<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, 2001
                                               -----------------

                                       OR

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

             For the transition period from _________ to _________

                        Commission File Number: 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 of incorporation or organization)                  (I.R.S. Employer Identification No.)

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

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

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

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
                                                 -------          -------

Indicate the number of shares outstanding of each issuer's classes of common
stock, as of January 25, 2002:

25,151,946    Common Units
 3,134,110    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>
Part I    Financial Information

          Item 1 - Condensed Consolidated Financial Statements

                 Condensed Consolidated Balance Sheets as of
                      September 30, 2001 and December 31, 2001                                                              3

                 Condensed Consolidated Statements of Operations for the
                      Three months ended December 31, 2000 and December 31, 2001                                            4

                 Condensed Consolidated Statements of Comprehensive Income for the
                      Three months ended December 31, 2000 and December 31, 2001                                            5

                 Condensed Consolidated Statement of Partners' Capital for the three months ended
                      December 31, 2001                                                                                     6

                 Condensed Consolidated Statements of Cash Flows for the three months ended
                      December 31, 2000 and December 31, 2001                                                               7

                 Notes to Condensed Consolidated Financial Statements                                                       8-14

          Item 2 - Management's Discussion and Analysis of Financial Condition and
                      Results of Operations                                                                                 15-20

          Item 3 - Quantitative and Qualitative Disclosures About Market Risk                                               20

Part II   Other Information:

          Item 6 - Exhibits and Reports on Form 8-K                                                                         20

          Signature                                                                                                         21
</TABLE>


                                       2

<PAGE>

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                     September 30,        December 31,
                                                                                         2001                 2001
                                                                                     ------------        -------------
                                                                                                          (unaudited)
<S>                                                                                  <C>                 <C>
Assets
Current assets:

    Cash and cash equivalents                                                         $     17,228        $      22,719
    Receivables, net of allowance of $11,364 and $12,731, respectively                     104,973              129,206
    Inventories                                                                             41,130               52,638
    Prepaid expenses and other current assets                                               21,931               27,644
                                                                                      ------------        -------------
           Total current assets                                                            185,262              232,207
                                                                                      ------------        -------------

Property and equipment, net                                                                235,371              238,225
Long-term portion of accounts receivable                                                     6,752                7,324
Intangibles and other assets, net                                                          471,434              480,353
                                                                                      ------------        -------------
           Total assets                                                               $    898,819        $     958,109
                                                                                      ============        =============
Liabilities and Partners' Capital
Current liabilities:

    Accounts payable                                                                  $     35,800        $      41,467
    Working capital facility borrowings                                                     13,866               61,822
    Current maturities of long-term debt                                                    11,886               45,613
    Accrued expenses                                                                        77,678               72,623
    Unearned service contract revenue                                                       24,575               28,375
    Customer credit balances                                                                65,207               73,693
                                                                                      ------------        -------------
           Total current liabilities                                                       229,012              323,593
                                                                                      ------------        -------------

Long-term debt                                                                             457,086              422,327
Other long-term liabilities                                                                 14,457               14,682

Partners' Capital:
    Common unitholders                                                                     209,911              206,646
    Subordinated unitholders                                                                 2,772                9,728
    General partner                                                                         (2,220)              (2,268)
    Accumulated other comprehensive income                                                 (12,199)             (16,599)
                                                                                      ------------        -------------
           Total Partners' Capital                                                         198,264              197,507
                                                                                      ------------        -------------

           Total Liabilities and Partners' Capital                                    $    898,819        $     958,109
                                                                                      ============        =============
</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)                                                      2000                 2001
                                                                                    -------------          -------------
<S>                                                                                 <C>                    <C>
Sales                                                                               $     323,504          $     286,223

