Item 6.   Exhibits and Reports on Form 8-K                                                                          |       |
|                                                                                                                     |       |
| **SIGNATURE**                                                                                                            | ** ** |

 

 

#### **Glossary of Terms**

#### ** **

| Bbl/d        |   | barrels of  oil per day                                             |
|--------------|--------|---------------------------------------------------------------------|
| Btu          |   | British  thermal units, an energy measurement                       |
| Gal/d        |   | gallons per  day                                                    |
| Gross margin |   | revenues  less purchased product costs                              |
| Mcf          |   | thousand  cubic feet of natural gas                                 |
| Mcf/d        |   | thousand  cubic feet of natural gas per day                         |
| MMBtu        |   | million  British thermal units, an energy measurement               |
| MMcf         |   | million  cubic feet of natural gas                                  |
| MMcf/d       |   | million  cubic feet of natural gas per day                          |
| NGL          |   | natural gas  liquids, such as propane, butanes and natural gasoline |

 

----

 

## **PART I**—FINANCIAL INFORMATION

## ** **

## **Item 1**.  ConsolidatedFinancial Statements

## ** **

**MARKWEST HYDROCARBON, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(UNAUDITED)**

**(in thousands,except share and per share data)**

 

** **
| ** **                                                                                                                                                | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|
| **ASSETS**                                                                                                                                                |       |               |       |                   |       |
|                                                                                                                                                      |       |               |       |                   |       |
| Current assets:                                                                                                                                           |       |               |       |                   |       |
| Cash and cash equivalents                                                                                                                                 |       | $                  | 33,777     |                   | $          | 42,144 |   |
| Restricted cash                                                                                                                                           |       | 2,500              |       | 2,500                  |       |
| Marketable securities                                                                                                                                     |       | 13,809             |       | —                 |       |
| Receivables, net (including related party  receivables of $44 and $40, respectively, and allowance for doubtful accounts  of $111 and $120, respectively) |       | 28,300             |       | 30,750                 |       |
| Inventories                                                                                                                                               |       | 9,112              |       | 4,815                  |       |
| Prepaid replacement natural gas                                                                                                                           |       | 264                |       | 5,940                  |       |
| Deferred income taxes                                                                                                                                     |       | 178                |       | 603                    |       |
| Other current assets                                                                                                                                      |       | 415                |       | 503                    |       |
| Total current  assets                                                                                                                                     |       | 88,355             |       | 87,255                 |       |
|                                                                                                                                                      |       |               |       |                   |       |
| Property, plant and equipment                                                                                                                             |       | 241,088            |       | 232,257                |       |
| Less: accumulated depreciation, depletion,  amortization and impairment                                                                                   |       | (51,188            | )          | (44,134                | )          |
| Total property, plant and equipment, net                                                                                                                  |       | 189,900            |       | 188,123                |       |
|                                                                                                                                                      |       |               |       |                   |       |
| Other assets:                                                                                                                                             |       |               |       |                   |       |
| Intangible assets, net                                                                                                                                    |       | 3,178              |       | 3,831                  |       |
| Deferred offering costs                                                                                                                                   |       | 42                 |       | 1,037                  |       |
| Investment in and advances to equity  investee                                                                                                            |       | 232                |       | 250                    |       |
| Notes receivable from officers                                                                                                                            |       | 207                |       | 217                    |       |
|                                                                                                                                                      |       |               |       |                   |       |
| Total assets                                                                                                                                              |       | $                  | 281,914    |                   | $          | 280,713 |   |
|                                                                                                                                                      |       |               |       |                   |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                             |       |               |       |                   |       |
|                                                                                                                                                      |       |               |       |                   |       |
| Current liabilities:                                                                                                                                      |       |               |       |                   |       |
| Accounts payable (including related party  payables of $40 and $51, respectively)                                                                         |       | $                  | 31,237     |                   | $          | 24,052 |   |
| Accrued liabilities                                                                                                                                       |       | 16,863             |       | 16,751                 |       |
| Risk management liability                                                                                                                                 |       | 748                |       | 1,769                  |       |
| Current portion of long-term debt                                                                                                                         |       | 86,200             |       | —                 |       |
| Total current liabilities                                                                                                                                 |       | 135,048            |       | 42,572                 |       |
|                                                                                                                                                      |       |               |       |                   |       |
| Deferred income taxes                                                                                                                                     |       | 5,105              |       | 6,346                  |       |
| Long-term debt                                                                                                                                            |       | —             |       | 126,200                |       |
| Risk management liability                                                                                                                                 |       | 397                |       | 125                    |       |
| Other long-term liabilities                                                                                                                               |       | 501                |       | 504                    |       |
| Non-controlling interest in consolidated  subsidiary                                                                                                      |       | 94,140             |       | 52,782                 |       |
| Commitments and contingencies                                                                                                                             |       |               |       |                   |       |
|                                                                                                                                                      |       |               |       |                   |       |
| Stockholders’ equity:                                                                                                                                |       |               |       |                   |       |
| 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, 9,813,995 and 9,637,977 shares issued, respectively                                         |       | 98                 |       | 96                     |       |
| Additional paid-in capital                                                                                                                                |       | 52,259             |       | 50,715                 |       |
| Accumulated earnings (deficit)                                                                                                                            |       | (3,782             | )          | 3,676                  |       |
| Accumulated other comprehensive loss, net  of tax                                                                                                         |       | (1,395             | )          | (1,793                 | )          |
| Treasury stock, 68,780 and 75,930 shares,  respectively                                                                                                   |       | (457               | )          | (510                   | )          |
| Total stockholders’ equity                                                                                                                           |       | 46,723             |       | 52,184                 |       |
|                                                                                                                                                      |       |               |       |                   |       |
| Total liabilities and stockholders’ equity                                                                                                           |       | $                  | 281,914    |                   | $          | 280,713 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

1

----

 

**MARKWEST HYDROCARBON, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(UNAUDITED)**

**(in thousands, except per share data)**

 
| ** **                                                                                                                      | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                                      | ** ** | **2004**                        | ** ** | **2003**                      | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                                                            |       |                            |       |                          |       |   |   |   |   |
| Revenues                                                                                                                        |       | $                               | 87,796     |                          | $          | 47,888 |   | $ | 181,484 |   | $ | 98,539 |   |
|                                                                                                                            |       |                            |       |                          |       |   |   |   |   |
| Operating expenses:                                                                                                             |       |                            |       |                          |       |   |   |   |   |
| Purchased product costs                                                                                                         |       | 75,451                          |       | 44,357                        |       | 150,587 |   | 90,360 |   |
| Facility expenses                                                                                                               |       | 5,747                           |       | 4,417                         |       | 11,866 |   | 8,779 |   |
| Selling, general and administrative  expenses                                                                                   |       | 4,262                           |       | 3,363                         |       | 8,746 |   | 5,913 |   |
| Depreciation                                                                                                                    |       | 3,770                           |       | 2,041                         |       | 7,410 |   | 3,571 |   |
| Total operating expenses                                                                                                        |       | 89,230                          |       | 54,178                        |       | 178,609 |   | 108,623 |   |
|                                                                                                                            |       |                            |       |                          |       |   |   |   |   |
| Income (loss) from operations                                                                                                   |       | (1,434                          | )          | (6,290                        | )          | 2,875 |   | (10,084 | ) |
|                                                                                                                            |       |                            |       |                          |       |   |   |   |   |
| Other income (expense):                                                                                                         |       |                            |       |                          |       |   |   |   |   |
| Interest expense, net                                                                                                           |       | (1,092                          | )          | (1,998                        | )          | (2,450 | ) | (3,061 | ) |
| Non-controlling interest in net income of  consolidated subsidiary                                                              |       | (2,549                          | )          | (860                          | )          | (4,242 | ) | (1,734 | ) |
| Other income (expense)                                                                                                          |       | (31                             | )          | 105                           |       | 32 |   | 90 |   |
|                                                                                                                            |       |                            |       |                          |       |   |   |   |   |
| Loss before income taxes                                                                                                        |       | (5,106                          | )          | (9,043                        | )          | (3,785 | ) | (14,789 | ) |
|                                                                                                                            |       |                            |       |                          |       |   |   |   |   |
| Provision (benefit) for income taxes:                                                                                           |       |                            |       |                          |       |   |   |   |   |
| Current                                                                                                                         |       | (69                             | )          | (5,875                        | )          | — |   | (6,045 | ) |
| Deferred                                                                                                                        |       | (1,827                          | )          | 6,931                         |       | (1,372 | ) | 4,649 |   |
| Provision (benefit) for income taxes                                                                                            |       | (1,896                          | )          | 1,056                         |       | (1,372 | ) | (1,396 | ) |
|                                                                                                                            |       |                            |       |                          |       |   |   |   |   |
| Loss from continuing operations                                                                                                 |       | (3,210                          | )          | (10,099                       | )          | (2,413 | ) | (13,393 | ) |
|                                                                                                                            |       |                            |       |                          |       |   |   |   |   |
| Discontinued operations:                                                                                                        |       |                            |       |                          |       |   |   |   |   |
| Income from discontinued exploration and  production operations (net of income taxes of $0, $(705), $0 and $524,  respectively) |       | —                          |       | 2,377                         |       | — |   | 4,658 |   |
| Gain from disposal of discontinued  exploration and production operations, (less applicable income taxes of  $1,991)            |       | —                          |       | 17,701                        |       | — |   | 17,701 |   |
| Income from discontinued operations                                                                                             |       | —                          |       | 20,078                        |       | — |   | 22,359 |   |
|                                                                                                                            |       |                            |       |                          |       |   |   |   |   |
| Income (loss) before cumulative effect of  accounting change                                                                    |       | (3,210                          | )          | 9,979                         |       | (2,413 | ) | 8,966 |   |
|                                                                                                                            |       |                            |       |                          |       |   |   |   |   |
| Cumulative effect of change in accounting  for asset retirement obligations, net of tax                                         |       | —                          |       | —                        |       | — |   | (29 | ) |
|                                                                                                                            |       |                            |       |                          |       |   |   |   |   |
| Net income (loss)                                                                                                               |       | $                               | (3,210     | )                             | $          | 9,979 |   | $ | (2,413 | ) | $ | 8,937 |   |
|                                                                                                                            |       |                            |       |                          |       |   |   |   |   |
| Loss from continuing operations per share:                                                                                      |       |                            |       |                          |       |   |   |   |   |
| Basic                                                                                                                           |       | $                               | (0.33      | )                             | $          | (1.08 | ) | $ | (0.25 | ) | $ | (1.43 | ) |
| Diluted                                                                                                                         |       | $                               | (0.33      | )                             | $          | (1.08 | ) | $ | (0.25 | ) | $ | (1.43 | ) |
|                                                                                                                            |       |                            |       |                          |       |   |   |   |   |
| Net income (loss) per share:                                                                                                    |       |                            |       |                          |       |   |   |   |   |
| Basic                                                                                                                           |       | $                               | (0.33      | )                             | $          | 1.07 |   | $ | (0.25 | ) | $ | 0.96 |   |
| Diluted                                                                                                                         |       | $                               | (0.33      | )                             | $          | 1.06 |   | $ | (0.25 | ) | $ | 0.95 |   |
|                                                                                                                            |       |                            |       |                          |       |   |   |   |   |
| Weighted average number of outstanding  shares of common stock:                                                                 |       |                            |       |                          |       |   |   |   |   |
| Basic                                                                                                                           |       | 9,710                           |       | 9,351                         |       | 9,662 |   | 9,356 |   |
| Diluted                                                                                                                         |       | 9,710                           |       | 9,371                         |       | 9,662 |   | 9,376 |   |
|                                                                                                                            |       |                            |       |                          |       |   |   |   |   |
| Cash dividend per common share                                                                                                  |       | $                               | 0.025      |                          | $          | — |   | $ | 0.05 |   | $ | — |   |

 

The accompanying notes are an integral partof these financial statements.

