<PAGE>

                                   FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

(Mark One)

/X/    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
       FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

   OR

/  /   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                                                1-13071

                           HANOVER COMPRESSOR COMPANY
             (Exact name of registrant as specified in its charter)


                 Delaware                                76-0625124
         (State or other jurisdiction of               (I.R.S. Employer
         incorporation or organization)               Identification No.)

                          12001 North Houston Rosslyn
                             Houston, Texas 77086
                   (Address of principal executive offices)

                                (281) 447-8787
             (Registrant's telephone number, including area code)


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  X
No


As of May 11, 2001 there were 70,316,226 shares of the Company's common stock,
$0.001 par value, outstanding.
<PAGE>

                          HANOVER COMPRESSOR COMPANY
                          CONSOLIDATED BALANCE SHEET
                                  (UNAUDITED)
       (IN THOUSANDS OF DOLLARS, EXCEPT FOR PAR VALUE AND SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                March 31,              December 31,
                                                                                   2001                    2000
                                                                                ---------              ------------
                                ASSETS
<S>                                                                             <C>                     <C>
 Current assets:
      Cash and cash equivalents                                                  $   99,436              $   45,484
      Accounts receivable trade, net                                                216,427                 242,526
      Inventory                                                                     196,471                 139,248
      Costs and estimated earnings in excess of billings
        on uncompleted contracts                                                     51,774                  38,665
      Prepaid taxes                                                                  20,611                  19,948
      Other current assets                                                           17,625                  12,384
                                                                                 ----------              ----------
        Total current assets                                                        602,344                 498,255
                                                                                 ----------              ----------

 Property, plant and equipment, net                                                 724,101                 583,586
 Goodwill, net                                                                      165,674                 141,973
 Intangible and other assets                                                         66,298                  65,707
                                                                                 ----------              ----------
        Total assets                                                             $1,558,417              $1,289,521
                                                                                 ==========              ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

 Current liabilities:
      Current maturities of long-term debt                                       $    2,837              $    2,423
      Short-term notes payable                                                        2,323                  10,073
      Accounts payable, trade                                                       104,646                  88,651
      Accrued liabilities                                                            51,984                  49,205
      Advance billings                                                               41,160                  32,292
      Billings on uncompleted contracts in excess of
        costs and estimated earnings                                                  9,196                   5,669
                                                                                 ----------              ----------
        Total current liabilities                                                   212,146                 188,313

 Long-term debt                                                                     196,122                 110,935
 Other liabilities                                                                  163,893                 158,661
 Deferred income taxes                                                              118,628                 105,369
                                                                                 ----------              ----------
        Total liabilities                                                           690,789                 563,278
                                                                                 ----------              ----------
 Commitments and contingencies (note 8)
 Mandatorily redeemable convertible preferred securities                             86,250                  86,250

 Common stockholders' equity:
   Common stock, $.001 par value; 200,000,000 shares authorized;
     70,181,136 and 66,454,703 shares issued and
     outstanding, respectively                                                           70                      66
   Additional paid-in capital                                                       606,484                 483,737
   Notes receivable - employee stockholders                                          (1,499)                 (1,531)
   Accumulated other comprehensive income (loss)                                       (484)                   (457)
   Retained earnings                                                                177,524                 158,895
   Treasury stock - 75,739 common shares at cost                                       (717)                   (717)
                                                                                 ----------              ----------
        Total common stockholders' equity                                           781,378                 639,993
                                                                                 ----------              ----------
          Total liabilities and common stockholder's equity                      $1,558,417              $1,289,521
                                                                                 ==========              ==========
</TABLE>

      The accompanying notes are an integral part of these consolidated
                             financial statements.
<PAGE>