Costs and expenses:
   Cost of sales                                                                          231,302                184,247
   Delivery and branch expenses                                                            49,334                 56,321
   Depreciation and amortization                                                            9,647                 14,503
   General and administrative expenses                                                      6,882                  8,185
   TG&E customer acquisition expense                                                          653                    221
   Unit compensation expense                                                                  500                    640
                                                                                    -------------          -------------
       Operating income                                                                    25,186                 22,106
Interest expense, net                                                                       8,117                 10,144
Amortization of debt issuance costs                                                           145                    312
                                                                                    -------------          -------------
       Income before income taxes and cumulative effect of
          change in accounting principle                                                   16,924                 11,650
Income tax expense                                                                            716                    147
                                                                                    -------------          -------------
       Income before cumulative change in accounting principle                             16,208                 11,503
Cumulative effect of change in accounting principle for
  adoption of SFAS No. 133, net of income taxes                                             1,466                      -
                                                                                    -------------          -------------

       Net income                                                                   $      17,674          $      11,503
                                                                                    =============          =============

       General Partner's interest in net income                                     $         283          $         139
                                                                                    -------------          -------------

Limited Partners' interest in net income                                            $      17,391          $      11,364
                                                                                    =============          =============

Net income per Limited Partner Unit:
   Basic                                                                            $        0.87          $        0.42
                                                                                    =============          =============
   Diluted                                                                          $        0.86          $        0.42
                                                                                    =============          =============


   Basic weighted average number of Limited Partner Units
     outstanding                                                                            20,073                26,760
                                                                                    ==============         =============
   Diluted number of Limited Partner Units                                                  20,186                26,988
                                                                                    ==============         =============
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                       4

<PAGE>

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                       Three Months Ended December 31,
                                                                      ---------------------------------
(in thousands)                                                             2000                2001
                                                                      -------------       -------------
<S>                                                                   <C>                 <C>
Net income                                                            $      17,674       $      11,503

Other comprehensive loss
Installation, service and appliances
   Unrealized loss on derivative instruments                                 (6,305)             (9,065)
                                                                      -------------       -------------
Total sales

Comprehensive income                                                  $      11,369       $       2,438
                                                                      =============       =============


Reconciliation of Accumulated Other Comprehensive
  Income

Balance, beginning of period                                          $           -       $     (12,199)
   Cumulative effect of the adoption of SFAS No. 133                         10,544                   -
   Current period reclassification to earnings                                 (350)              4,665
   Current period other comprehensive loss                                   (6,305)             (9,065)
                                                                      -------------       -------------
Balance, end of period                                                $       3,889       $     (16,599)
                                                                      =============       =============
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                       5

<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                                                Other
                                      --------------------------------                                        Compre-      Total
                                               Senior  Junior General              Senior   Junior  General   hensive    Partners'
                                      Common   Sub.    Sub.   Partner    Common     Sub.     Sub.   Partner   Income      Capital
                                      -------- ------- ------ -------- ---------- --------- ------- --------- ---------- -----------
<S>                                   <C>      <C>     <C>     <C>     <C>        <C>       <C>     <C>       <C>        <C>
Balance as of September 30, 2001       23,394    2,717    345      326   $209,911   $3,483    $(711)  $(2,220)  $(12,199)  $198,264

Issuance of common units                   33                                 207                                               207
Issuance of senior subordinated                   303                                7,339                                    7,339
units
Net income

                                                                            9,979    1,238      147     139                  11,503
Other comprehensive loss, net                                                                                     (4,400)    (4,400)
Distributions:

  ($0.575 per unit)                                                     (13,451)  (1,569)      (199)   (187)                (15,406)
                                      -------- ------- ------ -------- ---------- --------- ------- --------- ---------- -----------
Balance as of December 31, 2001         23,427   3,020    345      326   $206,646   $10,491   $(763)  $(2,268)  $(16,599)   $197,507
                                      ======== ======= ====== ======== ========== ========= ======= ========= ========== ===========
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                       6

<PAGE>

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)