 

2

----

 

**MARKWEST HYDROCARBON, INC.**

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

**(UNAUDITED)**

**(in thousands)**

 

 
| ** **                                      | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **                                      | ** ** | **2004**                        | ** ** | **2003**                      | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                            |       |                            |       |                          |       |   |   |   |   |
| Net income (loss)                               |       | $                               | (3,210     | )                             | $          | 9,979 |   | $ | (2,413 | ) | $ | 8,937 |   |
|                                            |       |                            |       |                          |       |   |   |   |   |
| Other comprehensive income (loss), net of  tax: |       |                            |       |                          |       |   |   |   |   |
| Foreign currency translation                    |       | —                          |       | 1,797                         |       | — |   | 4,061 |   |
| Risk management activities                      |       | (347                            | )          | (131                          | )          | 768 |   | (524 | ) |
| Marketable securities                           |       | (280                            | )          | —                        |       | (370 | ) | — |   |
| Total other comprehensive income (loss)         |       | (627                            | )          | 1,666                         |       | 398 |   | 3,537 |   |
|                                            |       |                            |       |                          |       |   |   |   |   |
| Comprehensive income (loss)                     |       | $                               | (3,837     | )                             | $          | 11,645 |   | $ | (2,015 | ) | $ | 12,474 |   |

 

The accompanying notes are an integral partof these financial statements.

 

3

----

 

**MARKWEST HYDROCARBON, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

**(in thousands)**

 
| ** **                                                                                                                              | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                                              | ** ** | **2004**                      | ** ** | **2003** | ** ** |
| **Cash flows from operating activities:**                                                                                               |       |                          |       |   |   |
| Net income (loss)                                                                                                                       |       | $                             | (2,413     | ) | $ | 8,937 |   |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities:                                               |       |                          |       |   |   |
| Cumulative effect of change in accounting                                                                                               |       | —                        |       | 29 |   |
| Depreciation, depletion and amortization                                                                                                |       | 7,410                         |       | 11,138 |   |
| Gain from sale of property, plant and  equipment                                                                                        |       | (42                           | )          | — |   |
| Amortization of deferred financing costs  included in interest expense                                                                  |       | 627                           |       | 813 |   |
| Non-cash compensation expense                                                                                                           |       | 344                           |       | 400 |   |
| Equity in investee losses                                                                                                               |       | 18                            |       | — |   |
| Non-controlling interest in net income of  consolidated subsidiary                                                                      |       | 4,242                         |       | 1,735 |   |
| Derivative ineffectiveness and non-cash  mark-to-market adjustment                                                                      |       | 732                           |       | (1,475 | ) |
| Reclassification of Enron hedges to  purchased gas costs                                                                                |       | —                        |       | (154 | ) |
| Deferred income taxes                                                                                                                   |       | (1,372                        | )          | (2,552 | ) |
| Gain on sale of San Juan Basin properties                                                                                               |       | —                        |       | (19,692 | ) |
| Other                                                                                                                                   |       | —                        |       | 237 |   |
| Changes in operating assets and  liabilities:                                                                                           |       |                          |       |   |   |
| Decrease in receivables                                                                                                                 |       | 2,458                         |       | 10,763 |   |
| Increase in inventories                                                                                                                 |       | (4,297                        | )          | (897 | ) |
| Decrease in prepaid                                                                                                                     |       | 5,676                         |       | 388 |   |
| Decrease in other current assets                                                                                                        |       | 88                            |       | — |   |
| Increase in accounts payable and accrued  liabilities                                                                                   |       | 7,328                         |       | 1,910 |   |
| Net cash flow provided by operating  activities                                                                                         |       | 20,799                        |       | 11,580 |   |
|                                                                                                                                    |       |                          |       |   |   |
| **Cash flows from investing activities:**                                                                                               |       |                          |       |   |   |
| Increase in marketable securities                                                                                                       |       | (11,679                       | )          | — |   |
| Pinnacle acquisition, net of cash acquired                                                                                              |       | —                        |       | (38,238 | ) |
| Hobbs Lateral  acquisition                                                                                                              |       | (2,275                        | )          | — |   |
| Proceeds from sale of San Juan Basin  properties, net of costs to dispose                                                               |       | —                        |       | 49,470 |   |
| Capital expenditures                                                                                                                    |       | (7,049                        | )          | (14,023 | ) |
| Proceeds from sale of assets                                                                                                            |       | 195                           |       | 105 |   |
| Proceeds from sale of assets to related  parties                                                                                        |       | —                        |       | 229 |   |
| Other                                                                                                                                   |       | 8                             |       | — |   |
| Net cash used in investing activities                                                                                                   |       | (20,800                       | )          | (2,457 | ) |
|                                                                                                                                    |       |                          |       |   |   |
| **Cash flows from financing activities:**                                                                                               |       |                          |       |   |   |
| Proceeds from long-term debt                                                                                                            |       | 3,000                         |       | 68,235 |   |
| Repayment of long-term debt                                                                                                             |       | (43,000                       | )          | (56,424 | ) |
| Debt issuance costs                                                                                                                     |       | —                        |       | (809 | ) |
| Proceeds from MarkWest Energy Partners’  secondary public offering                                                                 |       | 44,103                        |       | — |   |
| Proceeds from private placement of MarkWest  Energy Partners’ common units, net                                                    |       | —                        |       | 7,807 |   |
| Distribution to MarkWest Energy Partners’  unitholders                                                                             |       | (6,210                        | )          | (3,242 | ) |
| Acquisition of general partner’s membership  interests and MarkWest Energy Partners’ subordinated units from related  parties |       | (147                          | )          | — |   |
| Exercise of stock options                                                                                                               |       | 1,380                         |       | 167 |   |
| Net issuance (buyback) of treasury shares                                                                                               |       | 53                            |       | (70 | ) |
| Payment of dividends                                                                                                                    |       | (5,045                        | )          | — |   |
| Net cash provided by (used in) financing  activities                                                                                    |       | (5,866                        | )          | 15,664 |   |
| Effect of  exchange rate on changes in cash                                                                                             |       | —                        |       | 105 |   |
| Net increase  (decrease) in cash and cash equivalents                                                                                   |       | (5,867                        | )          | 24,892 |   |
| Cash and  cash equivalents at beginning of period                                                                                       |       | 42,144                        |       | 6,410 |   |
| Cash and  cash equivalents at end of period                                                                                             |       | $                             | 36,277     |   | $ | 31,302 |   |
|                                                                                                                                    |       |                          |       |   |   |
| **Supplemental cash flow information:**                                                                                                 |       |                          |       |   |   |
| Cash paid  for interest                                                                                                                 |       | $                             | 2,077      |   | $ | 709 |   |

** **

The accompanying notes are an integral partof these financial statements.

 

4

----

 

**MARKWESTHYDROCARBON, INC.**

**CONSOLIDATED STATEMENT OFCHANGES IN**

**STOCKHOLDERS’EQUITY**

**(UNAUDITED)**

**(in thousands)**

 
| ** **                     | ** ** | **Shares of  Common  Stock** | ** ** | **Shares of  Treasury  Stock** | ** ** | **Common  Stock** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Accumulated  Earnings  (Deficit)** | ** ** | **Accumulated  Other  Comprehensive  Income  (Loss)** | ** ** | **Treasury  Stock** | ** ** | **Total  Stockholders’  Equity** | ** ** |
|--------------------------------|------------|------------------------------|------------|--------------------------------|------------|-------------------|------------|----------------------------------|------------|--------------------------------------|------------|-------------------------------------------------------|------------|---------------------|------------|---------------------------------------|------------|
|                           |       |                         |       |                           |       |              |       |                             |       |                                 |       |                                                  |       |                |       |                                  |       |
| Balance, December 31, 2003     |       | 9,638                        |       | (76                            | )          | $                 | 96         |                             | $          | 50,715                               |       | $                                                     | 3,676      |                | $          | (1,793                                | )          | $ | (510 | ) | $ | 52,184 |   |
|                           |       |                         |       |                           |       |              |       |                             |       |                                 |       |                                                  |       |                |       |                                  |       |
| Stock option exercises         |       | 176                          |       | —                         |       | 2                 |       | 1,544                            |       | —                               |       | —                                                |       | —              |       | 1,546                                 |       |
|                           |       |                         |       |                           |       |              |       |                             |       |                                 |       |                                                  |       |                |       |                                  |       |
| Dividends                      |       | —                       |       | —                         |       | —            |       | —                           |       | (5,045                               | )          | —                                                |       | —              |       | (5,045                                | )          |
|                           |       |                         |       |                           |       |              |       |                             |       |                                 |       |                                                  |       |                |       |                                  |       |
| Net loss                       |       | —                       |       | —                         |       | —            |       | —                           |       | (2,413                               | )          | —                                                |       | —              |       | (2,413                                | )          |
|                           |       |                         |       |                           |       |              |       |                             |       |                                 |       |                                                  |       |                |       |                                  |       |
| Other comprehensive income     |       | —                       |       | —                         |       | —            |       | —                           |       | —                               |       | 398                                                   |       | —              |       | 398                                   |       |
|                           |       |                         |       |                           |       |              |       |                             |       |                                 |       |                                                  |       |                |       |                                  |       |
| Net treasury stock reissuances |       | —                       |       | 7                              |       | —            |       | —                           |       | —                               |       | —                                                |       | 53                  |       | 53                                    |       |
|                           |       |                         |       |                           |       |              |       |                             |       |                                 |       |                                                  |       |                |       |                                  |       |
| Balance, June 30, 2004         |       | 9,814                        |       | (69                            | )          | $                 | 98         |                             | $          | 52,259                               |       | $                                                     | (3,782     | )                   | $          | (1,395                                | )          | $ | (457 | ) | $ | 46,723 |   |

 

The accompanying notes are an integral partof these financial statements.

 

5

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**MARKWEST HYDROCARBON, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

 

**1.****     General**

 

MarkWest Hydrocarbon, Inc. (“MarkWest Hydrocarbon”, “we”, “us”, “our”or the “Company”) manages MarkWest Energy Partners, L.P. (“MarkWest EnergyPartners” or the “Partnership”), a publicly traded master limited partnershipengaged in the gathering, processing and transmission of natural gas; thetransportation, fractionation and storage of natural gas liquids (NGLs); andthe gathering and transportation of crude oil. We also market natural gas and NGLs. MarkWest Hydrocarbon and MarkWestEnergy Partners provide services primarily in Appalachia, Michigan, and theSouthwest.

 

Our assets consist primarily of partnership interests in MarkWestEnergy Partners.  As of June 30, 2004,our partnership interests consisted of 2,469,496 subordinated units,representing a 34.6% limited partner interest in the Partnership and a 90.2%membership (ownership) interest in MarkWest Energy GP, L.L.C., the generalpartner of the Partnership, which owns a 2.0% general partner interest and allof the incentive distribution rights in the Partnership. As of July 30, 2004,after the common unit offering (see Note 3), we owned a 29.2% limited partnerinterest in the Partnership. Our ownership interest in the general partnerremained unchanged as of July 30, 2004.

 

Theconsolidated financial statements include the accounts of MarkWest Hydrocarbonand its subsidiaries, including MarkWest Energy Partners. Throughconsolidation, we have eliminated all significant intercompany accounts andtransactions. We have reclassified certain prior period amounts to conform tothe current year’s presentation.

 

We have preparedthe unaudited financial statements presented herein in accordance with theinstructions to Form 10-Q.  Thestatements do not include all the information and note disclosures required bygenerally accepted accounting principles for complete financial statements.  Please read the interim consolidatedfinancial statements in conjunction with the Consolidated Financial Statementsand attached notes for the year ended December 31, 2003, included in our AnnualReport on Form 10-K, as filed with the Securities and Exchange Commission.  In the opinion of management, we have madeall necessary adjustments for a fair statement of the results for the unauditedinterim periods.  All said adjustmentsare of a recurring nature.

