<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q/A

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1998
                               ------------------

                                       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: 1-9358
                        ------

                       PETROLEUM HEAT AND POWER CO., INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

Minnesota                                    06-1183025
----------------------------------------     -----------------------------------
(State or other jurisdiction of              (I.R.S. Employer
 incorporation or organization)               Identification No.)

2187 Atlantic Street, Stamford, CT           06902
----------------------------------------     -----------------------------------
(Address of principal executive Offices)     (Zip Code)

         Registrant's telephone number, including area code:  (203) 325-5400
                                                              ------------------


--------------------------------------------------------------------------------
      (Former name, former address and former fiscal year, if changed since
                                  last report)


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 September 30, 1998 there were 23,964,962 shares of the Registrant's Class
A Common Stock, 11,228 shares of the Registrant's Class B Common Stock and
2,597,519 shares of the Registrant's Class C Common Stock outstanding.


<PAGE>

               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

                               INDEX TO FORM 10-Q


                                                                            Page
                                                                            ----

PART 1  FINANCIAL INFORMATION:


Item 1 - Financial Statements

     Condensed Consolidated Balance Sheets
     September 30, 1998 and December 31, 1997                                  3

     Condensed Consolidated Statements of Operations for the Three
     Months Ended September 30, 1998 and September 30, 1997 and the
     Nine Months Ended September 30, 1998 and September 30, 1997               4

     Condensed Consolidated Statement of Changes in
     Stockholders' Equity (Deficiency) for the
     Nine Months Ended September 30, 1998                                      5

     Condensed Consolidated Statements of Cash Flows for the
     Nine Months Ended
     September 30, 1998 and September 30, 1997                                 6

     Notes to Condensed Consolidated Financial Statements                  7 - 8


Item 2 - Management's Discussion and Analysis of
         Financial Condition and Results of Operations                    9 - 14


PART 2  OTHER INFORMATION:

Item 5 - Other Events                                                    15 - 16

Item 6 - Exhibits and Reports on Form 8-K                                     17

Signature                                                                     18


<PAGE>

               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

(In thousands, except per share data)                                                            (UNAUDITED)
                                                                                                SEPTEMBER 30,       DECEMBER 31,
ASSETS                                                                                              1998                1997
------                                                                                          -------------       ------------
<S>                                                                                              <C>                 <C>
Current assets:
  Cash                                                                                            $  13,767           $   2,390
  Restricted cash                                                                                     4,900                 -
  Accounts receivable (net of allowance of $1,945 and $980)                                          38,163              78,987
  Inventories                                                                                        13,997              16,285
  Prepaid expenses                                                                                   10,889               6,203
  Notes receivable and other current assets                                                             996               1,259
                                                                                                  ---------           ---------
     Total current assets                                                                            82,712             105,124
                                                                                                  ---------           ---------

Property, plant and equipment - net                                                                  28,799              30,615

Intangible assets (net of accumulated amortization
 of $302,095 and $285,850)
   Customer lists                                                                                    56,298              69,265
                                                                                                  ---------           ---------
   Deferred charges                                                                                  22,860              24,924
                                                                                                  ---------           ---------
                                                                                                     79,158              94,189

Investment in and advances to the Star Gas Partnership                                               20,077              27,499
Deferred gain on Star Gas Transaction                                                               (19,964)            (19,964)
                                                                                                  ---------           ---------
                                                                                                        113               7,535

Restricted cash                                                                                       6,900               9,350
Other assets                                                                                            996               1,033
                                                                                                  ---------           ---------
                                                                                                  $ 198,678           $ 247,846
                                                                                                  =========           =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
  Working capital borrowings                                                                      $    -              $   3,000
  Current debt                                                                                        8,021               2,391
  Current maturities of redeemable and exchangeable preferred stock                                   4,167               4,167
  Accounts payable                                                                                    6,320              14,759
  Customer credit balances                                                                           28,803              20,767
  Unearned service contract revenue                                                                  13,599              15,321
  Accrued expenses and other liabilities                                                             29,281              32,283
                                                                                                  ---------           ---------
     Total current liabilities                                                                       90,191              92,688
                                                                                                  ---------           ---------

Supplemental benefits and other long-term liabilities                                                 5,003               5,043
Pension plan obligation                                                                               5,683               5,702
Notes payable and other long-term debt                                                                8,514              16,507
Senior notes payable                                                                                 62,050              63,100
Subordinated notes payable                                                                          208,300             209,350

Redeemable and exchangeable preferred stock                                                          28,555              32,489

Common stock redeemable at option of stockholder (83 Class A and
 21 Class C shares)                                                                                     656                 656
Note receivable from stockholder                                                                       (656)               (656)

Stockholders' equity (deficiency):
 Preferred stock-no par value; 1,000 shares                                                                            
  authorized, 787 and 0 shares issued and outstanding                                                  -                   -
 Class A common stock-par value $.10 per share; 60,000 shares
  authorized, 23,882 and 23,606 shares issued and outstanding                                         2,389               2,361
 Class B common stock-par value $.10 per share; 6,500 shares
  authorized, 11 shares issued and outstanding                                                            1                   1
 Class C common stock-par value $.10 per share; 5,000 shares
  authorized, 2,577 shares issued and outstanding                                                       258                 258
 Additional paid-in capital                                                                          83,046              81,358
 Deficit                                                                                           (290,666)           (256,365)
 Minimum pension liability adjustment                                                                (4,646)             (4,646)
                                                                                                  ---------           ---------
     Total stockholders' equity (deficiency)                                                       (209,618)           (177,033)
                                                                                                  ---------           ---------
                                                                                                  $ 198,678           $ 247,846
                                                                                                  =========           =========

</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                      - 3 -

<PAGE>

               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

(In thousands, except per share data)                                            THREE MONTHS                     NINE MONTHS
                                                                              ENDED SEPTEMBER 30,              ENDED SEPTEMBER 30,
                                                                            -----------------------          ----------------------
                                                                              1998           1997              1998          1997
                                                                              ----           ----              ----          ----
<S>                                                                        <C>            <C>               <C>           <C>
Net sales                                                                   $ 42,113       $ 50,788          $291,479      $386,855