                           HANOVER COMPRESSOR COMPANY
           CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
                                  (UNAUDITED)
              (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                      Three months
                                                                     ended March 31,
                                                                --------------------------
<S>                                                             <C>             <C>
                                                                   2001             2000
                                                                ---------         --------
 Revenues:
   Rentals                                                    $  80,057           $56,104
   Parts, service and used equipment                             38,330            11,316
   Compressor fabrication                                        54,651            14,185
   Production and processing equipment fabrication               43,591             5,925
   Equity in income of non-consolidated affiliate                   750             1,022
   Other                                                          2,385             2,005
                                                               --------           -------
                                                                219,764            90,557
                                                               --------           -------
 Expenses:
   Rentals                                                       26,712            18,151
   Parts, service and used equipment                             21,886             8,206
   Compressor fabrication                                        46,284            11,391
   Production and processing equipment fabrication               35,149             4,483
   Selling, general and administrative                           19,977             9,115
   Depreciation and amortization                                 16,867            10,359
   Leasing expense                                               15,288             8,076
   Interest expense                                               2,704             1,630
   Distributions on mandatorily redeemable
     convertible preferred securities                             1,593             1,591
   Other                                                          2,992                 -
                                                               --------           -------
                                                                189,452            73,002
                                                               --------           -------
 Income before income taxes and cumulative effect of
    accounting change                                            30,312            17,555
 Provision for income taxes                                      11,519             6,390
                                                                --------           -------
 Net income before cumulative effect of accounting
   change                                                        18,793            11,165
   Cumulative effect of accounting change for
     derivative instruments, net of income tax                     (164)                -
                                                               --------           -------
 Net Income                                                      18,629            11,165
                                                               --------           -------
 Other comprehensive loss, net of tax:
   Foreign currency translation adjustment                          (27)             (156)
                                                               --------           -------
 Comprehensive income                                          $ 18,602           $11,009
                                                               ========           =======
 Diluted net income per share:
   Net income before cumulative effect of accounting change    $ 18,793            11,165
   Distributions on mandatorily redeemable
     convertible preferred securities, net of income tax          1,036                 -
   Cumulative effect of accounting change, net of income tax       (164)                -
                                                               --------           -------
 Net income for purposes of computing diluted net
   income per share                                            $ 19,665           $11,165
                                                               ========           =======
 Weighted average common and common
   equivalent shares outstanding:
     Basic                                                       66,869            57,414
                                                               --------           -------
     Diluted                                                     75,904            62,190
                                                               --------           -------
 Earnings per common share:
     Basic                                                     $   0.28           $  0.19
                                                               --------           -------
     Diluted                                                   $   0.26           $  0.18
                                                               --------           -------
</TABLE>

      The accompanying notes are an integral part of these consolidated
                             financial statements.
<PAGE>



                           HANOVER COMPRESSOR COMPANY
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (UNAUDITED)
                           (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                                                                             Three Months
                                                                                            ended March 31,
                                                                                      ----------------------------
                                                                                          2001              2000
                                                                                      ----------          --------
<S>                                                                                    <C>                <C>
 Cash flows from operating activities:
   Net income                                                                         $  18,629           $ 11,165
   Adjustments:
     Depreciation and amortization                                                       16,867             10,359
     Amortization of debt issuance costs and debt discount                                   87                160
     Bad debt expense                                                                       468                242
     (Gain)/Loss on sale of property, plant and equipment                                    16             (1,286)
     Equity in income of nonconsolidated affiliates                                        (750)            (1,022)
     Loss on derivative instrument                                                        3,245                  -
     Deferred income taxes                                                                7,259              4,980
     Changes in assets and liabilities, excluding
       business combinations:
         Accounts receivable                                                             29,043              3,407
         Inventory                                                                      (51,323)           (11,646)
         Costs and estimated earnings in excess of billings on
           uncompleted contracts                                                         (9,582)            (6,556)
         Accounts payable and other liabilities                                           8,032             (2,715)
         Advance billings                                                                 8,868                260
         Other                                                                           (1,090)            (7,400)
                                                                                      ---------           --------
 Net cash provided by (used in) operating activities                                     29,769                (52)
                                                                                      ---------           --------
 Cash flows from investing activities:
   Capital expenditures                                                                 (70,778)           (60,896)
   Proceeds from sale of property, plant and equipment                                    2,063            103,504
   Cash used for business combinations, net                                             (61,515)                 -
   Cash used to acquire investments in
     nonconsolidated subsidiaries                                                        (4,488)                 -
                                                                                      ---------           --------
Net cash provided by (used in) investing activities                                    (134,718)            42,608
                                                                                      ---------           --------
Cash flows from financing activities:
  Net repayment on revolving credit facility                                           (102,500)           (33,100)
  Repayment of long-term debt and short-term notes                                       (8,653)              (131)
  Issuance of convertible senior notes, net                                             185,590                  -
  Issuance of common stock, net                                                          83,850                  -
  Proceeds from warrant conversions and stock option exercises                              759                697
  Repayment of shareholder notes                                                             32              1,194
                                                                                      ---------           --------
Net cash provided by (used in)  financing activities                                    159,078            (31,340)
                                                                                      ---------           --------
Effect of exchange rate changes on cash and equivalents                                    (177)               (26)
                                                                                      ---------           --------
Net increase in cash and cash equivalents                                                53,952             11,190
Cash and cash equivalents at beginning of period                                         45,484              5,756
                                                                                      ---------           --------
Cash and cash equivalents at end of period                                            $  99,436           $ 16,946
                                                                                      =========           ========
 Acquisitions of businesses:
   Property, plant and equipment acquired                                             $  84,764
   Other assets acquired, net of cash acquired                                        $  11,250
   Goodwill                                                                           $  18,500
   Liabilities                                                                        $  (7,000)
   Debt issued                                                                        $  (2,764)
   Deferred taxes                                                                     $  (6,000)
   Common stock issued                                                                $ (37,235)
</TABLE>

      The accompanying notes are an integral part of these consolidated
                             financial statements.
<PAGE>

                          HANOVER COMPRESSOR COMPANY
                  Notes to Consolidated Financial Statements


1.  BASIS OF PRESENTATION

    The accompanying unaudited consolidated financial statements of Hanover
Compressor Company (the "Company") included herein have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted. It is the opinion of management that the
information furnished includes all adjustments, consisting only of normal
recurring adjustments, which are necessary to present fairly the financial
position, results of operations, and cash flows of the Company for the periods
indicated. The financial statement information included herein should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000. These interim results are not necessarily indicative of results for a
full year.