 

We base theeffective corporate tax rate for interim periods on the estimated annualeffective corporate tax rate.

 

**2.****     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 or temporarylosses are reflected in other comprehensive income (loss), net of applicableincome taxes.  For losses that are otherthan temporary, the cost basis of the securities is written down to fair valueand the amount of the write-down is reflected in the statement ofoperations.  The Company utilizes aweighted-average cost basis to compute realized gains and losses.  Realized gains and losses, and dividend andinterest income, are reflected in earnings.

 

During thefirst quarter of 2004, the Company funded a $5.0 million brokerage account toinvest primarily in equity securities of other Master LimitedPartnerships.  As of June 30, 2004,approximately $4.9 million had been invested in securities, with the remaining$0.1 million held in cash.

 

In addition toequity securities, the Company invested approximately $9.3 million in FannieMae and Freddie Mac callable debt securities, with interest rates ranging from2.75% to 4.25%, and maturities ranging from May 2006 through November2009.  These debt securities arereflected in marketable securities.

 

6

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Debt andequity securities were acquired to provide both capital gains and investmentincome, and are classified as available-for-sale.  The following is a summary of grossunrealized gains and losses:

 

 
| ** **              | ** ** | **June 30, 2004**  | ** ** |
|-------------------------|------------|--------------------|------------|
| ** **              | ** ** | **(in thousands)** | ** ** |
| Gross unrealized gains  |       | $                  | 27         |   |
| Gross unrealized losses |       | (397               | )          |
|                    |       |               |       |
| Net unrealized losses   |       | $                  | (370       | ) |

 

**3.****     Subsequent Event - MarkWest Energy Partners’ Acquisition**

 

On July 30, 2004, thePartnership completed the acquisition (the “American Central East TexasAcquisition”) of American Central East Texas Gas Company. L.P.’s (“AmericanCentral”) Carthage gathering system and gas processing assets located in eastTexas for approximately $240 million.

 

The Carthage gatheringsystem has been constructed over the last 10 years and offers both low- andhigh-pressure service to producers in the Carthage Field, gathering gas fromthe Cotton Valley, Pettit and Travis Peak formations.  The system consists of approximately 180miles of pipeline connected to approximately 1,700 wells with an additional 82miles of pipeline currently under construction. The gathering system also includes approximately 65,000 horsepower ofcompression with an additional 35,000 horsepower currently beinginstalled.  Current system throughput isapproximately 245 MMcf/d and is anticipated to increase to approximately 310MMcf/d by the end of 2004 due to the connection to the system of additionalcontracted volumes.  The gathering systemhas a capacity of approximately 350 MMcf/d. Also included in the acquisition is a 175 MMcf/d processing facilitycurrently under construction and an NGL pipeline to be constructed in 2005.

 

In conjunction with theclosing of the acquisition, the Partnership completed an offering ofapproximately 1.3 million of its common units, at $34.50 per unit, which nettedthe Partnership approximately $45 million after transaction costs and thegeneral partner contribution.  Inaddition, the Partnership amended and restated its credit facility, increasingits maximum lending limit from $140 million to $315 million.  The credit facility includes a $265 millionrevolving facility and a $50 million term loan facility.  The Partnership used the proceeds from theoffering and borrowing under our amended and restated credit facility tofinance the American Central East Texas Acquisition.  All of the Partnership’s assets are pledgedto the credit facility lenders to secure the repayment of the outstandingborrowing under the credit facility.  Theterm loan portion of the credit facility matures in December 2004 and therevolving portion matures in May 2005. Consequently, as of June 30, 2004, we have reclassified the Partnership’sdebt from non-current liabilities to current liabilities.

 

**4.****     MarkWest Energy Partners’ Acquisitions**

 

###### *PinnacleAcquisition*

###### * *

On March 28, 2003, the Partnershipcompleted the acquisition (the “Pinnacle Acquisition”) of Pinnacle Natural GasCompany, Pinnacle Pipeline Company, PNG Transmission Company, Inc., PNGUtility Company and Bright Star Gathering, Inc. (collectively, “Pinnacle”or the “Sellers”).  Pinnacle’s results ofoperations have been included in the Partnership’s consolidated financial statementssince that date.

 

The Pinnacle Acquisition was accomplishedthrough a merger under Texas law of the Sellers and four newly formed whollyowned subsidiaries of the Partnership as buyers. In the merger, most of theassets and liabilities of the Sellers were allocated to the Partnershipentities, and all entities survived the merger. The assets acquired from theSellers, primarily located in the State of Texas, with the balance located inNew Mexico, Louisiana, Mississippi and Kansas, were comprised of three lateralnatural gas pipelines and twenty gathering systems.

 

7

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Thepurchase price was allocated as follows (in thousands):

 
| Acquisition costs:                            |   |   |   |
|-----------------------------------------------|--------|--------|--------|
| Long-term debt incurred                       |   | $      | 39,471 |   |
| Direct acquisition costs                      |   | 450    |   |
| Current liabilities assumed                   |   | 8,945  |   |
| Total                                         |   | $      | 48,866 |   |
|                                          |   |   |   |
| Allocation of acquisition costs:              |   |   |   |
| Current assets                                |   | $      | 10,643 |   |
| Fixed assets (including long-term  contracts) |   | 38,223 |   |
| Total                                         |   | $      | 48,866 |   |

###### * *

###### *WesternOklahoma Acquisition*

###### * *

On December 1, 2003, the Partnership completed theacquisition of certain assets of American Central Western Oklahoma Gas Company,L.L.C. (“AWOC”) for approximately $38.0 million, before transaction costs andsubject to certain post-closing adjustments. Results of operations for the acquired assets have been included in thePartnership’s consolidated financial statements since that date.

 

The assets include the Foss Lake gathering systemlocated in the western Oklahoma counties of Roger Mills and Custer.  The gathering system is comprised ofapproximately 167 miles of pipeline, connected to approximately 270 wells, and11,000 horsepower of compression facilities. The assets also include the Arapaho gas processing plant that wasinstalled during 2000.

 

The purchase price of approximately $38.0 million wasfinanced through borrowings under the Partnership line of credit, which wasamended at the closing of the acquisition to increase availability under thecredit facility from $75.0 million to $140.0 million.  Substantially all of the acquired assets arepledged to the credit facility lenders to secure the repayment of theoutstanding borrowings under the credit facility.

 

The purchase price was comprised of$38.0 million paid in cash to AWOC, and was allocated as follows (inthousands):

 
| Acquisition costs:               |   |   |   |
|----------------------------------|--------|--------|--------|
| Cash consideration               |   | $      | 37,850 |   |
| Direct acquisition costs         |   | 101    |   |
| Total                            |   | $      | 37,951 |   |
| Allocation of acquisition costs: |   |   |   |
| Property, plant and equipment    |   | $      | 37,951 |   |

 

###### *MichiganCrude Pipeline*

###### * *

On December 18, 2003, the Partnership completed the acquisition (the“Michigan Crude Pipeline acquisition”) of Shell Pipeline Company, LP’s andEquilon Enterprises, LLC’s, doing business as Shell Oil Products US (“Shell”),Michigan Crude Gathering Pipeline (the “System”), for approximately $21.3million. The System’s results of operations have been included in thePartnership’s consolidated financial statements since December 18, 2003. The$21.3 million purchase price was financed through borrowings under the Partnership’sline of credit.

 

The System extends from production facilities near Manistee, Michiganto a storage facility near Lewiston, Michigan. The trunk line consists of approximately 150 miles of pipe.  Crude oil is gathered into the System from 57injection points, including 52 central production facilities.  The System also includes truck-unloadingstations at Manistee, Seeley Road and Junction, and the Samaria Truck UnloadingStation located in Monroe County, Michigan, near Toledo, Ohio.

 

8

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The System is a common carrier Michigan intrastate pipeline and gatherslight crude oil from wells.  The oil istransported for a fee to the Lewiston, Michigan station where it is batchinjected into the Enbridge Lakehead Pipeline.

 

The purchase price was comprised of $21.3 million paid in cash toShell, and was allocated as follows (in thousands):

 

 
| Acquisition costs:               |   |   |   |
|----------------------------------|--------|--------|--------|
| Cash consideration               |   | $      | 21,155 |   |
| Direct acquisition costs         |   | 128    |   |
| Total                            |   | $      | 21,283 |   |
|                             |   |   |   |
| Allocation of acquisition costs: |   |   |   |
| Property, plant and equipment    |   | $      | 21,283 |   |

 

*Pro Forma Results of Operations (Unaudited)*

 

Thefollowing table reflects the unaudited pro forma consolidated results ofoperations for the comparable period presented, as though the PinnacleAcquisition, the Western Oklahoma acquisition and Michigan Crude Pipelineacquisition each had occurred on January 1, 2003. The unaudited pro formaresults have been prepared for comparative purposes only and may not beindicative of future results.

 
| ** **                   | ** ** | **Three Months Ended  June 30, 2003**     | ** ** | **Six Months Ended  June 30, 2003** | ** ** |
|------------------------------|------------|-------------------------------------------|------------|-------------------------------------|------------|
| ** **                   | ** ** | **(in thousands, except per share data)** | ** ** |
| Revenue                      |       | $                                         | 58,967     |                                | $          | 139,598 |   |
| Net income                   |       | $                                         | 9,489      |                                | $          | 8,774 |   |
| Basic net income per share   |       | $                                         | 1.01       |                                | $          | 0.94 |   |
| Diluted net income per share |       | $                                         | 1.01       |                                | $          | 0.94 |   |

 

9

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##### **5.**     Property, Plant and Equipment

##### ** **

The followingprovides composition of our property, plant and equipment at:

 
| ** **                                                             | ** ** | **June 30, 2004**  | ** ** | **December 31, 2003** | ** ** |
|------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                             | ** ** | **(in thousands)** | ** ** |
| Property, plant and equipment:                                         |       |               |       |                  |       |
| Gas gathering facilities                                               |       | $                  | 82,570     |                  | $          | 73,424 |   |
| Gas processing plants                                                  |       | 56,322             |       | 55,888                |       |
| Fractionation and storage facilities                                   |       | 22,524             |       | 22,160                |       |
| Natural gas pipelines                                                  |       | 38,848             |       | 38,790                |       |
| Crude oil pipeline                                                     |       | 18,460             |       | 18,352                |       |
| NGL transportation facilities                                          |       | 4,415              |       | 4,415                 |       |
| Marketing assets                                                       |       | 1,606              |       | 1,987                 |       |
| Oil and gas properties and equipment, full  cost method                |       | 2,499              |       | 2,380                 |       |
| Land, buildings and other equipment                                    |       | 10,716             |       | 12,499                |       |
| Construction in-progress                                               |       | 3,128              |       | 2,362                 |       |
|                                                                   |       | 241,088            |       | 232,257               |       |
|                                                                   |       |               |       |                  |       |
| Less:Accumulated depreciation, depletion,  amortization and impairment |       | (51,188            | )          | (44,134               | )          |
| Total property, plant and equipment, net                               |       | $                  | 189,900    |                  | $          | 188,123 |   |

 

#### **6.**     Adoptionof SFAS No. 143

#### ** **

On January 1, 2003, we adopted SFAS No. 143, *Accounting for AssetRetirement Obligations*.  SFASNo. 143 requires entities to record the fair value of a liability for an assetretirement obligation in the period in which it is incurred and a correspondingincrease in the carrying amount of the related long-lived asset.  Subsequently, the asset retirement costshould be allocated to expense using a systematic and rational method.  During the first quarter of 2003, we recordeda net-of-tax cumulative effect of change in accounting principle charge of$29,000 ($63,000 before tax), and an asset retirement obligation of $3.2million (a net increase to long-term liabilities of $2.5 million). We alsoincreased net properties $2.4 million in accordance with the provisions of SFASNo. 143.  There was no impact on our cashflows as a result of adopting SFAS No. 143. The asset retirement obligation, which is included in our consolidatedbalance sheet in other long-term liabilities, was $0.5 million and $3.3 millionat June 30, 2004 and 2003, respectively.

