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

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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 March 31, 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 8,514,830 shares of common stock, $.01 per share par value, outstanding as of March 31, 2002.

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|                                                                                             
|---------------------------------------------------------------------------------------------
|PART IFINANCIAL INFORMATION                                                                 
|Item 1. Consolidated Financial Statements                                                    
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|PART IIOTHER INFORMATION                                                                    
|Item 1. Legal Proceedings                                                                    
|Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                                                                                    

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.





PART IFINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

MARKWEST HYDROCARBON, INC.  CONSOLIDATED BALANCE SHEET

|ASSETS                                                                              |                                                                                                                  | March 31,
2002
(Unaudited) |                                            | December 31,
2001 |  
|----------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ----------------- | -
|
|Current assets:                                                                     |                                                                                                                  |                            |                                            |                   |  
|                                                                                    | Cash and cash equivalents                                                                                        |                            | $                                          | 442               |  
|                                                                                    | Receivables, net (including related party receivables of $864 and $600, respectively)                            |                            |                                            | 21,553            |  
|                                                                                    | Inventories                                                                                                      |                            |                                            | 3,911             |  
|                                                                                    | Prepaid replacement natural gas                                                                                  |                            |                                            | 665               |  
|                                                                                    | Risk management asset                                                                                            |                            |                                            | 215               |  
|                                                                                    | Deferred income taxes                                                                                            |                            |                                            | 3,100             |  
|                                                                                    | Other assets                                                                                                     |                            |                                            | 1,338             |  
|                                                                                    |                                                                                                                  |                            |                                            |                   |  
|                                                                                    |                                                                                                                  |                            | Total current assets                       |                   |  
|Property, plant and equipment:                                                      |                                                                                                                  |                            |                                            |                   |  
|                                                                                    | Gas processing, gathering, storage and marketing equipment                                                       |                            |                                            | 113,896           |  
|                                                                                    | Oil and gas properties and equipment, full cost method                                                           |                            |                                            | 119,807           |  
|                                                                                    | Land, buildings and other equipment                                                                              |                            |                                            | 6,649             |  
|                                                                                    | Construction in progress                                                                                         |                            |                                            | 6,733             |  
|                                                                                    |                                                                                                                  |                            |                                            |                   |  
|                                                                                    |                                                                                                                  |                            | 247,085                                    |                   |  
|                                                                                    | Less: accumulated depreciation, depletion and amortization                                                       |                            |                                            | (43,035           | )
|                                                                                    |                                                                                                                  |                            |                                            |                   |  
|                                                                                    |                                                                                                                  |                            | Total property and equipment, net          |                   |  
|Risk management asset, net of allowance of $912 and $912, respectively              |                                                                                                                  |                            | 125                                        |                   |  
|Intangible assets, net of accumulated amortization of $1,491 and $465, respectively |                                                                                                                  |                            | 3,912                                      |                   |  
|                                                                                    |                                                                                                                  |                            |                                            |                   |  
|                                                                                    |                                                                                                                  |                            | Total assets                               |                   | $
|                                                                                    |                                                                                                                  |                            |                                            |                   |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                |                                                                                                                  |                            |                                            |                   |  
|Current liabilities:                                                                |                                                                                                                  |                            |                                            |                   |  
|                                                                                    | Accounts payable (including related party payables of $393 and $800, respectively)                               |                            | $                                          | 15,596            |  
|                                                                                    | Accrued liabilities                                                                                              |                            |                                            | 9,333             |  
|                                                                                    | Current portion of long-term debt                                                                                |                            |                                            | 649               |  
|                                                                                    | Risk management liability                                                                                        |                            |                                            | 8,732             |  
|                                                                                    |                                                                                                                  |                            |                                            |                   |  
|                                                                                    |                                                                                                                  |                            | Total current liabilities                  |                   |  
|Deferred income taxes                                                               |                                                                                                                  |                            | 41,055                                     |                   |  
|Long-term debt                                                                      |                                                                                                                  |                            | 100,287                                    |                   |  
|Risk management liability                                                           |                                                                                                                  |                            | 4,380                                      |                   |  
|Other long-term liabilities                                                         |                                                                                                                  |                            | 3,690                                      |                   |  
|Commitments and contingencies (see Note 4)                                          |                                                                                                                  |                            |                                            |                   |  
|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                                                                                       |                            |                                            | 42,561            |  
|                                                                                    | Retained earnings                                                                                                |                            |                                            | 22,664            |  
|                                                                                    | Accumulated other comprehensive income (loss), net of tax                                                        |                            |                                            | (9,418            | )
|                                                                                    | Treasury stock, 49,089 and 59,622 shares, respectively                                                           |                            |                                            | (305              | )
|                                                                                    |                                                                                                                  |                            |                                            |                   |  
|                                                                                    |                                                                                                                  |                            | Total stockholders' equity                 |                   |  
|                                                                                    |                                                                                                                  |                            |                                            |                   |  
|                                                                                    |                                                                                                                  |                            | Total liabilities and stockholders' equity |                   | $
|                                                                                    |                                                                                                                  |                            |                                            |                   |  