<TABLE>
<CAPTION>
(in thousands)                                                                          Three Months Ended December 31,
                                                                                       --------------------------------
                                                                                         2000                     2001
                                                                                       ----------             ---------
<S>                                                                                    <C>                    <C>
Cash flows provided by (used in) operating activities:
Net income                                                                             $  17,674              $  11,503
Adjustments to reconcile net income to net cash provided by
 operating activities:
Depreciation and amortization                                                              9,647                 14,503
Amortization of debt issuance cost                                                           145                    312
Unit compensation expense                                                                    500                    640
Provision for losses on accounts receivable                                                1,337                  1,237
Gains on sales of fixed assets                                                               (11)                   (19)
Cumulative effect of change in accounting principle for the adoption of
 SFAS No. 133                                                                             (1,466)                     -
Changes in operating assets and liabilities:
     Increase in receivables                                                             (86,467)               (25,858)
     Increase in inventories                                                             (16,322)               (10,881)
     Increase in other assets                                                            (10,155)               (18,051)
     Increase in accounts payable                                                         33,726                  6,284
     (Decrease) increase in other current and long-term liabilities                       (6,067)                21,253
                                                                                       ----------             ---------
              Net cash provided by (used in) operating activities                        (57,459)                   923
                                                                                       ----------             ---------

Cash flows provided by (used in) investing activities:
Capital expenditures                                                                      (4,118)                (5,381)
Proceeds from sales of fixed assets                                                          127                  1,128
Acquisitions                                                                             (19,621)               (22,531)
                                                                                       ----------             ----------
              Net cash used in investing activities                                      (23,612)               (26,784)
                                                                                       ----------             ----------

Cash flows provided by (used in) financing activities:
Working capital facility borrowings                                                       79,190                 60,850
Working capital facility repayments                                                       (8,657)               (12,894)
Acquisition facility borrowings                                                           11,700                 28,650
Acquisition facility repayments                                                          (41,800)               (16,000)
Repayment of debt                                                                         (4,258)               (13,682)
Proceeds from issuance of debt                                                            40,292                      -
Distributions                                                                            (10,749)               (15,406)
Increase in deferred charges                                                                 (97)                  (120)
Proceeds from issuance of Common Units, net                                               23,364                      -
Other                                                                                       (539)                   (46)
                                                                                       ----------             ---------
              Net cash provided by financing activities                                    88,446                31,352
                                                                                       ---------              ---------

              Net increase in cash                                                         7,375                  5,491
Cash at beginning of period                                                               10,910                 17,228
                                                                                       ---------              ---------
Cash at end of period                                                                  $  18,285              $  22,719
                                                                                       =========              =========
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                       7

<PAGE>

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1)       Partnership Organization

         Star Gas Partners, L.P. ("Star Gas Partners" or the "Partnership") is a
         diversified home energy distributor and services provider, specializing
         in heating oil, propane, natural gas and electricity. Star Gas Partners
         is a Master Limited Partnership, which at December 31, 2001 had 23.4
         million common limited partner units (trading symbol "SGU" representing
         a 86.4% limited partner interest in Star Gas Partners) and 3.0 million
         senior subordinated units (trading symbol "SGH" representing a 11.1%
         limited partner interest in Star Gas Partners), which are traded on the
         New York Stock Exchange. Additional interest in Star Gas Partners are
         comprised of 0.3 million junior subordinated units (representing a 1.3%
         limited partner interest in Star Gas Partners) and 0.3 million general
         partner units (representing a 1.2% general partner interest in Star Gas
         Partners).

         Operationally, the Partnership is organized as follows:

            .  Petro Holdings, Inc. ("Petro" or the "heating oil segment"), is
               the nation's largest distributor of home heating oil and serves
               approximately 525,000 customers in the Northeast and
               Mid-Atlantic. Petro is an indirect wholly owned subsidiary of
               Star Gas Propane, L.P.

            .  Star Gas Propane, L.P., ("Star Gas Propane" or the "propane
               segment") is a wholly owned subsidiary of the Partnership. Star
               Gas Propane markets and distributes propane gas and related
               products to more than 280,000 customers in the Midwest,
               Northeast, Florida and Georgia.