EARNINGS PER COMMON SHARE

    Basic earnings per common share is computed using the weighted average
number of shares outstanding for the period. Diluted earnings per common share
is computed using the weighted average number of shares outstanding adjusted for
the incremental shares attributed to outstanding options and warrants to
purchase common stock and convertible securities.

    Included in diluted shares are common stock equivalents relating to options
of 4,207,000 and 4,090,000, and warrants of 4,000 and 688,000, for the three
months ended March 31, 2001 and 2000, respectively, and mandatorily redeemable
convertible preferred securities of 4,825,000 for the three months ended
March 31, 2001. The mandatorily redeemable convertible preferred securities were
excluded from the diluted shares for the three months ended March 31, 2000 and
the convertible senior notes were excluded from the diluted shares for all
periods presented as their effect would be anti-dilutive.


RECLASSIFICATIONS

    Certain amounts in the prior years' financial statements have been
reclassified to conform to the 2001 financial statement classification.  These
reclassifications have no impact on net income.
<PAGE>

2.  BUSINESS COMBINATIONS

    In March 2001, the company purchased the OEC Compression Corporation
("OEC") in an all-stock transaction for approximately $100.7 million, including
the payment of approximately $63.0 million of OEC indebtedness. The Company
issued an aggregate of approximately 1,145,000 shares of common stock to
stockholders of OEC. The acquisition was accounted for under the purchase method
of accounting.

    The pro forma information set forth below assumes the acquisitions of OEC,
the Dresser-Rand Company's compression services division and Applied Process
Solutions, Inc. ("APSI") completed in 2001 and 2000 are accounted for as if the
purchases had occurred at the beginning of 2000. The pro forma information is
presented for informational purposed only and is not necessarily indicative of
the results of operations that would have been achieved had the acquisitions
been consummated at that time (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                                  Three Months  Ended
                                                                                       March 31,
                                                                   ----------------------------------------------
                                                                          2001                        2000
                                                                   ------------------          ------------------
                                                                        (unaudited)                 (unaudited)
<S>                                                                   <C>                         <C>
  Revenue..........................................................          $222,785                    $143,498
  Net income before cumulative effect of accounting change.........            17,356                      11,505
  Earnings per common share--basic.................................              0.26                        0.18
  Earnings per common share--diluted...............................              0.24                        0.17
</TABLE>

3.  INVENTORIES

    Inventory consisted of the following amounts (in thousands):

<TABLE>
<CAPTION>
                                                                         March 31,              December 31,
                                                                           2001                     2000
                                                                     ----------------         ----------------
<S>                                                                  <C>                       <C>
  Parts and supplies...............................................          $137,571                 $ 87,114
  Work in progress.................................................            53,041                   47,193
  Finished goods...................................................             5,859                    4,941
                                                                     ----------------         ----------------
                                                                             $196,471                 $139,248
                                                                     ================         ================
</TABLE>
<PAGE>

4.  PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment consisted of the following (in thousands):


<TABLE>
<CAPTION>
                                                                          March 31,                December 31,
                                                                            2000                      2000
                                                                     ----------------          ----------------
<S>                                                                   <C>                       <C>
  Compression equipment and facilities.............................        $736,167                  $587,387
  Land and buildings...............................................          35,719                    35,233
  Transportation and shop equipment................................          47,985                    44,202
  Other............................................................          16,309                    15,279
                                                                           --------                  --------
                                                                            836,180                   682,101
  Accumulated depreciation.........................................        (112,079)                  (98,515)
                                                                           --------                  --------
                                                                           $724,101                  $583,586
                                                                           ========                  ========
</TABLE>

5.  STOCK AND CONVERTIBLE SENIOR NOTES OFFERING

    In March 2001, the Company issued $192,000,000 principal amount of 4.75%
convertible senior notes due 2008. The notes will mature on March 15, 2008 and
are first subject to call on March 15, 2004. The notes will be convertible into
shares of the Company's common stock at a conversion price of approximately
$43.94 per share. The Company received approximately $185,590,000 of proceeds
from the sale, net of underwriting and estimated offering costs.

    In March 2001, the Company completed a public offering of 2,500,000 newly
issued shares of the Company's common stock. The Company realized approximately
$83,850,000 of proceeds from the offering net of underwriting and estimated
offering costs.