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



MARKWEST HYDROCARBON, INC.  CONSOLIDATED STATEMENT OF OPERATIONS  (UNAUDITED)

|                                                               |                                              | Three months ended
March 31, |                           
|-------------------------------------------------------------- | -------------------------------------------- | ---------------------------- | --------------------------
|
|
|Revenues:                                                      |                                              |                              |                           
|                                                               | Gathering, processing and marketing          |                              | $                         
|                                                               | Exploration and production                   |                              |                           
|                                                               |                                              |                              |                           
|                                                               |                                              |                              | Total revenues            
|                                                               |                                              |                              |                           
|Operating expenses:                                            |                                              |                              |                           
|                                                               | Cost of sales                                |                              |                           
|                                                               | Operating expenses                           |                              |                           
|                                                               | Selling, general and administrative expenses |                              |                           
|                                                               | Depreciation, depletion and amortization     |                              |                           
|                                                               |                                              |                              |                           
|                                                               |                                              |                              | Total operating expenses  
|                                                               |                                              |                              |                           
|                                                               |                                              |                              | Income from operations    
|                                                               |                                              |                              |                           
|Other income and expense:                                      |                                              |                              |                           
|                                                               | Interest income                              |                              |                           
|                                                               | Interest expense                             |                              |                           
|                                                               | Write-off of deferred financing costs        |                              |                           
|                                                               | Other income (expense)                       |                              |                           
|                                                               |                                              |                              |                           
|                                                               |                                              |                              | Income before income taxes
|                                                               |                                              |                              |                           
|Provision for income taxes:                                    |                                              |                              |                           
|                                                               | Current                                      |                              |                           
|                                                               | Deferred                                     |                              |                           
|                                                               |                                              |                              |                           
|                                                               |                                              |                              | Provision for income taxes
|                                                               |                                              |                              |                           
|                                                               |                                              |                              | Net income                
|                                                               |                                              |                              |                           
|Basic earnings per share of common stock                       |                                              | $                            | 0.02                      
|                                                               |                                              |                              |                           
|Earnings per share assuming dilution                           |                                              | $                            | 0.02                      
|                                                               |                                              |                              |                           
|Weighted average number of outstanding shares of common stock: |                                              |                              |                           
|                                                               | Basic                                        |                              |                           
|                                                               |                                              |                              |                           
|                                                               | Assuming dilution                            |                              |                           
|                                                               |                                              |                              |                           

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





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

|                                                     |                                                                                   | Three months
ended March 31,                                          |                                                    
|---------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ---------------------------------------------------
|
|
|Cash flows from operating activities:                |                                                                                   |                                                                       |                                                    
|                                                     | Net income                                                                        |                                                                       | $                                                  
|                                                     | 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                                 |                                                    
|                                                     |                                                                                   | (Gain) loss on sale of assets                                         |                                                    
|                                                     |                                                                                   | Derivative ineffectiveness                                            |                                                    
|                                                     |                                                                                   | Reclassification of Enron hedges to cost of sales                     |                                                    
|                                                     |                                                                                   | Allowance for doubtful accounts                                       |                                                    
|                                                     |                                                                                   | Deferred income taxes                                                 |                                                    
|                                                     |                                                                                   |                                                                       |                                                    
|                                                     |                                                                                   |                                                                       | 5,958                                              
|                                                     | 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                    |                                                    
|                                                     |                                                                                   |                                                                       |                                                    
|                                                     |                                                                                   |                                                                       | 13,172                                             
|                                                     |                                                                                   |                                                                       | Net cash provided by operating activities          
|Cash flows from investing activities:                |                                                                                   |                                                                       |                                                    
|                                                     |                                                                                   | Capital expenditures                                                  |                                                    
|                                                     |                                                                                   | Proceeds from sale of assets                                          |                                                    
|                                                     |                                                                                   |                                                                       |                                                    
|                                                     |                                                                                   |                                                                       | Net cash used in investing activities              
|Cash flows from financing activities:                |                                                                                   |                                                                       |                                                    
|                                                     |                                                                                   | Proceeds from long-term debt                                          |                                                    
|                                                     |                                                                                   | Repayments of long-term debt                                          |                                                    
|                                                     |                                                                                   | Debt issuance costs                                                   |                                                    
|                                                     |                                                                                   | Exercise of stock options                                             |                                                    
|                                                     |                                                                                   | Reissuance of treasury stock                                          |                                                    
|                                                     |                                                                                   |                                                                       |                                                    
|                                                     |                                                                                   |                                                                       | Net cash provided by (used in) financing activities
|                                                     |                                                                                   |                                                                       |                                                    
|Effect of exchange rate on changes in cash           |                                                                                   |                                                                       | 3                                                  
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                                       | (1,898                                             
|Cash and cash equivalents at beginning of period     |                                                                                   |                                                                       | 2,340                                              
|                                                     |                                                                                   |                                                                       |                                                    
|Cash and cash equivalents at end of period           |                                                                                   | $                                                                     | 442                                                
|                                                     |                                                                                   |                                                                       |                                                    

