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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-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, 2002
|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 1-11566              

MARKWEST HYDROCARBON, INC.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of incorporation or organization)                                |  | 84-1352233(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 whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

The
registrant had 8,519,482 shares of common stock, $.01 per share par value, outstanding as of June 30, 2002.

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|                             |  |                                                                                                           |  | Page
|---------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | ----
|PART IFINANCIAL INFORMATION |  |                                                                                                          
|Item 1.                      |  | Consolidated Financial Statements                                                                         |  |     
|                             |  | Consolidated Balance Sheet at June 30, 2002 and December 31, 2001                                         |  | 1   
|                             |  | Consolidated Statement of Operations for the Three and Six Months Ended June 30, 2002 and 2001            |  | 2   
|                             |  | Consolidated Statement of Cash Flows for the Three and Six Months Ended June 30, 2001 and 2000            |  | 3   
|                             |  | Consolidated Statement of Changes in Stockholders' Equity for the Six Months Ended June 30, 2002 and 2001 |  | 4   
|                             |  | Notes to the Consolidated Financial Statements                                                            |  | 5   
|Item 2.                      |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                     |  | 12  
|Item 3.                      |  | Quantitative and Qualitative Disclosures about Market Risk                                                |  | 20  
|PART IIOTHER INFORMATION    |  |                                                                                                          
|Item 1.                      |  | Legal Proceedings                                                                                         |  | 23  
|Item 4.                      |  | Submission of Matters to a Vote of Security Holders                                                       |  | 23  
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                                          |  | 24  
|SIGNATURE                    |  | 25                                                                                                       

Glossary of Terms

|Bbls   |  | barrels                                                                                                                                                                           
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Bcf    |  | billion cubic feet of natural gas                                                                                                                                                 
|Btu    |  | British thermal units, an energy measurement                                                                                                                                      
|EBITDA |  | earnings before interest income, interest expense, income taxes, depreciation, depletion and amortization; a cash flow financial measure commonly used in the oil and gas industry
|MM     |  | million                                                                                                                                                                           
|Mcf    |  | thousand cubic feet of natural gas                                                                                                                                                
|Mcf/d  |  | thousand cubic feet of natural gas per day                                                                                                                                        
|Mcfe   |  | thousand cubic feet of natural gas equivalent                                                                                                                                     
|Mcfe/d |  | thousand cubic feet of natural gas equivalent 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                                                                                                                

One barrel of oil or NGL is the energy equivalent of six Mcf of natural gas.

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PART IFINANCIAL INFORMATION

Item 1.    Consolidated Financial Statements

MARKWEST HYDROCARBON, INC.  CONSOLIDATED BALANCE SHEET  (in thousands, except share and per share data)

|                                                                                    |                                                                                                                  | June 30,
2002                              |         | December 31,
2001 |        
|----------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------------- | -------
|
|ASSETS                                                                              |                                                                                                                  |                                            |         |                   |        
|Current assets:                                                                     |                                                                                                                  |                                            |         |                   |        
|                                                                                    | Cash and cash equivalents                                                                                        |                                            | $       | 1,301             |        
|                                                                                    | Receivables, net (including related party receivables of $584 and $600, respectively)                            |                                            |         | 18,296            |        
|                                                                                    | Inventories                                                                                                      |                                            |         | 4,729             |        
|                                                                                    | Prepaid replacement natural gas                                                                                  |                                            |         | 573               |        
|                                                                                    | Risk management asset                                                                                            |                                            |         | 1,204             |        
|                                                                                    | Deferred income taxes                                                                                            |                                            |         | 3,240             |        
|                                                                                    | Other assets                                                                                                     |                                            |         | 968               |        
|                                                                                    |                                                                                                                  |                                            |         |                   |        
|                                                                                    |                                                                                                                  | Total current assets                       |         |                   | 30,311 
|Property, plant and equipment:                                                      |                                                                                                                  |                                            |         |                   |        
|                                                                                    | Gas processing, gathering, storage and marketing equipment                                                       |                                            |         | 115,154           |        
|                                                                                    | Oil and gas properties and equipment, full cost method                                                           |                                            |         | 126,438           |        
|                                                                                    | Land, buildings and other equipment                                                                              |                                            |         | 6,676             |        
|                                                                                    | Construction in progress                                                                                         |                                            |         | 6,105             |        
|                                                                                    |                                                                                                                  |                                            |         |                   |        
|                                                                                    |                                                                                                                  |                                            | 254,373 |                   |        
|                                                                                    | Less: accumulated depreciation, depletion and amortization                                                       |                                            |         | (47,803           | )      
|                                                                                    |                                                                                                                  |                                            |         |                   |        
|                                                                                    |                                                                                                                  | Total property and equipment, net          |         |                   | 206,570
|Risk management asset, net of allowance of $912 and $912, respectively              |                                                                                                                  |                                            | 89      |                   |        
|Intangible assets, net of accumulated amortization of $3,689 and $465, respectively |                                                                                                                  |                                            | 2,618   |                   |        
|Note receivables from employees                                                     |                                                                                                                  |                                            | 405     |                   |        
|                                                                                    |                                                                                                                  |                                            |         |                   |        
|                                                                                    |                                                                                                                  | Total assets                               |         | $                 | 239,993
|                                                                                    |                                                                                                                  |                                            |         |                   |        
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                |                                                                                                                  |                                            |         |                   |        
|Current liabilities:                                                                |                                                                                                                  |                                            |         |                   |        
|                                                                                    | Accounts payable (including related party payables of $602 and $800, respectively)                               |                                            | $       | 18,803            |        
|                                                                                    | Accrued liabilities                                                                                              |                                            |         | 8,338             |        
|                                                                                    | Current portion of long-term debt                                                                                |                                            |         |                  |        
|                                                                                    | Risk management liability                                                                                        |                                            |         | 10,831            |        
|                                                                                    |                                                                                                                  |                                            |         |                   |        
|                                                                                    |                                                                                                                  | Total current liabilities                  |         |                   | 37,972 
|Deferred income taxes                                                               |                                                                                                                  |                                            | 39,251  |                   |        
|Long-term debt                                                                      |                                                                                                                  |                                            | 59,852  |                   |        
|Risk management liability                                                           |                                                                                                                  |                                            | 4,514   |                   |        
|Other long-term liabilities                                                         |                                                                                                                  |                                            | 3,850   |                   |        
|Minority interest in consolidated subsidiary                                        |                                                                                                                  |                                            | 43,357  |                   |        
|Commitments and contingencies (see Note 5)                                          |                                                                                                                  |                                            |         |                   |        
|Stockholders' equity:                                                               |                                                                                                                  |                                            |         |                   |        
|                                                                                    | Preferred stock, par value $0.01, 5,000,000 shares authorized, 0 shares outstanding                              |                                            |         |                  |        
|                                                                                    | Common stock, par value $0.01, 20,000,000 shares authorized, 8,563,919 and 8,563,919 shares issued, respectively |                                            |         | 87                |        
|                                                                                    | Additional paid-in capital                                                                                       |                                            |         | 42,581            |        
|                                                                                    | Retained earnings                                                                                                |                                            |         | 20,591            |        
|                                                                                    | Accumulated other comprehensive income (loss), net of tax                                                        |                                            |         | (11,785           | )      
|                                                                                    | Treasury stock, 44,437 and 59,622 shares, respectively                                                           |                                            |         | (277              | )      
|                                                                                    |                                                                                                                  |                                            |         |                   |        
|                                                                                    |                                                                                                                  | Total stockholders' equity                 |         |                   | 51,197 
|                                                                                    |                                                                                                                  |                                            |         |                   |        
|                                                                                    |                                                                                                                  | Total liabilities and stockholders' equity |         | $                 | 239,993
|                                                                                    |                                                                                                                  |                                            |         |                   |        