            .  Total Gas and Electric ("TG&E" or the "natural gas and electric
               reseller segment") is an energy reseller that markets natural gas
               and electricity to residential households in deregulated energy
               markets in the states of New York, New Jersey, Florida, Maryland
               and the District of Columbia and serves approximately 50,000
               residential customers. TG&E is an 80% owned subsidiary of the
               Partnership.

            .  Star Gas Partners ("Partners" or the "Public Master Limited
               Partnership") includes the office of the Chief Executive Officer
               and in addition has the responsibility for maintaining investor
               relations and investor reporting for the Partnership.

2)       Summary of Significant Accounting Policies

         Basis of Presentation
         The Consolidated Financial Statements include the accounts of Star Gas
         Partners, L.P., and its subsidiaries. The Partnership consolidates 80%
         of TG&E's balance sheet. Revenue and expenses are also consolidated
         with the Partnership with a deduction for the net loss allocable to the
         minority interest, which amount has been limited based upon the equity
         of the minority interest. All material intercompany items and
         transactions have been eliminated in consolidation

         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 three month
         periods ended December 31, 2000 and December 31, 2001 are not
         necessarily indicative of the results to be expected for the full year.

         Inventories
         Inventories are stated at the lower of cost or market and are computed
         on a first-in, first-out basis. At the dates indicated, the components
         of inventory were as follows:

<TABLE>
<CAPTION>

                                                                 September 30, 2001           December 31, 2001
                                                                 ------------------           -----------------
                 (in thousands)
                 <S>                                             <C>                           <C>
                 Propane gas                                         $    9,546                    $    11,489
                 Propane appliances and equipment                         3,635                          3,622
                 Fuel oil                                                12,403                         20,919
                 Fuel oil parts and equipment                            12,332                         12,241
                 Natural gas                                              3,214                          4,367
                                                                     ----------                    -----------
                                                                     $   41,130                    $    52,638
                                                                     ==========                    ===========
</TABLE>
         Reclassifications
         Certain prior year amounts have been reclassified to conform with the
current year presentations.


                                       8

<PAGE>

Summary of Significant Accounting Policies - (continued)

         Derivatives and Hedging

         The Partnership periodically hedges a portion of its home heating oil,
         propane and natural gas purchases through the use of futures, options,
         collars and swap agreements. The purpose of the hedges is to provide a
         measure of stability in the volatile market of home heating oil,
         propane and natural gas prices and to manage its exposure to commodity
         price risk under certain existing sales commitments. The Partnership
         also has derivative agreements that management has decided not to treat
         as hedge transactions for accounting purposes and as such,
         mark-to-market adjustments are recognized currently in earnings.

         The accounting treatment of changes in fair value is dependent upon
         whether or not a derivative instrument is designated as a hedge, and if
         so, the type of hedge. For derivatives designated as cash flow hedges,
         changes in fair value are recognized in other comprehensive income
         until the hedged item is recognized in earnings. All of the
         Partnership's derivative instruments entered into for the purchase of
         heating oil, propane and natural gas to be sold to price plan customers
         are designated as cash flow hedges. For derivatives recognized as fair
         value hedges, changes in fair value are recognized in the statement of
         operations and are offset by related results of the hedged item.
         Substantially all of the derivative instruments entered into in order
         to mitigate the price exposure for firm commitments relating to the
         purchase of heating oil, propane and natural gas to be sold to price
         plan customers are designated as fair value hedges. Changes in the fair
         value of derivative instruments, which are not designated as hedges or
         which do not qualify for hedge accounting are recognized currently in
         earnings.

         For the three month period ended December 31, 2001, the Partnership
         recorded a net decrease to accumulated other comprehensive income of
         $4.4 million, principally representing an increase in the effective
         portion of cash flow hedges. In addition, the Partnership reclassified
         approximately $4.7 million of other comprehensive income into earnings
         in order to offset gains resulting from changes in the fair market
         value of fair value hedges.