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



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

|                                 |                                          | 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                       |                                          |                       |   |                         |   |              |   |                            |   |                  |   |                | 175    |                                        |   |                           |  
|Other comprehensive income:      |                                          |                        |   |                          |   |              |    |                            |   |                   |   |                |        |                                        |   |                            |  
|                                 | Foreign currency translation, net of tax |                        |  |                          |  |              |    |                           |   |                   |  |                |        |                                       |   |                            | 
|                                 | Risk management activities, net of tax   |                        |  |                          |  |              |    |                           |   |                   |  |                |        |                                       |   |                            | 
|                                 |                                          |                        |   |                          |   |              |    |                            |   |                   |   |                |        |                                        |   |                            |  
|Comprehensive income, net of tax |                                          |                        |   |                          |   |              |    |                            |   |                   |   |                |        |                                        |   |                            |  
|                                 |                                          |                        |   |                          |   |              |    |                            |   |                   |   |                |        |                                        |   |                            |  
|Reissuance of treasury stock     |                                          |                       |   | 11                       |   |              |   |                            |   | 14                |   |                |       |                                        |   | 62                         |  
|                                 |                                          |                        |   |                          |   |              |    |                            |   |                   |   |                |        |                                        |   |                            |  
|Balance, March 31, 2002          |                                          | 8,564                  |   | (49                      | ) | $            | 87 |                            | $ | 42,561            |   | $              | 22,664 |                                        | $ | (305                       | )
|                                 |                                          |                        |   |                          |   |              |    |                            |   |                   |   |                |        |                                        |   |                            |  

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





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

1.    General

The consolidated financial statements include the accounts of MarkWest Hydrocarbon, Inc. ("MarkWest"), 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.    Change in Inventory Accounting Method

For the quarter ended March 31, 2002, the cost of natural gas liquids (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 before income taxes, net income and basic earnings per share would have been as follows for the quarter ended March 31, 2002 on a pro forma basis (in thousands):

Pro forma income before income taxes

$
2,903Pro forma net income

$
1,773Pro forma basic earnings per share

$
0.21


3.    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 first quarter of 2002 and 2001. Operating income for each segment includes total revenues
less operating expenses and depreciation, depletion and amortization and excludes selling, general and administrative expenses, interest expense, interest income 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 March 31, 2002: |  |                                     |        |                            |   |      
|Revenues                           |  | $                                   | 37,727 |                            | $ | 7,057
|Segment operating income           |  | $                                   | 3,801  |                            | $ | 1,061
|Three months ended March 31, 2001: |  |                                     |        |                            |   |      
|Revenues                           |  | $                                   | 85,517 |                            | $ | 2,959
|Segment operating income           |  | $                                   | 4,098  |                            | $ | 1,639

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

|                                             |                            | Three months ended
March 31, |       
|-------------------------------------------- | -------------------------- | ---------------------------- | ------
|
|
|Total segment operating income               |                            | $                            | 4,862 
|Selling, general and administrative expenses |                            |                              | (2,827
|Interest income                              |                            |                              | 7     
|Interest expense                             |                            |                              | (1,052
|Write-off of deferred financing costs        |                            |                              | (718  
|Other income (expense)                       |                            |                              | 2     
|                                             |                            |                              |       
|                                             | Income before income taxes |                              | $     
|                                             |                            |                              |       

4.    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.