COST AND EXPENSES
  Cost of sales                                                               34,188         43,206           191,508       271,269
  Selling, general and administrative expenses                                21,162         25,069            64,348        75,103
  Direct delivery expense                                                      2,928          3,421            17,410        21,189
  Restructuring charges                                                           -             -                 535         1,300
  Corporate identity expenses                                                     -           1,078               152         3,188
  Star Gas transaction expenses                                                1,029            -               1,029           -
  Pension curtailment                                                             -             654               -             654
  Amortization of customer lists                                               4,140          4,488            12,966        13,419
                                                                            --------       --------          --------      --------
  Depreciation of plant and equipment                                          1,767          1,801             5,195         5,352
  Amortization of deferred charges                                               706            798             2,210         2,372
                                                                            --------       --------          --------      --------
  Provision for supplemental benefits                                             89            141               268           424
                                                                            --------       --------          --------      --------
    Operating loss                                                           (23,896)       (29,868)           (4,142)       (7,415)
                                                                            --------       --------          --------      --------

Other income (expense):
 Interest expense                                                             (8,320)        (8,432)          (24,805)      (25,581)
 Amortization of debt issuance cost                                             (335)          (367)           (1,069)       (1,097)
                                                                            --------       --------          --------      --------
 Interest income                                                                 680            681             1,893         1,804
 Other                                                                            11             27               127            65
                                                                            --------       --------          --------      --------
  Loss before income taxes and                                                                                             
   equity interest                                                           (31,860)       (37,959)          (27,996)      (32,224)

Income taxes                                                                     -              -                 325           350
                                                                            --------       --------          --------      --------
  Loss before equity interest                                                (31,860)       (37,959)          (28,321)      (32,574)

Share of loss of Star Gas Partnership                                         (2,355)        (2,357)           (1,890)       (1,808)
                                                                            --------       --------          --------      --------
  NET (LOSS)                                                                $(34,215)      $(40,316)         $(30,211)     $(34,382)
                                                                            ========       ========          ========      ========



Preferred Stock dividends                                                     (1,562)        (1,861)           (4,090)       (3,678)
                                                                            --------       --------          --------      --------
  NET (LOSS) APPLICABLE TO COMMON STOCK                                     $(35,777)      $(42,177)         $(34,301)     $(38,060)
                                                                            ========       ========          ========      ========



Basic earnings (losses) per Class A and
 Class C Common Stock                                                       $  (1.35)      $  (1.61)         $  (1.29)     $  (1.47)

Diluted earnings (losses) per Class A and
 Class C Common Stock                                                       $  (1.35)      $  (1.61)         $  (1.29)     $  (1.47)

</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                      - 4 -


<PAGE>

              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                                  (UNAUDITED)

                      NINE MONTHS ENDED SEPTEMBER 30, 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>

                                                COMMON STOCK                                                  MINIMUM
                               CLASS A             CLASS B          CLASS C      ADDITIONAL                   PENSION
              PREFERRED    # OF                # OF             # OF              PAID-IN                    LIABILITY
                STOCK      SHARES     AMT.     SHARES    AMT.   SHARES    AMT.    CAPITAL       DEFICIT         ADJ.        TOTAL
                -----      ------     ----     ------    ----   ------    ----    -------       -------         ----        -----
<S>           <C>         <C>       <C>       <C>       <C>     <C>      <C>     <C>         <C>             <C>         <C>
Balance at    ----------------------------------------------------------------------------------------------------------------------
 12/31/97       $ -         23,606    $2,361        11      $1    2,577    $258  $81,358         $(256,365)    $(4,646)  $(177,033)

Net loss                                                                                           (30,211)                (30,211)

Cash
 dividends                                                                                                                
 declared
 and paid                                                                                           (4,090)                 (4,090)

Class A
 Common
 Stock
 issued                                                                                                                   
 under the
 Dividend
 Reinvestment
 Plan                          271        27                                         583                                       610

Junior
 convertible
 preferred
 stock
 issued in
 connection                                                                       
 with                                                                                                                     
 exchange
 offer            -                                                                1,216                                     1,216

Other                            5         1                                        (111)                                     (110)

Balance at
              ======================================================================================================================
 9/30/98        $ -         23,882    $2,389        11      $1    2,577    $258  $83,046         $(290,666)    $(4,646)  $(209,618)
              ======================================================================================================================

</TABLE>

See accompanying notes to condensed consolidated financial statements.




                                      - 5 -

<PAGE>

               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                              NINE MONTHS ENDED
(In thousands)                                                                                  SEPTEMBER 30,
                                                                                         ---------------------------
                                                                                            1998              1997
                                                                                         ---------         ---------
<S>                                                                                     <C>               <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net loss                                                                                 $(30,211)         $(34,382)
Adjustments to reconcile net loss to
 net cash provided by (used in) operating activities:
  Amortization of customer lists                                                           12,966            13,419

  Depreciation of plant and equipment                                                       5,195             5,352
  Amortization of deferred charges                                                          2,210             2,372

  Amortization of debt issuance cost                                                        1,069             1,097

  Share of loss of Star Gas                                                                 1,890             1,808
  Provision for losses on accounts receivable                                               1,390             1,435
  Provision for supplemental benefits                                                         268               424
  Other                                                                                      (146)              (84)

  Change in Operating Assets and Liabilities, net of 
   effects of acquisitions and dispositions:
    Decrease in accounts receivable                                                        39,434            39,946
    Decrease in inventory                                                                   2,288             9,076
    Decrease (increase) in other current assets                                            (4,423)              480
    Decrease (increase) in other assets                                                        37              (138)
    Decrease in accounts payable                                                           (8,439)          (10,509)
    Increase in customer credit balances                                                    8,036             9,168
    Decrease in unearned service contract revenue                                          (1,722)             (743)
    Decrease in accrued expenses                                                           (1,039)           (4,379)
                                                                                         --------          --------
 NET CASH PROVIDED BY OPERATING ACTIVITIES                                                 28,803            34,342
                                                                                         --------          --------

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Minimum quarterly distributions from Star Gas Partnership                                   4,263             4,130
Acquisitions                                                                                   -            (13,195)
Capital expenditures                                                                       (3,395)           (5,404)
Net proceeds from sales of fixed assets                                                       143               410
                                                                                         --------          --------
 Net cash provided by (used in) investing activities                                        1,011           (14,059)
                                                                                         --------          --------

Cash flows from (used in) financing activities:
Net proceeds from sale of Star Gas units                                                    1,271              -
Net proceeds from issuance of common stock                                                    610             1,749
Net proceeds from issuance of preferred stock                                                  -             28,323
Repayment of senior notes payable                                                          (1,050)           (1,050)
Repayment of subordinated notes payable                                                    (1,050)           (1,050)
Redemption of preferred stock                                                              (4,167)           (4,167)
Credit facility borrowings                                                                  5,000            13,000
Credit facility repayments                                                                 (8,000)          (35,000)
Net decrease (increase) in restricted cash                                                 (2,450)            3,000
Cash dividends paid                                                                        (6,054)          (11,410)
Other                                                                                      (2,547)           (3,129)
                                                                                         --------          --------
 NET CASH USED IN FINANCING ACTIVITIES                                                    (18,437)           (9,734)
                                                                                         --------          --------

 NET INCREASE IN CASH                                                                      11,377            10,549
 CASH AT BEGINNING OF YEAR                                                                  2,390             3,257

 CASH AT END OF PERIOD                                                                   $ 13,767          $ 13,806
                                                                                         ========          ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
 Interest                                                                                $ 26,099          $ 29,363
 Income taxes                                                                            $    141          $    135

Noncash financing activity:
 Issuance of junior preferred stock pursuant to subordinated
  bond and cumulative redeemable preferred exchange                                      $  1,216         $    -
 Increase in deferred charges                                                            $ (1,216)        $    -

</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                                               - 6 -


<PAGE>

              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 (UNAUDITED)

1.  BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Petroleum Heat 
and Power Co., Inc., and its subsidiaries ("Petro" or "the Company"). The 
financial information included herein is unaudited; however, such information 
reflects all adjustments (consisting solely of normal recurring adjustments) 
which are, in the opinion of management, necessary for the fair statement of 
financial condition and results for the interim periods.

The results of operations for the nine months ended September 30, 1998 are not
necessarily indicative of the results to be expected for the full year.

2.  ACCOUNTING CHANGES

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 - "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements and notes
thereto. This statement is effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 was adopted and the Company's comprehensive
income consists of net income and the minimum pension liability adjustment.
Comprehensive loss for the three months ended September 30, 1998 and 1997,
was $(34,215) and $(40,316), and comprehensive loss for the nine months
ended September 30, 1998 and 1997, was $(30,211) and $(34,382)
respectively. Accumulated other comprehensive income at September 30, 1998
and December 31, 1997 was $(4,646). The Company calculates its minimum
pension liability adjustment annually in the fourth quarter in accordance
with SFAS No. 87 - "Employers' Accounting for Pensions" and no adjustment
is reflected in quarterly comprehensive income until such time.

In June 1997 the FASB issued SFAS No. 131 - "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 requires disclosures
about segments of an enterprise and related information such as the
different types of business activities and economic environments in which a
business operates. This statement is effective for fiscal years beginning
after December 15, 1997. The Company is still assessing the disclosure
requirements of this statement and as permitted will implement the
reporting requirements of this SFAS in its year-end financial statements.

<TABLE>
<CAPTION>

3.  EARNINGS PER SHARE                                    THREE MONTHS                        NINE MONTHS
                                                       ENDED SEPTEMBER 30,                ENDED SEPTEMBER 30,
                                                   -------------------------           ------------------------
                                                      1998            1997                1998           1997
                                                   ---------       ---------           ---------      ---------
<S>                                               <C>             <C>                 <C>            <C>
BASIC EARNINGS (LOSSES) PER SHARE:

Net loss                                           $(34,215)       $(40,316)           $(30,211)      $(34,382)
Less:  Preferred stock dividends                     (1,562)         (1,861)             (4,090)        (3,678)
                                                   --------        --------            --------       --------
 Loss available to common
  stockholders (Numerator)                         $(35,777)       $(42,177)           $(34,301)      $(38,060)
                                                   ========        ========            ========       ========

Class A Common Stock                                 23,965          23,538              23,960         23,339
Class B Common Stock                                     11              11                  11             11
Class C Common Stock                                  2,598           2,598               2,598          2,598
                                                   --------        --------            --------       --------
 Weighted average shares outstanding                                                                   
  (Denominator)                                      26,574          26,147              26,569         25,948
                                                   ========        ========            ========       ========

Basic losses per share                             $  (1.35)       $  (1.61)           $  (1.29)      $  (1.47)
                                                   ========        ========            ========       ========

DILUTED EARNINGS (LOSSES) PER SHARE:

Effect of dilutive securities                      $    -          $    -              $    -         $   -
                                                   --------        --------            --------       --------
 Loss available to common
  stockholders (Numerator)                         $(35,777)       $(42,177)           $(34,301)      $(38,060)
                                                   ========        ========            ========       ========

Weighted average shares outstanding                  26,574          26,147              26,569         25,948
Effect of dilutive securities -
 Stock Grants                                           - *             - *                 - *            - *
                                                   --------        --------            --------       --------
 Adjusted weighted average shares
  (Denominator)                                      26,574          26,147              26,569         25,948
                                                   ========        ========            ========       ========

Diluted losses per share                           $  (1.35)       $  (1.61)           $  (1.29)      $  (1.47)
                                                   ========        ========            ========       ========

</TABLE>

* 0 shares included due to loss in the period.


                                      - 7 -


<PAGE>

              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


4. DEFERRED GAIN ON THE 1995 STAR GAS TRANSACTION

In accordance with the Company's accounting policies, the Company deferred 
the gain of approximately $20.0 million on the 1995 Star Gas transaction 
because the Company received subordinate units which do not have a readily 
ascertainable market price creating an uncertainty regarding realization, and 
due to the fact that Star Gas as general partner had a $6.0 million 
additional capital contribution obligation to enhance the Partnership's 
ability to make quarterly distributions on the common units (at September 30, 
1998, these funds were no longer restricted at the Star Gas level because 
they had been released to Petro since the quarterly guarantee provisions were 
fulfilled). The Company will recognize the gain from this transaction when 
the Company's subordinated units convert into common units in accordance with 
the terms of the partnership agreement. In general, full conversion of 
subordinated units to common units will take place no earlier than the first 
day of any quarter beginning on or after January 1, 2001, based upon the 
satisfaction of certain performance criteria for a period of at least three 
non-overlapping consecutive four-quarter periods immediately preceding the 
conversion date.


                                      - 8 -


<PAGE>

              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS


OVERVIEW

In analyzing Petro's results for the three- and nine-month periods ended 
September 30, 1998, one should consider the seasonal nature of the Company's 
business, which results in the sale by the Company of approximately 50% of 
its annual volume of fuel oil in the first quarter, 30% in the fourth 
quarter, and 20% in the second and third quarters combined. Unlike this 
pattern of distribution, however, many of the Company's costs are incurred 
evenly throughout the year, resulting in non-heating season operating and net 
losses.

NINE MONTHS ENDED SEPTEMBER 30, 1998 
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1997

VOLUME. Home heating oil volume decreased 19.9% to 226.6 million gallons for the
nine months ended September 30, 1998, as compared to 282.8 million gallons for
the nine months ended September 30, 1997. This decline was primarily due to
17.2% warmer weather for the period, including the 19.8% warmer weather in the
first quarter of 1998, caused by the effects of the climatic phenomenon known as
"El Nino." In addition, volume was negatively impacted by the sale of the
Company's Hartford, CT operations in November 1997 and by net account attrition.
Partially offsetting these factors was the acquisition by the Company of eleven
individually insignificant heating oil companies during 1997.

NET SALES. Net sales decreased 24.7% to $291.5 million for the nine months ended
September 30, 1998, as compared to $386.9 million for the nine months ended
September 30, 1997. This decline reflects the impact of decreased volume as well
as the impact of lower selling prices associated with lower wholesale costs.

COST OF SALES. Cost of sales decreased 29.4% to $191.5 million for the nine
months ended September 30, 1998, as compared to $271.3 million for the nine
months ended September 30, 1997, due to the decline in volume and lower
wholesale cost as described above. Cost of sales declined more than net sales
due to an increase of 3.6 cents per gallon in home heating oil margins in 1998
as compared to 1997, as well as a decline in net service expense, whose cost is
included in the cost of sales. The service expense decline was both a result of
the Company's productivity improvements and weather-related.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $10.8 million (14.3%) to $64.3 million for the
nine months ended September 30, 1998, as compared to $75.1 million for the nine
months ended September 30, 1997. This decline was due both to reductions in
certain expenses resulting from the Company's operational restructuring
programs, and to the Company's ability to reduce overhead costs in response to a
decline in volume. Also contributing to this decline were significant reductions
in corporate staff and other expenses which were part of a cost reduction
program begun in December 1997.

DIRECT DELIVERY EXPENSES. Direct delivery expenses decreased 17.8% to $17.4
million for the nine months ended September 30, 1998, as compared to $21.2
million for the nine months ended September 30, 1997, reflecting the Company's
ability to reduce costs both in response to a decline in volume and to a much
lesser extent its productivity improvements.

RESTRUCTURING CHARGES. Restructuring charges of $0.5 million for the nine months
ended September 30, 1998 represent expenses associated with corporate staff
reductions. Charges for the nine months ended September 30, 1997, which total
$1.3 million, represent costs associated with the Company's regionalization and
consolidation program in the New York/Long Island region.

CORPORATE IDENTITY EXPENSES. Corporate identity expenses for the nine months
ended September 30, 1998 were $0.2 million, as compared to $3.2 million for the
nine months ended September 30, 1997. These expenses represent costs associated
with the Company's brand identity program, implemented in the Company's New York
and Mid Atlantic regions during 1997. They include the cost of repainting all
delivery and service vehicles to reflect the company's new identity. Through
this program the Company intends to capitalize on its size by building
significant brand equity in one "Petro" brand name, rather than the multiple
names previously in use.

STAR GAS TRANSACTION EXPENSES. Star Gas transaction expenses of $1.0 million for
the nine months ended September 30, 1998 represent costs incurred, consisting of
legal expenses to date, in association with the Company's previously announced
business combination with Star. It is expected that the Company will incur a
total of $6.0 to $7.5 million of costs associated with this transaction, the
majority of which will occur in 1998.


                                      - 9 -

<PAGE>

AMORTIZATION OF CUSTOMER LISTS. Amortization of customer lists decreased 3.4% to
$13.0 million for the nine months ended September 30, 1998, as compared to $13.4
million for the nine months ended September 30, 1997, reflecting the impact of
certain customer lists becoming fully amortized.

DEPRECIATION AND AMORTIZATION OF PLANT AND EQUIPMENT. Depreciation and
amortization of plant and equipment decreased 2.9% to $5.2 million for the nine
months ended September 30, 1998, as compared to $5.4 million for the nine months
ended September 30, 1997, as the impact of certain assets becoming fully
depreciated exceeded the impact of the Company's recent fixed asset additions.

AMORTIZATION OF DEFERRED CHARGES. Amortization of deferred charges decreased
6.8% to $2.2 million for the nine months ended September 30, 1998, as compared
to $2.4 million for the nine months ended September 30, 1997, reflecting the
impact of certain deferred charges becoming fully amortized.

OPERATING LOSS. Operating loss improved 38.8% to a loss of $5.2 million for the
nine months ended September 30, 1998, as compared to a loss of $8.5 million for
the nine months ended September 30, 1997. Excluding the impact of one-time
charges for restructuring, corporate identity, pension curtailment, and Star Gas
transaction expenses, operating loss increased 3.7%, from a loss of $3.4 million
to a loss of $3.5 million. This increase was far less than the decline in volume
due to an increase in the Company's heating oil margins and to sizable
reductions in service and operating expenses related to the Company's
operational restructuring programs and its ability to contain costs in response
to the warm weather.

NET INTEREST EXPENSE. Net interest expense decreased 3.6% to $22.9 million for
the nine months ended September 30, 1998, as compared to $23.8 million for the
nine months ended September 30, 1997. This was due to lower working capital
borrowings and to a slight decline in average borrowings outstanding.

EQUITY IN LOSS OF STAR GAS PARTNERSHIP. Equity in the loss of Star Gas
Partnership increased 4.5% to a loss of $1.9 million for the nine months ended
September 30, 1998, as compared to a loss of $1.8 million for the nine months
ended September 30, 1997. This decline was due to the impact of warm weather on
Star Gas' operations, largely offset by the impact of acquisitions completed by
Star.

NET LOSS. Net loss improved 12.1% to a loss of $30.2 million for the nine months
ended September 30, 1998, as compared to a loss of $34.4 million for the nine
months ended September 30, 1997. Excluding the impact of one-time charges for
restructuring, corporate identity, pension curtailment, and Star Gas transaction
expenses, operating loss improved 2.5%, from a loss of $29.2 million to a loss
of $28.5 million. This improvement was despite a significant decline in volume
for the period, and was primarily attributable to an increase in the Company's
heating oil margins and to sizable reductions in service and operating expenses
related to the Company's operational restructuring programs and its ability to
contain costs in response to the warm weather. The improvement was also
favorably impacted by a decline in net interest expense.

OPERATING INCOME BEFORE DEPRECIATION, AMORTIZATION, AND PROVISION FOR
SUPPLEMENTAL BENEFITS *. Operating income before depreciation, amortization, and
provision for supplemental benefits improved 16.6% to $16.5 million for the nine
months ended September 30, 1998, as compared to $14.2 million for the nine
months ended September 30, 1997. Excluding the impact of one-time charges for
restructuring, corporate identity, pension curtailment, and Star Gas transaction
expenses, Operating income before depreciation, amortization, and provision for
supplemental benefits declined 5.6%, from $19.3 million to $18.2 million. This
decline was far less than the decline in volume for the period, which was
primarily attributable to an increase in the Company's heating oil margins and
to sizable reductions in operating expenses related to the Company's operational
restructuring programs and its ability to contain costs in response to the warm
weather.


____________________

*      Operating income before depreciation, amortization, and provision for
       supplemental benefits should not be considered as an alternative to net
       income (as an indicator of operating performance) or as an alternative
       to cash flow (as a measure of liquidity or availability to service debt
       obligations), but provides additional significant information in that it
       is a principal basis upon which the Company assesses its financial
       performance. It should be noted that the definition set forth above may
       include different items than what other companies may use.


                                     - 10 -


<PAGE>

THREE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1997

VOLUME. Home heating oil volume decreased 18.4% to 23.3 million gallons for the
three months ended September 30, 1998, as compared to 28.5 million gallons for
the three months ended September 30, 1997. This decline was due to warmer
weather during the period, as well as the impact of the sale of the Company's
Hartford, CT operations in November 1997 and net account attrition.

NET SALES. Net sales decreased 17.1% to $42.1 million for the three months ended
September 30, 1998, as compared to $50.8 million for the three months ended
September 30, 1997. This decline reflects the impact of decreased volume as well
as the impact of lower selling prices associated with lower wholesale costs.

COST OF SALES. Cost of sales decreased 20.9% to $34.2 million for the three
months ended September 30, 1998, as compared to $43.2 million for the three
months ended September 30, 1997, due to the decline in volume and lower
wholesale cost as described above. Cost of sales declined more than net sales
due to an increase of 6.2 cents per gallon in home heating oil margins in 1998
as compared to 1997, as well as a decline in net service expense, whose cost is
included in the cost of sales. The service expense decline was primarily a
result of the Company's productivity improvements.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $3.9 million (15.6%) to $21.2 million for the
three months ended September 30, 1998, as compared to $25.1 million for the
three months ended September 30, 1997. This decline was due to the combination
of reductions in certain expenses resulting from the Company's significant cost
reduction program which began in December 1997 and to lower volume.

DIRECT DELIVERY EXPENSES. Direct delivery expenses decreased 14.4% to $2.9
million for the three months ended September 30, 1998, as compared to $3.4
million for the three months ended September 30, 1997, reflecting the Company's
ability to reduce costs both in response to a decline in volume and through its
productivity improvements.

CORPORATE IDENTITY EXPENSES. Corporate identity expenses of $1.1 million for the
three months ended September 30, 1997 represent costs associated with the
Company's brand identity program, implemented in the Company's New York and Mid
Atlantic regions during 1997. These costs include the cost of repainting all
delivery and service vehicles to reflect the company's new identity.

STAR GAS TRANSACTION EXPENSES. Star Gas transaction expenses of $1.0 million for
the three months ended September 30, 1998 represent costs incurred, consisting
of legal expenses to date, in association with the Company's previously
announced business combination with Star. It is expected that the Company will
incur a total of $6.0 to $7.5 million of costs associated with this transaction,
the majority of which will occur in 1998.

AMORTIZATION OF CUSTOMER LISTS. Amortization of customer lists decreased 7.8% to
$4.1 million for the three months ended September 30, 1998, as compared to $4.5
million for the three months ended September 30, 1997, reflecting the impact of
certain customer lists becoming fully amortized.

DEPRECIATION AND AMORTIZATION OF PLANT AND EQUIPMENT. Depreciation and
amortization of plant and equipment remained virtually unchanged at $1.8 million
for the three months ended September 30, 1998.

AMORTIZATION OF DEFERRED CHARGES. Amortization of deferred charges decreased
11.5% to $0.7 million for the three months ended September 30, 1998, as compared
to $0.8 million for the three months ended September 30, 1997, reflecting the
impact of certain deferred charges becoming fully amortized.

OPERATING LOSS. Operating loss improved 19.9% to a loss of $24.2 million for the
three months ended September 30, 1998, as compared to a loss of $30.2 million
for the three months ended September 30, 1997. Excluding the impact of one-time
charges for corporate identity, pension curtailment, and Star Gas transaction
expenses, operating loss improved 18.6%, from a loss of $28.5 million to a loss
of $23.2 million. This improvement was primarily attributable to reductions in
operating expenses and to an increase in the Company's heating oil margins.

NET INTEREST EXPENSE. Net interest expense decreased 1.4% to $7.6 million for
the three months ended September 30, 1998, as compared to $7.8 million for the
three months ended September 30, 1997. This was due to a slight decline in
average long-term borrowings outstanding.


                                     - 11 -


<PAGE>

EQUITY IN LOSS OF STAR GAS PARTNERSHIP. Equity in the loss of Star Gas
Partnership remained virtually unchanged at a loss of $2.4 million for the three
months ended September 30, 1998.

NET LOSS. Net loss improved 15.1% to a loss of $34.2 million for the three
months ended September 30, 1998, as compared to a loss of $40.3 million for the
three months ended September 30, 1997. Excluding the impact of one-time charges
for corporate identity, pension curtailment, and Star Gas transaction expenses,
net loss improved 14.0%, from a loss of $38.6 million to a loss of $33.2
million. This improvement was primarily attributable to reductions in operating
expenses and to an increase in the Company's heating oil margins.

OPERATING INCOME BEFORE DEPRECIATION, AMORTIZATION, AND PROVISION FOR
SUPPLEMENTAL BENEFITS. Operating income before depreciation, amortization, and
provision for supplemental benefits improved 24.1% to a loss of $17.2 million
for the three months ended September 30, 1998, as compared to a loss of $22.6
million for the three months ended September 30, 1997. Excluding the impact of
one-time charges for corporate identity, pension curtailment, and Star Gas
transaction expenses, Operating income before depreciation, amortization, and
provision for supplemental benefits improved 22.7%, from a loss of $20.9 million
to a loss of $16.2 million. This improvement was primarily attributable to
reductions in operating expenses and to an increase in the Company's heating oil
margins.


LIQUIDITY AND FINANCIAL CONDITION

Net cash provided by operating activities for the nine months of $28.8 million
combined with the $1.3 million net proceeds from the sale of Star Gas units
amounted to $30.1. These funds were utilized in investing activities for the
purchase of fixed assets of $3.4 million; and in financing activities to repay
senior notes payable of $1.05 million, repay subordinated notes of $1.05
million, repay net working capital borrowings of $3.0 million, pay cash
dividends of $6.1 million, increase the cash collateral account maintained with
the Company's lenders to secure certain letter-of-credit obligations of $2.4
million, redeem preferred stock of $4.2 million, and for other financing
activities of $2.5 million, which is comprised mainly of the redemption of $2.3
million of Notes Payables issued in connection with the purchase of fuel oil
dealers. These financing activities were partially offset by cash provided from
the Star Gas distributions of $4.3 million, the proceeds from the sale of fixed
assets of $0.1 million, and proceeds from dividend reinvestments of $0.6
million. As a result of the above activities, the Company's cash balance
increased by $11.4 million since December 31, 1997.

In July 1998, the Company renewed its $47.0 million working capital revolving
credit facility which will expire in June 1999. In consideration for the
extension of this facility to June 1999, the Company agreed to, amongst other
things, pay no common cash dividends and not make any acquisitions of other
companies. As the Company's current capital constraints already imposes a limit
to such activity, the impact of these prohibitions is minimal. At September 30,
1998 no amount was outstanding under this credit facility.

For the remainder of 1998 the Company anticipates paying $1.0 million of
preferred dividends and incurring additional Star Gas transaction expenses of
$3.5 to $4.5 million. Furthermore, the Company currently has no material
commitments for capital expenditures.

Star Gas announced in October 1998 that the Partnership will not make its $1.4
million quarterly distribution on its subordinated units held by Petro,
originally scheduled for November 1998, in order to partially fund the
Partnership's acquisition program with internally generated cash flows and in
reaction to abnormally warm weather attributable to what is commonly referred to
as El Nino.

Based on the Company's current working capital position and expected net cash
provided by operating activities, the Company expects to be able to meet all its
obligations as they become due.


                                     - 12 -


<PAGE>

YEAR 2000

The "Year 2000" Issue is the result of computer programs being written using two
digits rather than four to define a specific year. Absent corrective actions, a
computer program that has date sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failures or miscalculations causing disruptions to various activities and
operations.

The Company conducted a comprehensive review of its computer systems to identify
the systems that could be affected by the "Year 2000" issue and has developed a
plan to address this issue. The scope of this review included the assessment of
the Company's information technology environment as well as the compliance
attainment efforts of the Company's major service providers. Most key suppliers
and business partners have been contacted with regard to their Year 2000 state
of readiness such as the Company's software developer, significant suppliers,
payroll provider, and banking partners, and the Company has obtained reasonable
comfort that this issue is being adequately addressed.

The Company's main applications and operating systems have a combination of
compliant and non-compliant systems. The primary computer platform which
supports much of the Company's operations was designed to be Year 2000
compliant, and the Company has obtained a compliance warranty attesting to this
fact. However, the Company has identified potential problem areas and assessed a
total cost of approximately $200,000 to make the entire system Year 2000
compliant. The Company's state of readiness to make each identified area Year
2000 compliant is at the implementation stage. Through September 30, 1998 the
Company has incurred approximately $50,000 in Year 2000 compliance expenses for
applications and hardware, and it expects to incur an additional $150,000
through the summer of 1999 for additional applications and hardware.

In addition, the Company has also accelerated the planned replacement of its
internal messaging system in order to gain company-wide Year 2000 messaging
compatibility. The Company expects to incur an additional $250,000 by the summer
of 1999 to complete this project.

If the Company fails to be Year 2000 compliant, a worse case scenario would be
system failures and miscalculations that could adversely affect operations.
However, because the primary computer platform which currently supports much of
the Company's operations is already Year 2000 compliant and continues to show
positive test results like those of other existing and newly installed Year 2000
compliant systems being tested, the Company would experience only minor
operational disruptions even in such worse case scenario. Business contingency
plans designed to mitigate the Company's worse case scenario and potential
disruptions to business operations include continued substantive pre-testing of
existing and newly installed Year 2000 compliant systems. This coupled with the
Company's existing effort to relieve information technology systems from
non-critical, non-Year 2000 projects, while simultaneously planning the
availability of all information technology personnel before, during, and after
the Year 2000 changeover is designed to mitigate the effects of potential
business disruptions.

Notwithstanding the substantive work involved in making all its systems Year
2000 compliant, the Company could still potentially experience disruptions to
some aspects of its various activities and operations, including those resulting
from non-compliant systems utilized by unrelated third party governmental and
business entities.


                                     - 13 -


<PAGE>

RESTRUCTURING CHARGES

Late in 1995 the Company completed a study engaged with a leading consulting
firm to help provide a structure for superior customer service, a brand image,
and reduced operating costs. Over the last few years the Company has dedicated a
large amount of effort toward defining the best organizational structure, and
has implemented various initiatives toward achieving this objective.

As part of the initial implementation of this program, Petro undertook certain
business improvement strategies in its Long Island, New York region. These steps
included the consolidation of the region's five home heating oil branches into
one central customer service center and three depots. The regional customer
service center consolidated accounting, credit, customer service and the sales
function into a single new facility in Port Washington, Long Island. All
external communications and marketing previously undertaken in the five branches
were centralized into this one location freeing the three newly configured
depots to focus on oil delivery and heating equipment repair, maintenance and
installation, in mutually exclusive operating territories. The Company incurred
$1.2 million in restructuring expenses in 1996, for costs associated with the
initial implementation of the restructuring program and reported such expenses
in restructuring charges. This cost was comprised of $0.5 million in termination
benefit arrangements for the twenty-three servicemen and drivers, twenty-eight
credit and customer service personnel, and eight sales, general, and
administrative personnel displaced by the program; and $0.7 million for
continuing lease obligations for an unused, non-cancelable, non-strategic
facility.

In 1997 the Company continued with its restructuring program and combined its
three New York City branches into one new central depot that specialized in
delivery, installation, maintenance, and service functions, and like the Long
Island depots, be supported by the Port Washington facility. The Company also
proceeded with its commitment to define the best possible organizational
structure, by restructuring select branch and corporate responsibilities to
eliminate redundant functions and locate responsibilities where they can best
serve customers and the Company. Toward achieving these strategic intentions the
Company incurred $2.9 million in restructuring expenses in 1997, and reported
such expenses in restructuring charges. This cost was comprised of $2.0 million
in termination benefit arrangements for twenty-three servicemen and drivers, ten
credit and customer service personnel, and twenty-two sales, general, and
administrative personnel displaced by the program; and $0.9 million for
continuing lease obligations for three unused, non-cancelable, non-strategic
facilities. The total unpaid amounts included in accrued expenses and other
liabilities were $605 and $2,421 respectively at December 31, 1996 and 1997.

The Company continued its restructuring and cost reduction initiative in the
first quarter of 1998, incurring $0.5 million in termination benefit
arrangements with four sales, general, and administrative personnel. The total
unpaid amounts included in accrued expenses and other liabilities at September
30, 1998 was $1.8 million. This amount represents a continuing lease obligation
as all termination benefit arrangements were paid. The Company does not have any
additional restructuring plans for the remainder of 1998. This liability is
expected to be paid and relieved as follows:

Year Ended
December 31,
------------

1998 (remainder)     $  300

1999                    500

2000                    300

2001                    100

2002                    100

Thereafter              500

                     $1,800


STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE

This report includes "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act which represent
the Company's expectations or beliefs concerning future events that involve
risks and uncertainties, including those associated with the effect of weather
conditions on the company's financial performance, the price and supply of home
heating oil, the ability of the Company to obtain new accounts and retain
existing accounts and the ability of the Company to realize cost reductions from
its operational restructuring program. All statements other than statements of
historical facts included in this Report including, without limitation, the
statements under "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and elsewhere herein, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct.


                                     - 14 -


<PAGE>

                           PART II OTHER INFORMATION

ITEM 5. OTHER EVENTS

PETROLEUM HEAT AND POWER CO., INC. AND STAR GAS PARTNERS, L.P., BUSINESS 
COMBINATION

On October 23, 1998, Star Gas Partners, L.P. ("the Partnership") and Petro
jointly announced that they have signed a definitive merger agreement pursuant
to which Petro would be acquired by the Partnership and would become a
wholly-owned subsidiary of the Partnership ("the Star Gas/Petro transaction").
It is anticipated that this acquisition will be accounted for using the purchase
method of accounting. This transaction would be effected through Petro
shareholders exchanging their 26,562,481 shares of Petro Common Stock for
3,623,236 limited partnership units and General Partnership units of the
Partnership which will be subordinated to the existing Common Units of the
Partnership.

The Partnership currently distributes to its partners, on a quarterly basis, all
of its Available Cash, which is generally all of the cash receipts of the
Partnership less all cash disbursements, with a targeted Minimum Quarterly
Distribution ("MQD") of $0.55 per Unit, or $2.20 per Unit on an annualized
basis. In connection with the Star Gas/Petro transaction, the Partnership will
increase the MQD to $.575 per unit or $2.30 per unit on an annualized basis.
This increase in the MQD reflects the expectation that the transaction will be
accretive to the Partnership. The increase in the MQD will also serve to raise
the threshold needed to end the subordination period.

Of the 3,623,236 subordinated Partnership units anticipated to be distributed to
Petro shareholders, 2,767,058 will be Senior Subordinated Units and 856,178 will
be Junior Subordinated Units and General Partnership Units. The Senior
Subordinated Units will be publicly registered and tradable (they are expected
to be listed on the New York Stock Exchange) and will be subordinated in
distributions to the Partnership's Common Units. The Junior Subordinated Units
and General Partnership Units will not be registered nor publicly tradable and
will be subordinated to both the Common Units and the Senior Subordinated Units.
The Senior Subordinated Units will be exchanged with holders of Petro's publicly
traded Class A Common Stock and the Junior Subordinated Units and General
Partnership Units will be exchanged with individuals that currently own Petro's
Class C common stock and Class A common stock. Certain holders of Petro's Class
C Common Stock will also exchange their shares for Senior Subordinated Units.

It is currently contemplated that 21,180,789 shares of Petro Common Stock will
be exchanged for 2,767,058 Senior Subordinated Units of Partnership. 5,381,692
shares of Petro Common Stock, held by certain individuals who currently own
Petro Class C Common Stock, including Irik P. Sevin, Chairman of both Petro and
of the General Partner of the Partnership and other members of a group that
currently controls Petro, will be exchanged for 568,478 Junior Subordinated
Units and 287,700 General Partnership Units which are economically equivalent to
Junior Subordinated Units. The total value of Senior Subordinated and Junior
Subordinated Units issued for Petro Common Stock is $64.4 million.

Pursuant to the partnership subordination provision, distributions on the
Partnership's Senior Subordinated Units may be made only after distributions of
Available Cash on Common Units meet the Minimum Quarterly Distribution
requirement. Distributions on the Partnership's Junior Subordinated Units and
General Partner Units may be made only after distributions of Available Cash on
Common Units and Senior Subordinated Units meet the Minimum Quarterly
Distribution requirement. The Subordination Period will generally extend until
the Partnership earns and pays its MQD for three years.

As a condition of the Star Gas/Petro transaction, the Partnership agreement will
be amended so that no distribution will be paid on the Senior Subordinated
Units, Junior Subordinated Units, or the General Partner Units except to the
extent Available Cash is earned from operations.

Like many other publicly traded master limited partnerships, the Partnership
contains a provision which provides the General Partner with incentive
distributions in excess of certain targeted amounts. This provision will be
modified so that should there be any such incentive distributions, they will be
made pro rata to the holders of Senior Subordinated Units, Junior Subordinated
Units, and General Partner Units.


                                     - 15 -


<PAGE>

In connection with the Star Gas/Petro transaction, the Senior Subordinated
Units, Junior Subordinated Units and General Partnership Units can earn, pro
rata, 303,000 additional Senior Subordinated Units each year that Petro meets
certain financial goals to a maximum of 909,000 additional Senior Subordinated
Units.

In connection with the Star Gas/Petro transaction, the Partnership intends to
raise approximately $140 million through a public offering of Common Units and
$120 million through a public or private offering of debt securities. The net
proceeds from these offerings will be used primarily to redeem approximately
$240 million in Petro public and private debt and preferred stock. Any such
offering will be made only by means of a prospectus or in transactions not
requiring registration under securities laws.

Petro has completed an exchange offer agreement with institutional holders of an
aggregate of $233 million or 98% of its public debt and preferred stock to
permit the redemption of such securities at the closing of the Star Gas/Petro
transaction. This agreement allows Petro to redeem its 9 3/8% Subordinated
Debentures, 10 1/8% Subordinated Notes and 12 1/4% Subordinated Debentures at
100%, 100% and 103.5% of principal amount, respectively, plus accrued interest
and also to redeem its 12 7/8% Preferred Stock at $23 per share, plus accrued
and unpaid dividends. In consideration for this early redemption right, Petro
has agreed to issue to such holders 3.37 shares of newly issued Petro Junior
Convertible Preferred Stock for each $1,000 in principal amount or liquidation
preference of such securities. Each share of Petro Junior Convertible Preferred
Stock will be exchangeable into .13064 of a Partnership Common Unit at the
conclusion of the Star Gas/Petro transaction representing a maximum of 102,773
Common Units. Petro also intends to restructure $66.2 million of privately held
Notes currently outstanding.

Petro currently has a 40.5% equity interest in the Partnership. Prior to the
transaction, Petro owns 2,396,078 Subordinated Units and a 2.0% interest in the
Partnership or the equivalent of 127,655 units. As part of the Transaction,
these units will be contributed to the Partnership by Petro in exchange for
42,046 Common Units and 2,054,540 Senior Subordinated Units. The Common Units
will be exchanged by Petro with the holders of Petro Junior Convertible
Preferred Stock and the Senior Subordinated Units ultimately be exchanged with a
portion of the holders of Petro's Common Stock. After completion of the Star
Gas/Petro transaction, the Petro shareholders will own approximately 26% of the
Partnership's equity through Subordinated Units and General Partnership Units.
The holders of the Partnership's Common Units (including an estimated 6.8
million Common Units that will be sold in the Partnership's $140 million public
offering) will own an approximate aggregate 75% equity interest in the
Partnership following the completion of the transaction. The General Partner of
the Partnership will be a newly organized Delaware limited liability company
that will be owned by Irik Sevin, Audrey Sevin and two entities affiliated with
Wolfgang Traber (see Part III Item 10 - Directors and Executive Officers of the
Registrant).

A Special Committee of the Star Board of Directors, acting on behalf of the
Public Common Unitholders, negotiated the terms of the Star Gas/Petro
Transaction. A.G. Edwards & Sons, Inc. was retained by the Special Committee as
independent financial advisor, and has rendered an opinion that the Star
Gas/Petro Transaction is fair, from a financial point of view, to the public
Common Unitholders.

The completion of the Star Gas/Petro Transaction is subject to the receipt of
regulatory approvals, the approval of Star's non-affiliated Common unitholders
and non-affiliated Petro shareholders and other necessary partnership and
corporate approvals.


NONCOMPLIANCE WITH THE NASDAQ STOCK MARKET MINIMUM BID PRICE REQUIREMENT

The Company received notification from The NASDAQ Stock Market ("NASDAQ") that
its Class A Common Stock was not in compliance pursuant to the newly enacted
NASD Market Place Rules regarding the minimum bid price requirement. The Company
responded to NASDAQ outlining its position as to why NASDAQ should not take any
action to delist Petro's Class A Common Stock from its National Market System
("NMS"). Among the reasons given for not delisting the stock was the possibility
of the Star Gas / Petro Transaction. The NASDAQ Hearing Panel did not grant the
Company's written request for continued listing on the NMS, which the Company
responded by requesting a full oral hearing on this matter as provided for under
the NASD Market Place Rules. This oral hearing is scheduled to take place on
November 6, 1998.

If the Company's request for continued listing is not granted and assuming that
the Company meets the maintenance requirements of the NASDAQ Small-Cap Market,
the Company could request inclusion of its Class A Common Stock on this market.


                                     - 16 -


<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a) Exhibits Included Within:
            ------------------------

            4.11   Certificate of Designation setting forth resolution creating 
                   a series of preferred stock designated as Series C 
                   Exchangeable Preferred Stock.

            4.12   Fourth Amendment to Indenture with respect to the 10 1/8% 
                   Subordinated Notes due 2003.

            4.13   Second Amendment to Indenture with respect to 9 3/8% 
                   Subordinated Debenture due 2006.

            4.14   Second Amendment to Indenture with respect to the 12 1/4% 
                   Subordinated Debenture due 2005.


            Form of Indenture with respect to the 10 1/8% Senior Subordinated 
            Notes due 2003. (Incorporated by reference to Exhibit T 3 C to the
            Registrant's Application on Form T-3 with respect to the 10 1/8% 
            Senior Subordinated Notes.)

            Form of Indenture with respect to the 9 3/8% Senior Subordinated
            Debentures due 2006. (Incorporated by reference to Exhibit T 3 C to 
            the Registrant's Application on Form T-3 with respect to the 9 3/8% 
            Senior Subordinated Debentures.)

            Form of Indenture with respect to the 12 1/4% Senior Subordinated
            Debentures due 2005. (Incorporated by reference to Exhibit T 3 C to 
            the Registrant's Application on Form T-3 with respect to the 12 1/4%
            Senior Subordinated Debentures.)


            (27)   Financial Data Schedule



        (b) Reports on Form 8-K
            -------------------

            No reports on Form 8-K have been filed during the quarter
            for which this report is filed.


                                     - 17 -

<PAGE>

                                   SIGNATURE


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



Signature              Title                                    Date
---------              -----                                    ----

/s/ Irik P. Sevin      Chairman of the Board, Chief             February 8, 1999
-----------------
Irik P. Sevin          Executive Officer, and
                       Chief Financial and Accounting
                       Officer and Director


                                     - 18 -