6.  LEASING TRANSACTION

    In October 2000, the Company completed a $172,589,000 sale and lease back
of certain compression equipment. In March 2000, the Company entered into a
separate $200,000,000 sale and lease back of certain compression equipment.
Under the March agreement, the Company received $100,000,000 proceeds from the
sale of compression equipment at closing and in August 2000, the Company
completed the second half of the equipment lease and received an additional
$100,000,000 for the sale of additional compression equipment. In June 1999 and
in July 1998 the Company completed two other separate $200,000,000 sale and
lease back transactions of certain compression equipment. All transactions are
recorded as a sale and lease back of the equipment and are recorded as operating
leases. Under all the lease agreements, the equipment was sold and leased back
by the Company for a 5 year period and will continue to be deployed by the
Company under its normal operating procedures. At any time, the Company has
options to repurchase the equipment at fair market value. The Company has
substantial residual value guarantees under the lease agreements that are due
upon termination of the leases and which may be satisfied by a cash payment or
the exercise of the Company's purchase options. Any gains on the sale of the
equipment are deferred until the end of the respective lease terms. Should the
Company not exercise its purchase options under the lease agreements, the
deferred gains will be recognized to the extent they exceed any residual value
guarantee payments and any other items required under the lease agreements. The
lease agreements call for variable quarterly payments that fluctuate with the
London Interbank Offering Rate. The following future minimum lease payments are
due under the leasing arrangements exclusive of any guarantee payments (in
thousands): 2001 -- $44,600; 2002 -- $60,100; 2003 -- $52,000; 2004 -- $36,600;
2005 - $15,400.

7.  ACCOUNTING FOR DERIVATIVES

    The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"), as amended by SFAS 137 and SFAS 138, effective January 1, 2001. SFAS 133
requires that all derivative instruments (including certain derivative
instruments embedded in other contracts) be recognized in the balance sheet at
fair value, and that changes in such fair values be recognized in earnings
unless specific hedging criteria are met. Changes in the values of derivatives
that meet these hedging criteria will ultimately offset related earnings effects
of the hedged item pending recognition in earnings. At December 31, 2000, the
Company had two interest rate swaps outstanding with notional amounts of
$75,000,000 and $125,000,000 and strike rates of 5.51% and 5.56%, respectively.
These swaps were entered into to convert the variable lease payments under the
Company's 1998 lease agreement to fixed payments. The difference paid or
received on the swap transactions is recognized in leasing expense. The interest
rate swaps expire in July 2001 unless they are extended for an additional two
year term at the option of the counterparty. On January 1, 2001, in accordance
with the transition provisions of SFAS 133, the Company recorded an unrealized
loss resulting from the cumulative effect of an accounting change in the
statement of income of approximately $164,000 ($.00 per share), net of tax
benefit of $89,000. During the three months ended March 31, 2001, the Company
recognized an additional unrealized loss of $3.0 million related to the change
in the fair value of these interest rate swaps in other expense in the statement
of income. At March 31, 2001 the Company recorded a liability of $3.2 million
related to these interest rate swaps in other liabilities. The fair value of
these interest rate swaps will fluctuate with changes in interest rates over
their remaining terms and these changes in fair value will be recorded in the
statement of income.

8.  COMMITMENTS AND CONTINGENCIES

    In January 2001, the Company entered into a facilitation agreement with
Bellili Energy SRL ("Bellili"), a fabrication company based in Italy. In
connection with the agreement, the Company agreed to provide Bellili with
project financing including necessary guarantees, bonding capacity and other
collateral on an individual project basis. Under the agreement, Bellili must
present each project to the Company which must be approved at the Company's sole
discretion. At March 31, 2001, no amounts were outstanding under the
facilitation agreement.

    Under a separate agreement with Bellili, the Company has guaranteed
performance bonds on Bellili's behalf totaling approximately $4.7 million at
March 31, 2001.

    In the ordinary course of business the Company is involved in various
pending or threatened legal actions. While management is unable to predict the
ultimate outcome of these actions, it believes that any ultimate liability
arising from these actions will not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.


9.  REPORTABLE SEGMENTS

    The Company manages its business segments primarily on the type of product
or service provided. The Company has five principal industry segments: Rentals--
Domestic; Rentals--International; Parts, Service and Used Equipment; Compressor
Fabrication and Production and Processing Equipment Fabrication. The Rentals
segments provide natural gas compression rental and
<PAGE>

maintenance services to meet specific customer requirements. The Compressor
Fabrication Segment involves the design, fabrication and sale of natural gas
compression units to meet unique customer specifications. The Production and
Processing Equipment Fabrication Segment designs, fabricates and sells equipment
utilized in the production of crude oil and natural gas. Parts, Service and Used
Equipment segment provides used equipment, both new and used parts directly to
customers, as well as complete maintenance services for customer owned packages.
Prior periods have been restated to reflect the expansion in 2000 of the Parts,
Service and Used Equipment segment.

