<PAGE>
                                                                    EXHIBIT 10.1

                           MARKWEST HYDROCARBON, INC.
                              1997 SEVERANCE PLAN



          Section 1.  Purpose.
                      ------- 

          MarkWest Hydrocarbon, Inc. has adopted this 1997 Severance Plan (the
"Plan") for the purpose of providing a financial incentive for certain employees
of MarkWest Hydrocarbon, Inc. and its subsidiaries (collectively the "Company")
and to enable the Company to retain such employees and to attract other well-
qualified candidates.

          Section 2.  Effective Date.
                      -------------- 

          The Plan shall be effective as of July 2, 1997.

          Section 3.  Definitions.
                      ----------- 

          As used in the Plan, the following terms shall have the meanings set
forth below:

          (a) "Base Salary" shall mean the Covered Employee's annualized base
salary at the time that such employee's employment with the Company terminates.

          (b) "Board of Directors" shall mean the Board of Directors of MarkWest
Hydrocarbon, Inc.

          (c) "Cause" shall mean (1) the conviction of a Covered Employee of any
act constituting a felony under the laws of any state or of the United States,
or a crime involving moral turpitude that causes harm to the Company, (2)
willful misconduct by a Covered Employee causing material harm to the Company,
(3) substantial and material failure to perform required duties which is not
cured within 30 days after receiving written notice from the Company describing
the failure to perform and stating that the Company will consider the
continuation of such failure to perform as cause for termination, or (4) any of
the reasons for termination of employment by the Company set forth in the
Company's employee handbook, as may be amended from time to time.

          (d) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended.

          (e) "COBRA Benefits" shall mean the payment by the Company on behalf
of an Eligible Employee of insurance premiums necessary to continue such

<PAGE>
 
employee's health insurance coverage under the Company's insurance plan
following the termination of his or her employment with the Company pursuant to
COBRA; provided, however, that the term "COBRA Benefits" shall not include any
payments resulting from an increase in insurance premiums due to the provision
of health insurance to the spouse or any dependents of the Eligible Employee to
the extent that such dependents were not covered by the Company's health
insurance policy on the date that such employee's employment with the Company
terminated. In addition, the term COBRA Benefits shall include the payment by
the Company on behalf of any Three Year Eligible Employee who is an Executive
Officer and a Director, pursuant to Section 4(b)(1) of the Plan, of insurance
premiums necessary to continue such employee's health insurance coverage under
the Company's insurance plan following the termination of his or her employment
with the Company beyond the term required by COBRA.

          (f) "Company" shall mean MarkWest Hydrocarbon, Inc., a Delaware
corporation, and all of its subsidiaries.  For this purpose, a subsidiary shall
mean any entity in an unbroken chain of entities beginning with MarkWest
Hydrocarbon, Inc. if each of the entities other than the last entity in the
unbroken chain holds an ownership interest representing 50 percent or more of
the total combined voting power of all classes of ownership interest in one of
the other entities in such chain.

          (g) "Covered Employee" shall mean any executive officer of the Company
or any other key employee of the Company designated by the Chief Executive
Officer and the Chief Operating Officer of MarkWest Hydrocarbon, Inc., in their
sole discretion, as being covered by the Plan.

          (h) "Director" shall mean a Covered Employee that is a member of the
Board of Directors of MarkWest Hydrocarbon, Inc.

          (i) "Disability" shall mean the termination of the Covered Employee's
employment due to mental or physical disability, such disability being
determined by a competent medical authority acceptable to the Company.

          (j) "Eligible Employee" shall mean a Covered Employee that is either a
One Year Eligible Employee or a Three Year Eligible Employee.

          (k) "Executive Officer" shall mean a Covered Employee that the Board
of Directors determines to be an executive officer of the Company.

          (l) "Good Reason" shall mean (1) a material reduction in a Covered
Employee's duties or functions from those that such an officer or key employee
would normally perform or that the Covered Employee had been performing or (2) a
change in control of the Company of a nature that would be required to be

                                      -2-
<PAGE>
 
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended, whether or not the
Company is then subject to such reporting requirements; provided, however, that,
in either case, the Company has not cured the events constituting Good Reason
within 10 days after receiving written notice from the Covered Employee
describing such Good Reason.

          (m) "Incentive Compensation Plan" shall mean the MarkWest Hydrocarbon,
Inc. 1996 Incentive Compensation Plan, as amended.

          (n) "Minimum Covenant Period" shall mean the greater of (i) eighteen
(18) months or (ii) the Severance Period.