 

**7.****     MarkWest Energy Partners’ Common Unit Offerings**

 

DuringJanuary 2004, the Partnership completed an offering of 1,100,444 common unitsat $39.90 per unit for gross proceeds of $43.9 million.  In addition, of the 172,200 common unitsavailable to underwriters to cover over-allotments, 72,500 were sold for grossproceeds of $2.9 million. To maintain its 2% interest, the general partner ofthe Partnership contributed $1.0 million, of which $0.1 million was fromdirectors and officers of the general partner.  Gross proceeds from parties other thanMarkWest Hydrocarbon of $46.9 million less associated offering costs of $3.8million resulted in net proceeds from the secondary public offering of $43.1million.  As approximately $1.0 millionof the offering costs had been incurred during fiscal 2003, net cash generatedfrom the offering during 2004 was approximately $44.1 million.

 

During July 2004, the Partnership completedan additional offering of its common units. See Note 3.

 

10

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**8.****     Segment Reporting**

 

Our operations are classified into two reportable segments:

 

(1)   Managing MarkWest Energy Partners—we operate MarkWestEnergy Partners, a publicly traded master limited partnership engaged in thegathering, processing and transmission of natural gas; the transportation,fractionation and storage of natural gas liquids; and the gathering andtransportation of crude oil.

 

(2)   Marketing—we sell our equity and third-party NGLs,purchase third-party natural gas and sell our equity and third-party naturalgas.

 

During 2003, we discontinued our exploration and production businesssegment. Our continuing operations are conducted solely in the United States.

 

The table below presents information about operatingincome (loss) for the reported segments for the three and six months endedJune 30, 2004 and 2003. Segment operating income (loss) includes totalrevenues less purchased product costs, facility expenses and depreciation.Items excluded from segment operating income (loss) are reflected in thereconciliation of total segment operating income (loss) to income (loss) fromcontinuing operations before taxes. We have not reported asset information byreportable segment because we do not produce such information internally.

 
| ** **                            | ** ** | **Marketing**      | ** ** | **MarkWest  Energy  Partners** | ** ** | **Eliminating  Entries** | ** ** | **Total** | ** ** |
|---------------------------------------|------------|--------------------|------------|--------------------------------|------------|--------------------------|------------|-----------|------------|
| ** **                            | ** ** | **(in thousands)** | ** ** |
| **Three Months Ended June 30, 2004:** |       |               |       |                           |       |                     |       |      |       |
| Revenues from external customers      |       | $                  | 37,170     |                           | $          | 50,626                   |       | $         | —     |   | $ | 87,796 |   |
| Intersegment revenues                 |       | $                  | 114        |                           | $          | 13,805                   |       | $         | (13,919    | ) | $ | — |   |
| Segment operating income (loss)       |       | $                  | (4,532     | )                              | $          | 7,360                    |       | $         | —     |   | $ | 2,828 |   |
|                                  |       |               |       |                           |       |                     |       |      |       |
| **Three Months Ended June 30, 2003:** |       |               |       |                           |       |                     |       |      |       |
| Revenues from external customers      |       | $                  | 28,334     |                           | $          | 19,554                   |       | $         | —     |   | $ | 47,888 |   |
| Intersegment revenues                 |       | $                  | 178        |                           | $          | 10,082                   |       | $         | (10,260    | ) | $ | — |   |
| Segment operating income (loss)       |       | $                  | (7,113     | )                              | $          | 4,186                    |       | $         | —     |   | $ | (2,927 | ) |

 
| ** **                          | ** ** | **Marketing**      | ** ** | **MarkWest  Energy  Partners** | ** ** | **Eliminating  Entries** | ** ** | **Total** | ** ** |
|-------------------------------------|------------|--------------------|------------|--------------------------------|------------|--------------------------|------------|-----------|------------|
| ** **                          | ** ** | **(in thousands)** | ** ** |
| **Six Months Ended June 30, 2004:** |       |               |       |                           |       |                     |       |      |       |
| Revenues from external customers    |       | $                  | 81,339     |                           | $          | 100,145                  |       | $         | —     |   | $ | 181,484 |   |
| Intersegment revenues               |       | $                  | 338        |                           | $          | 28,099                   |       | $         | (28,437    | ) | $ | — |   |
| Segment operating income (loss)     |       | $                  | (2,471     | )                              | $          | 14,092                   |       | $         | —     |   | $ | 11,621 |   |
|                                |       |               |       |                           |       |                     |       |      |       |
| **Six Months Ended June 30, 2003:** |       |               |       |                           |       |                     |       |      |       |
| Revenues from external customers    |       | $                  | 74,686     |                           | $          | 23,853                   |       | $         | —     |   | $ | 98,539 |   |
| Intersegment revenues               |       | $                  | 445        |                           | $          | 23,476                   |       | $         | (23,921    | ) | $ | — |   |
| Segment operating income (loss)     |       | $                  | (11,976    | )                              | $          | 7,805                    |       | $         | —     |   | $ | (4,171 | ) |

 

11

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Areconciliation of total segment operating income (loss) to loss from continuingoperations before taxes is as follows:

 
| ** **                                                         | ** ** | **Three Months Ended June 30,** | ** ** | **S****ix Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------|------------|-----------------------------------|------------|
| ** **                                                         | ** ** | **2004**                        | ** ** | **2003**                          | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                         | ** ** | **(in thousands)**              | ** ** |
| Segment operating income (loss)                                    |       | $                               | 2,828      |                              | $          | (2,927 | ) | $ | 11,621 |   | $ | (4,171 | ) |
| Selling, general and administrative  expenses                      |       | (4,262                          | )          | (3,363                            | )          | (8,746 | ) | (5,913 | ) |
| Interest expense, net                                              |       | (1,092                          | )          | (1,998                            | )          | (2,450 | ) | (3,061 | ) |
| Non-controlling interest in net income of  consolidated subsidiary |       | (2,549                          | )          | (860                              | )          | (4,242 | ) | (1,734 | ) |
| Other income (expense)                                             |       | (31                             | )          | 105                               |       | 32 |   | 90 |   |
| Loss from continuing operations before  income taxes               |       | $                               | (5,106     | )                                 | $          | (9,043 | ) | $ | (3,785 | ) | $ | (14,789 | ) |

 

**9.****     Commitments and Contingencies**

 

We are involved in various litigation andadministrative proceedings arising in the normal course of business. In theopinion of management, any liabilities that may result from these claims willnot, individually or in the aggregate, have a material adverse effect on ourfinancial position or results of operations.

 

**10.****  Stock and Unit Compensation**

 

As permitted under SFAS No. 123, *Accounting for Stock-BasedCompensation,*and SFAS No.148, *Accounting for Stock-Based Compensation –Transition and*Disclosure,we have elected to continue to measure compensation costs forstock-based and unit-based employee compensation plans as prescribed byAccounting Principles Board Opinion No. 25, *Accounting for StockIssued to Employees.*We have two fixed compensation plans and,through our consolidated subsidiary, MarkWest Energy Partners, we have avariable plan. We account for these plans using fixed and variable accountingas appropriate under APB 25.

 

12

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Had compensation cost for our two stock-based compensation plans beendetermined based on the fair value at the grant dates under those plansconsistent with the method prescribed by SFAS No. 123,**ournet income (loss) and net income (loss) per share would have been revised tothe pro forma amounts listed below:

 
| ** **                                                                                                                                   | ** ** | **Three Months Ended June 30,**           | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                                                   | ** ** | **2004**                                  | ** ** | **2003**                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                                                                   | ** ** | **(in thousands, except per share data)** | ** ** |
| Net income (loss), as reported                                                                                                               |       | $                                         | (3,210     | )                             | $          | 9,979 |   | $ | (2,413 | ) | $ | 8,937 |   |
| Add:   compensation expense (benefit) included in reported net income (loss)                                                            |       | (30                                       | )          | 188                           |       | 344 |   | 400 |   |
| Deduct: total stock-based employee  compensation expense determined under fair value based method for all  awards, net of related tax effect |       | 8                                         |       | (299                          | )          | (399 | ) | (584 | ) |
| Pro forma net income (loss)                                                                                                                  |       | $                                         | (3,232     | )                             | $          | 9,868 |   | $ | (2,468 | ) | $ | 8,753 |   |
|                                                                                                                                         |       |                                      |       |                          |       |   |   |   |   |
| Net income (loss) per share:                                                                                                                 |       |                                      |       |                          |       |   |   |   |   |
| Basic:                                                                                                                                       |       |                                      |       |                          |       |   |   |   |   |
| As reported                                                                                                                                  |       | $                                         | (0.33      | )                             | $          | 1.07 |   | $ | (0.25 | ) | $ | 0.96 |   |
| Pro forma                                                                                                                                    |       | $                                         | (0.33      | )                             | $          | 1.05 |   | $ | (0.26 | ) | $ | 0.94 |   |
| Diluted:                                                                                                                                     |       |                                      |       |                          |       |   |   |   |   |
| As reported                                                                                                                                  |       | $                                         | (0.33      | )                             | $          | 1.06 |   | $ | (0.25 | ) | $ | 0.96 |   |
| Pro forma                                                                                                                                    |       | $                                         | (0.33      | )                             | $          | 1.05 |   | $ | (0.26 | ) | $ | 0.93 |   |

 

##### **Compensationexpense for the variable plan, including restricted unit grants, is measuredusing the market price of MarkWest Energy Partners’ common units on the date thenumber of units in the grant becomes determinable and is amortized intoearnings over the period of service. Our stock options are issued under a fixedplan. Accordingly, compensation expense is not recognized for stock optionsunless the options were granted at an exercise price lower than market on thegrant date.**

##### ** **

##### **13**

##### ****

##### ** **

##### **Item 2**.    Management’s Discussion andAnalysis of Financial Condition and Results of Operations

##### ** **

##### **Management Overview of theThree and Six Months Ended June 30, 2004**

##### ** **

 We reported a net loss for the three monthsended June 30, 2004 of $3.2 million, or $0.33 per diluted share, compared tonet income of $10.0 million, or $1.06 per diluted share, for the second quarterof 2003.  For the six months ended June30, 2004, the Company reported a net loss of $2.4 million, or $0.25 per dilutedshare, compared to net income of $8.9 million, or $0.95 per diluted share, forthe six months ended June 30, 2003.

 

The decreasein results from 2003 to 2004 primarily relates to the sale of most of theCompany’s San Juan Basin properties on June 30, 2003 for a pretax gain of $19.7million.

 

The Companyreported a net loss from continuing operations of $3.2 million, or $0.33 perdiluted share, for the three months ended June 30, 2004, compared to a net lossfrom continuing operations of $10.1 million, or $1.08 per diluted share, forthe second quarter of 2003.  For the sixmonths ended June 30, 2004, the Company reported a net loss from continuingoperations of $2.4 million, or $0.25 per diluted share, compared to a net lossfrom continuing operations of $13.4 million, or $1.43 per diluted share, forthe same period last year.

 

Second-quarterand year-to-date net income (loss) from continuing operations improved over thecomparable prior periods primarily due to the contributions of thePartnership’s 2003 acquisitions.

 

On July 22,2004, the board of directors of the Company declared a cash dividend of $0.025per share of its common stock payable on August 19, 2004 to the stockholders ofrecord as of the close of business on August 5, 2004.  Consistent with the board’s objective tomaintain a regular quarterly dividend, this is the second consecutive dividenddeclared in 2004.  However, any suchfuture declaration will be dependent upon the financial performance of theCompany.