    The Company evaluates the performance of its segments based on segment
gross profit. Segment gross profit for each segment includes direct operating
expenses. Costs excluded from segment gross profit include selling, general and
administrative, depreciation and amortization, leasing, interest, distributions
on mandatorily redeemable convertible preferred securities and income taxes.
Amounts defined as "Other" include equity in income of non-consolidated
affiliates, results of other insignificant operations and corporate related
items primarily related to cash management activities. Revenues include sales to
external customers and inter-segment sales. Inter-segment sales are accounted
for at cost and are eliminated in consolidation. Identifiable assets are
tangible and intangible assets that are identified with the operations of a
particular segment or geographic region, or which are allocated when used
jointly. Capital expenditures include fixed asset purchases.

    The following table presents sales and other financial information by
reportable segment for the three months ended March 31, 2001 and 2000 (in
thousands).

Industry Segments

<TABLE>
<CAPTION>
                                                       PARTS,
                                                       ------
                                                      SERVICE               PRODUCTION
                                                     ---------              -----------
                             DOMESTIC  INTERNATIONAL AND USED   COMPRESSOR   EQUIPMENT
                             --------  ------------- ---------  ----------- -----------
                             RENTALS      RENTALS    EQUIPMENT  FABRICATION FABRICATION   OTHER   ELIMINATIONS   CONSOLIDATED
                            --------  ------------- ---------  ----------- -----------   ------  -------------  ------------
<S>                         <C>       <C>           <C>        <C>         <C>           <C>     <C>            <C>
2001:
  Revenues from
   external customers....... $ 53,729    $  26,328    $ 38,330    $ 54,651    $ 43,591    $ 3,135    $             $  219,764
  Intersegment sales........                 1,834       7,183      19,528         785      1,134      (30,464)
                             --------    ---------    --------    --------    --------    -------    ---------     ----------
     Total revenues.........   53,729       28,162      45,513      74,179      44,376      4,269      (30,464)       219,764
  Gross profit..............   36,382       16,963      16,444       8,367       8,442      3,135                      89,733
  Identifiable assets.......  760,726      234,593      37,908     322,428     108,326     99,436                   1,563,417

2000:
  Revenues from
   external customers....... $ 38,208    $  17,896    $ 11,316    $ 14,185    $  5,925    $ 3,027    $             $   90,557
    external customers
  Intersegment sales........                   300       5,492      25,753         620                 (32,165)
                             --------    ---------    --------    --------    --------    -------    ---------     ----------
     Total revenues.........   38,208       18,196      16,808      39,938       6,545      3,027      (32,165)        90,557
  Gross profit..............   25,907       12,046       3,110       2,794       1,442      3,027                      48,326
</TABLE>
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

  Certain matters discussed in this document are "forward-looking statements"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995.  These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as the Company "believes", "anticipates",
"expects", "estimates" or words of similar import.  Similarly, statements that
describe the Company's future plans, objectives or goals are also forward-
looking statements.  Such forward-looking statements are subject to certain
risks and uncertainties which could cause actual results to differ materially
from those anticipated as of the date of this report.  The risks and
uncertainties include (1) the loss of market share through competition, (2) the
introduction of competing technologies by other companies, (3) a prolonged
substantial reduction in oil and gas prices which would cause a decline in the
demand for the Company's compression and oil and gas production equipment, (4)
new governmental safety, health and environmental regulations which could
require significant capital expenditures by the Company, (5) inability to
successfully integrate businesses acquired; and (6) changes in economic or
political conditions in the countries in which the Company operates.  The
forward-looking statements included herein are only made as of the date of this
report and the Company undertakes no obligation to publicly update such forward-
looking statements to reflect subsequent events or circumstances.

GENERAL

   The Company is a leading provider of a broad array of natural gas
compression, gas handling and related services in the United States and select
international markets. Founded in 1990 and publicly held since 1997, the Company
operates the largest compressor rental fleet, in terms of horsepower, in the gas
compression industry and provides its services on a rental, contract
compression, maintenance and acquisition leaseback basis. In conjunction with
the Company's maintenance business, the Company has developed its parts and
service business to provide solutions to customers that own their own
compression equipment but want to oursource their operations. The Company's
compression services are complemented by its compressor and oil and gas
production equipment fabrication operations and gas processing and treating, gas
measurement and power generation services, which broaden the Company's customer
relationships both domestically and internationally. The Company's products and
services are essential to the production, gathering, processing, transportation
and storage of natural gas and are provided primarily to independent and major
producers and distributors of natural gas. As of March 31, 2001, the Company
operated a fleet of 5,796 compression rental units with an aggregate capacity of
approximately 2,429,000 horsepower.

     In March 2001, the company purchased OEC Compression Corporation("OEC")
in an all-stock transaction for approximately $100.7 million, including the
payment of approximately $63.0 million of indebtedness of OEC. The acquisition
was accounted for under the purchase method of accounting.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000

REVENUES

  The Company's total revenues increased by $129.2 million, or 143%, to $219.8
million during the three months ended March 31, 2001 from $90.6 million during
the three months ended March 31, 2000.
<PAGE>

The increase resulted primarily from growth of the Company's natural
gas compressor rental fleet and business acquisitions completed during 2000.