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

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MARKWEST HYDROCARBON, INC.  CONSOLIDATED STATEMENT OF OPERATIONS  (UNAUDITED)  (in thousands, except per share data)

|                                                               |                                                            | Three Months Ended
June 30,       |       | Six Months Ended
June 30, |       
|-------------------------------------------------------------- | ---------------------------------------------------------- | --------------------------------- | ----- | ------------------------- | ------
|
|Revenue:                                                       |                                                            |                                   |       |                           |       
|                                                               | Gathering, processing and marketing                        |                                   | $     | 39,019                    |       
|                                                               | Exploration and production                                 |                                   |       | 7,409                     |       
|                                                               |                                                            |                                   |       |                           |       
|                                                               |                                                            | Total revenue                     |       |                           | 46,428
|Operating expenses:                                            |                                                            |                                   |       |                           |       
|                                                               | Purchased gas costs                                        |                                   |       | 32,257                    |       
|                                                               | Plant operating                                            |                                   |       | 3,923                     |       
|                                                               | Lease operating                                            |                                   |       | 1,690                     |       
|                                                               | Transportation costs                                       |                                   |       | 383                       |       
|                                                               | Production taxes                                           |                                   |       | 497                       |       
|                                                               | Selling, general and administrative expenses               |                                   |       | 2,725                     |       
|                                                               | Depreciation, depletion and amortization                   |                                   |       | 4,924                     |       
|                                                               |                                                            |                                   |       |                           |       
|                                                               |                                                            | Total operating expenses          |       |                           | 46,399
|                                                               |                                                            |                                   |       |                           |       
|                                                               |                                                            | Income from operations            |       |                           | 29    
|                                                               |                                                            |                                   |       |                           |       
|Other income and (expenses):                                   |                                                            |                                   |       |                           |       
|                                                               | Interest income                                            |                                   |       | 15                        |       
|                                                               | Interest expense                                           |                                   |       | (1,190                    | )     
|                                                               | Write-down of deferred financing costs                     |                                   |       | (2,259                    | )     
|                                                               | Gain on sale to related party                              |                                   |       | 64                        |       
|                                                               | Minority interest in net income of consolidated subsidiary |                                   |       | (358                      | )     
|                                                               | Other income (expense)                                     |                                   |       | (27                       | )     
|                                                               |                                                            |                                   |       |                           |       
|                                                               |                                                            | Income (loss) before income taxes |       |                           | (3,726
|                                                               |                                                            |                                   |       |                           |       
|Provision for income taxes:                                    |                                                            |                                   |       |                           |       
|                                                               | Current                                                    |                                   |       | (150                      | )     
|                                                               | Deferred                                                   |                                   |       | (1,501                    | )     
|                                                               |                                                            |                                   |       |                           |       
|                                                               |                                                            | Provision for income taxes        |       |                           | (1,651
|                                                               |                                                            |                                   |       |                           |       
|                                                               |                                                            | Net income (loss)                 |       | $                         | (2,075
|                                                               |                                                            |                                   |       |                           |       
|Basic earnings (loss) per share of common stock                |                                                            | $                                 | (0.24 | )                         | $     
|                                                               |                                                            |                                   |       |                           |       
|Earnings (loss) per share assuming dilution                    |                                                            | $                                 | (0.24 | )                         | $     
|                                                               |                                                            |                                   |       |                           |       
|Weighted average number of outstanding shares of common stock: |                                                            |                                   |       |                           |       
|                                                               | Basic                                                      |                                   |       | 8,517                     |       
|                                                               |                                                            |                                   |       |                           |       
|                                                               | Assuming dilution                                          |                                   |       | 8,547                     |       
|                                                               |                                                            |                                   |       |                           |       

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

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MARKWEST HYDROCARBON, INC.  CONSOLIDATED STATEMENT OF CASH FLOWS  (UNAUDITED)  (in thousands)

|                                                     |                                                                                   | Six Months
Ended June 30,                                             |                                                    
|---------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ---------------------------------------------------
|
|Cash flows from operating activities:                |                                                                                   |                                                                       |                                                    
|                                                     | Net income (loss)                                                                 |                                                                       | $                                                  
|                                                     | Adjustments to reconcile net income to net cash provided by operating activities: |                                                                       |                                                    
|                                                     |                                                                                   | Depreciation, depletion and amortization                              |                                                    
|                                                     |                                                                                   | Amortization of deferred financing costs included in interest expense |                                                    
|                                                     |                                                                                   | Write-off of deferred financing costs                                 |                                                    
|                                                     |                                                                                   | Minority interest in net income of consolidated subsidiary            |                                                    
|                                                     |                                                                                   | Derivative ineffectiveness                                            |                                                    
|                                                     |                                                                                   | Reclassification of Enron hedges to purchased gas costs               |                                                    
|                                                     |                                                                                   | Deferred income taxes                                                 |                                                    
|                                                     |                                                                                   | Other                                                                 |                                                    
|                                                     |                                                                                   |                                                                       |                                                    
|                                                     |                                                                                   |                                                                       | 10,086                                             
|                                                     | Changes in operating assets and liabilities:                                      |                                                                       |                                                    
|                                                     |                                                                                   | (Increase) decrease in receivables                                    |                                                    
|                                                     |                                                                                   | (Increase) decrease in inventories                                    |                                                    
|                                                     |                                                                                   | (Increase) decrease in prepaid expenses and other assets              |                                                    
|                                                     |                                                                                   | Increase (decrease) in accounts payable and accrued liabilities       |                                                    
|                                                     |                                                                                   | Increase (decrease) in other long-term liabilities                    |                                                    
|                                                     |                                                                                   |                                                                       |                                                    
|                                                     |                                                                                   | Net cash flow provided by operating activities                        |                                                    
|Cash flows from investing activities:                |                                                                                   |                                                                       |                                                    
|                                                     |                                                                                   | Capital expenditures                                                  |                                                    
|                                                     |                                                                                   | Proceeds from sale of assets                                          |                                                    
|                                                     |                                                                                   | Proceeds from sale of assets to related parties                       |                                                    
|                                                     |                                                                                   |                                                                       |                                                    
|                                                     |                                                                                   |                                                                       | Net cash used in investing activities              
|Cash flows from financing activities:                |                                                                                   |                                                                       |                                                    
|                                                     |                                                                                   | Proceeds from long-term debt                                          |                                                    
|                                                     |                                                                                   | Repayment of long-term debt                                           |                                                    
|                                                     |                                                                                   | Proceeds from initial public offering, net                            |                                                    
|                                                     |                                                                                   | Debt issuance costs                                                   |                                                    
|                                                     |                                                                                   | Exercise of stock options                                             |                                                    
|                                                     |                                                                                   | Net issuance of treasury shares                                       |                                                    
|                                                     |                                                                                   | Payment on share purchase notes                                       |                                                    
|                                                     |                                                                                   |                                                                       |                                                    
|                                                     |                                                                                   |                                                                       | Net cash provided by (used in) financing activities
|                                                     |                                                                                   |                                                                       |                                                    
|Effect of exchange rate on changes in cash           |                                                                                   |                                                                       | 17                                                 
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                                       | (1,039                                             
|Cash and cash equivalents at beginning of period     |                                                                                   |                                                                       | 2,340                                              
|                                                     |                                                                                   |                                                                       |                                                    
|Cash and cash equivalents at end of period           |                                                                                   | $                                                                     | 1,301                                              
|                                                     |                                                                                   |                                                                       |                                                    