 

In addition,on July 30, 2004, MarkWest Energy Partners expanded its midstream business bycompleting the acquisition of American Central East Texas Gas Company, L.P.’sCarthage gathering system and gas processing assets for approximately $240million.  The acquisition was funded witha combination of private equity and interim debt financing.  Consistent with its long-term strategy ofmaintaining a debt-to-total-capital ratio of less than 50%, the Partnershipintends in the near term to replace the interim debt financing with additionalequity and long-term debt financing.  TheCarthage gathering system offers both low- and high-pressure service toproducers in the Carthage Field, gathering gas from the Cotton Valley, Pettitand Travis Peak formations.  The systemconsists of approximately 180 miles of pipeline connected to approximately1,700 wells with an additional 82 miles of pipeline currently under construction.  The gathering system also includesapproximately 65,000 horsepower of compression with an additional 35,000horsepower currently being installed. Current system through put is approximately 245 MMcf/d and isanticipated to increase to approximately 310 MMcf/d by the end of 2004.  The gathering system has a capacity ofapproximately 350 MMcf/d.  Thisacquisition is expected to generate cash flow from operations of approximately$10.0 million for the Partnership for the balance of 2004.

 

## **Our Business**

## ** **

We were founded in 1988 as a partnership and laterincorporated in Delaware.  We completedour initial public offering in 1996.

 

We are anenergy company primarily focused on increasing shareholder value by growingMarkWest Energy Partners, our consolidated subsidiary and a publicly tradedmaster limited partnership engaged in the gathering, processing andtransmission of natural gas; the transportation, fractionation and storage ofnatural gas liquids; and the gathering and transportation of crude oil. We alsomarket natural gas and natural gas liquids. We discontinued our exploration andproduction activities during 2003.

 

Our assetsconsist primarily of partnership interests in MarkWest Energy Partners.  As of June 30, 2004, our partnershipinterests consisted of the following:

 

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•      2,469,496 subordinatedunits, representing a 34.6% limited partner interest in the Partnership; and

•      A 90.2% ownership interestin MarkWest Energy GP, L.L.C., the general partner of the Partnership, whichowns a 2.0% general partner interest and all of the incentive distributionrights in the Partnership.

 

To better understand our business and theresults of operations discussed below, it is important to have an understandingof three factors:

 

•      Thenature of our relationship with MarkWest Energy Partners;

•      Thenature of the contracts from which we derive our revenues and from whichMarkWest Energy Partners derives its revenues; and

•      Thecomparability within our results of operations across periods because ofMarkWest Energy Partners significant and recent acquisition activity.

 

***Our Relationship with MarkWest Energy Partners***

 

We spun off the majority of our then-existing natural gas gathering andprocessing and NGL transportation, fractionation and storage assets intoMarkWest Energy Partners in May 2002, just before the Partnership completed itsinitial public offering. At the time of its formation and initial publicoffering, we entered into four contracts with MarkWest Energy Partners wherebyMarkWest Energy Partners provides midstream services in Appalachia in exchangefor a fee. 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 profits interestin the gathering and processing income earned on quarterly pipeline throughputin excess of 10 MMcf/d. In accordance with generally accepted accountingprinciples, MarkWest Energy Partners’ financial results are included in ourconsolidated financial statements.  Allintercompany accounts and transactions are eliminated during consolidation. Youshould read Note 8 to our Consolidated Financial Statements appearing earlierin this Form 10-Q for further information regarding our two business segments:operating MarkWest Energy Partners and marketing.

 

As a result ofour contracts with MarkWest Energy Partners mentioned above, we are thePartnership’s largest customer, accounting for 22% of its revenues and 43% ofits gross margin for the six months ended June 30, 2004. We expect to accountfor less of MarkWest Energy Partners’ business in the future as it continues toacquire assets and increase its customer and business diversification.

 

Also at thetime of the initial public offering, we entered into an Omnibus Agreement withMarkWest Energy Partners and related parties that governs potential competitionand indemnification obligations among the parties.

 

Through ourmajority ownership in the Partnership’s general partner, we control and operateMarkWest Energy Partners. Our employees are responsible for conducting thePartnership’s business and operating its assets pursuant to a ServicesAgreement, which was formalized effective January 1, 2004. We receive $5,000 annuallyfrom MarkWest Energy Partners for services provided under the ServicesAgreement. We also are reimbursed for any reasonable costs incurred in theoperation of the Partnership.

 

***Our Contracts***

 

Excluding the revenues and gross margin derived by MarkWest EnergyPartners, we generate the majority of our revenues and gross margin from themarketing of NGLs and, to a lesser extent, natural gas. As compensation forproviding processing services to our Appalachian producers (we have outsourcedthese services to MarkWest Energy Partners as discussed below), we earn a feeand receive title to the NGLs produced. In return, we are required to replace,in dry natural gas, the Btu value of the NGLs extracted. This Btu replacementobligation is referred to in the industry as a “keep-whole” arrangement. Inkeep-whole arrangements, our principal cost is the replacement of the Btusextracted from the gas stream in the form of NGLs or consumed as fuel duringprocessing with dry gas of an equivalent Btu content. The spread between theNGL product sales price and the purchase price of natural gas with anequivalent Btu content is called the “frac spread.” Generally, the frac spreadand, consequently, the operating

 

15

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margins are favorable under thesecontracts. In the event natural gas and the cost of processing becomes moreexpensive on a Btu equivalent basis than NGL products, the cost of keeping theproducer “whole” results in operating losses.

 

At the closingof MarkWest Energy Partners’ initial public offering on May 24, 2002, weoutsourced our midstream services to the Partnership. Pursuant to the terms ofthe operating agreements, we retained all the benefits and associated risks ofour keep-whole contracts with producers. Our NGL and gas marketing operationswere retained by us and not contributed to MarkWest Energy Partners.

 

Our keep-whole contracts expose us to commodity price risk, both on thesales side (of NGLs) and on the purchase side (of natural gas), which mayincrease the volatility of our marketing results and cash flows. We attempt tomitigate our commodity price risk through our hedging program. Under a hedgingstrategy implemented approximately two years ago that was based on ourthen-existing natural gas production and historical pricing data through thatpoint in time, we incurred significant hedging losses. For the six months endedJune 30, 2004 and 2003, we lost approximately $2.7 million and $8.2 million,respectively, as a result of that hedging strategy.  The last transactions associated with thishedging strategy settled in April 2004. You should read Item 3, “Quantitativeand Qualitative Disclosures About Market Risk” forfurther details about our commodity price risk management program, which is incorporatedherein by reference.

 

### ***MarkWest Energy Partners’ Contracts***

### ** **

The Partnership generates the majority of its revenues and gross marginfrom natural gas gathering, processing and transmission, NGL transportation,fractionation and storage, and crude oil gathering and transportation. Whileall of these services constitute midstream energy operations, the Partnershipprovides its services pursuant to four different types of contracts.

 

•      *Fee-based contracts.*  Under fee-based contracts, the Partnership receivesa fee or fees for one or more of the following services: gathering, processing,and transmission of natural gas, transportation, fractionation and storage ofNGLs, and gathering and transportation of crude oil. The revenue MarkWestEnergy Partners earns from these contracts is generally directly related to thevolume of natural gas, NGLs or crude oil that flows through its systems andfacilities and is not directly dependent on commodity prices. In certain cases,the Partnership’s contracts provide for minimum annual payments by ourcustomers. To the extent a sustained decline in commodity prices results in adecline in volumes, however, the Partnership’s revenues from these contractswould be reduced.

 

•      *Percent-of-proceeds contracts.*  Under percent-of-proceeds contracts, MarkWestEnergy Partners generally gathers and processes natural gas on behalf ofproducers, sells the resulting residue gas and NGLs at market prices and remitsto producers an agreed upon percentage of the proceeds based on an index price.In other cases, instead of remitting cash payments to the producer, thePartnership delivers an agreed upon percentage of the residue gas and NGLs tothe producer and sells the volumes it keeps to third parties at market prices.Under these types of contracts, MarkWest Energy Partners’ revenues and grossmargins increase as natural gas prices and NGL prices increase, and itsrevenues and gross margins decrease as natural gas prices and NGL pricesdecrease.

 

•      *Percent-of-index contracts.*  Under percent-of-index contracts, 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. MarkWest Energy Partners then gathers and deliversthe natural gas to pipelines where it resells the natural gas at the indexprice, or at a different percentage discount to the index price. With respectto (1) and (3) above, the gross margins the Partnership realizes under thearrangements decrease in periods of low natural gas prices because these grossmargins are based on a percentage of the index price. Conversely, MarkWestEnergy Partners’ gross margins increase during periods of high natural gasprices.

 

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•      *Keep-whole contracts.*  Under keep-whole contracts, the Partnershipgathers natural gas from the producer, processes thenatural gas and sells the resulting NGLs to third parties at market prices.Because the extraction of the NGLs from the natural gas during processingreduces the Btu content of the natural gas, MarkWest Energy Partners musteither purchase natural gas at market prices for return to producers or makecash payment to the producers equal to the value of this natural gas.Accordingly, under these arrangements, the Partnership’s revenues and grossmargins increase as the price of NGLs increases relative to the price ofnatural gas, and its revenues and gross margins decrease as the price ofnatural gas increases relative to the price of NGLs.

 

In its current areas of operations,MarkWest Energy Partners has a combination of contract types, and limitedkeep-whole arrangements. The only keep-whole contracts of MarkWest EnergyPartners are associated with the Arapaho processing plantthat were assumed as a part of its December 2003 Oklahomaacquisition.  At the Arapaho processingplant inlet, the Btu content of the natural gas meets the downstream pipelinespecifications, however, MarkWest Energy Partners has the option of extractingNGLs when the processing margin environment is favorable.  In addition, approximately half, as measuredin volumes, of the related gas gathering contracts include additional fees tocover plant operating costs, fuel costs and shrinkage costs in a low processingmargin environment.  Because of itsability to operate the plant in several recovery modes, including turning itoff, coupled with the additional fees provided for in the gas gathering contracts,the Partnership’s overall keep-whole contract exposure is limited to a portionof the operating costs of the plant.

 

In many cases, MarkWest Energy Partners provides services undercontracts that contain a combination of more than one of the arrangementsdescribed above. The terms of its contracts vary based on gas qualityconditions, the competitive environment at the time the contracts are signedand customer requirements. The Partnership’s contract mix and, accordingly, itsexposure to natural gas and NGL prices, may change as a result of changes inproducer preferences, its expansion in regions where some types of contractsare more common and other market factors. Any change in mix may impact MarkWestEnergy Partners’ financial results.

 

***Recent MarkWestEnergy Partners Acquisition Activity***

 

In reading the discussion of our historical results of operations, youshould be aware of MarkWest Energy Partners’ recent significant acquisitions,which impact the comparability of our results of operations for the periodsdiscussed.

 

From its initial public offering through June 30, 2004, the Partnershiphas completed five acquisitions for an aggregate purchase price ofapproximately $112.3 million. These five acquisitions include:

 

•      ThePinnacle acquisition, which closed on March 28, 2003, for consideration of$38.5 million;

•      TheLubbock pipeline acquisition (also known as the Power-Tex Lateral pipeline),which closed September 2, 2003, for consideration of $12.2 million;

•      Thewestern Oklahoma acquisition, which closed December 1, 2003, forconsideration of $38.0 million;

•      TheMichigan Crude Pipeline acquisition, which closed December 18, 2003, forconsideration of $21.3 million; and

•      TheHobbs Lateral acquisition, which closed on April 1, 2004, for consideration of$2.3 million.