          (o) "One Year Eligible Employee" shall mean a Covered Employee that
has been employed by the Company for a consecutive period of at least one (1)
year but less than three (3) years.

          (p) "Plan" shall mean the MarkWest Hydrocarbon, Inc. 1997 Severance
Plan as set forth herein.

          (q) "Severance Payments" shall mean any payments made pursuant to
Section 4 of the Plan.

          (r) "Severance Period" shall mean the time period during which an
Eligible Employee receives Severance Payments.

          (s) "Stock Incentive Plan" shall mean the MarkWest Hydrocarbon, Inc.
1996 Stock Incentive Plan, as amended.

          (t) "Three Year Eligible Employee" shall mean a Covered Employee that
has been employed by the Company for a consecutive period of at least three (3)
years.

          Section 4.  Severance Payments.
                      ------------------ 

          (a) Eligibility.  No person shall be eligible to receive any Severance
Payments under the Plan unless such person is an Eligible Employee at the time
of termination of his or her employment with the Company.  No employee shall be
considered a participant under the Plan until such time as their employment
terminates under circumstances that  entitle him or her to Severance Payments
under Plan, and such participation shall end when all Severance Payments such
employee may be entitled to receive have been paid.

                                      -3-
<PAGE>
 
          (b) Termination Without Cause or Resignation for Good Reason.  If an
Eligible Employee resigns for Good Reason or such employee's employment with the
Company is terminated without Cause, the Eligible Employee shall be entitled to
receive Severance Payments from the Company in accordance with the following
schedule:

              (i)   any Three Year Eligible Employee that is both an Executive
Officer and a Director shall be entitled to receive Base Salary and COBRA
Benefits for a period of twenty-four (24) months; provided, however, that the
payment by the Company of COBRA Benefits beyond the period during which the
Company is required to provide insurance coverage to such employee pursuant to
COBRA shall be subject to approval by the Company's insurance carrier.

              (ii)  any One Year Eligible Employee that is both an Executive
Officer and a Director shall be entitled to receive Base Salary and COBRA
Benefits for a period of twelve (12) months;

              (iii) any Three Year Eligible Employee that is an Executive
Officer, but not a Director, shall be entitled to receive Base Salary and COBRA
Benefits for a period of eighteen (18) months;

              (iv)  any One Year Eligible Employee that is an Executive Officer,
but not a Director, shall be entitled to receive Base Salary and COBRA Benefits
for a period of nine (9) months;

              (v)   any Three Year Eligible Employee that is neither an
Executive Officer nor a Director shall be entitled to receive Base Salary and
COBRA Benefits for a period of twelve (12) months; and

              (vi)  any One Year Eligible Employee that is neither an Executive
Officer nor a Director shall be entitled to receive Base Salary and COBRA
Benefits for a period of six (6) months.

          (c) Disability.  If an Eligible Employee's employment with the Company
is terminated by reason of such employee's death or Disability, the Eligible
Employee (or his or her representative) shall be entitled to receive the same
Severance Payments that such employee would have been entitled to receive if the
Eligible Employee resigned for Good Reason or such employee's employment with
the Company was terminated without Cause.

          (d) Voluntary Resignation.  If an Eligible Employee voluntarily
resigns, the Eligible Employee shall be entitled to receive Severance Payments
from the Company in accordance with the following schedule:

                                      -4-
<PAGE>
 
              (i)    any Three Year Eligible Employee that is both an Executive
Officer and a Director shall be entitled to receive Base Salary and COBRA
Benefits for a period of six (6) months;

              (ii)   any One Year Eligible Employee that is both an Executive
Officer and a Director shall be entitled to receive Base Salary and COBRA
Benefits for a period of three (3) months;

              (iii)  any Three Year Eligible Employee that is an Executive
Officer, but not a Director, shall be entitled to receive Base Salary and COBRA
Benefits for a period of four (4) months and two (2) weeks;

              (iv)   any One Year Eligible Employee that is an Executive
Officer, but not a Director, shall be entitled to receive Base Salary and COBRA
Benefits for a period of two (2) months and one (1) week;

              (v)    any Three Year Eligible Employee that is neither an
Executive Officer nor a Director shall be entitled to receive Base Salary and
COBRA Benefits for a period of three (3) months; and

              (vi)   any One Year Eligible Employee that is neither an Executive
Officer nor a Director shall be entitled to receive Base Salary and COBRA
Benefits for a period of one (1) month and two (2) weeks.

          (e) Termination for Cause.  If the Company terminates the employment
of an Eligible Employee for Cause, such employee shall not be entitled to
receive any Severance Payments.