    Revenues from rentals increased by $24.0 million, or 43%, to $80.1 million
during the three months ended March 31, 2001 from $56.1 million during the three
months ended March 31, 2000. Domestic revenues from rentals increased by $15.5
million, or 41%, to $53.7 million during the three months ended March 31, 2001
from $38.2 million during the three months ended March 31, 2000.  International
rental revenues increased by $8.4 million, or 47%, to $26.3 million during the
three months ended March 31, 2001 from $17.9 million during the three months
ended March 31, 2000. The increase in both domestic and international rental
revenue resulted from business acquisitions completed during 2000 and from
expansion of the Company's rental fleet. At March 31, 2001, the compressor
rental fleet consisted of approximately 2,429,000 horsepower, a 61% increase
over the 1,507,000 horsepower in the rental fleet at March 31, 2000. Domestic
horsepower in the rental fleet increased by 64% to 2,009,000 horsepower at March
31, 2001 from approximately 1,223,000 horsepower at March 31, 2000. In addition,
international horsepower increased by 48% to 420,000 horsepower at March 31,
2001 from approximately 284,000 horsepower at March 31, 2000.

    Revenue from parts, service and used equipment increased by $27.0 million,
or 239%, to $38.3 million during the three months ended March 31, 2001 from
$11.3 million during the three months ended March 31, 2000. This increase was
due in part to increase in marketing focus as well as expansion of business
activities through acquisitions. Revenues from compressor fabrication increased
by $40.5 million, or 285%, to $54.7 million during the three months ended March
31, 2001 from $14.2 million during the three months ended March 31, 2000. This
increase was due to the acquisition of Dresser-Rand Company's compression
services division during September 2000. During the three months ended March 31,
2001, an aggregate of approximately 114,000 horsepower of compression equipment
was fabricated compared to approximately 66,000 horsepower fabricated during the
three months ended March 31, 2000.

    Revenues from production and processing equipment fabrication increased by
$37.7 million, or 636%, to $43.6 million during the three months ended March 31,
2001 from $5.9 million during the three months ended March 31, 2000. The
increase was due primarily to the acquisition of APSI during June, 2000.

    Equity in earnings in subsidiaries decreased by $.2 million, or 26%, to $.8
million during the three months ended March 31, 2001, from $1.0 million during
the three months ended March 31, 2000.

     Other income during the three months ended March 31, 2001 amounted to $2.4
million compared to $2.0 million during the three months ended March 31, 2000,
an increase of $.4 million. Included in other income was $.7 million which was
related to fees earned under the Bellili agreements.


EXPENSES

     Operating expenses of the rental segments increased by $8.5 million, or
47%, to $26.7 million during the three months ended March 31, 2001 from $18.2
million during the three months ended March 31, 2000.  The increase resulted
primarily from the corresponding 43% increase in revenues from rentals over the
corresponding period in 2000.  The gross profit percentage from rentals was 67%
during the three months
<PAGE>

ended March 31, 2001 and 68% during the three months ended March 31, 2000.
Operating expenses of parts, service and used equipment increased by $13.7
million, or 167% to $21.9 million, which relates to the 239% increase in parts,
service and used equipment revenue. The gross profit margin from parts, service
and used equipment was 43% during the three months ended March 31, 2001 and 28%
during the three months ended March 31, 2000. The increase in gross profit
margin for parts, service and used equipment was due primarily to business
acquisitions completed during 2000. Certain of these acquired businesses had
higher gross margins than the Company has historically experienced in this
segment. Operating expenses of compressor fabrication increased by $34.9
million, or 306%, to $46.3 million during the three months ended March 31, 2001
from $11.4 million during the three months ended March 31, 2000 commensurate
with the corresponding increase in compressor fabrication revenue. The gross
profit margin on compression fabrication was 15% during the three months ended
March 31, 2001 and 20% during the three months ended March 31, 2000. The
decrease in gross profit margin for compression fabrication was attributable to
the acquisition of the compression services division of Dresser-Rand Company,
which has lower gross margins than the Company has historically experienced. The
operating expenses attributable to production equipment fabrication increased by
$30.6 million, or 684%, to $35.1 million during the three months ended March 31,
2001 from $4.5 million during the three months ended March 31, 2000. The gross
profit margin attributable to production and processing equipment fabrication
was 19% during the three months ended March 31, 2001 and was 24% during the
three months ended March 31, 2000. The decrease in gross profit margin for
production and processing equipment fabrication was attributable to the
acquisition of APSI, in June 2000, which has lower gross margins than the
Company has historically experienced.

  Selling, general and administrative expenses increased $10.9 million, or 119%,
to $20.0 million during the three months ended March 31, 2001 from $9.1 million
during the three months ended March 31, 2000. The increase is attributable to
increased personnel and other administrative and selling expenses associated
with increased activity in the Company's business segments as described above
resulting from the acquisitions completed during 2000.