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 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. The United States District Court affirmed Level Propane's
arbitration obligation. MarkWest 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. 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 believes that Level's breach of contract
claim has no merit.

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'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 removed that action to the United States District Court for the Eastern District of
Kentucky, Ashland Division. MarkWest 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 in full and final satisfaction of any additional payments claimed to have been due. MarkWest has filed a motion for summary judgment on that ground, which motion is presently pending.





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:



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.

Results of Operations

Three Months Ended March 31, 2002 Compared to the Three Months Ended March 31, 2001



Net income was $0.2 million, or $0.02 per share, for the three months ended March 31, 2002, compared to $1.5 million, or $0.17 per share, for
the three months ended March 31, 2001, a decrease of $1.3 million, or 88%. Earnings before interest, income taxes, depreciation, depletion and amortization (EBITDA) were
$7.3 million for the three months ended March 31, 2002, compared to $4.8 million for the three months ended March 31, 2001, an increase of $2.5 million, or 51%.

The
decrease in net income was principally attributable to:



|                            |                                       | Three Months Ended March 31, |            |  |           
|--------------------------- | ------------------------------------- | ---------------------------- | ---------- |  | ----------
|
|
|Appalachia:                 |                                       |                              |            |  |           
|                            | NGL productionSiloam plant (gallons) |                              | 43,100,000 |  | 39,300,000
|                            | NGL salesSiloam plant (gallons)      |                              | 57,300,000 |  | 45,300,000
|Michigan:                   |                                       |                              |            |  |           
|                            | Pipeline throughput (Mcf/d)           |                              | 11,000     |  | 8,200     
|                            | NGL sales (gallons)                   |                              | 2,500,000  |  | 1,900,000 
|Exploration and production: |                                       |                              |            |  |           
|                            |                                       |                              |            |  |           
|                            | Natural gas produced (Mcf/d)          |                              | 29,200     |  | 6,600     

Gas gathering, processing and marketing revenues.Gas gathering, processing and marketing revenues were $37.7 million
for the three months ended March 31, 2002, compared to $85.5 million for the three months ended March 31, 2001, a decrease of $47.8 million, or 56%. GPM revenues decreased
primarily due to the following:



Exploration and production revenues.Exploration and production revenues were $7.1 million for the three months ended
March 31, 2002, compared to $3.0 million for the three months ended March 31, 2001, an increase of $4.1 million, or 138%. E&P revenues increased primarily due to our
August 2001 E&P Canadian acquisition and subsequent drilling success, which have added 21,000 Mcfe/d of production. Our capital program in the U.S. has also yielded an additional 1,600 Mcfe/d
of production since the first quarter of 2001. Our volume increases have been partially offset by price decreases.

Cost of sales.Cost of sales were $29.0 million for the three months ended March 31, 2002, compared to
$75.8 million for the three months ended March 31, 2001, a decrease of $46.8 million, or 62%. Cost of sales decreased in 2002 primarily due to the following:



Operating expenses.Operating expenses were $5.7 million for the three months ended March 31, 2002, compared to
$5.3 million for the three months ended March 31, 2001, an increase of $0.4 million, or 8%. The increase was principally caused by our August 2001 Canadian E&P acquisition.

Selling, general and administrative expenses.Selling, general and administrative expenses were $2.8 million for the
three months ended March 31, 2002, compared to $2.4 million for the three months ended March 31, 2001, an increase of $0.4 million, or 17%. The increase was principally
caused by increased expenses related to operating the business of our August 2001 Canadian E&P acquisition.

Depreciation, depletion and amortization.Depreciation, depletion and amortization were $5.2 million for the three
months ended March 31, 2002, compared to $1.6 million for the three months ended March 31, 2001, an increase of $3.6 million, or 222%. The increase was principally the
result of our August 2001 Canadian E&P acquisition.

Interest expense.Interest expense was $1.1 million for the three months ended March 31, 2002, compared to
$0.8 million for the three months ended March 31, 2001, an increase of $0.2 million, or 27%. Our increased debt level, a result of our August 2001 Canadian E&P acquisition,
principally caused the increase.

Write-off of deferred financing costs.We wrote off $0.7 million in deferred financing costs as a result
of our March 29, 2002 credit facility amendment.