          (f) Limitations on Amount of Severance Payments. Notwithstanding any
provision to the contrary in any other portion of the Plan, the aggregate amount
of Severance Payments to be paid to an Eligible Employee shall in no event
exceed twice such employee's annual compensation during the year immediately
preceding the termination of his or her employment with the Company.  Annual
compensation for purposes of determining the foregoing limitation means the
total compensation, including wages, salary, bonus and any other benefit of
monetary value, whether paid in the form of cash or otherwise, which was paid as
consideration for the Eligible Employee's services during the year, or which
should have been so paid at such employee's usual rate and compensation if such
employee had been employed by the Company for the entire year.  To the extent
that a Severance Payment would exceed the foregoing limitation, payment under
the Plan shall be modified.

          (g) Limitations on COBRA Benefits.  The payment by the Company of
COBRA Benefits to an Eligible Employee pursuant to this Section 4 shall only

                                      -5-
<PAGE>
 
commence upon a proper election by such employee to receive insurance coverage
pursuant to COBRA and shall cease immediately if, at any time thereafter, such
employee becomes covered by another health insurance plan or otherwise becomes
ineligible to receive coverage pursuant to COBRA.  Such payments shall in no
event extend the period of time during which such employee is eligible to
receive coverage under the Company's health insurance plan pursuant to COBRA.
Notwithstanding the foregoing, the Company will pay COBRA Benefits beyond the
period during which the Company is required to provide insurance coverage
pursuant to COBRA to a Three Year Eligible Employee who is an Executive Officer
and a Director in accordance with Section 4(b)(1) of the Plan, subject to the
approval of the Company's insurance carrier.

          (h) Termination of Service Period.  Regardless of whether an Eligible
Employee receives Severance Payments pursuant to the Plan following the
termination of his or her employment with the Company, such person shall not be
considered an employee of the Company for any purpose following such
termination.  The receipt of Severance Payments following the termination of
employment shall in no event extend the vesting period of any awards granted to
an Eligible Employee pursuant to the Stock Incentive Plan or make such person
eligible to receive bonus payments from the Company pursuant to the Incentive
Compensation Plan, or otherwise, for any period after the termination of such
person's employment with the Company.

          (i) Method of Payment.  All Severance Payments shall be paid in
accordance with the Company's normal payroll policies over the course of the
Severance Period.  All Severance Payments are subject to any required
withholding. In no event shall Severance Payments be made beyond twenty-four
(24) months after the termination of the Eligible Employee's employment with the
Company.  To the extent that Severance Payments are to be made after the death
of the Eligible Employee, payment will be made to the personal representative of
such employee's estate or, if there is no estate, in accordance with applicable
law.

          Section 5.  Non-Competition, Non-Solicitation and Confidentiality
                      -----------------------------------------------------
Agreement.
--------- 

          Notwithstanding any provision to the contrary in any other portion of
the Plan, no Eligible Employee shall be entitled to receive any Severance
Payments pursuant to the Plan unless such employee is party to an effective and
legally enforceable agreement with the Company pursuant to which he or she is
bound to covenants of non-competition, non-solicitation and confidentiality for
the time period commencing on the termination of his or her employment with the
Company and continuing for a period of time no less than the Minimum Covenant
Period.  Such covenants shall be upon such terms and provisions as the Company
may determine in its sole discretion, provided that the covenant of non-

                                      -6-
<PAGE>
 
competition shall be limited to the geographic regions in which the Company
conducts its business at the time that the Eligible Employee's employment with
the Company is terminated.  In addition, no Covered Employee shall be eligible
for any further awards under the Stock Incentive Plan unless such employee is
party to an effective and legally enforceable agreement containing the terms and
provisions described above.

          Section 6.  Waiver and Release.
                      ------------------ 

          Notwithstanding any provision to the contrary in any other portion of
the Plan, no Eligible Employee shall be entitled to receive any Severance
Payments pursuant to the Plan until such employee has executed and delivered (i)
an agreement with the Company prospectively waiving any employment-related
claims that he or she may have against the Company and (ii) a release, releasing
the Company from any such claims.

          Section 7.  Claims Procedure.
                      ---------------- 

          (a) General.  If a Covered Employee believes that he or she may be
entitled to benefits, or the Covered Employee is in disagreement with any
determination that has been made with respect to the Plan, the Covered Employee
may present a claim to the Company.