 

The first acquisition closed during the last few days of the firstquarter of 2003.  Three acquisitionsclosed during the second half of 2003 and one acquisition closed in the secondquarter of 2004.  Accordingly, ourhistorical results of operations for the six months ended June 30, 2003, savefor three months of activity from the Partnership’s Pinnacle acquisition, do not reflect the impact of these acquisitions on ouroperations.  However, our results ofoperations for the three and six months ended June 30, 2004, do reflect theimpact from the Partnership’s four 2003 acquisitions.

 

17

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##### **Resultsof Operations**

##### ** **

** *OperatingData***

 

 
| ** **                                     | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **                                     | ** ** | **2004**                        | ** ** | **2003**                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Marketing**                                  |       |                            |       |                          |       |   |   |   |   |
| NGL product sales—Siloam plant  (gallons) |       | 35,700,000                      |       | 30,900,000                    |       | 87,200,000 |   | 84,900,000 |   |
|                                           |       |                            |       |                          |       |   |   |   |   |
| **MarkWest Energy Partners**                   |       |                            |       |                          |       |   |   |   |   |
| Appalachia:                                    |       |                            |       |                          |       |   |   |   |   |
| Natural gas processed (Mcf/d)  (1)        |       | 197,000                         |       | 189,000                       |       | 202,000 |   | 196,000 |   |
| NGLs fractionated (Gal/d)                      |       | 480,000                         |       | 391,000                       |       | 469,000 |   | 418,000 |   |
|                                           |       |                            |       |                          |       |   |   |   |   |
| Michigan:                                      |       |                            |       |                          |       |   |   |   |   |
| Natural gas volumes transported  (Mcf/d)       |       | 12,200                          |       | 14,500                        |       | 13,000 |   | 14,900 |   |
| NGL product sales (gallons)                    |       | 2,390,000                       |       | 2,917,000                     |       | 5,103,000 |   | 5,859,000 |   |
| Crude oil transported (Bbl/d)  (2)        |       | 14,700                          |       | —                        |       | 14,700 |   | — |   |
|                                           |       |                            |       |                          |       |   |   |   |   |
| Southwest:                                     |       |                            |       |                          |       |   |   |   |   |
| Gathering system throughput  (Mcf/d)  (3) |       | 103,900                         |       | 44,600                        |       | 100,900 |   |   | NM |
| Lateral pipeline throughput  (Mcf/d)  (4) |       | 119,300                         |       | —                        |       | 74,100 |   | — |   |
| NGL product sales (gallons) (5)                |       | 8,317,000                       |       | —                        |       | 16,512,000 |   | — |   |

 

----

NM– Not meaningful.

(1) Includes throughput from theKenova, Cobb, and Boldman processing plants.

(2) The Partnership acquired itsMichigan Crude Pipeline in December 2003.

(3) Includes volumes from the Partnership’s Pinnacle gathering systems,which were acquired in late March 2003, and its Foss Lake (OK) gatheringsystem, which was acquired in December 2003.

(4) Includes volumes from the Partnership’s Power-Tex Lateral pipeline,which was acquired in September 2003, and our Hobbs Lateral pipeline, which wasacquired in April 2004. The Power-Tex and Hobbs Lateral pipelines are the onlylaterals the Partnership own that produce revenue on a per-unit-of-throughputbasis. MarkWest Energy Partners receives a flat fee from the other threelateral pipelines it owned during the first quarter of 2004 and, therefore, thethroughput data from these lateral pipelines is excluded from this statistic.

(5) Includes sales from the Partnership’s Arapaho (OK) processing plant,which was acquired in December 2003.

 

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***Three Months Ended June30, 2004 Compared to the Three Months Ended June 30, 2003***

 
| ** **                            | ** ** | **Marketing**      | ** ** | **MarkWest  Energy  Partners** | ** ** | **Eliminating  Entries** | ** ** | **Total**  | ** ** |
|---------------------------------------|------------|--------------------|------------|--------------------------------|------------|--------------------------|------------|------------|------------|
| ** **                            | ** ** | **(in thousands)** | ** ** |
| **Three Months Ended June 30, 2004:** | ** ** | ** **         | ** ** | ** **                     | ** ** | ** **               | ** ** | ** ** | ** ** |
| Revenues                              |       | $                  | 37,284     |                           | $          | 64,431                   |       | $          | (13,919    | ) | $ | 87,796 |   |
|                                  |       |               |       |                           |       |                     |       |       |       |
| Purchased product costs               |       | 35,620             |       | 47,560                         |       | (7,729                   | )          | 75,451     |       |
| Facility expenses                     |       | 5,840              |       | 6,097                          |       | (6,190                   | )          | 5,747      |       |
| Depreciation                          |       | 356                |       | 3,414                          |       | —                   |       | 3,770      |       |
| Total segment operating  expenses     |       | 41,816             |       | 57,071                         |       | (13,919                  | )          | 84,968     |       |
|                                  |       |               |       |                           |       |                     |       |       |       |
| Segment operating income (loss)       |       | $                  | (4,532     | )                              | $          | 7,360                    |       | $          | —     |   | $ | 2,828 |   |
|                                  |       |               |       |                           |       |                     |       |       |       |
| **Three Months Ended June 30, 2003:** |       |               |       |                           |       |                     |       |       |       |
| Revenues                              |       | $                  | 28,512     |                           | $          | 29,636                   |       | $          | (10,260    | ) | $ | 47,888 |   |
|                                  |       |               |       |                           |       |                     |       |       |       |
| Purchased product costs               |       | 30,585             |       | 18,423                         |       | (4,651                   | )          | 44,357     |       |
| Facility expenses                     |       | 4,859              |       | 5,167                          |       | (5,609                   | )          | 4,417      |       |
| Depreciation                          |       | 181                |       | 1,860                          |       | —                   |       | 2,041      |       |
| Total segment operating  expenses     |       | 35,625             |       | 25,450                         |       | (10,260                  | )          | 50,815     |       |
|                                  |       |               |       |                           |       |                     |       |       |       |
| Segment operating income (loss)       |       | $                  | (7,113     | )                              | $          | 4,186                    |       | $          | —     |   | $ | (2,927 | ) |

 
| ** **                                                         | ** ** | **Three Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                         | ** ** | **2004**                        | ** ** | **2003** | ** ** |
| ** **                                                         | ** ** | **(in thousands)**              | ** ** |
| Segment operating income (loss)                                    |       | $                               | 2,828      |   | $ | (2,927 | ) |
| Selling, general and  administrative                               |       | (4,262                          | )          | (3,363 | ) |
| Interest expense, net                                              |       | (1,092                          | )          | (1,998 | ) |
| Non-controlling interest in net  income of consolidated subsidiary |       | (2,549                          | )          | (860 | ) |
| Other income (expense)                                             |       | (31                             | )          | 105 |   |
|                                                               |       |                            |       |   |   |
| Loss before income taxes                                           |       | $                               | (5,106     | ) | $ | (9,043 | ) |

 

*Marketing.***Our marketing segmentoperating loss was $4.5 million for the three months ended June 30, 2004,compared to $7.1 million for the three months ended June 30, 2003, a decreaseof $2.6 million. The decrease is partially attributable to a $1.2 millionreduction in our hedging losses.  Theremainder of the change is primarily attributable to marketing initiativeswhich maximized storage and other transactional opportunities afforded by amore favorable NGL market environment.

 

*MarkWest Energy Partners.***Segment operatingincome from MarkWest Energy Partners was $7.4 million for the three monthsended June 30, 2004, compared to $4.2 million for the three months ended June30, 2003, an increase of $3.2 million, or 76%. The increase is primarilyattributable to the Partnership’s 2003 acquisitions.

 

*Selling,*g*eneral and administrative expenses.* Selling, generaland administrative expenses were $4.3 million for the three months ended June30, 2004, compared to $3.4 million for the three months ended June 30, 2003, anincrease of $0.9 million, or 27%.  Theincrease is attributable to several factors, including increased back officecosts associated with the growth of MarkWest Energy Partners, compliance costs,bonus and profit sharing (bonus was not accrued during the three months endedJune 30, 2003), and severance.

 

*Interestexpense, net.* Interest expense, net was $1.1 million for the three months ended June30, 2004, compared to $2.0 million for the three months ended June 30, 2003, adecrease of $0.9 million, or 45%. The decrease was principally attributable toa reduction of average outstanding consolidated debt levels.  Additionally, we generated

 

19

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$0.2 million in interest income during the three months ended June 30,2004, compared to $0 for the three months ended June 30, 2003.

 

*Income from discontinued operations.***Income from discontinued operations was$0 for the three months ended June 30, 2004, compared to $20.1 million for thethree months ended June 30, 2003, a decrease of $20.1 million. The decrease wasa result of the sale of substantially all of our U.S. exploration andproduction business near the end the second quarter of 2003.

 

***Six Months Ended June 30,2004, Compared to the Six Months Ended June 30, 2003***

 
| ** **                          | ** ** | **Marketing**      | ** ** | **MarkWest  Energy  Partners** | ** ** | **Eliminating  Entries** | ** ** | **Total**  | ** ** |
|-------------------------------------|------------|--------------------|------------|--------------------------------|------------|--------------------------|------------|------------|------------|
| ** **                          | ** ** | **(in thousands)** | ** ** |
| **Six Months Ended June 30, 2004:** | ** ** | ** **         | ** ** | ** **                     | ** ** | ** **               | ** ** | ** ** | ** ** |
| Revenues                            |       | $                  | 81,677     |                           | $          | 128,244                  |       | $          | (28,437    | ) | $ | 181,484 |   |
|                                |       |               |       |                           |       |                     |       |       |       |
| Purchased product costs             |       | 71,472             |       | 95,060                         |       | (15,945                  | )          | 150,587    |       |
| Facility expenses                   |       | 11,937             |       | 12,421                         |       | (12,492                  | )          | 11,866     |       |
| Depreciation                        |       | 739                |       | 6,671                          |       | —                   |       | 7,410      |       |
| Total segment operating  expenses   |       | 84,148             |       | 114,152                        |       | (28,437                  | )          | 169,863    |       |
|                                |       |               |       |                           |       |                     |       |       |       |
| Segment operating income (loss)     |       | $                  | (2,471     | )                              | $          | 14,092                   |       | $          | —     |   | $ | 11,621 |   |
|                                |       |               |       |                           |       |                     |       |       |       |
| **Six Months Ended June 30, 2003:** |       |               |       |                           |       |                     |       |       |       |
| Revenues                            |       | $                  | 75,131     |                           | $          | 47,329                   |       | $          | (23,921    | ) | $ | 98,539 |   |
|                                |       |               |       |                           |       |                     |       |       |       |
| Purchased product costs             |       | 75,795             |       | 26,815                         |       | (12,250                  | )          | 90,360     |       |
| Facility expenses                   |       | 10,946             |       | 9,504                          |       | (11,671                  | )          | 8,779      |       |
| Depreciation                        |       | 366                |       | 3,205                          |       | —                   |       | 3,571      |       |
| Total segment operating  expenses   |       | 87,107             |       | 39,524                         |       | (23,921                  | )          | 102,710    |       |
|                                |       |               |       |                           |       |                     |       |       |       |
| Segment operating income (loss)     |       | $                  | (11,976    | )                              | $          | 7,805                    |       | $          | —     |   | $ | (4,171 | ) |

 
| ** **                                                         | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                         | ** ** | **2004**                      | ** ** | **2003** | ** ** |
| ** **                                                         | ** ** | **(in thousands)**            | ** ** |
| Segment operating income (loss)                                    |       | $                             | 11,621     |   | $ | (4,171 | ) |
| Selling, general and  administrative                               |       | (8,746                        | )          | (5,913 | ) |
| Interest expense, net                                              |       | (2,450                        | )          | (3,061 | ) |
| Non-controlling interest in net  income of consolidated subsidiary |       | (4,242                        | )          | (1,734 | ) |
| Other income                                                       |       | 32                            |       | 90 |   |
|                                                               |       |                          |       |   |   |
| Loss before income taxes                                           |       | $                             | (3,785     | ) | $ | (14,789 | ) |

 

*Marketing.***Our marketing segmentoperating loss was $2.5 million for the six months ended June 30, 2004,compared to a loss of $12.0 million for the six months ended June 30, 2003, adecrease of $9.5 million, or 80%. Approximately $5.4 million of the change wasattributable to a reduction in our hedging losses. The remainder of the changeis primarily attributable to marketing initiatives which maximized storage andother transactional opportunities afforded by a more favorable NGL marketenvironment.