  The Company believes that earnings before interest, leasing expense,
distributions on mandatorily redeemable convertible preferred securities, income
taxes, depreciation and amortization and other expenses (EBITDA) is a standard
measure of financial performance used for valuing companies in the compression
industry. EBITDA is a useful common yardstick as it measures the capacity of
companies to generate cash without reference to how they are capitalized, how
they account for significant non-cash charges for depreciation and amortization
associated with assets used in the business (the bulk of which are long-lived
assets in the compression industry), or what their tax attributes may be.
Additionally, since EBITDA is a basic source of funds not only for growth but to
service indebtedness, lenders in both the private and public debt markets use
EBITDA as a primary determinant of borrowing capacity. EBITDA for the three
months ended March 31, 2001 increased 78% to $69.8 million from $39.2 million
for the three months ended March 31, 2000 primarily due to the increase in the
Company's revenues and income for reasons previously discussed. EBITDA should
not be considered in isolation from, or a substitute for, net income, cash flows
from operating activities or other consolidated income or cash flow data
prepared in accordance with generally accepted accounting principles.

  Depreciation and amortization increased by $6.5 million to $16.9 million
during the three months ended March 31, 2001 compared to $10.4 million during
the three months ended March 31, 2000.  The increase
<PAGE>

in depreciation was due to the additions to the rental fleet which were
partially offset by the sale of compressor equipment in the equipment leases in
March and October 2000. The increase in amortization was due to the goodwill
recorded from business acquisitions completed during 2000.

  The Company incurred leasing expense of $15.3 million during the three months
ended March 31, 2001 compared to $8.1 million during the three months ended
March 31, 2000 resulting from the Equipment Leases entered into in 2000.

  Interest expense increased by $1.1 million to $2.7 million during the three
months ended March 31, 2001 from $1.6 million for the three months ended
March 31, 2000 due to higher levels of outstanding debt.

  Other expenses during the three months ended March 31, 2001 was $3.0 million,
which resulted from the recognition of an unrealized loss related to the change
in fair value of the interest rate swaps as required under SFAS 133 (as
described in "NEW ACCOUNTING PRONOUNCEMENTS").

INCOME TAXES

  The provision for income taxes increased by $5.1 million, or 80%, to $11.5
million during the three months ended March 31, 2001 from $6.4 million during
the three months ended March 31, 2000.  The increase resulted primarily from the
corresponding increase in income before income taxes.  The average effective
income tax rates during the three months ended March 31, 2001 and 2000 were 38%
and 36.4%, respectively.  The increase in average effective income tax rates is
due primarily to increased income in foreign tax jurisdictions.

NET INCOME

  Net income increased by $7.4 million, or 67%, to $18.6 million during the
three months ended March 31, 2001 from $11.2 million during the three months
ended March 31, 2000 for the reasons discussed above.

LIQUIDITY AND CAPITAL RESOURCES

  The Company's cash balance amounted to $99.4 million at March 31, 2001
compared to $45.5 million at December 31, 2000. Primary sources of cash during
the three months ended March 31, 2001 were net proceeds of $185.6 million from
the issuance of 4.75% Convertible Senior Notes due 2008 and $83.9 million
through a public offering of 2,500,000 shares of common stock by the Company and
operating cash flows of $29.8 million. Principal uses of cash during the three
months ended March 31, 2001 were capital expenditures and business acquisitions
of $132.3 million and the net repayment of the revolving credit facility for
$102.5 million.

     Working capital increased to $390.2 million at March 31, 2001 from $309.9
million at December 31, 2000, primarily as a result of increases in inventories,
costs in excess of billings and other current assets.  The increase in the
balances is due to an increased level of activity in the Company's lines of
business over 2000 as well as from acquisitions and the stock and convertible
senior notes issuance in March 2001. These increases were offset by an increase
in current liabilities.

     The amounts invested in property, plant and equipment during 2001 was $70.8
million which resulted in the addition of approximately 278,000 horsepower to
the rental fleet. At March 31, 2001, the rental fleet consisted of 2,009,000
horsepower domestically and 420,000 in the international rental fleet. Current
plans are to spend approximately $296 million during the remainder of 2001,
exclusive of any major
<PAGE>

acquisition, in continued expansion of the rental fleet. Historically, the
Company has funded capital expenditures with a combination of internally
generated cash flow, borrowings under the revolving credit facility, lease
transactions and raising additional equity and long term debt. As of March 31,
2001 the Company has approximately $175 million of credit capacity remaining on
its $200 million Bank Credit Agreement. The Company feels it has adequate
capital resources to fund its estimated level of capital expenditures for the
year 2001.