         Accounting Principles Not Yet Adopted

         In July 2001, the FASB issued Statement No. 141, "Business
         Combinations" and Statement No. 142, "Goodwill and Other Intangible
         Assets." Statement No. 141 requires that the purchase method of
         accounting be used for all business combinations initiated after June
         30, 2001 as well as for all purchase method business combinations
         completed after June 30, 2001. Statement No. 141 also specifies
         criteria that intangible assets acquired in a purchase method business
         combination must meet to be recognized and reported apart from
         goodwill. Statement No. 142 will require that goodwill and intangible
         assets with indefinite useful lives no longer be amortized, but instead
         be tested for impairment at least annually in accordance with the
         provisions of Statement No. 142. Statement No. 142 will also require
         that intangible assets with definite useful lives be amortized over
         their respective estimated useful lives to their estimated residual
         values, and reviewed for impairment in accordance with SFAS No. 121,
         "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
         Assets to Be Disposed Of."

         The Partnership adopted the provisions of Statement No. 141 effective
         July 1, 2001 and Statement No. 142 is required to be adopted effective
         October 1, 2002. Futhermore, any goodwill and any intangible asset
         determined to have an indefinite useful life that are acquired in a
         purchase business combination completed after June 30, 2001 will not be
         amortized, but will continue to be evaluated for impairment in
         accordance with the appropriate pre-Statement No. 142 accounting
         literature. Goodwill and intangible assets acquired in business
         combinations completed before July 1, 2001 will continue to be
         amortized prior to the adoption of Statement No. 142.

         Statement No. 141 will require upon adoption of Statement No. 142, that
         the Partnership evaluate its existing intangible assets and goodwill
         that were acquired in a prior purchase business combination, and to
         make any necessary reclassifications in order to conform with the new
         criteria in Statement No. 141 for recognition apart from goodwill. Upon
         adoption of Statement No. 142, the Partnership will be required to
         reassess the useful lives and residual values of all intangible assets
         acquired in purchase business combinations, and make any necessary
         amortization period adjustments by the end of the first interim period
         after adoption. In addition, to the extent an intangible asset is
         identified as having an indefinite useful life, the Partnership will be
         required to test the intangible asset for impairment in accordance with
         the provisions of Statement No. 142 within the first interim period.
         Any impairment loss will be measured as of the date of adoption and
         recognized as the cumulative effect of change in accounting principle
         in the first interim period.


                                       9

<PAGE>

2)       Summary of Significant Accounting Policies - (continued)

         In connection with the transitional goodwill impairment evaluation,
         Statement No. 142 will require the Partnership to perform an assessment
         of whether there is an indication that goodwill is impaired as of the
         date of adoption. To accomplish this the Partnership must identify its
         reporting units and determine the carrying value of each reporting unit
         by assigning the assets and liabilities, including the existing
         goodwill and intangible assets, to those reporting units as of the date
         of adoption. The Partnership will then have up to six months from the
         date of adoption to determine the fair value of each reporting unit and
         compare it to the reporting unit's carrying amount. To the extent a
         reporting unit's carrying amount exceeds its fair value, an indication
         exists that the reporting unit's goodwill may be impaired and the
         Partnership must perform the second step of the transitional impairment
         test. In the second step, the Partnership must compare the implied fair
         value of the reporting unit's goodwill, determined by allocating the
         reporting unit's fair value to all of its assets (recognized and
         unrecognized) and liabilities in a manner similar to a purchase price
         allocation in accordance with Statement No. 141, to its carrying
         amount, both of which would be measured as of the date of adoption.
         This second step is required to be completed as soon as possible, but
         no later than the end of the year of adoption. Any transitional
         impairment loss will be recognized as the cumulative effect of a change
         in accounting principle in the Partnership's statement of operations.