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, like the sale of our corporate office building in 2000. We may also use operating leases to
finance support equipment. We believe that cash generated from operations and our borrowing capacity will be sufficient to meet our working capital requirements and fund our required capital
expenditures. Cash generated from operations will depend on our operating performance, which will be affected by prevailing economic conditions in the NGL and natural gas industries and financial,
business and other factors, some of which are beyond our control. For a more complete discussion of factors that will affect our cash flow from operations, you should read Forward-Looking Informationin
Item 2 included in this Form 10-Q.

On
January 31, 2002, MarkWest Energy Partners, L.P., a newly formed limited partnership (the MLP) created to own and operate most of our gathering, processing, transportation,
storage, and fractionation assets in Appalachia and Michigan, filed a registration statement on Form S-1 with the Securities and Exchange Commission for an initial public offering.
On March 22, 2002, April 16, 2002, April 25, 2002, May 1, 2002 and May 8, 2002, we filed amendments to this Form S-1. We currently anticipate
offering to the public approximately 40% of the limited partner interests in the partnership. We and certain of our affiliates will own the general partner of the partnership, as well as the remaining
60% of the limited partner interests in the form of subordinated units. The rights of the holders of subordinated units to receive distributions of cash from the partnership are subordinated to the
rights of the public unitholders to receive such distributions. In connection with the offering, we will enter into a number of contracts with the partnership pursuant to which we will pay it fees for
providing us with gathering, processing, transportation, storage, and fractionation services. We will retain the risks and benefits associated with our "keep-whole" contracts in
Appalachia. Proceeds we receive from the offering will be used to reduce our outstanding debt. We anticipate that the limited partnership will enter into a separate credit facility, the proceeds of
which will be used to support the limited partnership's operations. For financial reporting purposes, the results of operations of MarkWest Energy Partners, L.P. will be consolidated with our
operating results. The completion of the offering is subject to numerous conditions, including market conditions, and we can provide no assurance that it will be successfully completed. A registration
statement relating to the proposed offering has been filed with the Securities and Exchange Commission but has not yet become effective. The securities may not be sold, nor may offers to buy be
accepted prior to the time the registration statement becomes effective. The information contained in this Form 10-Q with respect to this offering shall not constitute an offer to
sell or a solicitation of an offer to buy these securities.

Absent
the proceeds from the MLP's initial public offering, our 2002 capital program may need to be reduced, depending on commodity price levels and our operating performance, and our
credit facility may need to be amended. Our 2002 capital expenditures are largely discretionary and concentrated in our E&P business segment.



Net cash provided by operating activities was $19.1 million and $10.0 million for the three months ended March 31, 2002 and 2001,
respectively. Net cash provided by operating activities increased during the first quarter 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 $9.1 million and $9.5 million for the three months ended March 31, 2002 and 2001, respectively. Capital expenditures for
each period presented were comparable.

Net
cash used in financing activities was $12.0 million for the three months ended March 31, 2002. Net cash provided by financing activities was $1.1 million for the
three months ended March 31, 2001. We paid down our debt a net $11.8 million during the first quarter of 2002 whereas we borrowed a net $1.0 million during the first quarter of 2001.



MarkWest forecasts a baseline capital budget of $26 million for 2002. In our GPM segment, $3 million is for the next phase of our Canadian midstream
infrastructure. In our E&P segment, $10 million is for our Canadian capital program, $7 million is for our Rocky Mountain capital program and $4 million for our Michigan capital
program. Another $2 million is for company-wide maintenance capital and other capital programs. Our baseline capital budget is principally discretionary and may change contingent
upon a number of factors, including our results of operations and opportunities.



On March 29, 2002, we amended our credit agreement with various financial institutions. The $120 million credit facility is comprised of
$80 million in revolving lines of credit ($45 million under a U.S. facility and $35 million under a Canadian facility) and a $40 million term loan under the U.S. facility.
The U.S. facility matures August 2004 and the Canadian facility matures October 2007. The amended credit facility includes a borrowing base, calculated semiannually, which is based
principally on oil and gas properties and midstream assets (initially determined to be $100 million), plus a working capital borrowing base, calculated monthly, which is based on NGL product
accounts receivable and inventory levels, to a maximum of $20 million. In the future, actual borrowing limits may be less than
$120 million, depending on proved reserves for our properties, our working capital and our financial covenants.