          (b) Making a Claim.  A Covered Employee's claim must be written and
must be delivered to the Company.  Within ninety (90) days after delivery of
such claim, the Covered Employee shall receive either:  (i) a decision; or (ii)
a notice describing special circumstances requiring a specified amount of
additional time (but no more than one hundred and eighty (180) days from the
date of delivery of such claim) to reach a decision.  If such claim is wholly or
partially denied, the Covered Employee shall receive a written notice
specifying:  (i) the reasons for denial; (ii) the Plan provisions on which such
denial is based; and (iii) any additional information needed from the Covered
Employee in connection with the claim and the reason such information is needed.
The Covered Employee shall also receive a written statement providing the
information contained in Section 7(c) below concerning the Covered Employee's
right to request a review.

          (c) Requesting Review of a Denied Claim.  A Covered Employee may
request that a denied claim be reviewed.  Such request for review must be
written and must be delivered to the Company within sixty (60) days after the
Covered Employee receives the written notice that the Covered Employee's claim
was denied.  Such request for review may (but is not required to) include issues
and comments that the Covered Employee wants considered in the review.  The
Covered Employee may examine pertinent Plan documents by making a request to the
Company.  Within sixty (60) days after delivery by the Covered Employee of the

                                      -7-
<PAGE>
 
Covered Employee's request for review, the Company shall receive either:  (i) a
decision; or (ii) a notice describing special circumstances requiring a
specified amount of additional time (but no more than one hundred and twenty
(120) days from the date of delivery of such request for review) to reach a
decision.  The decision shall be in writing and shall specify the Plan
provisions on which it is based.

          (d) Decisions.  All decisions on claims and on reviews of denied
claims will be made by the Company.  The Company may, in its sole discretion,
hold one or more hearings.  If a Covered Employee does not receive a decision
within the specified time, the Covered Employee should assume that the claim was
denied or re-denied on the date the specified time expired.  The Company
reserves the right to delegate, in whole or in part, its authority to make
decisions under the Plan.

          Section 8.  Miscellaneous.
                      ------------- 

          (a) Amendment, Suspension or Termination.  The Board of Directors may,
from time to time and at any time, amend, suspend or terminate, in whole or in
part, any or all of the provisions of the Plan; provided, however, that no such
action shall adversely affect the right of any Eligible Employee with respect to
any Severance Payment he or she may have become entitled to hereunder prior to
the effective date of such amendment, suspension, or termination.

          (b) Determinations.  The Company shall make such determinations as may
be required from time to time in the administration of the Plan.  The Company
shall have the sole discretion, authority and responsibility to interpret and
construe the Plan and to determine all factual and legal questions under the
Plan, including, without limitation, all questions regarding the entitlement of
employees of the Company to participate in the Plan and the amount of any
benefits they may be eligible to receive thereunder.

          (c) Limitations.  This Plan is not to be construed as constituting a
contract of employment.  Nothing contained herein shall affect or impair the
Company's right to terminate the employment of a Covered Employee.  All
Severance Payments shall be paid out of the general funds of the Company.  An
Eligible Employee shall not have any secured or preferred interest by way of a
trust, escrow, lien or otherwise in any specific asset of the Company for any
unpaid Severance Payments.  The Company will not make any contributions to fund
the Plan.

          (d) Indemnification.  No member of the Board of Directors or employee
of the Company shall have any liability for any decision or action if made or
done in good faith, nor for any error or miscalculation unless such error or
miscalculation is a result of fraud, deliberate disregard of the terms of the
Plan, or 

                                      -8-
<PAGE>
 
gross neglect. The Company shall indemnify each such director or employee acting
in good faith, pursuant to the terms of the Plan, against any loss or expense
arising therefrom.

          (e) Spendthrift Provisions.  No Covered Employee shall have any
transmissible interest in the Plan nor shall any Covered Employee have any power
to anticipate, alienate, dispose of, pledge or encumber any rights under the
Plan, nor shall the Company recognize any assignment thereof, either in whole or
in part, nor shall the Plan or any Severance Payments be subject to attachment,
garnishment, execution following judgment or other legal process.

          (f) Plan Administrator.  The Company shall be the  administrator of
the Plan.

          (g) Service of Legal Process.  The Secretary of the Company is
designated as the appropriate and exclusive agent for the receipt of service of
process directed to the Plan in any legal proceeding involving the Plan.

          (h) Type of Plan.  The Plan is a severance pay employee welfare
benefit plan.  The Plan is not an employee pension benefit plan.

          (i) Governing law.  The terms of this Plan shall, except to the extent
that federal law controls, be governed by and construed in accordance with the
laws of the State of Colorado.

                                      -9-