         As of December 31, 2001, the Partnership had unamortized goodwill in
         the amount of $267.9 million. The Partnership also had $211.8 million
         of unamortized identifiable intangible assets, of which $205.9 will be
         subject to the transition provisions of SFAS No. 141 and No. 142.
         Amortization expense related to goodwill was $1.9 million and $2.1
         million for the three months ended December 31, 2000 and 2001,
         respectively. Because of the extensive effort needed to comply with
         adopting Statements No. 141 and No. 142, it is not practicable to
         reasonably estimate the impact of adopting these Statements on the
         Partnership's financial statements at the date of this report,
         including whether any transitional impairment losses will be required
         to be recognized as the cumulative effect of change in accounting
         principle.

         In August 2001, the FASB issued Statement No. 143, "Accounting for
         Asset Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 requires
         recording the fair market value of an asset retirement obligation as a
         liability in the period in which a legal obligation associated with the
         retirement of tangible long-lived assets is incurred. SFAS No. 143 also
         requires recording the contra asset to the initial obligation as an
         increase to the carrying amount of the related long-lived asset and to
         depreciate that cost over the life of the asset. The liability is then
         increased at the end of each period to reflect the passage of time and
         changes in the initial fair value measurement. The Partnership is
         required to adopt the provisions of SFAS No. 143, effective October 1,
         2002 and has not yet determined the extent of its impact, if any.

         In October 2001, the FASB issued Statement No. 144, "Accounting for the
         Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No.
         144 addresses financial accounting and reporting for the impairment or
         disposal of long-lived assets. It also extends the reporting
         requirements to report separately as discontinued operations,
         components of an entity that have either been disposed of or classified
         as held for sale. The Partnership is required to adopt the provisions
         of SFAS No. 144, effective October 1, 2002 and has not yet determined
         the extent of its impact, if any.

3)       Segment Reporting

         In accordance with SFAS No. 131, "Disclosures about Segments of an
         Enterprise and Related Information", the Partnership has four
         reportable segments, a retail distributor of heating oil, a retail
         distributor of propane, a reseller of natural gas and electricity and
         the public master limited partnership, Star Gas Partners. Management
         has chosen to organize the enterprise under these four segments in
         order to leverage the expertise it has in each industry, allow each
         segment to continue to strengthen its core competencies and provide a
         clear means for evaluation of operating results.

         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.


                                       10

<PAGE>

3)       Segment Reporting (continued)

         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,
         Northeast, Florida and Georgia. 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 natural gas and electric reseller segment is primarily engaged in
         offering natural gas and electricity to residential consumers in
         deregulated energy markets. In deregulated energy markets, customers
         have a choice in selecting energy suppliers to power and / or heat
         their homes. As a result, a significant portion of this segment's
         revenue is directly related to weather conditions. TG&E operates in
         ten markets in the Northeast, Mid-Atlantic, Florida and the District
         of Columbia, where competition for energy suppliers range from
         independent resellers, like TG&E, to large public utilities. TG&E is
         currently instituting new credit policies and installing new
         information systems which hopefully will improve TG&E's credit
         deficiency and collection problems.

         The public master limited partnership segment includes the office of
         the Chief Executive Officer and has the responsibility for maintaining
         investor relations and investor reporting for the Partnership.

         The following are the statements of operations and balance sheets for
         each segment as of and for the periods indicated. There were no
         inter-segment sales.