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

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MARKWEST HYDROCARBON, INC.  CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY  (UNAUDITED)  (in thousands)

|                                 |                                          | Shares of
Common
Stock |   | Shares of
Treasury
Stock |   | Common
Stock |    | Additional
Paid-In
Capital |   | Retained
Earnings |   | Treasury
Stock |        | Accumulated
Other
Comprehensive
Income |   | Total
Stockholders'
Equity |  
|-------------------------------- | ---------------------------------------- | ---------------------- | - | ------------------------ | - | ------------ | -- | -------------------------- | - | ----------------- | - | -------------- | ------ | -------------------------------------- | - | -------------------------- | -
|
|Balance, December 31, 2001       |                                          | 8,564                  |   | (60                      | ) | $            | 87 |                            | $ | 42,547            |   | $              | 22,489 |                                        | $ | (367                       | )
|Comprehensive income:            |                                          |                        |   |                          |   |              |    |                            |   |                   |   |                |        |                                        |   |                            |  
|Net income (loss)                |                                          |                       |   |                         |   |              |   |                            |   |                  |   |                | (1,898 | )                                      |   |                           |  
|Other comprehensive income:      |                                          |                        |   |                          |   |              |    |                            |   |                   |   |                |        |                                        |   |                            |  
|                                 | Foreign currency translation, net of tax |                        |  |                          |  |              |    |                           |   |                   |  |                |        |                                       |   |                            | 
|                                 | Risk management activities, net of tax   |                        |  |                          |  |              |    |                           |   |                   |  |                |        |                                       |   |                            | 
|                                 |                                          |                        |   |                          |   |              |    |                            |   |                   |   |                |        |                                        |   |                            |  
|Comprehensive income, net of tax |                                          |                        |   |                          |   |              |    |                            |   |                   |   |                |        |                                        |   |                            |  
|                                 |                                          |                        |   |                          |   |              |    |                            |   |                   |   |                |        |                                        |   |                            |  
|Payment on share purchase notes  |                                          |                       |   |                         |   |              |   |                            |   | 13                |   |                |       |                                        |   |                           |  
|Acquisition of treasury stock    |                                          |                       |   | (3                       | ) |              |   |                            |   | 6                 |   |                |       |                                        |   | (26                        | )
|Reissuance of treasury stock     |                                          |                       |   | 19                       |   |              |   |                            |   | 15                |   |                |       |                                        |   | 116                        |  
|                                 |                                          |                        |   |                          |   |              |    |                            |   |                   |   |                |        |                                        |   |                            |  
|Balance, June 30, 2002           |                                          | 8,564                  |   | (44                      | ) | $            | 87 |                            | $ | 42,581            |   | $              | 20,591 |                                        | $ | (277                       | )
|                                 |                                          |                        |   |                          |   |              |    |                            |   |                   |   |                |        |                                        |   |                            |  

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

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MARKWEST HYDROCARBON, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)

1.    General

The consolidated financial statements include the accounts of MarkWest Hydrocarbon, Inc. ("MarkWest Hydrocarbon") and its wholly owned subsidiaries.

Through
consolidation, we have eliminated all significant intercompany accounts and transactions.

We
have prepared the unaudited financial statements presented herein in accordance with the instructions to Form 10-Q. The statements do not include all the
information and note disclosures required by generally accepted accounting principles for complete financial statements. Please read the interim consolidated financial statements in conjunction with
the Consolidated Financial Statements and attached notes for the year ended December 31, 2001, included in our Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission. In the opinion of management, we have made all necessary adjustments for a fair statement of the results for the unaudited interim periods. These are only normal recurring
adjustments.

We
base the effective corporate tax rate for interim periods on the estimated annual effective corporate tax rate. The effective tax rate varies from statutory rates primarily due to
Canadian resource allowances.

We
have reclassified certain prior year amounts to conform to the current year's presentation.

2.    Initial Public Offering of MarkWest Energy Partners, L.P. and Related Transactions

On May 24, 2002, MarkWest Hydrocarbon conveyed most of the assets, liabilities and operations of our midstream business to MarkWest Energy
Partners, L.P. (the "Partnership") in exchange for:



The
Partnership concurrently issued 2,415,000 common units (including 315,000 units issued pursuant to the underwriters' over-allotment option), representing a 43.7% limited
partnership interest in the Partnership, in an initial public offering ("IPO") at a price of $20.50 per unit. The Operating Partnership concurrently entered into a $60 million term loan credit
facility with various lenders and borrowed $21.4 million upon the closing of the IPO.

MarkWest
Hydrocarbon's cash consideration totaled $63.5 million, which was funded by proceeds from the IPO and by Partnership borrowings under its credit facility. We used the
cash to repay bank indebtedness.

The
common units have preference over the subordinated units with respect to cash distributions and, accordingly, we accounted for the sale of the common units as a sale of a minority
interest. At the

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time our subordinated units convert to common units, we will recognize any gain or loss computed at that time, as paid-in capital. Our subordinated units automatically convert to common
units on June 30, 2009, but a portion of the subordinated units may convert on or after June 30, 2005 if the Partnership meets certain financial tests, namely operating surpluses that
exceed the minimum quarterly distributions, as defined in the partnership agreement.

Immediately
after the IPO, MarkWest Hydrocarbon sold an 8.6% interest in MarkWest Energy GP, L.L.C., the general partner of the Partnership, and 24,864 of its Partnership subordinated
units, representing a 0.4% limited partner interest in the Partnership, to certain officers and key employees of MarkWest Hydrocarbon for $183,497 and $407,770, respectively. The officers and
employees paid approximately 30% of the purchase price in cash and financed the remainder via loans from MarkWest Hydrocarbon. The loans are formalized by non-recourse promissory notes
requiring the principal balance to be repaid no later than June 30, 2009 and bearing interest at the rate of 7% per annum on the unpaid balance. For each transaction, we recognized a $64,000
gain on the purchase price in excess of our book value to the extent that the purchase price was paid in cash, approximately $186,000. The remaining balance was recorded as deferred income and is
included in accrued liabilities on our balance sheet.

MarkWest
Hydrocarbon owns 91.4% of the general partner, and MarkWest Hydrocarbon thereby controls the Partnership. The subordinated units owned by MarkWest Hydrocarbon comprise 54.9% of
the Partnership's limited partner interests. Together, these interests represent an approximate 56% ownership interest. The Partnership's results are included in our consolidated financial statements.
The minority interest in consolidated subsidiary on the consolidated balance sheet represents the minority (non-MarkWest Hydrocarbon) shareholders' investment in the Partnership plus the
minority shareholders' share of the net income of the Partnership since its initial public offering on May 24, 2002. Minority interest in net income of consolidated subsidiary in the
consolidated statement of income represents the minority shareholders' share of the net income of the Partnership.

On
August 6, 2002, the Partnership declared a quarterly cash distribution of $0.21 per unit, payable August 15, 2002, to common and subordinated unitholders of record on
August 13, 2002, and the general partner.

3.    Long-term Debt



On May 24, 2002, we amended our credit facility (the "Credit Facility") with various financial institutions. The $60 million revolving credit
facility is comprised of a two components: i) a $25 million U.S. facility and, ii) through our wholly owned Canadian subsidiary, a $35 million Canadian facility.

Available
borrowings under the Credit Facility are determined by (i) a borrowing base, calculated semiannually, which is based principally on the proved reserves of our oil and
gas properties (initially determined to be $34 million); and (ii) a working capital borrowing base, calculated monthly, which is based on NGL product accounts receivable and inventory
levels, to a maximum of $20 million. At June 30, 2002, the working capital borrowing base was $8.7 million providing total available borrowings of $42.7 million. Actual
borrowing limits may be less than $60 million, and MarkWest Hydrocarbon may be required to pay down amounts borrowed in excess of their applicable borrowing base, depending on proved reserves
for our properties, our working capital and our financial covenants. At June 30, 2002, MarkWest Hydrocarbon had outstanding borrowings of $38.5 million under the Credit Facility.