NEW ACCOUNTING PRONOUNCEMENTS

  The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
as amended by SFAS 137 and SFAS 138, effective January 1, 2001. SFAS 133
requires that all derivative instruments (including certain derivative
instruments embedded in other contracts) be recognized in the balance sheet at
fair value, and that changes in such fair values be recognized in earnings
unless specific hedging criteria are met. Changes in the values of derivatives
that meet these hedging criteria will ultimately offset related earnings effects
of the hedged item pending recognition in earnings. At December 31, 2000, the
Company had two interest rate swaps outstanding with notional amounts of
$75,000,000 and $125,000,000 and strike rate of 5.51% and 5.56%, respectively.
These swaps were entered into to convert the variable lease payments under the
Company's 1998 lease agreement to fixed payments. The differential paid or
received on the swap transactions is recognized in leasing expense. The interest
rate swaps expire in July 2001 unless they are extended for an additional two-
year term at the option of the counter party. On January 1, 2001 in accordance
with the transition provisions of SFAS 133, the Company recorded a loss
resulting from the cumulative effect of an accounting change in the statement of
income of approximately $164,000 ($.00 per share), net of tax benefit of
$89,000. During the three months ended March 31, 2001, the Company recognized an
additional loss of $3.0 million related to the change in the fair value of these
interest rate swaps. At March 31, 2001, the Company recorded a liability of $3.2
million related to these interest rate swaps in other liabilities. The fair
value of these interest rate swaps will fluctuate with changes in interest rates
over their remaining terms and the fluctuations will be recorded in the
statement of income.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  The Company is exposed to interest rate and foreign currency risk. The Company
periodically enters into interest rate swaps to manage its exposure to
fluctuations in interest rates. At March 31, 2001, the fair market value of
these interest rate swaps was approximately $3.2 million and this amount was
recorded in other liabilities. At March 31, 2001, the Company is exposed to
variable rental rates on the equipment leases it entered into in June 1999 and
March, August and October 2000. Assuming a hypothetical 10% increase in interest
rates from those in effect at quarter end; the increase in annual leasing
expense on these equipment leases would be approximately $4.4 million. The
Company does not currently use derivative financial instruments to mitigate
foreign currency risk.

<PAGE>

PART II.  OTHER INFORMATION

Item 6:   Exhibits and reports on Form 8-K

(a)  Exhibits

27  Financial Data Schedule

(b)  Reports submitted on Form 8-K:

     (1)  A report on Form 8-K was filed on February 5, 2001, which filed as an
          exhibit under the caption "Item 7 - Financial Statements and Exhibits"
          the Certificate of Incorporation of Hanover Compressor Holding Co., as
          amended.

     (2)  A report on Form 8-K was filed on February 5, 2001, which filed as an
          exhibit under the caption "Item 7 - Financial Statements and Exhibits"
          a press release reporting that the Company and one of its stockholders
          had fulfilled the parties' obligations pursuant to the terms of a
          letter agreement between the stockholder and the Company entered into
          on November 14, 1995 relating to investment banking services provided
          by the stockholder.

     (3)  A report on Form 8-K was filed on February 5, 2001, which filed as an
          exhibit under the caption "Item 7 - Financial Statements and Exhibits"
          a press release reporting that the Company and OEC Compression
          Corporation had agreed to delay the closing of their merger and to re-
          submit the merger to a vote of OEC's stockholders due to recent public
          disclosures by the Company of a fee payable to one of Hanover's
          stockholders and a related restatement of Hanover's financial
          statements for 1997.

     (4)  A report on Form 8-K was filed on February 5, 2001, which announced
          under the caption "Item 5 - Other Events" that the Company would make
          a public offering of 10 million shares of common stock, 2,500,000 of
          which would be issued and sold by the Company and 7,500,000 of which
          would be sold by selling stockholders, and $150 million of convertible
          senior notes.

     (5)  A report on Form 8-K was filed on February 27, 2001, which reported
          under the caption "Item 5 - Other Events" that the Company expected to
          report cash flow and earnings per share results that are within the
          range of analysts' consensus estimates for the fourth quarter ended
          December 31, 2000.

     (6)  A report on Form 8-K was filed on March 9, 2001, which reported under
          the caption "Item 5 - Other Events" the Company's revenues, cash flow
          and earnings per common share for both the fourth quarter and year
          ended December 31, 2000.

     (7)  A report on Form 8-K was filed on March 16, 2001, which reported under
          the caption "Item 5 - Other Events" announced the pricing of the
          Company's public offering of 10 million shares of common stock and
          $170 million convertible senior notes.

     (8)  A report on Form 8-K was filed on March 20, 2001, which filed as an
          exhibit under the caption "Item 7 - Financial Statements and Exhibits"
          a press release reporting that the Company had completed its
          previously announced acquisition of OEC Compression Corporation in an
          all-stock transaction for approximately $101.1 million, including the
          assumption of approximately $62.1 million of indebtedness of OEC.

     All other items specified by Part II of this report are inapplicable and
     have been omitted.

<PAGE>

SIGNATURES

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

HANOVER COMPRESSOR COMPANY
Date: May 15, 2001
By:

/s/ Michael J. McGhan
_______________________
Michael J. McGhan
President and Chief Executive Officer

Date: May 15, 2001
By:

/s/ William S. Goldberg
_______________________
William S. Goldberg
Executive Vice President,
Chief Financial Officer and Treasurer