 

*MarkWest Energy Partners.***Segment operatingincome from MarkWest Energy Partners was $14.1 million for the six months endedJune 30, 2004, compared to $7.8 million for the six months ended June 30, 2003,an increase of $6.3 million, or 81%. The increase is primarily attributable tothe Partnership’s 2003 acquisitions.

 

20

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*Selling,*g*eneral and administrative expenses.* Selling, generaland administrative expenses were $8.7 million for the six months ended June 30,2004, compared to $5.9 million for the six months ended June 30, 2003, an increaseof $2.8 million, or 48%. The increase is attributable to several factors,including increased back office costs associated with the growth of MarkWestEnergy Partners, compliance costs, bonus and profit sharing (bonus was notaccrued during the six months ended June 30, 2003), and severance.

 

*Interestexpense, net.* Interest expense, net was $2.5 million for the six months ended June 30,2004, compared to $3.1 million for the six months ended June 30, 2003, adecrease of $0.6 million, or 20%. The decrease was principally attributable toa reduction of average outstanding consolidated debt levels.  Additionally, we generated $0.4 million ininterest income during the six months ended June 30, 2004, compared to $0 forthe six months ended June 30, 2003.

 

*Income from discontinued operations.***Income from discontinued operations was$0 for the six months ended June 30, 2004, compared to $22.4 million for thesix months ended June 30, 2003, a decrease of $22.4 million. The decrease was aresult of the sale of substantially all of our U.S. exploration and productionbusiness near the end the second quarter of 2003.

 

**Liquidity and Capital Resources**

 

During 2003, we discontinued our explorationand production activities and sold all of our related Canadian oil and gasproperties and substantially all of our U.S. oil and gas properties.  The sales netted us $106.7 million incash.  The proceeds were primarily usedto pay off and terminate our existing credit facility in its entirety inDecember 2003. We also had $33.4 million in unrestricted cash on hand atDecember 31, 2003, exclusive of MarkWest Energy Partners’ cash on hand. As aresult, exclusive of MarkWest Energy Partners’ debt, we had no debt as of June30, 2004 and December 31, 2003. In February 2004, we disbursed approximately$4.8 million to pay a special one-time dividend of $0.50 per share to ourcommon stockholders. In May 2004, we disbursed approximately $0.2 million topay the first quarterly dividend of $0.025 per common share to our common shareholders.On July 22, 2004, our board of directors declared a dividend of $0.025 percommon share to be paid August 19, 2004, to stockholders of record as of theclose of business on August 5, 2004.

 

Going forward, we expect MarkWest Hydrocarbon’sprimary sources of liquidity to be quarterly distributions received fromMarkWest Energy Partners and cash flows generated principally from themarketing of natural gas and NGLs.

 

We own 90.2%of the general partner of MarkWest Energy Partners.  The general partner of MarkWest EnergyPartners owns a 2% general partner interest and all of the incentivedistribution rights in MarkWest Energy Partners.  The incentive distribution rights entitle usto receive an increasing percentage of cash distributed by the Partnership uponattainment of target distribution levels. Specifically, they entitle us toreceive 13.0% of all cash distributed in a quarter after each unit has received$0.55 for that quarter, 23.0% of all cash distributed after each unit hasreceived $0.625 for that quarter and 48.0% of all cash distributed after eachunit has received $0.75 for that quarter. For the six months ended June 30,2004, we received $3.4 million in distributions for our subordinated units, andthe general partner received $0.5 million, including $0.4 million representingpayments on incentive distribution rights. As the Partnership continues to growand increase its quarterly distributions per limited partner unit, we expectcorresponding increases in our distributions.

 

Cash flowsgenerated from our marketing operations are subject to volatility primarily inNGLs and natural gas prices.  Our cashflows are enhanced in periods when the prices received for NGLs exceed theprices paid for natural gas we purchase to satisfy our “keep-whole” contractualarrangements in Appalachia, and are reduced in periods when the prices receivedfor NGLs are low relative to the price of natural gas we purchase to satisfysuch contractual arrangements. Under “keep-whole” contracts, we retain and sellthe NGLs produced in our processing operations for third-party producers, andthen reimburse or “keep whole” the producers for the Btu content of the NGLsremoved through the re-delivery to the producers of an equivalent amount (on aBtu basis) of dry natural gas. Generally, the frac spread and, consequently,the operating margins, are favorable. Periodically,when natural gas becomes more expensive, on a Btu equivalent basis, than NGLproducts, the cost of keeping the producer “whole” can result in operating losses.We, however, cannot predict with any certainty what the pricing environmentwill be in the future.

 

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We believethat cash on hand, cash received from quarterly distributions (including theincentive distribution rights) from MarkWest Energy Partners, and cashgenerated from our marketing operations will be sufficient to meet our workingcapital requirements and fund our required capital expenditures, if any, forthe foreseeable future. Most of our future capital expenditures arediscretionary and minimal in nature. During 2004, we have budgeted $1.7 million for our contribution to theCobb plant replacement and an additional $0.3 million for other miscellaneous projects.  Cash generated from our marketing operationswill depend on our operating performance, which will be affected by prevailingcommodity prices and other factors, some of which are beyond our control.

 

In an effort to increase our liquidity, we may seek toestablish a bank credit facility and renegotiate certain keep-whole contractsin order to reduce our commodity price risk.

 

*MarkWest EnergyPartners*

 

ThePartnership expects to finance future acquisitions through a combination ofdebt and issuance of additional units, as is common practice with masterlimited partnerships.

 

ThePartnership paid down its debt by approximately $42 million in January 2004with the proceeds from its January 2004 offering of common units.

 

During July2004, the Partnership completed an offering of approximately 1.3 million of itscommon units, at $34.50 per unit, which netted the Partnership approximately$45 million after transaction costs and the general partner contribution.  In addition, the Partnership amended and restatedits credit facility in July 2004, increasing its maximum lending limit from$140 million to $315 million.  ThePartnership used the proceeds from the offering and borrowing under its creditfacility to finance the American Central East Texas acquisition.

 

The creditfacility includes a $265 million revolving facility and a $50 million term-loanfacility.  The term-loan portion of theamended and restated credit facility matures in December 2004 and therevolving-portion matures in May 2005. At August 2, 2004, $287 million was outstanding, and $28 million wasavailable, under the credit facility. The Partnership intends to permanently finance these assets in the nearterm with additional equity and long-term debt. The goal remains for the Partnership to maintain a debt-to-capital ratioof less than 50 percent in keeping with its long-term balance sheet objectives.

 

## ***Cash Flows***

 
| ** **                                           | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                           | ** ** | **2004**                      | ** ** | **2003** | ** ** |
| ** **                                           | ** ** | **(in thousands)**            | ** ** |
| Net cash provided by operating activities            |       | $                             | 20,799     |   | $ | 11,580 |   |
| Net cash used in investing activities                |       | $                             | (20,800    | ) | $ | (2,457 | ) |
| Net cash provided by (used in) financing  activities |       | $                             | (5,866     | ) | $ | 15,664 |   |

 

Net cash****provided by operating activities for thesix months ended June 30, 2004, increased relative to the same period in theprior year principally due to an increase in net income (loss) from continuingoperations.

 

Net cash usedin investing activities for the six months ended June 30, 2004, increasedrelative to the same period in the prior year primarily due to the proceedsreceived in 2003 from the sale of our U.S. exploration and production business.

 

Net cash usedin financing activities for the six months ended June 30, 2004, was primarilyattributable to quarterly distributions paid by the Partnership and quarterlydividends paid by the Company. Net cash provided by financing activities forthe six months ended June 30, 2003, was primarily attributable to borrowings oflong-term debt exceeding repayments of long-term debt.

 

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**Forward-LookingInformation**

 

Statements included inthis Management’s Discussion and Analysis that are not historical facts areforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended, and Section 21E of the Securities and Exchange Act of1934, as amended.  We use words such as“may,” “believe,” “estimate,” “expect,” “plan,” “intend,” “project,”“anticipate,” and similar expressions to identify forward-looking statements.

 

Theseforward-looking statements are made based upon management’s current plans,expectations, estimates, assumptions and beliefs concerning future eventsimpacting us and therefore involve a number of risks and uncertainties. Wecaution that forward-looking statements are not guarantees and that actualresults could differ materially from those expressed or implied in theforward-looking statements as a result of certain factors as more fullydiscussed under the heading “Risk Factors” contained in our annual report onForm 10-K filed on March 15, 2004 with the Securities and Exchange Commission(File No. 001-31239) for the Company’s fiscal year ended December 31, 2003.Forward-looking statements include statements relating to, among other things:

 

•      Our expectations regardingMarkWest Energy Partners, L.P.

•      Our ability to grow MarkWestEnergy Partners, L.P. and successfully integrate its acquisitions.

•      Our ability to amend certainproducer contracts.

•      Our expectations regardingnatural gas, NGL product and prices.

•      Our efforts to increasefee-based contract volumes.

•      Our ability to manage ourcommodity price risk.

•      Our ability to maximize thevalue of our NGL output.

•      The adequacy of our generalpublic liability, property, and business interruption insurance.

•      Our ability to comply withenvironmental and governmental regulations.

•      Our ability to secure acredit facility.

•      Our ability to refinance thePartnership's outstanding debt.

 

Important factors thatcould cause our actual results of operations or our actual financial conditionto differ include, but are not necessarily limited to:

 

•      Changes in general economic conditions in regions inwhich our products are located.

•      The availability and prices of NGL and competingcommodities.

•      The availability and prices of raw natural gas supply.

•      Our ability to negotiate favorable marketingagreements.

•      The risks that third party natural gas exploration andproduction activities will not occur or be successful.

•      Our dependence on certain significant customers,producers, gatherers, treaters, and transporters of natural gas.

•      Competition from other NGL processors, including majorenergy companies.

•      Our ability to identify and consummate grass-rootsprojects or acquisitions complementary to our business.

•      Winter weather conditions.

 

Forward-lookingstatements involve many uncertainties that are beyond our ability to control.In many cases, we cannot predict what factors would cause actual results todiffer materially from those indicated by the forward-looking statements.

 

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#### **Item 3**.  Quantitativeand Qualitative Disclosures about Market Risk

 

Market riskincludes the risk of loss arising from adverse changes in market rates andprices. We face market risk from commodity price variations and also incur, toa lesser extent, credit risks and risks related to interest rate variations.

 

***Commodity Price Risk***

 

Through ourconsolidated subsidiary, MarkWest Energy Partners, L.P., we are engaged in thegathering processing and transmission of natural gas, the transportation,fractionation and storage of NGLs and the gathering and transportation of crudeoil. We also market natural gas and NGL products. Our products are commoditiesthat are subject to price risk resulting from material changes in response tofluctuations in supply and demand, general economic conditions and other marketconditions, such as weather patterns, over which we have no control.

 

Our primary risk management objective is to reduce volatility in ourcash flows.  Our hedging approach uses astatistical method that analyzes momentum and average pricing over time, andvarious fundamental data such as industry inventories, industry production,demand and weather. A committee, which includes members of senior management,oversees all of our hedging activity.

 

We may utilize a combination of fixed-price forward contracts,fixed-for-float price swaps and options on the over-the-counter (OTC)market.  New York Mercantile Exchange(NYMEX) traded futures are authorized for use. Swaps and futures allow us to protect our margins because correspondinglosses or gains in the value of financial instruments are generally offset bygains or losses in the physical market.