The
Credit Facility permits us to borrow money using either a base rate loan, plus an applicable margin of 0.375% and 1.375%, or a London Interbank Offered Rate ("LIBOR") loan option,
plus an applicable margin of between 1.75% and 2.75%, based on a certain debt-to-earnings ratio. We pay fees

6

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of between 0.25% and 0.50% per annum on the unused commitment, based on our debt-to-earnings ratio. The Credit Facility matures in August 2004. For the three months
ended June 30, 2002, the weighted average interest rate was 3.6%.

The
Credit Facility contains various covenants limiting our ability to:



The
Credit Facility also contains covenants requiring us to maintain:



The
Credit Facility is secured by a first lien on substantially all of our assets.



In connection with its initial public offering, a wholly owned subsidiary of the Partnership (the "Operating Partnership") entered into a $60.0 million
credit facility (the "Partnership Credit Facility") with various financial institutions. The Partnership Credit Facility is comprised of both a revolving and term loan credit facility.

Under
the revolving credit facility, up to $28.6 million is available to fund capital expenditures and acquisitions and up to $10 million is available for working capital
purposes (including letters of credit) and to fund distributions to unitholders. However, not more than $2.25 million may be used in any four-quarter period to fund distributions to
unitholders. On May 24, 2002, the date our IPO closed, $21.4 million was drawn under the term loan. At June 30, 2002, $21.4 million was outstanding under the Partnership
Credit Facility. Total credit available to be drawn at June 30, 2002 was approximately $46 million.

The
Operating Partnership may prepay all loans at any time without penalty. The Operating Partnership will be required to reduce all working capital borrowings under the revolving credit
facility to zero for a period of at least 15 consecutive days once each calendar year.

Indebtedness
under the credit facility bears interest, at the Operating Partnership's option, at either (i) the higher of the federal funds rate plus 0.50% or the prime rate as
announced by lender plus an applicable margin of 0.375% to 1.375% or (ii) at a rate equal to LIBOR plus an applicable

7

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margin ranging from 1.75% per annum to 2.75% per annum depending on the Partnership's ratio of Funded Debt (as defined in the Partnership Credit Facility) to EBITDA (as defined in the Partnership
Credit Facility) for the four most recently completed fiscal quarters. The Operating Partnership incurs a commitment fee on the unused portion of the credit facility at a rate ranging from 25.0 to
50.0 basis points based upon the ratio of our Funded Debt to EBITDA for the four most recently completed fiscal quarters. The Partnership Credit Facility matures in May 2005. At that time, both
the revolving and term loan credit facilities will terminate and all outstanding amounts thereunder will be due and payable.

The
Partnership Credit Facility contains various covenants limiting the Partnership's ability to:



The
Partnership Credit Facility also contains covenants requiring the Operating Partnership to maintain:



The
Partnership and the subsidiaries of the Operating Partnership serve as joint and several guarantors of any obligations under the Partnership Credit Facility. The guarantees are full
and unconditional. The Partnership Credit Facility is secured by substantially all the assets of the Partnership and its subsidiaries.

4.    Segment Reporting

We classify our operations into two reportable segments, as follows:



We
evaluate the performance of our segments and allocate resources to them based on operating income. There are no intersegment revenues. We conduct our business in the United States and
Canada.

The
table below presents information about operating income for the reported segments for the second quarter of 2002 and 2001 and for the six months ended June 30, 2002 and 2001.
Operating income for each segment includes total revenues less product purchases, plant operating expenses, lease operating expenses, transportation costs, production taxes, and depreciation,
depletion and amortization. Segment operating income excludes selling, general and administrative expenses, interest

8

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income, interest expense, write-down of deferred financing costs, gain on sale to related party, minority interest in net income of consolidated subsidiary and income taxes. We have not
reported asset information by reportable segment since we do not produce such information internally.

|                                  |  | Gathering,
Processing and
Marketing |         | Exploration and
Production |   | Total 
|--------------------------------- |  | ----------------------------------- | ------- | -------------------------- | - | ------
|
|Three months ended June 30, 2002: |  |                                     |         |                            |   |       
|Revenues                          |  | $                                   | 39,019  |                            | $ | 7,409 
|Segment operating income          |  | $                                   | 1,380   |                            | $ | 1,374 
|Three months ended June 30, 2001: |  |                                     |         |                            |   |       
|Revenues                          |  | $                                   | 28,545  |                            | $ | 2,472 
|Segment operating income          |  | $                                   | 1,243   |                            | $ | 1,258 
|Six months ended June 30, 2002:   |  |                                     |         |                            |   |       
|Revenues                          |  | $                                   | 76,746  |                            | $ | 14,466
|Segment operating income          |  | $                                   | 5,181   |                            | $ | 2,436 
|Six months ended June 30, 2001:   |  |                                     |         |                            |   |       
|Revenues                          |  | $                                   | 114,058 |                            | $ | 5,431 
|Segment operating income          |  | $                                   | 5,350   |                            | $ | 2,883 

Following
is a reconciliation of total segment operating income to total consolidated income before taxes:

|                                                           |  | Three Months Ended June 30, |        | Six Months Ended June 30, |  
|---------------------------------------------------------- |  | --------------------------- | ------ | ------------------------- | -
|
|
|Total segment operating income                             |  | $                           | 2,754  |                           | $
|Selling, general and administrative expenses               |  |                             | (2,725 | )                         |  
|Interest income                                            |  |                             | 15     |                           |  
|Interest expense                                           |  |                             | (1,190 | )                         |  
|Write-off of deferred financing costs                      |  |                             | (2,259 | )                         |  
|Gain on sale to related party                              |  |                             | 64     |                           |  
|Minority interest in net income of consolidated subsidiary |  |                             | (358   | )                         |  
|Other income (expense)                                     |  |                             | (27    | )                         |  
|                                                           |  |                             |        |                           |  
|Income (loss) before taxes                                 |  | $                           | (3,726 | )                         | $
|                                                           |  |                             |        |                           |  

5.    Commitments and Contingencies



In February 2001, three complaints were filed against us in the Circuit Court of Wayne County, West Virginia, by Columbia Gas Transmission Corporation and
Columbia Natural Resources, Inc.; Equitable Production Company and Equitable Energy LLC; and Cobra Petroleum Company et al. These complaints each allege breach of contract and seek various
forms of relief (including injunctive relief) and damages. On March 1, 2002, we reported that these suits were settled out of court. Two of the three actions have been dismissed and the claims
have been released. Documentation providing for the dismissal of the third action and dismissal of those claims is in the process of execution and filing with the Court.

9

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On
June 6, 2001, Level Propane Gases, Inc. filed suit against us in the Court of Common Pleas, Cuyahoga County, Ohio alleging breach of contract for failure to furnish a
specified quantity of gallons of propane gas on a monthly basis from May 1, 2000 to April 30, 2001, and seeking direct and punitive damages. On July 25, 2001, we filed a motion to
stay proceedings pending arbitration in Denver, Colorado in the Court of Common Pleas, Cuyahoga County, Ohio. The Court of Common Pleas granted the motion to stay proceedings. MarkWest Hydrocarbon
filed a petition with the United States District Court for the District of Colorado seeking an order compelling Level Propane to comply with the arbitration provisions of its agreements with MarkWest
Hydrocarbon. The United States District Court affirmed Level Propane's arbitration obligation. MarkWest Hydrocarbon has initiated an arbitration proceeding against Level Propane with the American
Arbitration Association in Denver, Colorado seeking recovery of unpaid amounts owed by Level Propane for propane product received from MarkWest Hydrocarbon. Level Propane has filed a counterclaim in
the arbitration proceeding seeking an award of $150,000 in actual damages and unspecified punitive damages. The agreements between the parties contain limitation of liability provisions, including a
prohibition on recovery of punitive damages, and MarkWest Hydrocarbon believes that Level's breach of contract claim has no merit. On June 6, 2002, an Involuntary Petition in Bankruptcy was
filed against Level Propane in the United States Bankruptcy Court for the Northern District of Ohio, Eastern Division. Level Propane has consented to the Petition and the arbitration proceeding is now
subject to the automatic stay against adverse claims provided for by the Bankruptcy Code. MarkWest Hydrocarbon will file an appropriate proof of claim.