The
credit facility permits us to borrow money using either a base rate loan or a London Interbank Offered Rate (LIBOR) loan option, plus an applicable margin of between 0.375% and
2.75%, based on a certain debt to earnings ratio. We pay fees of between 0.25% and 0.50% per annum on the unused commitment, based on our debt to earnings ratio. The credit facility is secured by a
first lien on substantially all of our assets. The loan agreement restricts certain activities, including incurrence of additional indebtedness, and requires the maintenance of certain financial
ratios and other conditions. During May 2002, we signed an amendment to the credit facility for the period from March 31, 2002 through June 15, 2002, pending completion of our
subsidiary MarkWest Energy Partners, L.P.'s initial public offering. Our maximum leverage ratio was maintained at 4.00 (rather than being reduced to 3.75) and our minimum fixed charge coverage ratio
(fixed charges defined to include not only interest costs, but also maintenance capital expenditures and 12.5 percent of outstanding debt) was decreased to a minimum of 1.30 (down from 1.50
previously and 1.40 at December 31, 2001). At March 31, 2002, we had $100.9 million outstanding under the credit facility bearing interest at a weighted average rate of 4.275%.

During
the second quarter of 2002, an additional write-down of deferred financing costs will be required upon consummation of the MLP initial public offering and the
associated amendment to our credit facility.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Commodity Price 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 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 but are generally unable to do so 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
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 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 I below). In our E&P segment, we historically hedged our natural gas sales (Table III 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 II below).

As
of March 31, 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 IHedged Processing Margin

|                                   |                                  | Three Months Ended |   | Total
Year Ended |  |  
|---------------------------------- | -------------------------------- | ------------------ | - | ---------------- |  | -
|
|NGL Volumes Hedged Using Crude Oil |                                  |                    |   |                  |  |  
|                                   | NGL gallons                      |                    |   | 2,865,972        |  |  
|                                   | NGL processing margin ($/gallon) |                    | $ | 0.19             |  | $
|NGL Volumes Hedged Using Propane   |                                  |                    |   |                  |  |  
|                                   | Propane gallons                  |                    |   | 1,260,000        |  |  
|                                   | NGL processing margin ($/gallon) |                    | $ | 0.15             |  |  
|Total NGL Volumes Hedged           |                                  |                    |   |                  |  |  
|                                   | NGL gallons                      |                    |   | 4,125,972        |  |  
|                                   | 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 March 31, 2002, we hedged Appalachian and Michigan NGL product sales
as follows:

Table IIHedged Sales Price for NGL Products

|                                                         |  | Three Months Ended |           | Total
Year Ended |   | Year Ended
|-------------------------------------------------------- |  | ------------------ | --------- | ---------------- | - | ----------
|
|Appalachian NGL volumes hedged using crude oil (gallons) |  |                    | 7,625,720 |                  |   | 25,678,730
|Appalachian NGL sales price per gallon                   |  | $                  | 0.43      |                  | $ | 0.43      
|Michigan NGL volumes hedged using crude oil (gallons)    |  |                    | 1,471,784 |                  |   | 1,471,784 
|Michigan NGL sales price per gallon                      |  | $                  | 0.42      |                  | $ | 0.42      

Under
Tables I and II, 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 March 31, 2002, we hedged 487,000 MMBtu and 54,000 MMBtu at $4.09 per MMBtu for 2002 and 2003,
respectively.

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 March 31,
2002, we hedged natural gas volumes and prices as follows:

Table IIIHedged Natural Gas Sales

|                                |  | Three Months Ended |           | Total
Year Ended |   | Year Ended
|------------------------------- |  | ------------------ | --------- | ---------------- | - | ----------
|
|MMBtu                           |  |                    | 1,338,761 |                  |   | 1,409,699 
|$/MMBtu                         |  | $                  | 2.97      |                  | $ | 2.98      
|Henry Hub Equivalent $/MMBtu(1) |  | $                  | 3.39      |                  | $ | 3.40      

---

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 March 31, 2002 and 2001.





PART IIOTHER INFORMATION

Item 1. Legal Proceedings

Reference is made to Note 4 to the Consolidated Financial Statements included earlier in this Form 10-Q.

Item 6. Exhibits and Reports on Form 8-K









SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, MarkWest, as registrant, had this report signed on our behalf by the undersigned, who has
been duly authorized.

|                   |  | MarkWest Hydrocarbon, Inc.
|------------------ |  | --------------------------
|                   |  | (Registrant)              
|Date: May 14, 2002 |  | By: