<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549

                                   FORM 10-Q

                                  (Mark One)

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

               For the quarterly period ended December 31, 1999
                                              -----------------

                                      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:   33-98490
                                                ---------

                            STAR GAS PARTNERS, L.P.
                            -----------------------
            (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                          <C>
Delaware                                                     06-1437793
-----------------------------------                          ------------------------------------
(State or other jurisdiction                                 (I.R.S. Employer Identification No.)
of incorporation or organization)


2187 Atlantic Street, Stamford, Connecticut                       06902
--------------------------------------------------------------------------------------------------
(Address of principal executive office)                           (Zip Code

(203) 328-7300
--------------------------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

 -------------------------------------------------------------------------------------------------
(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
                                         -----        -----
</TABLE>

Indicate the number of shares outstanding of each issuer's classes of common
stock, as of January 31, 2000:

         14,377,467  Common Units
          2,476,797  Senior Subordinated Units
            345,364  Junior Subordinated Units
            325,729  General Partner Units
<PAGE>

                   STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                              INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
                                                                                       Page
                                                                                       ----
<S>      <C>                                                                         <C>
Part I   Financial Information

         Item 1 - Condensed Consolidated Financial Statements

              Condensed Consolidated Balance Sheets as of
                 September 30, 1999 and December 31, 1999                                3

              Condensed Consolidated Statements of Operations for the
                 Three months ended December 31, 1998 and December 31, 1999              4

              Condensed Consolidated Statement of Partners' Capital for the
                 three months ended December 31, 1999                                    5

              Condensed Consolidated Statements of Cash Flows for the three
                 months ended December 31, 1998 and December 31, 1999                    6

              Notes to Condensed Consolidated Financial Statements                    7-16

         Item 2 - Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                              17-20

         Item 3 - Quantitative and Qualitative Disclosures About Market Risk            21

Part II  Other Information:

         Item 6 - Exhibits and Reports on Form 8-K                                      21

         Signature                                                                      22
</TABLE>

                                       2
<PAGE>

                   STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                                   December 31,
                                                                                September 30,          1999
                                                                                    1999            (unaudited)
                                                                                    ----            -----------
<S>                                                                             <C>                <C>
Assets
Current assets:
 Cash and cash equivalents                                                       $  4,492             $  9,910
 Receivables, net of allowance of $948 and  $1,781 respectively                    42,295               82,027
 Inventories                                                                       26,317               28,000
 Prepaid expenses and other current assets                                         13,764               11,296
                                                                                 --------             --------
      Total current assets                                                         86,868              131,233
                                                                                 --------             --------

Property and equipment, net                                                       154,967              154,058
Long-term portion of accounts receivable                                            5,590                6,830
Intangibles and other assets, net                                                 291,919              289,273
                                                                                 --------             --------
      Total assets                                                               $539,344             $581,394
                                                                                 ========             ========
Liabilities and Partners' Capital
Current liabilities:
 Accounts payable                                                                $ 12,939             $ 20,248
 Bank credit facility borrowings                                                    3,150               41,325
 Current maturities of long-term debt                                               1,391               18,190
 Accrued expenses                                                                  43,044               42,066
 Unearned service contract revenue                                                 14,007               16,742
 Customer credit balances                                                          31,094               22,674
                                                                                 --------             --------
      Total current liabilities                                                   105,625              161,245
                                                                                 --------             --------

Long-term debt                                                                    276,638              262,130
Other long-term liabilities                                                         6,905                6,748

Partners' Capital:
 Common unitholders                                                               145,906              145,318
 Subordinated unitholders                                                           5,878                7,387
 General partner                                                                   (1,608)              (1,434)
                                                                                 --------             --------
      Total Partners' Capital                                                     150,176              151,271
                                                                                 --------             --------

      Total Liabilities and Partners' Capital                                    $539,344             $581,394
                                                                                 ========             ========
</TABLE>


See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>

                   STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                    Three Months Ended december 31,
                                                                 --------------------------------------
  (in thousands, except per unit data)                              1998                       1999
                                                                 -----------               ------------
  <S>                                                            <C>                       <C>
  Sales:
   Product                                                        $  27,149                $  160,540
   Installation, service and appliances                               3,088                    26,346
                                                                  ---------                ----------
     Total sales                                                     30,237                   186,886

  Costs and expenses:
   Cost of product                                                   10,952                    86,546
   Cost of installation, service and appliances                       1,026                    30,885
   Delivery and branch                                               10,295                    40,302
   Depreciation and amortization                                      3,008                     8,404
   General and administrative                                         1,429                     4,681
   Net gain (loss) on sales of assets                                    (4)                       12
                                                                  ---------                ----------
     Operating income                                                 3,523                    16,080
  Interest expense, net                                               2,178                     6,473
  Amortization of debt issuance costs                                    45                       129
                                                                  ---------                ----------
     Income before income taxes                                       1,300                     9,478
  Income tax expense                                                      6                       113
                                                                  ---------                ----------
     Net income                                                   $   1,294                $    9,365
                                                                  =========                ==========

     General Partner's interest in net income                     $      26                $      174
                                                                  ---------                ----------

  Limited Partners' interest in net income                        $   1,268                $    9,191
                                                                  =========                ==========

  Basic and diluted net income per Limited  Partner unit          $    0.20                $     0.53
                                                                  =========                ==========

  Basic and diluted weighted average number of Limited

   Partner units outstanding                                          6,255                    17,200
                                                                  =========                ==========
</TABLE>


See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>

                   STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

             CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
                                  (unaudited)


(in thousands, except per unit amounts)

<TABLE>
<CAPTION>
                                       Number of Units                                                   Total
                               -------------------------------
                                        Senior  Junior  General             Senior  Junior    General   Partners'
                                Common   Sub.    Sub.   Partner   Common     Sub.    Sub.     Partner    Capital
                                ------   ----    ----   -------   ------     ----    ----     -------    -------
                                ---------------------------------------------------------------------------------
<S>                             <C>     <C>     <C>     <C>       <C>       <C>     <C>       <C>       <C>
Balance as of
   September 30, 1999           14,378   2,477     345      326  $145,906   $5,938    $(60)   $(1,608)   $150,176

Net income                                                          7,682    1,324     185        174       9,365

Distributions
  ($0.575 per common unit)                                         (8,270)                                 (8,270)
                              -----------------------------------------------------------------------------------
Balance as of
   December 31, 1999            14,378   2,477     345      326  $145,318   $7,262    $125    $(1,434)   $151,271
                              ===================================================================================
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>

                   STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)

<TABLE>
<CAPTION>
  (in thousands)                                                               Three Months Ended December 31,
                                                                            -------------------------------------
                                                                               1998                       1999
                                                                            ----------                 ----------
   <S>                                                                      <C>                        <C>
   Cash flows from operating activities:
   Net income                                                                 $ 1,294                   $  9,365
   Adjustments to reconcile net income to net cash
     provided by operating activities:
   Depreciation and amortization                                                3,008                      8,404
   Amortization of debt issuance cost                                              45                        129
   Provision for losses on accounts receivable                                    (18)                       430
   Loss (gain) on sales of assets                                                   4                        (12)
   Changes in operating assets and liabilities, net of amounts acquired:
     Increase in receivables                                                   (3,856)                   (41,376)
     Decrease (increase) in inventories                                           710                     (1,679)
     Decrease in other assets                                                     313                      2,727
     Increase in accounts payable                                                 511                      7,410
     Increase (decrease) in other current and long-term liabilities               233                     (6,876)
                                                                             --------                   --------
          Net cash provided by (used in) operating activities                   2,244                    (21,478)
                                                                             --------                   --------

   Cash flows from investing activities:
   Capital expenditures                                                        (1,312)                    (1,569)
   Proceeds from sales of fixed assets                                             39                        135
   Acquisition related costs                                                      (12)                         -
   Acquisitions                                                                     -                     (3,615)
                                                                             --------                   --------
          Net cash used in investing activities                                (1,285)                    (5,049)
                                                                             --------                   --------

   Cash flows from financing activities:
   Credit facility borrowings                                                  10,450                     47,600
   Credit facility repayments                                                  (4,500)                    (9,425)
   Acquisition facility borrowings                                                  -                      5,000
   Repayment of debt, net                                                           -                     (2,709)
   Distributions                                                               (2,193)                    (8,270)
   Other                                                                            -                       (251)
                                                                             --------                   --------
          Net cash provided by financing activities                             3,757                     31,945
                                                                             --------                   --------

          Net increase in cash                                                  4,716                      5,418
   Cash at beginning of period                                                  1,115                      4,492
                                                                             --------                   --------
   Cash at end of period                                                      $ 5,831                   $  9,910
                                                                             ========                   ========
</TABLE>


See accompanying notes to condensed consolidated financial statements.

                                       6
<PAGE>

                   STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1)   Partnership Organization

     Star Gas Partners, L.P. ("Star Gas Partners" or the "Partnership") is a
     leading distributor of home heating oil and propane in the United States.
     Star Gas Partners is a Master Limited Partnership whose 14.4 million common
     limited partner units (trading symbol "SGU" representing 82.04% limited
     partner interest in Star Gas Partners) and 2.5 million senior subordinated
     units (trading symbol "SGH" representing 14.13% limited partner interest in
     Star Gas Partners) are traded on the New York Stock Exchange, Inc.
     Additional interest in Star Gas Partners are represented by 0.3 million
     junior subordinated units (representing 1.97% limited partner interest in
     Star Gas Partners) and 0.3 million general partner units (representing
     1.86% general partner interest in Star Gas Partners).

     Petro Holdings, Inc. ("Petro" or "heating oil segment"), is the nation's
     largest distributor of home heating oil and serves approximately 335,000
     customers in the Northeast and Mid-Atlantic region of the United States.
     Petro and Stellar Propane Corp. are indirect wholly owned subsidiaries of
     Star Gas Propane, L.P.  Star Gas Propane, L.P., ("Star Gas Propane" or the
     "propane segment") is a wholly owned subsidiary of Star Gas Partners, that
     markets and distributes propane gas and related products to approximately
     186,000 retail and wholesale customers in the Midwest and Northeast.


2)   Summary of Significant Accounting Policies

     Basis of Presentation

     The Consolidated Financial Statements for the period October 1, 1998
     through March 25, 1999 include the accounts of Star Gas Partners, L.P.,
     Star Gas Propane and its corporate subsidiaries.  Beginning March 26, 1999,
     the Consolidated Financial Statements also include the accounts and results
     of operations of Petro and its subsidiaries.  All material intercompany
     items and transactions have been eliminated in consolidation.

     Use of Estimates

     The preparation of financial statements in accordance with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     disclosure of contingent assets and liabilities at the date of the
     financial statements, and the reported amounts of revenue and expenses
     during the reporting period.  Actual results could differ from those
     estimates.

     Revenue Recognition

     Sales of propane, heating oil and equipment are recognized at the time of
     delivery of the product to the customer or at the time of sale, service, or
     installation. Revenue from repairs and maintenance service is recognized
     upon completion of the service.  Payments received from customers for
     heating oil equipment service contracts are deferred and amortized into
     income over the terms of the respective service contracts, on a straight
     line basis, which generally do not exceed one year.


                                       7
<PAGE>

2)   Summary of Significant Accounting Policies - (continued)

     Basic and Diluted Income (Loss) per Limited Partner Unit

     Net income (loss) per Limited Partner Unit is computed by dividing net
     income (loss), after deducting the General Partner's interest, by the
     weighted average number of Common Units, Senior Subordinated Units, and
     Junior Subordinated Units outstanding.

     Cash Equivalents

     The Partnership considers all highly liquid investments with a maturity of
     three months or less, when purchased, to be cash equivalents.

     Inventories

     Inventories are stated at the lower of cost or market and are computed on a
     first-in, first-out basis.

     Property, Plant, and Equipment

     Property, plant, and equipment are stated at cost.  Depreciation is
     computed over the estimated useful lives of the depreciable assets using
     the straight-line method.

     Intangible Assets

     Intangible assets include goodwill, covenants not to compete, customer
     lists and deferred charges.

     Goodwill is the excess of cost over the fair value of net assets in the
     acquisition of a company.  Both the propane and heating oil segments
     amortize goodwill using the straight-line method over a twenty-five year
     period.

     Covenants not to compete are non-compete agreements established with the
     owners of an acquired company.  For both the propane and heating oil
     segments, covenants not to compete are amortized over the respective lives
     of the covenants, which are generally five years.

     Customer lists are the names and delivery addresses of the acquired
     company's patrons.  Based on the historical retention experience of these
     lists, the propane segment amortizes customer lists on a straight-line
     method over fifteen years, and the heating oil segment amortizes customer
     lists on a straight-line method over ten years.

     Deferred charges represent the costs associated with the issuance of debt
     instruments.  Both the heating oil and propane segments amortize deferred
     charges using the interest method over the lives of the related debt
     instruments.

     It is the Partnership's policy to review intangible assets for impairment
     whenever events or changes in circumstances indicate that the carrying
     amount of such assets may not be recoverable.  The Partnership determines
     that the carrying values of intangible assets are recoverable over their
     remaining estimated lives through undiscounted future cash flow analysis.
     If such a review should indicate that the carrying amount of the intangible
     assets is not recoverable, it is the Partnership's policy to reduce the
     carrying amount of such assets to fair value.

     Advertising Expenses

     Advertising costs are expensed as they are incurred.

                                       8
<PAGE>

2)   Summary of Significant Accounting Policies - (continued)


     Customer Credit Balances

     Customer credit balances represent pre-payments received from customers
     pursuant to a budget payment plan (whereby customers pay their estimated
     annual propane / heating oil charges on a fixed monthly basis) and the
     payments made have exceeded the charges for deliveries.

     Environmental Costs

     The Partnership expenses, on a current basis, costs associated with
     managing hazardous substances and pollution in ongoing operations. The
     Partnership also accrues for costs associated with the remediation of
     environmental pollution when it becomes probable that a liability has been
     incurred and the amount can be reasonably estimated.

     Derivatives and Premiums

     The Partnership uses derivatives to hedge the price risk associated with
     the heating oil and propane gallons it sells to guaranteed maximum price
     customers.  The realized gains and losses from these derivatives are
     matched with the inventory being hedged and are included with cost of goods
     sold.  Premiums paid for derivatives are capitalized and amortized as part
     of cost of goods sold over the useful lives of the related instruments.

     Income Taxes

     The Partnership is a master limited partnership.  As a result, for Federal
     income tax purposes, earnings or losses are allocated directly to the
     individual partners.  Except for the Partnership's corporate subsidiaries,
     no recognition has been given to Federal income taxes in the accompanying
     financial statements of the Partnership.  While the Partnership's corporate
     subsidiaries will generate non-qualifying Master Limited Partnership
     revenue, dividends from the corporate subsidiaries to the Partnership are
     included in the determination of Master Limited Partnership income.  In
     addition, a portion of the dividends received by the Partnership from the
     corporate subsidiaries will be taxable to the limited partners.  Net
     earnings for financial statement purposes will differ significantly from
     taxable income reportable to unitholders as a result of differences between
     the tax basis and financial reporting basis of assets and liabilities and
     due to the taxable income allocation requirements of the Partnership
     agreement.

     The Partnership's corporate subsidiaries file a consolidated Federal income
     tax return.  Deferred tax assets and liabilities are recognized for the
     future tax consequences attributable to differences between the financial
     statement carrying amount of assets and liabilities and their respective
     tax bases and operating loss carryforwards.  Deferred tax assets and
     liabilities are measured using enacted tax rates expected to apply to
     taxable income in the years in which those temporary differences are
     expected to be recovered or settled.

     Accounting Changes

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards ("SFAS") No. 133 - "Accounting
     for Derivative Instruments and Hedging Activities." SFAS No. 133
     establishes accounting and reporting standards for derivative instruments,
     including certain derivative instruments embedded in other contracts, and
     for hedging activities. In June 1999, FASB amended the effective date for
     SFAS No. 133 to all fiscal quarters of all fiscal years beginning after
     June 15, 2000.  The Partnership is assessing the impact and disclosure
     requirements of SFAS No. 133.

                                       9
<PAGE>

3)   Quarterly Distribution of Available Cash

     In general, the Partnership distributes to its partners on a quarterly
     basis all "Available Cash."  Available Cash generally means, with respect
     to any fiscal quarter, all cash on hand at the end of such quarter less the
     amount of cash reserves that are necessary or appropriate in the reasonable
     discretion of the General Partner to (1) provide for the proper conduct of
     the Partnership's business, (2) comply with applicable law or any of its
     debt instruments or other agreements or (3) in certain circumstances
     provide funds for distributions to the Common Unitholders and the Senior
     Subordinated Unitholders during the next four quarters. The General Partner
     may not establish cash reserves for distributions to the Senior
     Subordinated Units unless the General Partner has determined that in its
     judgment the establishment of reserves will not prevent the Partnership
     from distributing the Minimum Quarterly Distribution on all Common Units
     and any Common Unit Arrearages thereon with respect to the next four
     quarters.  Certain restrictions on distributions on Senior Subordinated
     Units, Junior Subordinated Units and General Partner Units could result in
     cash that would otherwise be Available Cash being reserved for other
     purposes.  Cash distributions will be characterized as distributions from
     either Operating Surplus or Capital Surplus.

     The Senior Subordinated Units, the Junior Subordinated Units, and General
     Partner Units are each a separate class of interest in Star Gas Partners,
     and the rights of holders of those interests to participate in
     distributions differ from the rights of the holders of the Common Units.

     The Partnership intends to distribute to the extent there is sufficient
     available cash, at least a MQD of $0.575 per common unit, or $2.30 per
     common unit on a yearly basis.  In general, available cash will be
     distributed per quarter based on the following priorities:

        .  First, to the common units until each has received $0.575, plus any
           arrearages from prior quarters.
        .  Second, to the senior subordinated units until each has received
           $0.575.
        .  Third, to the junior subordinated units and general partner units
           until each has received $0.575.
        .  Finally, after each has received $0.575, available cash will be
           distributed proportionately to all units until target levels are met.

     If distributions of available cash exceed target levels greater than
     $0.604, the senior subordinated units, junior subordinated units and
     general partner units will receive incentive distributions.

     The subordination period will end once the Partnership has met the
     financial tests stipulated in the partnership agreement, but it generally
     cannot end before October 1, 2002.  However, if the general partner is
     removed under some circumstances, the subordination period will end.  When
     the subordination period ends, all senior subordinated units and junior
     subordinated units will convert into Class B common units on a one-for-one
     basis, and each common unit will be redesignated as a Class A common unit.
     The main difference between the Class A common units and Class B common
     units is that the Class B common units will continue to have the right to
     receive incentive distributions and additional units.

     Distributions will not be made on the senior subordinated units, junior
     subordinated units, or general partner units until May 2000 at the
     earliest, at which time the Board will consider the appropriateness of any
     distribution payments for these units.

                                       10
<PAGE>

3)   Quarterly Distribution of Available Cash - (continued)

     The subordination period will generally extend until the first day of any
     quarter beginning on or after October 1, 2002 that each of the following
     three events occur:

     (1)  distributions of Available Cash from Operating Surplus on the common
          units, senior subordinated units, junior subordinated units and
          general partner units equal or exceed the sum of the minimum quarterly
          distributions on all of the outstanding common units, senior
          subordinated units, junior subordinated units and general partner
          units for each of the three non-overlapping four-quarter periods
          immediately preceding that date;

     (2)  the Adjusted Operating Surplus generated during each of the three
          immediately preceding non-overlapping four-quarter periods equaled or
          exceeded the sum of the minimum quarterly distributions on all of the
          outstanding common units, senior subordinated units, junior
          subordinated units and general partner units during those periods on a
          fully diluted basis for employee options or other employee incentive
          compensation. This includes all outstanding units and all common units
          issuable upon exercise of employee options that have, as of the date
          of determination, already vested or are scheduled to vest before the
          end of the quarter immediately following the quarter for which the
          determination is made. It also includes all units that have as of the
          date of determination been earned by but not yet issued to our
          management for incentive compensation; and

     (3)  there are no arrearages in payment of the minimum quarterly
          distribution on the common units.


4)   Segment Reporting

     In accordance with SFAS No. 131, "Disclosures about Segments of an
     Enterprise and Related Information," the Partnership has two reportable
     segments, heating oil and propane.  Management has chosen to organize the
     enterprise under these two segments in order to leverage the expertise it
     has in each industry, allow each segment to continue to strengthen its core
     competencies and facilitate a clear means for evaluation.

     The heating oil segment is primarily engaged in the retail distribution of
     home heating oil, related equipment services, and equipment sales to
     residential and commercial customers.  It operates primarily in the
     Northeast and Mid-Atlantic states. Home heating oil is principally used by
     the Partnership's residential and commercial customers to heat their homes
     and buildings, and as a result, weather conditions have a significant
     impact on the demand for home heating oil.

     The propane segment is primarily engaged in the retail distribution of
     propane and related supplies and equipment to residential, commercial,
     industrial, agricultural and motor fuel customers, in the Midwest and the
     Northeast.  Propane is used primarily for space heating, water heating and
     cooking by the Partnership's residential and commercial customers and as a
     result, weather conditions also have a significant impact on the demand for
     propane.

     The following are the statements of operations and balance sheets for each
     segment as of the periods indicated.  The heating oil segment was
     consolidated with the propane segment beginning March 26, 1999.  There were
     no inter-segment sales between the propane segment and the heating oil
     segment

                                       11
<PAGE>

4)   Segment Reporting - (continued)

<TABLE>
<CAPTION>

(in thousands)                                   Three Months Ended              Three Months Ended
                                                  December 31, 1998               December 31, 1999
                                             ---------------------------    -----------------------------
                                             Heating                        Heating
                                              Oil     Propane   Consol.       Oil     Propane    Consol.
                                              ---     -------   -------       ---     -------    -------
<S>                                          <C>      <C>       <C>         <C>       <C>       <C>
Statement of Operations
-----------------------
Sales:
  Product                                    $     -  $27,149   $27,149     $123,885   $36,655   $160,540
  Installation, service,
    and appliance                                  -    3,088     3,088       22,448     3,898     26,346
                                             -------  -------   -------     --------   -------   --------
     Total sales                                   -   30,237    30,237      146,333    40,553    186,886

Costs and expenses:
  Cost of product                                  -   10,952    10,952       68,887    17,659     86,546
  Cost of installation,
    service, and appliances                        -    1,026     1,026       29,512     1,373     30,885
  Delivery and branch                              -   10,295    10,295       29,176    11,126     40,302
  Depreciation and
    amortization                                   -    3,008     3,008        5,306     3,098      8,404
  General and administrative                       -    1,429     1,429        2,886     1,795      4,681
  Net gain (loss) on sales of assets               -       (4)       (4)           3         9         12
                                             -------  -------   -------     --------   -------   --------
       Operating income                            -    3,523     3,523       10,569     5,511     16,080
Interest expense, net                              -    2,178     2,178        4,276     2,197      6,473
Amortization of debt
  issuance  costs                                  -       45        45           84        45        129
                                             -------  -------   -------     --------   -------   --------
       Income before
         income taxes                              -    1,300     1,300        6,209     3,269      9,478
Income tax expense                                 -        6         6           75        38        113
                                             -------  -------   -------     --------   -------   --------
        Net income                           $     -  $ 1,294   $ 1,294     $  6,134   $ 3,231   $  9,365
                                             =======  =======   =======     ========   =======   ========

Capital expenditures                         $     -  $ 1,312   $ 1,312     $    453   $ 1,116   $  1,569
                                             =======  =======   =======     ========   =======   ========
</TABLE>

<TABLE>
<CAPTION>
(in thousands)                                                       September 30, 1999                 December 31, 1999
                                                               -----------------------------      -----------------------------
                                                               Heating                (1)          Heating                 (1)
                                                                Oil       Propane    Consol.         Oil      Propane    Consol.
                                                                ---       -------    -------         ---      -------    -------
<S>                                                            <C>        <C>        <C>           <C>        <C>        <C>
Balance Sheet
-------------
Assets
Current assets:
  Cash and cash equivalents                                    $  4,270   $    222   $  4,492      $  7,071   $  2,839   $  9,910
  Receivables                                                    35,960      6,335     42,295        66,470     15,557     82,027
  Inventories                                                    16,498      9,819     26,317        17,603     10,397     28,000
  Prepaid expenses and other current assets                      13,678      1,156     13,764        11,561        698     11,296
                                                               --------   --------   --------      --------   --------   --------
         Total current assets                                    70,406     17,532     86,868       102,705     29,491    131,233
Property and equipment, net                                      39,849    115,118    154,967        39,303    114,755    154,058
Long-term portion of accounts receivable                          5,590          -      5,590         6,830          -      6,830
Investment in Petro Holdings                                          -     83,233          -             -     83,875          -
Intangibles and other assets, net                               236,981     54,938    291,919       235,161     54,103    289,273
                                                               --------   --------   --------      --------   --------   --------
         Total assets                                          $352,826   $270,821   $539,344      $383,999   $282,224   $581,394
                                                               ========   ========   ========      ========   ========   ========

Liabilities and Partners' Capital
Current Liabilities:
  Accounts payable                                             $  7,366   $  5,573   $ 12,939      $ 16,041   $  4,308   $ 20,248
  Bank credit facility borrowings                                     -      3,150      3,150        32,000      9,325     41,325
  Current maturities of long-term debt                            1,391          -      1,391        16,190      2,000     18,190
  Accrued expenses                                               39,012      4,231     43,044        36,397      5,660     42,066
  Unearned service contract revenue                              14,007          -     14,007        16,742          -     16,742
  Customer credit balances                                       26,657      4,437     31,094        19,274      3,400     22,674
                                                               --------   --------   --------      --------   --------   --------
         Total current liabilities                               88,433     17,391    105,625       136,644     24,693    161,245
Long-term debt                                                  174,338    102,300    276,638       156,830    105,300    262,130
Other long-term liabilities                                       6,822         92      6,905         6,650         98      6,748

Partners' Capital / Equity Capital                               83,233    151,038    150,176        83,875    152,133    151,271
                                                               --------   --------   --------      --------   --------   --------
         Total Liabilities and Partners' Capital               $352,826   $270,821   $539,344      $383,999   $282,224   $581,394
                                                               ========   ========   ========      ========   ========   ========
</TABLE>

(1)  The consolidated amounts include the necessary entries to eliminate the
     Investment in Petro Holdings.

                                       12
<PAGE>

5)   Inventories

     The components of inventory were as follows:

<TABLE>
<CAPTION>

     (in thousands)                                    September 30, 1999          December 31, 1999
                                                       ------------------          ------------------
     <S>                                               <C>                         <C>
     Propane gas                                            $ 7,678                     $ 8,468
     Propane appliances and equipment                         2,141                       1,929
     Fuel oil                                                 9,959                      11,047
     Fuel oil parts and equipment                             6,539                       6,556
                                                            -------                     -------
                                                            $26,317                     $28,000
                                                            =======                     =======
</TABLE>

     Substantially all of the Partnership's propane supplies for the Northeast
     retail operations are purchased under supply contracts. Certain of the
     supply contracts provide for minimum and maximum amounts of propane to be
     purchased thereunder, and provide for pricing in accordance with posted
     prices at the time of delivery or include a pricing formula that typically
     is based on current market prices. Historically, spot purchases from local
     refiners supply most of the propane for the Midwest operations, with spot
     purchases from Mont Belvieu, Texas accounting for approximately one-seventh
     of the Partnership's total volume of propane purchases. In addition, the
     three single largest suppliers in the aggregate account for approximately
     half of total propane purchases.

     The Partnership obtains home heating oil in either barge or truckload
     quantities, and has contracts with over 80 terminals for the right to
     temporarily store its heating oil at facilities not owned by the
     Partnership. Purchases are made pursuant to supply contracts or on the spot
     market. The Partnership has market price based contracts for substantially
     all its petroleum requirements with 12 different suppliers, the majority of
     which have significant domestic sources for their product, and many of
     which have been suppliers for over 10 years. Typically supply contracts
     have terms of 12 months. All of the supply contracts provide for maximum
     and in some cases minimum quantities, and in most cases the price is based
     upon the market price at the time of delivery.

     The Partnership may enter into forward contracts with Mont Belvieu
     suppliers, heating oil suppliers or refineries which call for a fixed price
     for the product to be purchased based on current market conditions, with
     delivery occurring at a later date. In most cases the Partnership has
     entered into similar agreements to sell this product to customers for a
     fixed price based on market conditions. In the event that the Partnership
     enters into these types of contracts without a subsequent sale, it is
     exposed to some market risk. Currently, the Partnership does not have any
     contracts that if market conditions were to change, would have a material
     affect on its financial statements.

     Concentration of Revenue with Guaranteed Maximum Price Customers

     Approximately 25% of the volume sold in the Partnership's heating oil
     segment is sold to individual customers under an agreement pre-establishing
     the maximum sales price of home heating oil over a twelve month period. The
     maximum price at which home heating oil is sold to these capped-price
     customers is generally renegotiated prior to the heating season of each
     year based on current market conditions. The heating oil segment currently
     enters into forward purchase contracts and futures contracts for a
     substantial majority of the heating oil it sells to these capped-price
     customers in advance and at a fixed cost. Should events occur after a
     capped-sales price is established that increases the cost of home heating
     oil above the amount anticipated, margins for the capped-price customers
     whose heating oil was not purchased in advance would be lower than
     expected, while those customers whose heating oil was purchased in advance
     would be unaffected. Conversely, should events occur during this period
     that decrease the cost of heating oil below the amount anticipated, margins
     for the capped-price customers whose heating oil was purchased in advance
     could be lower than expected, while those customers whose heating oil was
     not purchased in advance would be unaffected or higher than expected.

                                       13
<PAGE>

5)   Inventories - (continued)

     In accordance with SFAS No. 80, "Accounting for Futures Contracts," futures
     contracts are classified as a hedge when the item to be hedged exposes the
     company to price risk and the futures contract reduces that risk exposure.
     Future contracts that relate to transactions that are expected to occur are
     accounted for as a hedge when the significant characteristics and expected
     terms of the anticipated transactions are identified and it is probable
     that the anticipated transaction will occur.  If a transaction does not
     meet the criteria to qualify as a hedge, it is considered to be
     speculative.  Any gains or losses associated with futures contracts which
     are classified as speculative are recognized in the current period.  If a
     futures contract that has been accounted for as a hedge is closed or
     matures before the date of the anticipated transaction, the accumulated
     change in value of the contract is carried forward and included in the
     measurement of the related transaction.  Option contracts are accounted for
     in the same manner as futures contracts. Based upon the above the
     Partnership accounts for its derivative activity as hedge transactions.

     To hedge a substantial portion of the heating oil gallons being sold to its
     guaranteed maximum price customers, the heating oil segment at December 31,
     1999 had 1.7 million gallons of forward purchase contracts for heating oil
     with a notional value of $1.0 million and a fair market value of $1.1
     million; 40.2 million gallons of futures contracts to buy heating oil with
     a notional value of $20.5 million and a fair market value of $26.9 million;
     23.1 million gallons of futures contracts to sell heating oil with a
     notional value of $11.9 million and a fair market value of $15.3 million;
     33.6 million gallons of option contracts to buy heating oil with a notional
     value of $20.0 million and a fair market value of $20.1 million; and 9.7
     million gallons of option contracts to sell heating oil with a notional
     value of $5.0 million and a fair market value of $6.5 million. The
     contracts expire at various times with no contract expiring later than July
     2000.

     At December 31, 1999 the propane segment had options to buy 2.5 million
     gallons of propane with a notional value of $0.8 million and a fair market
     value totaling $1.1 million. The option contract expires in March 2000.

     At December 31, 1999 the unrealized gains on the heating oil segment's and
     propane segment's hedging activity was approximately $3.3 million and $0.3
     million respectively.  The heating oil segment's hedging activity is
     designed to help it achieve its planned margins and represents
     approximately 25% of the expected total home heating oil volume sold in a
     twelve month period. The propane segment's hedging activity is also
     designed to help it achieve its planned margins and represents
     approximately 5% of the expected total propane volume sold in a twelve
     month period.

     The carrying amount of all hedging financial instruments at December 31,
     1999 was $1.0 million and was included in Prepaid Expenses on the
     Consolidated Balance Sheet. The risk that counterparties to such
     instruments may be unable to perform is minimized by limiting the
     counterparties to major oil companies and major financial institutions,
     including the New York Mercantile Exchange.  The Partnership does not
     expect any losses due to counterparty default.

                                       14
<PAGE>

6)   Acquisitions

     During the three month period ending December 31, 1999, the Partnership
     acquired two unaffiliated retail heating oil dealers and one unaffiliated
     retail propane dealer.  The aggregate consideration for these acquisitions
     accounted for by the purchase method of accounting was approximately $3.6
     million. Purchase prices have been allocated to the acquired assets and
     liabilities based on their respective fair market values on the dates of
     acquisition.  The purchase prices in excess of the fair values of net
     assets acquired were classified as intangibles in the Condensed
     Consolidated Balance Sheets.

     The following table indicates the allocation of the aggregate purchase
     price paid for these acquisitions and the respective periods of
     amortization assigned:

<TABLE>
<CAPTION>
(in thousands)                                                                  Useful Lives
                                                                                ------------
      <S>                                                           <C>         <C>
      Land                                                          $  100        -
      Fleet                                                            517      5 - 30 years
      Tanks and equipment                                              480      5 - 30 years
      Customer lists                                                 1,241      7 - 15 years
      Restrictive covenants                                            700           5 years
      Goodwill                                                         541          25 years
      Inventory                                                          6        -
      Working capital                                                   30        -
                                                                    ------
          Total                                                     $3,615
                                                                    ======
</TABLE>

     Sales and net income have been included in the Condensed Consolidated
     Statements of Operations from the respective dates of acquisition. The
     following unaudited pro forma information presents the results of
     operations of the Partnership and the acquisitions previously described, as
     if the acquisitions had taken place on October 1, 1999.

     (in thousands, except per share data)

<TABLE>
<CAPTION>
<S>                                                                              <C>
Sales                                                                            $187,223
                                                                                 ========
Net income                                                                       $  9,323
                                                                                 ========

General Partner's interest in net income                                         $    173
                                                                                 ========

Limited Partners' interest in net income                                         $  9,150
                                                                                 ========

Basic and Diluted net income per limited partner unit                            $   0.53
                                                                                 ========
</TABLE>


7)   Supplemental Disclosure of Cash Flow Information

<TABLE>
<CAPTION>
     (in thousands)                               Three Months Ended December 31,
                                             ----------------------------------------
                                                   1998                   1999
                                             ------------------     -----------------
     <S>                                     <C>                    <C>
     Cash paid during the period for:
      Income taxes                              $            -        $           3
      Interest                                  $          279        $       7,897
</TABLE>

                                       15
<PAGE>

8)   Earnings Per Limited Partner Units

<TABLE>
<CAPTION>
     (in thousands, except per unit data)                                          Three Months Ended December 31,
                                                                                   -------------------------------
                                                                                        1998             1999
                                                                                   ---------------  --------------
     Basic Earnings Per Unit:
     ------------------------
     <S>                                                                           <C>              <C>
      Net income                                                                        $1,294          $ 9,365
      Less:  General Partner's interest in net income                                       26              174
                                                                                        ------          -------
         Limited Partner's interest in net income                                       $1,268          $ 9,191
                                                                                        ======          =======

      Common Units                                                                       3,859           14,378
      Senior Subordinated Units                                                            -              2,477
      Junior Subordinated Units                                                            -                345
      Subordinated Units                                                                 2,396              -
                                                                                        ------          -------
         Weighted average number of Limited Partner units outstanding                    6,255           17,200
                                                                                        ======          =======

         Basic earnings per unit                                                        $ 0.20          $  0.53
                                                                                        ======          =======

      Diluted Earnings Per Unit:
      --------------------------
      Effect of dilutive securities                                                     $  -            $   -
                                                                                        ------          -------
         Limited Partner's interest in net income                                       $1,268          $ 9,191
                                                                                        ======          =======

      Effect of dilutive securities                                                        -                -
                                                                                        ------          -------
         Weighted average number of Limited Partner units outstanding                    6,255           17,200
                                                                                        ======          =======

         Diluted earnings per unit                                                      $ 0.20          $  0.53
                                                                                        ======          =======
</TABLE>


9)   Subsequent Events

     Cash Distribution

     On January 24, 2000 the Partnership announced that it would pay a cash
     distribution of $0.575 per Common Unit for the three months ended December
     31, 1999. The distribution will be paid on February 11, 2000 to holders of
     record as of February 2, 2000.

     Equity and Debt Registration

     On January 3, 2000 the Partnership filed a shelf registration for $100
     million of Common Units, Partnership Securities (any class of limited
     partner interest other than common units) and debt securities with the
     Securities and Exchange Commission.

     Acquisition

     On January 28, 2000 the Partnership announced the signing of a purchase
     agreement to acquire certain operations of a privately owned Midwest retail
     propane distributor, consisting of more than 12.4 million gallons of
     propane sold annually to 14,000 customers. The consummation of this
     transaction is subject to finalization of financing and certain other
     conditions.

     Letter of Intent to Enter Deregulated Electric and Natural Gas Markets

     On January 28, 2000 the Partnership announced the signing of a letter of
     intent to invest approximately $8.0 million to acquire a controlling
     interest in a privately owned independent marketer of electricity and
     natural gas. The consummation of this transaction is subject to the signing
     of a definitive agreement, finalization of financing and other normal
     closing conditions.

                                       16
<PAGE>

                   STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS


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 Partnership's expectations or beliefs concerning future events that involve
risks and uncertainties, including those associated with the effect of weather
conditions on the Partnership's financial performance, the price and supply of
home heating oil and propane, and the ability of the Partnership to obtain new
accounts and retain existing accounts.  All statements other than statements of
historical facts included in this Report including, without limitation, the
statements under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" and elsewhere herein, are forward-
looking statements. Although the Partnership 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. Important
factors that could cause actual results to differ materially from the
Partnership's expectations ("Cautionary Statements") are disclosed in this
Report, including without limitation and in conjunction with the forward-looking
statements included in this report. All subsequent written and oral forward-
looking statements attributable to the Partnership or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.


Overview

In analyzing the financial results of the Partnership, the following matters
should be considered.

The Petro acquisition was made on March 26, 1999. Accordingly, the results of
operations for the three month period ended December 31, 1999 include Petro's
results whereas the results for the previous corresponding quarter only include
the propane segment's results.

The primary use for heating oil and propane is for heating in residential and
commercial applications.  As a result, weather conditions have a significant
impact on financial performance and should be considered when analyzing changes
in financial performance.  In addition, gross margins vary according to customer
mix.  For example, sales to residential customers generate higher profit margins
than sales to other customer groups, such as agricultural customers.
Accordingly, a change in customer mix can affect gross margins without
necessarily impacting total sales.

Also, the propane and heating oil industries are seasonal in nature with peak
activity occurring during the winter months.  Accordingly, results of operations
for the periods presented are not indicative of the results to be expected for a
full year.

                                       17
<PAGE>

                     THREE MONTHS ENDED DECEMBER 31, 1999
               COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1998
               ------------------------------------------------


Volume

For the three months ended December 31, 1999, retail volume of home heating oil
and propane increased 106.7 million gallons or 362.8%, to 136.1 million gallons,
as compared to 29.4 million gallons for the three months ended December 31,
1998.  This increase was due to 104.0 million gallons provided by the heating
oil segment and a 2.7 million gallon increase in the propane segment.  While
retail propane volume was favorably impacted by acquisitions, colder
temperatures and internal growth of over 3.0%, which led to a 4.8 million gallon
increase in volume, a 2.1 million gallon reduction in agricultural sales
partially offset these benefits.  The abnormal weather conditions during the
first fiscal quarter resulted in a very dry fall harvest which significantly
reduced propane demand for crop drying.  In the Partnership's propane operating
areas, temperatures for the three months ended December 31, 1999, were 2.7%
colder than in the prior year's comparable period and 12.2% warmer than normal.


Sales

For the three months ended December 31, 1999, sales increased $156.6 million, or
518.1%, to $186.9 million, as compared to $30.2 million for the three months
ended December 31, 1998.  This increase was due to $146.3 million provided by
the home heating oil segment and a $10.3 million increase in the propane
segment.  Sales rose in the propane segment due to the increased retail volume
in the base business, acquisitions and from increased selling prices.  Selling
prices increased versus the prior year's comparable period in response to higher
propane supply costs.  Sales in the propane division also rose by $0.4 million
due to an increased focus on the sales of rationally related products.


Cost of Product

For the three months ended December 31, 1999, cost of product increased $75.6
million, or 690.2%, to $86.5 million, as compared to $11.0 million for the three
months ended December 31, 1998.  Cost of product relating to heating oil sales
accounted for $68.9 million of this increase.  In the propane segment, cost of
product increased by $6.7 million due to the impact of higher retail volume
sales and higher propane supply cost.  While both propane selling prices and
propane supply cost increased on a per gallon basis, the increase in selling
prices was greater than the increase in supply costs, which resulted in an
increase in per gallon margins.


Cost of Installation, Service and Appliances

For the three months ended December 31, 1999, cost of installation, service and
appliances increased $29.9 million, to $30.9 million, as compared to $1.0
million for the three months ended December 31, 1998.  This increase was almost
entirely due to the inclusion of $29.5 million of expenses relating to the
heating oil segment's cost of installation and service.

                                       18
<PAGE>

Delivery and Branch Expenses

For the three months ended December 31, 1999, delivery and branch expenses
increased $30.0 million, or 291.5%, to $40.3 million, as compared to $10.3
million for the three months ended December 31, 1998.  Delivery and branch
expenses at the heating oil segment accounted for $29.2 million of this change.
The $0.8 million increase in delivery and branch expenses for the propane
segment was due to additional operating cost of acquired propane companies and
expenses relating to the propane segment's tank set program, which has increased
same store residential volume by approximately 3%.


Depreciation and Amortization

For the three months ended December 31, 1999, depreciation and amortization
expenses increased $5.4 million, or 179.4%, to $8.4 million, as compared to $3.0
million for the three months ended December 31, 1998.  This increase was
primarily due to $5.3 million of heating oil segment depreciation and
amortization with the remainder attributable to the impact of propane
acquisitions and other fixed asset additions.


General and Administrative Expenses

For the three months ended December 31, 1999, general and administrative
expenses increased $3.3 million, or 227.6%, to $4.7 million, as compared to $1.4
million for the three months ended December 31, 1998.  General and
administrative expenses at the heating oil segment accounted for $2.9 million of
this increase.  The $0.4 million increase in general and administrative expenses
at the propane segment was largely due to an increase in incentive compensation,
inflation and employee relocation expenses.


Interest Expense, net

For the three months ended December 31, 1999, net interest expense increased
$4.3 million, or 197.2%, to $6.5 million, as compared to $2.2 million for the
three months ended December 31, 1998.  This change was entirely due to $4.3
million of interest expense at the heating oil segment.


Net Income

For the three months ended December 31, 1999,  net income increased $8.1
million, or 623.7%, to $9.4 million, as compared to $1.3 million for the three
months ended December 31, 1998.  Net income provided by the heating oil segment
was $6.1 million.  The increase in the propane segment's net income was
attributable to the impact of propane acquisitions, higher per gallon gross
profit margins and additional retail volume provided by colder temperatures and
internal growth.


Earnings before interest, taxes, depreciation and amortization, less net gain
(loss) on sales of equipment (EBITDA)

Earnings before interest, taxes, depreciation and amortization, less net gain
(loss) on sales of equipment (EBITDA) increased $17.9 million, or 274.5%, to
$24.5 million for the three months ended December 31, 1999, as compared to $6.5
million for the prior year's comparable period.  This increase was due to the
impact of propane acquisitions, higher per gallon propane gross profit margins,
additional propane retail volume and $15.9 million of EBITDA generated by the
heating oil segment.  EBITDA 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 ability to service debt obligations), but
provides additional information for evaluating the Partnership's ability to make
the Minimum Quarterly Distribution.  The definition of "EBITDA" set forth above
may be different from that used by other companies.

                                       19
<PAGE>

Liquidity and Capital Resources

Cash provided by bank facility borrowings of $43.2 million were used for $21.5
million in operating activities, $5.0 million investing activities, $8.3 million
for distributions and $3.0 for debt repayment and other financing activities. As
a result of the above activity, net cash increased $5.4 million.

The seasonal nature of the Partnership's business results in the sale by the
Partnership of approximately 30% of its volume in the first fiscal quarter,
resulting in a usual increase in receivables during the period.  For the quarter
ended December 31, 1999 operating activities used $21.5 million of cash; as the
$41.4 million utilized by receivables were partially offset by $19.9 million of
cash provided by other operating activities.  In addition, the $5.0 million
utilized for investing activities were used primarily for $1.5 million of growth
and maintenance capital expenditures and $3.6 million of acquisitions.

For the remainder of fiscal 2000, the Partnership anticipates paying interest of
$18.7 million and anticipates growth and maintenance capital additions of
approximately $6.0 million. The Partnership has no material commitments for
capital expenditures.  In addition, the Partnership plans to pay distributions
on its units in accordance with the partnership agreement. The Partnership also
plans to pursue strategic acquisitions as part of its business strategy and to
prudently fund such acquisitions through a combination of internally generated
cash, debt and equity. Based on its current cash position, bank credit
availability and net cash from operating activities, the Partnership expects to
be able to meet all of its obligations for fiscal 2000.

Year 2000

As a result of the preparation and series of analyses and tests performed
before, during and after December 31, 1999, the Partnership did not experience
any significant disruption in information technology or operations as a result
of the date change-over to the year 2000.

Accounting Principles Not Yet Adopted

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133 - "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In June
1999, FASB amended the effective date for SFAS No. 133 to all fiscal quarters of
all fiscal years beginning after June 15, 2000.  The Partnership is assessing
the impact and disclosure requirements of SFAS No. 133.

                                       20
<PAGE>

Item 3.   Quantitative and Qualitative Disclosures About Market Risk
          ----------------------------------------------------------

The Partnership is exposed to interest rate risk primarily through its bank
credit facilities.  The Partnership utilizes these borrowings to meet its
working capital needs and also to fund the short-term needs of its acquisition
program.

At December 31, 1999, the Partnership had outstanding borrowings of
approximately $57.6 million under its Bank Credit Facilities.  In the event that
interest rates associated with these facilities were to increase 100 basis
points, the impact on future cash flows would be a decrease of approximately
$0.6 million annually.

The Partnership also selectively uses derivative financial instruments to manage
its exposure to market risk related to changes in the current and commodity
market price of home heating oil for its heating oil segment and to some extent
propane for its propane segment.  The Partnership does not hold derivatives for
trading purposes.  The value of market sensitive derivative instruments is
subject to change as a result of movements in market prices.  Consistent with
the nature of hedging activity, associated unrealized gains and losses would be
offset by corresponding decreases or increases in the purchase price the
Partnership would pay for the home heating oil and propane being hedged.
Sensitivity analysis is a technique used to evaluate the impact of hypothetical
market value changes.  Based on a hypothetical ten percent increase in the cost
of home heating oil and propane at December 31, 1999, the potential unrealized
gain on the Partnership's hedging activity would be increased by $1.6 million to
an unrealized gain of $5.2 million; and conversely a hypothetical ten percent
decrease in the cost of home heating oil and propane would decrease the
unrealized gain by $0.6 million to an unrealized gain of $3.0 million.



                           PART II OTHER INFORMATION
                           -------------------------


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


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


          (27) Financial Data Schedule

                                       21
<PAGE>

                                   SIGNATURE
                                   ---------



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



Star Gas Partners, L.P.
By:  Star Gas LLC (General Partner)



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


/s/  George Leibowitz          Chief Financial Officer          February 1, 2000
     -----------------------
     George Leibowitz          Star Gas LLC
                               (Principal Financial Officer)

/s/  James J. Bottiglieri      Vice President                   February 1, 2000
     -----------------------
     James J. Bottiglieri      Star Gas LLC


                                       22