On
October 2, 2001, Ross Brothers Construction Company filed a complaint against MarkWest Hydrocarbon, Inc. in the Greenup Circuit Court in Kentucky. The Complaint seeks
recovery of damages for work performed and materials furnished in connection with a contract for construction of additions and improvements to MarkWest Hydrocarbon's Siloam plant expansion in Greenup
County, Kentucky. The labor and material at issue were provided outside of the scope of the original contract. MarkWest Hydrocarbon removed that action to the United States District Court for the
Eastern District of Kentucky, Ashland Division. MarkWest Hydrocarbon believes that an accord and satisfaction was reached under applicable Kentucky law in July, 2000 by reason of the negotiation by
Ross Brothers of a check tendered by MarkWest Hydrocarbon in full and final satisfaction of any additional payments claimed to have been due. MarkWest Hydrocarbon filed a motion for summary judgment
based on that accord and satisfaction. The motion was denied on the ground that a fact based dispositive motion was premature prior to discovery. MarkWest Hydrocarbon anticipates renewing its motion
for summary judgment after discovery has been completed. A pretrial conference has been scheduled for April 12, 2003.

6.    Recent Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 145; Rescission of FAS
Statements No. 4, 44 and 64; Amendment of FAS Statement No. 13; and Technical Corrections ("FAS 145"), which is generally effective for transactions occurring after May 15,
2002. Through the rescission of FAS Statements 4 and 64, FAS No. 145 eliminates the requirement that gains and losses from extinguishment of debt be aggregated and, if material, be classified
as an extraordinary item net of any income tax effect. FAS No. 145 made several other technical corrections to existing pronouncements that may change accounting practice. FAS No. 145
will have no impact on our results of operations or financial position.

In
June 2002, the FASB issued Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("FAS No. 146"). FAS
No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. This Statement addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination

10

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Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." We do not believe that FAS 146 will have a material impact on our results of operations or
financial position.

7.    Change in Inventory Accounting Method

For the quarter ended March 31, 2002, the cost of NGL product inventories was determined by the lower of market or weighted average cost. Prior to 2002,
the cost of NGL product inventories was determined by the lower of market or first-in, first-out (FIFO) cost. The change in accounting method from FIFO to weighted average cost
was made to better match cost of sales with revenues on a quarterly basis and to account for NGL product inventories on a consistent basis with other industry peer companies. The cumulative effect of
the change in accounting was not material as of January 1, 2002. If we would have changed our method of accounting from FIFO to weighted average cost on January 1, 2001, income (loss)
before income taxes, net income (loss) and basic earnings (loss) per share would have been as follows for the three and six months ended June 30, 2001, on a pro forma basis (in thousands):

|                                            |  | Three Months Ended
June 30, 2001 |       | Six Months Ended
June 30, 2001
|------------------------------------------- |  | -------------------------------- | ----- | ------------------------------
|Pro forma income (loss) before income taxes |  | $                                | (196  | )                             
|Pro forma net income (loss)                 |  | $                                | (.74  | )                             
|Pro forma basic earnings (loss) per share   |  | $                                | (0.01 | )                             

11

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

Statements included in this Management's Discussion and Analysis that are not historical facts are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. We use words such as "may," "believe," "estimate,"
"expect," "plan," "intend," "project," "anticipate," and similar expressions to identify forward-looking statements. We have based these forward-looking statements on our current expectations and
projections about future events, activities or developments. Our actual results could differ materially from those discussed in our forward-looking statements. Forward-looking statements include
statements relating to, among other things:



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



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

Initial Public Offering of MarkWest Energy Partners, L.P.

On May 24, 2002, MarkWest Hydrocarbon contributed most of the assets, liabilities and operations of our midstream business to MarkWest Energy Partners,
L.P. (the "Partnership" or "MarkWest Energy Partners") in exchange for 3,000,000 subordinated units, a 2% general partner interest in the Partnership, incentive distribution rights (as defined in the
Partnership Agreement), and $63.5 million in cash (which was used to pay down bank debt). The Partnership closed its initial public offering on that date selling 2,415,000 common units
(including the underwriters' exercise of their over-allotment option) for gross proceeds of $49 million and net proceeds (after fees and expenses) of $44 million. Concurrent
with the initial public offering the Partnership borrowed $21.4 million (which is included as long term debt on the consolidated balance sheet of MarkWest Hydrocarbon). MarkWest Hydrocarbon
viewed the creation of MarkWest Energy Partners as important to its ability to continue the growth of its gathering and processing business by accessing a lower cost form of equity capital. The
reduction in bank debt was important as well in reducing MarkWest Hydrocarbon's ratio of debt to total capitalization.

MarkWest
Hydrocarbon now owns a 91.4% interest in MarkWest Energy GP, L.L.C., the Partnership's general partner. Officers of the general partner and officers and key employees of
MarkWest Hydrocarbon purchased the remaining 8.6% interest in MarkWest Energy GP, L.L.C. MarkWest Energy GP, L.L.C., owns the 2% general partner interest in the Partnership, as well as the incentive
distribution rights. Through the general partner, we are entitled to distributions on our general partner interest and, if any, on its incentive distribution rights.

MarkWest
Hydrocarbon, Inc., now owns 2,975,136 subordinated units and officers of the general partner and officers and key employees of MarkWest Hydrocarbon purchased an aggregate
of 24,864 subordinated units, representing 54.9% and 0.5% limited partner interests in the Partnership, respectively. Combined with the general partner interest, MarkWest Hydrocarbon owns an aggregate
55.7% interest in the Partnership and officers and key employees own an aggregate 0.6% interest. Common units have preference over the subordinated units with respect to cash distributions.

MarkWest
Hydrocarbon's consolidated financials statements, beginning May 24, 2002, will include the consolidation of MarkWest Energy Partners, with the public unitholders'
interest being reflected as a minority interest in the Statement of Operations and Balance Sheet.

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Results of Operations



|                                    |                                               | Three Months Ended June 30, |            | Six Months Ended June 30, |           
|----------------------------------- | --------------------------------------------- | --------------------------- | ---------- | ------------------------- | ----------
|
|Gathering, processing and marketing |                                               |                             |            |                           |           
|Appalachia:                         |                                               |                             |            |                           |           
|                                    | NGL product productionSiloam plant (gallons) |                             | 41,600,000 |                           | 32,800,000
|                                    | NGL product salesSiloam plant (gallons)      |                             | 34,200,000 |                           | 25,700,000
|Michigan:                           |                                               |                             |            |                           |           
|                                    | Pipeline throughput (Mcf/d)                   |                             | 12,100     |                           | 7,600     
|                                    | NGL product sales (gallons)                   |                             | 2,400,000  |                           | 1,600,000 
|Exploration and production          |                                               |                             |            |                           |           
|                                    | Natural gas produced (Mcfe/d)                 |                             | 28,100     |                           | 6,100     



Overview.Net loss was $2.1 million for the three months ended June 30, 2002, compared to net income of $8,000
for the three months ended June 30, 2001. Income from operations in our Appalachia, Michigan and Rocky Mountain core areas approximated 2001 amounts as volume increases were offset by lower
average sales prices. Increased depreciation, depletion and amortization and selling, general and administrative expenses offset income from our Canadian operations. Additionally, we wrote down
$2.3 million in deferred financing costs as a result of our May 24, 2002 credit facility amendment.