 

We enter OTC swaps with financial institutions and other energy companycounterparties. We conduct a standard credit review on counterparties and haveagreements containing collateral requirements where deemed necessary. We usestandardized swap agreements that allow for offset of positive and negativeexposures.  Net credit exposure is markedto market daily.  We are subject tomargin deposit requirements under OTC agreements and NYMEX positions.

 

The use of financial instruments may expose us to the risk of financialloss in certain circumstances, including instances when (i) NGLs do not tradeat historical levels relative to crude oil, (ii) sales volumes are less thanexpected requiring market purchases to meet commitments, or (iii) our OTCcounterparties fail to purchase or deliver the contracted quantities of naturalgas, NGLs, or crude oil or otherwise fail to perform. To the extent that weengage in hedging activities, we may be prevented from realizing the benefitsof favorable price changes in the physical market.  However, we are similarly insulated againstdecreases in such prices.

 

In addition to these risk management tools, we utilize our NGL productstorage facilities and contracts for third-party storage to build productinventories during lower-demand periods for resale during higher-demandperiods.

 

*NGL PriceRisk*

 

Within our NGLmarketing segment, our price risk varies by contract as well as by spot marketprices for both NGL and natural gas commodities.  Our Appalachian producers compensate us forproviding midstream services under one of two contract types:

 

•      Under“keep-whole” contracts, we take title to and sell the NGLs produced in ourprocessing operations. We also reimburse or “keep whole” the producers for theBtu content of the NGLs removed through the re-delivery to the producers of anequivalent amount (on a Btu basis) of dry natural gas.  Keep-whole contracts therefore expose us toNGL product price risk (on the sales side) and natural gas price risk (on thepurchase or reimbursement side). Generally, the value of the NGLs extracted is greater than the cost ofreplacing those Btus with dry gas, resulting in positive operating marginsunder these contracts. In the event natural gas becomes more expensive, on aBtu equivalent basis, than NGL products, the cost of keeping the producer“whole” results in operating losses.  Thespread between the

 

24

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NGL product sales priceand the purchase price of natural gas with an equivalent Btu content is calledthe “frac spread”.

 

•      Under“percent-of-proceeds” contracts, we take title to the NGLs produced in ourprocessing operations, sell the NGLs to third parties and pay the producer aspecified percentage of the proceeds received from the sales.Percent-of-proceeds contracts therefore expose us to NGL product price risk.  All of our Michigan processing business isalso governed by percent-of-proceeds contracts.

 

Our consolidatedsubsidiary, MarkWest Energy Partners, is also subject to NGL price risk. Forthe six months ended June 30, 2004, approximately 31% of MarkWest EnergyPartners’ business (as measured by gross margin) was directly subject to NGLproduct price risk stemming from its percent-of-index contracts,percent-of-proceeds contracts and keep-whole contracts. Approximately 9% ofMarkWest Energy Partners’ gross margin is governed by keep-whole contracts. Therelated commodity price risk exposure is actively managed, to the extentpossible, by not operating the Arapaho processing plant in Oklahoma during lowprocessing margin environments.

 

As of June 30,2004, we had no contracts in place to manage our NGL product price risk.

 

*NaturalGas Price Risk*

 

In response to ournatural gas price risk in Texas (as part of MarkWest Energy Partners’ Pinnacleacquisition), we enter into fixed-for-float swaps or buy puts. As of June 30,2004, we hedged our Texas natural gas price risk via swaps as follows:

 

 
| ** **                         | ** ** | **Year Ending December 31,** | ** ** |
|------------------------------------|------------|------------------------------|------------|
| ** **                         | ** ** | **2004**                     | ** ** | **2005** | ** ** |
| **MarkWest Energy Partners, L.P.** |       |                         |       |   |   |
| MMBtu                              |       | 92,000                       |       | 182,500 |   |
| $/MMBtu                            |       | $                            | 4.57       |   | $ | 4.26 |   |
|                                    |            |                              |            |  |  |  |  |

 

As of June 30, 2004, the Partnership hedged its Texas natural gas pricerisk with puts as follows:

 
| ** **                         | ** ** | **Year Ending December 31** | ** ** |
|------------------------------------|------------|-----------------------------|------------|
| ** **                         | ** ** | **2004**                    | ** ** | **2005** | ** ** |
| **MarkWest Energy Partners, L.P.** |       |                        |       |   |   |
| MMBtu                              |       | 184,000                     |       | — |   |
| $/MMBtu                            |       | $                           | 4.00       |   | $ | — |   |
|                                    |            |                             |            |  |  |  |  |

 

 

##### ***Interest Rate Risk***

 

MarkWestEnergy Partners is exposed to changes in interest rates, primarily as a resultof its long-term debt under its credit facility with floating interestrates.  The Partnership makes use ofinterest-rate swap and collar agreements to adjust the ratio of fixed andfloating rates (LIBOR plus an applicable margin) in its debt portfolio.

 

As of June 30,2004, the Partnership is a party to interest rate swap agreements to fixinterest rates on debt of $8.0 million at 3.84% through May 2005 and $25.0million at 3.33% through November 2006 (currently $33.0 million with a weightedaverage interest rate of 3.46%).  Inaddition, the Partnership is a party to an interest-rate collar agreement on$20.0 million of debt with a maximum rate of 3.33% through May 2005, and aminimum rate of 1.25% through August 2004, 1.30% through November 2004, 2.10%through February 2005 and 2.60% through May 2005.

 

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##### **Item4**. Controls and Procedures

 

Attached asexhibits 31.1, 31.2 and 31.3 to this Quarterly Report are certifications of ourprincipal executive and accounting officers (who we refer to in this periodicreport as our Certifying Officers) required in accordance with Section 302 ofthe Sarbanes-Oxley Act of 2002 (the “Section 302 Certifications”). This portionof our Quarterly Report on Form 10-Q discloses the results of our evaluation ofour disclosure controls and procedures as of June 30, 2004, referred to inparagraphs (4) and (5) of the Section 302 Certifications and should be read inconjunction with the Section 302 Certifications for a more completeunderstanding of the topics presented.

 

We maintaindisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed by us in the reports that we file or submit to theSecurities and Exchange Commission under the Securities Exchange Act of 1934,as amended, is recorded, processed, summarized and reported within the timeperiods specified by the Commission’s rules and forms, and that information isaccumulated and communicated to our management, including our CertifyingOfficers, as appropriate to allow timely decisions regarding requireddisclosure. Our management evaluated, with the participation of our CertifyingOfficers, the effectiveness of our disclosure control and procedures as of June30, 2004, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon thatevaluation, our Certifying Officers concluded that as of June 30, 2004, ourdisclosure controls and procedures were effective.

 

Nevertheless,we are continuing to conduct an internal review under the supervision and withthe participation of our management and our Certifying Officers of theeffectiveness of the design and operation of our disclosure controls andprocedures.  The purpose of such reviewis to identify and establish enhancements to our disclosure controls andprocedures that can help prevent any potential misstatements or omissions inour consolidated financial statements. Such enhancements are also focused on assisting our management inevaluating the effectiveness of our internal controls over financial reportingas required by Section 404 of the Sarbanes-Oxley Act of 2002 commencing withour fiscal year ending December 31, 2004.

 

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**PART II****—OTHER INFORMATION**

 

##### **Item1.**  Legal Proceedings

##### ** **

Reference is made to Note9 of our Consolidated Financial Statements in Item 1 of this Form 10-Q.

 

##### **Item4.**  Submission of Matters to a Vote of SecurityHolders

##### ** **

The AnnualMeeting of Stockholders was held on June 3, 2004.  At the Annual Meeting, two individuals wereelected as directors of the Company and six individuals continue to serve asdirectors pursuant to their prior elections. Those directors continuing inoffice are John M. Fox, Frank M. Semple, Arthur J. Denney, Donald C. Heppermann,Karen L. Rogers and Donald D. Wolf.  Inaddition, the appointment of KPMG LLP as the independent auditor of the Companyfor 2004 was ratified.  A tabulation ofthe voting at the Annual Meeting with respect to the matters indicated is asfollows:

 

1.     Toelect two Class II directors to hold office for a three-year term expiring atthe Annual Meeting of Stockholders occurring in the year 2007 or until theelection and qualification of their respective successors.

 
| ** **           | ** ** | **Number of Shares** | ** ** |
|----------------------|------------|----------------------|------------|
| ** **           | ** ** | **For**              | ** ** | **Withheld** | ** ** |
| William A. Kellstrom |       | 9,319,165            |       | 77,152 |   |
| William F. Wallace   |       | 9,018,452            |       | 377,865 |   |

 

2.     Toratify the selection of KPMG LLP as our independent auditors for the fiscalyear ending December 31, 2004.

 
| ** ** | ** ** | **Number of Shares** | ** ** |
|------------|------------|----------------------|------------|
| For        |       | 9,363,002            |       |
| Against    |       | 30,665               |       |
| Abstain    |       | 2,650                |       |

 

**Item 6****.****  Exhibits and Reports on Form 8-K**

 

(a)   Exhibits

 
| 31.1   |   | Certification of the Chief Executive Officer  pursuant to Rule 13a-14(a) of the Securities Exchange Act, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                             |
| 31.2   |   | Certification of the Chief Financial Officer  pursuant to Rule 13a-14(a) of the Securities Exchange Act, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  |
|   |   |                                                                                                                                                                             |
| 31.3   |   | Certification of the Chief Accounting Officer  pursuant to Rule 13a-14(a) of the Securities Exchange Act, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|   |   |                                                                                                                                                                             |
| 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.                         |
|   |   |                                                                                                                                                                             |
| 32.3   |   | Certification  of the Chief Accounting 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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(b)   Reports on Form 8-K

 

A Current Report on Form 8-K/Awas furnished with the SEC under Item 4 and Item 7 on April 6, 2004, announcingthat the Company’s dismissal of its former independent accountants becameeffective as of March 30, 2004.

 

A Current Report on Form 8-Kwas furnished with the SEC under Item 4 on April 12, 2004, announcing that theCompany engaged KPMG LLP as its independent accountants for the fiscal yearending December 31, 2004.

 

A Current Report on Form 8-Kwas furnished with the SEC under Item 12 on May 6, 2004, concerning theCompany’s first quarter earnings release dated May 6, 2004.

 

A Current Report on Form 8-K was furnished with the SEC under Item 9 onJune 2, 2004, announcing the appointment of James G. Ivey as Chief FinancialOfficer of MarkWest Hydrocarbon, Inc.

 

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**SIG****NATURE**

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, MarkWest Hydrocarbon, as registrant, hasduly caused this report to be signed on its behalf by the undersigned,thereunto authorized.

 

 
|                        |   | MarkWest Hydrocarbon, Inc.           |
|-----------------------------|--------|--------------------------------------|
|                        |   | (Registrant)                         |
|                        |   |                                 |
| Date:  August 11, 2004 |   |   /s/  JAMES G. IVEY       |
|                        |   |   James  G. Ivey           |
|                        |   |   Chief  Financial Officer |

 

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| **Exhibit  Number** | ** ** | **Exhibit Index**                                                                                                                                                                |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                             |
| 31.1                |       | Certification of the Chief Executive Officer  pursuant to Rule 13a-14(a) of the Securities Exchange Act, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  |
|                |       |                                                                                                                                                                             |
| 31.2                |       | Certification of the Chief Financial Officer  pursuant to Rule 13a-14(a) of the Securities Exchange Act, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  |
|                |       |                                                                                                                                                                             |
| 31.3                |       | Certification of the Chief Accounting Officer  pursuant to Rule 13a-14(a) of the Securities Exchange Act, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|                |       |                                                                                                                                                                             |
| 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.                         |
|                |       |                                                                                                                                                                             |
| 32.3                |       | Certification of the Chief Accounting 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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