Gas gathering, processing and marketing revenues.Gas gathering, processing and marketing revenues were $39.0 million
for the three months ended June 30, 2002, compared to $28.5 million for the three months ended June 30, 2001, an increase of $10.5 million, or 37%. Higher sales volumes out
of our Siloam fractionator in 2002 were largely offset by decreased average sales prices. Increased gas marketing transaction volume primarily accounted for the overall increase. Our gas marketing
activities are a high volume, low margin business executed in support of our midstream operations.

Exploration and production revenues.Exploration and production revenues were $7.4 million for the three months ended
June 30, 2002, compared to $2.5 million for the three months ended June 30, 2001, an increase of $4.9 million, or 200%. E&P revenues increased primarily due to our
August 2001 E&P Canadian acquisition and subsequent drilling success, which have added approximately 19,900 Mcfe/d of production. Our capital program in the U.S. has yielded an additional 2,100
Mcfe/d of production since the second quarter of 2001. Our volume increases have been partially offset by price decreases.

Purchased gas costs.Purchased gas costs were $32.3 million for the three months ended June 30, 2002, compared
to $22.5 million for the three months ended June 30, 2001, an increase of $9.8 million, or 43%. The gas costs associated with higher sales volumes out of our Siloam fractionator
in 2002 were

14

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partly offset by lower average product costs. Increased gas marketing transaction volume primarily accounted for the overall increase. Our gas marketing activities are a high volume, low margin
business executed in support of our midstream operations.

Plant operating expenses.Plant operating expenses were $3.9 million for the three months ended June 30, 2002,
compared to $3.5 million for the three months ended June 30, 2001, an increase of $0.4 million, or 11%. The increase was principally caused by increased production volumes.

Lease operating expenses.Lease operating expenses were $1.7 million for the three months ended June 30, 2002,
compared to $0.6 million for the three months ended June 30, 2001, an increase of $1.1 million, or 203%. Lease operating expense increased in 2002 primarily due to the addition of
our Canadian operations in August 2001.

Transportation costs.Transportation costs were $0.4 million for the three months ended June 30, 2002, compared
to $0.2 million for the three months ended June 30, 2001, an increase of $0.2 million, or 112%. The increase was principally caused by the addition of our Canadian operations in
August 2001.

Production taxes.Production taxes were $0.5 million for the three months ended June 30, 2002, compared to
$0.2 million for the three months ended June 30, 2001, a increase of $0.3 million, or 198%. Production taxes increased in 2002 primarily due to the addition of our Canadian
operations in August 2001.

Selling, general and administrative expenses.Selling, general and administrative expenses were $2.7 million for the
three months ended June 30, 2002, compared to $1.9 million for the three months ended June 30, 2001, an increase of $0.9 million, or 47%. Expenses related to operating the
business of our August 2001 Canadian E&P acquisition principally caused the increase.

Depreciation, depletion and amortization.Depreciation, depletion and amortization were $4.9 million for the three
months ended June 30, 2002, compared to $1.6 million for the three months ended June 30, 2001, an increase of $3.4 million, or 213%. The increase was principally the result
of the addition of our Canadian E&P operations in August 2001 and our increased production. As we continue to drill and develop our acreage in Canada, we expect our depletion rate per unit of
production to decrease.

Interest expense.Interest expense was $1.2 million for the three months ended June 30, 2002, compared to
$0.6 million for the three months ended June 30, 2001, an increase of $0.5 million, or 84%. Additional debt incurred in connection with the financing of our August 2001
Canadian acquisition was the primary reason for the increase.

Write-off of deferred financing costs.We wrote off $2.3 million in deferred financing costs as a result
of our May 24, 2002 credit facility amendment, which was completed concurrently with the initial public offering of our consolidated subsidiary, MarkWest Energy Partners, L.P.

Minority interest.Minority interest in consolidated subsidiary represents the public unitholders' interest in MarkWest
Energy Partners, L.P., which completed its initial public offering on May 24, 2002.



Overview.Net loss was $1.9 million for the six months ended June 30, 2002, compared to net income of
$1.5 million for the six months ended June 30, 2001. Income from operations in our Appalachia, Michigan and Rocky Mountain core areas decreased compared to 2001 amounts, as volume
increases were more than offset by lower average sales prices. Increased depreciation, depletion and amortization and selling, general and administrative expenses offset income from our Canadian

15

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operations. Additionally, we wrote down $3.0 million in deferred financing costs as a result of our May 24, 2002 credit facility amendment.

Gas gathering, processing and marketing revenues.Gas gathering, processing and marketing revenues were $76.7 million
for the six months ended June 30, 2002, compared to $114.1 million for the six months ended June 30, 2001, a decrease of $37.3 million, or 33%. GPM revenues decreased
primarily due to:



Exploration and production revenues.Exploration and production revenues were $14.4 million for the six months ended
June 30, 2002, compared to $5.4 million for the six months ended June 30, 2001, an increase of $9.0 million, or 166%. E&P revenues increased primarily due to our
August 2001 E&P Canadian acquisition and subsequent drilling success, which together have added 20,300 Mcfe/d of
production. Our capital program in the U.S. has also yielded an additional 2,000 Mcfe/d of production since the second quarter of 2001. Our volume increases have been partially offset by price
decreases.

Purchased gas costs.Purchased gas costs were $60.3 million for the six months ended June 30, 2002, compared to
$98.1 million for the six months ended June 30, 2001, a decrease of $37.7 million, or 38%. Purchased gas costs decreased in 2002 primarily due to the following:



Plant operating expenses.Plant operating expenses were $8.3 million for the six months ended June 30, 2002,
compared to $8.1 million for the six months ended June 30, 2001, an increase of $0.2 million, or 3%.

Lease operating expenses.Lease operating expenses were $3.3 million for the six months ended June 30, 2002,
compared to $1.1 million for the six months ended June 30, 2001, an increase of $2.2 million, or 202%. Lease operating expense increased in 2002 primarily due to the addition of
our Canadian operations in August 2001.

Transportation costs.Transportation costs were $0.7 million for the six months ended June 30, 2002, compared
to $0.3 million for the six months ended June 30, 2001, an increase of $0.4 million, or 124%. The increase was principally caused by the addition of our Canadian operations in
August 2001.

Production taxes.Production taxes were $0.8 million for the six months ended June 30, 2002, compared to
$0.5 million for the six months ended June 30, 2001, an increase of $0.3 million, or 65%. Production taxes increased in 2002 primarily due to the addition of our Canadian
operations in August 2001.

Selling, general and administrative expenses.Selling, general and administrative expenses were $5.6 million for the
six months ended June 30, 2002, compared to $4.3 million for the six months ended June 30, 2001, an increase of $1.3 million, or 30%. Expenses related to operating the
business of our August 2001 Canadian E&P acquisition principally caused the increase.

16

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Depreciation, depletion and amortization.Depreciation, depletion and amortization were $10.1 million for the six
months ended June 30, 2002, compared to $3.2 million for the six months ended June 30, 2001, an increase of $6.9 million, or 218%. The increase was principally the result
of our August 2001 Canadian E&P acquisition and our increased production. As we continue to drill and develop our acreage in Canada, we expect our depletion rate per unit of production to
decrease.

Interest expense.Interest expense was $2.2 million for the six months ended June 30, 2002, compared to
$1.5 million for the six months ended June 30, 2001, a increase of $0.8 million, or 52%. Additional debt incurred in connection with the financing of our August 2001
Canadian acquisition was the primary reason for the increase.

Write-off of deferred financing costs.We wrote off $2.9 million in deferred financing costs as a result
of two amendments to our credit facility through June 30, 2002, which was completed concurrently with the initial public offering of our consolidated subsidiary, MarkWest Energy Partners, L.P.

Minority interest.Minority interest in consolidated subsidiary represents the public unitholders' interest in MarkWest
Energy Partners, L.P., which completed its initial public offering on May 24, 2002.

Liquidity and Capital Resources

Historically, we have satisfied our working capital requirements and funded our capital expenditures with cash generated from operations and borrowings under our
credit facility. From time to time, our sources of funds are supplemented with proceeds from the sale of a non-core asset.. We may also use operating leases to finance support equipment.

Two
material changes regarding our financial condition occurred during the second quarter of 2002. First, on May 24, 2002, MarkWest Energy Partners, L.P. completed its
initial public offering of 2,415,000 units. In return for conveying most of the assets, liabilities and operations of our midstream business to the Partnership, we received $63.5 million in
cash, among other considerations. We used $63.0 million of the proceeds received to reduce our bank indebtedness. The partnership borrowed $21.4 million on May 24, 2002, and these
borrowings are included in long-term debt on our consolidated balance sheet. You should read Note 2 in Notes to Consolidated Financial Statements in Item 1 included in this
Form 10-Q for further information.

Second,
contemporaneous with the Partnership's IPO, we amended our credit facility, and the Partnership entered into its own separate credit facility. You should read Note 3 in
Notes to Consolidated Financial Statements in Item 1 included in this Form 10-Q for further information.

We
believe that cash generated from our operations, and our borrowing capacity will be sufficient to meet our working capital requirements and fund our required capital expenditures.

Future
capital expenditures are mostly discretionary and, in our exploration and production segment, will be increased or decreased with cash flow from operations and with MarkWest
Hydrocarbon's borrowing base. Cash generated from operations in MarkWest Hydrocarbon will depend on our operating performance, which will be affected by prevailing commodity prices and other factors,
some of which are beyond our control. MarkWest Hydrocarbon's borrowing base is a function of our proved reserves (which are impacted by commodity prices and our drilling results), as well as its NGL
marketing business's receivables and inventory levels. We are currently undergoing our semi-annual borrowing base redetermination, and the size of our capital program for the second half
of 2002 is dependent on the redetermination, which is expected to be completed by the end of August 2002.

As
part of the formation of MarkWest Energy Partners, MarkWest Hydrocarbon retained its commodity price exposure to a variable processing margin (NGL revenues less natural gas costs, for
about three-quarters of the Appalachian volumes). This variability has been reduced due to our

17

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increased natural gas production, as is further discussed in Item 3, Quantitative and Qualitative Disclosures about Market Risk.

For
the Partnership, future acquisitions or projects are expected to financed through a combination of debt and issuance of additional units, as is common practice with master limited
partnerships.



Net cash provided by operating activities was $27.9 million and $14.0 million for the six months ended June 30, 2002 and 2001, respectively.
Net cash provided by operating activities increased during the first six months of 2002 due to (a) greater cash flows from operating activities and (b) timing of cash receipts and
disbursements..

Net
cash used in investing activities was $13.1 million and $15.7 million for the six months ended June 30, 2002 and 2001, respectively. Capital expenditures were
comparable for the periods presented.

Net
cash used in financing activities was $12.4 million in the first six months of 2002 compared to $3.2 million net cash provided by financing activities for the first six
months of June 2001. During 2002, we were able to pay down our debt a net of $54.5 million, whereas in 2001, we borrowed an additional $3.0 million. We were able to pay down our
debt in 2002 with the $43.7 million proceeds from the initial public offering of MarkWest Energy Partners, L.P., and from cash from operating activities in excess of capital spending.



MarkWest Hydrocarbon projects capital expenditures of $28 million for 2002, of which we had spent $16.3 million as of June 30, 2002, principally in
our E&P segment, of which $14 million is for our Canadian capital program, $7.5 million is for our Rocky Mountain capital program and $3 million is for our Michigan capital
program. Another $2 million is for our gathering and processing segment's Canadian program. The balance is for company-wide maintenance capital and other capital programs. Our
capital spending is principally discretionary and may change contingent upon a number of factors, including our results of operations and the semiannual borrowing base redetermination currently in
progress as described above.



On May 24, 2002, we amended our credit facility and the Partnership entered into a new credit facility. You should read Note 3 in Notes to
Consolidated Financial Statements in Item 1 included in this Form 10-Q for further information. Credit availability is determined separately under each of the MarkWest
Hydrocarbon and MarkWest Energy Partners credit facilities.

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Outlook

Following are our best current estimates of third and fourth quarter 2002 results for MarkWest Hydrocarbon and MarkWest Energy Partners. Please be aware of the
risk factors outlined above that could cause actual results to differ materially from these forward-looking numbers.

|                                         |                          | Actual                                      |          | 2002 Estimated
|---------------------------------------- | ------------------------ | ------------------------------------------- | -------- | --------------
|
|Exploration & Production                 |                          |                                             |          |               
|                                         | Production volume (Mcfd) |                                             | 13,400   |               
|                                         | Capital expenditures*    |                                             | $13.7 MM |               
|MarkWest Energy Partners                 |                          |                                             |          |               
|                                         | Appalachia               |                                             |          |               
|                                         |                          | Gas processed for a fee (Mcfd)              |          | 192,000       
|                                         |                          | NGL volume fractionated for a fee (gal/day) |          | 423,000       
|                                         |                          | Maintenance capital expenditures            |          | $576,000      
|                                         | Michigan                 |                                             |          |               
|                                         |                          | Gas processed for a fee (Mcfd)              |          | 8,800         
|
|MarkWest Hydrocarbon, Inc., Consolidated |                          |                                             |          |               
|                                         | EBITDA                   |                                             | $18.4 MM |               
|                                         | Cash flow                |                                             | $14.6 MM |               

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19

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Item 3.    Quantitative and Qualitative Disclosures about Market Risk



Our primary risk management objective is to reduce volatility in our cash flows. Our hedging approach uses a statistical method that analyzes momentum and average
pricing over time, and various fundamental data such as industry inventories, industry production, demand and weather. Hedging levels increase with capital commitments and debt levels and when
above-average margins exist. We maintain a committee, including members of senior management, which oversees all hedging activity.

We
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, but only occasionally used. Swaps and futures allow us to protect our margins because corresponding losses or gains in the
value of financial instruments are generally offset by gains or losses in the physical market.

We
enter OTC swaps with counterparties that are primarily other energy companies. We conduct a standard credit review and have agreements with such parties that contain collateral
requirements. We use standardized swap agreements that allow for offset of positive and negative exposures. Net credit exposure is marked to market daily. We are subject to margin deposit requirements
under OTC agreements and NYMEX positions.

The
use of financial instruments may expose us to the risk of financial loss in certain circumstances, including instances when (a) sales volumes are less than expected requiring
market purchases to meet commitments, or (b) our OTC counterparties fail to purchase or deliver the contracted quantities of natural gas, NGL, or crude oil or otherwise fail to perform. To the
extent that we engage in hedging activities, we may be prevented from realizing the benefits of favorable price changes in the physical market. However, we are similarly insulated against decreases in
such prices.

Basis
risk is the risk that an adverse change in the hedging market will not be completely offset by an equal and opposite change in the price of the physical commodity being hedged. We
hedge our basis risk for natural gas. Our basis risk for natural gas stems from the geographic price differentials between our E&P sales location (San Juan basin and Alberta, Canada) and hedging
contract delivery location (NYMEX) and our GPM purchase location (Appalachia) and NYMEX. We are generally unable to hedge our basis risk for NGL products. We have two different types of NGL product
basis risk. First, NGL product basis risk stems from the geographic price differentials between our sales locations and hedging contract delivery locations. We cannot hedge our geographic basis risk
because there are no readily available products or markets. Second, NGL product basis risk also results from the difference in relative price movements between crude oil and NGL products. We may use
crude oil, instead of NGL products, in our hedges because the NGL hedge products and markets are limited. Crude oil is highly correlated with certain NGL products. As of June 30, 2002, our
natural gas basis hedges were as follows:

Table IHedged Natural Gas Basis

|        |  | Three Months Ending |   | Total Year Ending |   | Year Ending |  
|------- |  | ------------------- | - | ----------------- | - | ----------- | -
|
|MMBtu   |  | 552,000             |   | 491,000           |   | 1,043,000   |  
|$/MMBtu |  | $(0.46              | ) | $(0.47            | ) | $(0.47      | )

As
a result of our 2001 Canadian E&P acquisition, our expected 2002 natural gas production and sales volumes from our E&P segment largely offset our keep-whole contractual
requirements for

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purchasing natural gas in our Appalachian GPM segment, thereby reducing our risk caused by fluctuations in natural gas prices. Consequently, we are transitioning our hedging strategy to recognize
this natural hedge between our E&P production and our natural gas purchase requirements in our Appalachian GPM business.

Prior
to our 2001 Canadian E&P acquisition, we hedged, in our GPM segment, our Appalachian processing margin (defined as revenues less cost of sales) by simultaneously selling propane or
crude oil while purchasing natural gas (Table II below). In our E&P segment, we historically hedged our natural gas sales (Table IV below). As a result of our natural hedge, we are transitioning our
hedging strategy such that we no longer specifically hedge our Appalachian processing margin, nor our equivalent volume E&P natural gas sales, rather we hedge our NGL sales only (Table III below).

As
of June 30, 2002, under our historical hedging practice, the hedged Appalachian NGL product sales volumes and associated projected margin per NGL product gallon, were as
follows:

Table IIHedged Processing Margin

|                                   |                                  | Three Months Ending |           | Total Year Ending |   | Year Ending
|---------------------------------- | -------------------------------- | ------------------- | --------- | ----------------- | - | -----------
|
|NGL Volumes Hedged Using Crude Oil |                                  |                     |           |                   |   |            
|                                   | NGL gallons                      |                     | 1,905,567 |                   |  |            
|                                   | NGL processing margin ($/gallon) |                     | $0.18     |                   |  |            

Under
our new hedging strategy, we hedge our NGL product sales by selling forward propane or crude oil. As of June 30, 2002, we hedged Appalachian and Michigan NGL product sales
as follows:

Table IIIHedged Sales Price for NGL Products

|                                   |  | Three Months Ending |  | Total Year Ending |  | Year Ending
|---------------------------------- |  | ------------------- |  | ----------------- |  | -----------
|
|NGL Volumes Hedged Using Crude Oil |  |                     |  |                   |  |            
|NGL gallons                        |  | 27,700,000          |  | 32,900,000        |  | 60,500,000 
|NGL sales price per gallon         |  | $0.43               |  | $0.46             |  | $0.45      
|NGL Volumes Hedged Using Propane   |  |                     |  |                   |  |            
|NGL gallons                        |  | 189,000             |  | 189,000           |  | 378,000    
|NGL sales price per gallon         |  | $0.40               |  | $0.40             |  | $0.40      
|Total NGL Volumes Hedged           |  |                     |  |                   |  |            
|NGL gallons                        |  | 27,889,000          |  | 33,089,000        |  | 60,978,000 
|NGL sales price per gallon         |  | $0.43               |  | $0.46             |  | $0.45      

Under
Tables II and III, all projected margins or prices on open positions assume (a) the basis differentials between our sales location and the hedging contract's
specified location, and (b) the correlation between crude oil and NGL products, are consistent with historical averages.

Also
within our GPM segment, for certain Appalachian natural gas sales, as of June 30, 2002, we hedged 324,000 MMBtu and 54,000 MMBtu at $4.09 per MMBtu for the balance of 2002
and 2003, respectively.

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

In
our E&P segment, under our historical hedging strategy we hedged our exposure to changes in market prices for our natural gas production by selling
fixed-for-float swaps and utilizing costless collars. Historically, we hedged a significant portion of our natural gas production. In light of our natural hedge, we are
transitioning our hedging strategy to limit our hedges to E&P natural gas production in excess of natural gas purchase requirements in our GPM segment. As of June 30, 2002, we hedged natural
gas volumes and prices as follows:

Table IVHedged Natural Gas Sales

|                                |  | Three Months Ending |  | Total Year Ending |  | Year Ending
|------------------------------- |  | ------------------- |  | ----------------- |  | -----------
|
|MMBtu                           |  | 1,409,699           |  | 1,379,809         |  | 2,789,508  
|$/MMBtu                         |  | $2.95               |  | $3.03             |  | $2.99      
|Henry Hub Equivalent $/MMBtu(1) |  | $3.88               |  | $3.66             |  | $3.77      

---

We
enter into speculative transactions on an infrequent basis. Specific approval by the Board of Directors is necessary prior to executing such transactions. Speculative transactions are
marked to market at the end of each accounting period, and any gain or loss is recognized in income for that period. There were no such speculative activities for the three months ended
June 30, 2002 and 2001.



We are exposed to changes in interest rates, primarily as a result of our long-term debt with floating interest rates. As of June 30, 2002, we
are a party to contracts expiring June 7, 2004 to fix interest rates on $10.0 million of our debt at 5.28% compared to floating LIBOR, plus an applicable margin. As of June 30,
2002, the Partnership is a party to contracts expiring May 19, 2005 to fix interest rates on $8.0 million of our debt at 3.84% compared to floating LIBOR, plus an applicable margin.

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PART II OTHER INFORMATION

Item 1.    Legal Proceedings

Reference is made to Note 5 to the Consolidated Financial Statements included earlier in this Form 10-Q.

Item 4.    Submission of Matters to a Vote of Security Holders

At the Annual Meeting of Stockholders held on June 6, 2002, the following proposals were adopted by the margins indicated:

|Number of Shares   |  | For       |  | Withheld  |  | 
|------------------ |  | --------- |  | --------- |  | 
|John M. Fox        |  | 6,925,743 |  | 1,087,731 |  | 
|Donald D. Wolf     |  | 7,346,337 |  | 667,137   |  | 
|Gerald A. Tywoniuk |  | 7,442,563 |  | 570,911   |  | 

|        |  | Number of Shares |  | 
|------- |  | ---------------- |  | 
|For     |  | 6,437,840        |  | 
|Against |  | 1,550,134        |  | 
|Abstain |  | 25,500           |  | 

|        |  | Number of Shares |  | 
|------- |  | ---------------- |  | 
|For     |  | 6,828,658        |  | 
|Against |  | 1,147,326        |  | 
|Abstain |  | 37,490           |  | 

|        |  | Number of Shares |  | 
|------- |  | ---------------- |  | 
|For     |  | 7,949,038        |  | 
|Against |  | 5,150            |  | 
|Abstain |  | 59,286           |  | 

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Item 6.    Exhibits and Reports on Form 8-K





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SIGNATURE

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

|                      | MarkWest Hydrocarbon, Inc.
            (Registrant)
|--------------------- | ---------------------------------------------------
|Date: August 13, 2002 | By:                                                

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