<TABLE>
<CAPTION>
(in thousands)                                                   Three Months Ended
                          -------------------------------------------------------------------------------------------------------
                                           December 31, 2000                                        December 31, 2001
                                             (unaudited)                                              (unaudited)
                          ---------------------------------------------------  --------------------------------------------------
                           Heating                                             Heating
Statements of Operations    Oil     Propane     TG&E      Partners    Consol.    Oil      Propane    TG&E     Partners    Consol.
------------------------  --------  --------   --------   --------   --------  --------  --------  --------   --------   --------
<S>                       <C>       <C>        <C>        <C>        <C>       <C>       <C>       <C>        <C>        <C>
 Sales                    $232,063  $ 71,443   $ 19,998   $      -   $323,504  $222,403  $ 54,375  $  9,445   $      -   $286,223
 Cost of sales             172,036    41,391     17,875          -    231,302   150,369    25,614     8,264          -    184,247
 Delivery and branch        35,677    13,657          -          -     49,334    42,452    13,869         -          -     56,321
 Deprec.and
  amortization               6,273     3,133        239          2      9,647    10,247     3,903       351          2     14,503
 G & A expense               2,403     1,646      1,692      1,141      6,882     2,713     1,621     2,468      1,383      8,185
 TG&E customer
   acquisition expense           -         -        653          -        653         -         -       221          -        221
 Unit compensation               -         -          -        500        500         -         -         -        640        640
                          --------  --------   --------   --------   --------  --------  --------  --------   --------   --------
      Operating
        income (loss)       15,674    11,616       (461)    (1,643)    25,186    16,622     9,368    (1,859)    (2,025)    22,106
 Net interest expense
  (income)                   5,164     2,726        526       (299)     8,117     6,658     3,373       875       (762)    10,144
Amortization of debt
  issuance costs                 -        94         51          -          -       145       248        64          -        312
                          --------  --------   --------   --------   --------  --------  --------  --------   --------   --------
 Income (loss)
  before income taxes       10,416     8,839       (987)    (1,344)    16,924     9,716     5,931    (2,734)    (1,263)    11,650

Income tax expense             675        41          -          -        716       100        47         -          -        147
                          --------  --------   --------   --------   --------  --------  --------  --------   --------   --------
  Income (loss) before
   cumulative change in
   accounting principle      9,741     8,798       (987)    (1,344)    16,208     9,616     5,884    (2,734)    (1,263)    11,503
  Cumulative change in
   accounting principle      2,093      (229)      (398)         -      1,466         -         -         -          -          -
                          --------  --------   --------   --------   --------  --------  --------  --------   --------   --------
       Net income (loss)  $ 11,834  $  8,569   $ (1,385)  $ (1,344)  $ 17,674  $  9,616  $  5,884  $ (2,734)  $ (1,263)  $ 11,503
                          ========  ========   ========   ========   ========  ========  ========  ========   ========   ========
Capital expenditures      $  2,440  $  1,621   $     57   $      -   $  4,118  $  3,128  $  1,893  $    360   $      -   $  5,381
                          ========  ========   ========   ========   ========  ========  ========  ========   ========   ========
</TABLE>


                                       11

<PAGE>

3)       Segment Reporting (continued)


<TABLE>
<CAPTION>
(in thousands)
                                              September 30, 2001                                    December 31, 2001
                                                                                                       (unaudited)
                            ---------------------------------------------------- ---------------------------------------------------
                             Heating                                       (1)    Heating                                      (1)
Balance Sheets                 Oil      Propane     TG&E     Partners    Consol.    Oil     Propane      TG&E    Partners    Consol.
--------------              ---------  ---------  --------- ---------  --------- --------- ---------  --------- ---------  ---------
<S>                        <C>        <C>        <C>        <C>        <C>       <C>       <C>        <C>       <C>        <C>
Assets
Current assets:
  Cash and cash
    equivalents             $   7,181  $   3,655  $     102 $   6,290  $  17,228 $   8,664 $  13,973  $       - $      82  $  22,719
  Receivables, net             82,484     12,002     10,487         -    104,973   101,868    16,767     10,571         -    129,206
  Inventories                  24,735     13,181      3,214         -     41,130    33,160    15,111      4,367         -     52,638
  Prepaid expenses and
    other current assets       16,921      3,523      2,349         -     21,931    22,465     4,011      2,030         -     27,644
                            ---------  ---------  --------- ---------  --------- --------- ---------  --------- ---------  ---------
       Total current
         assets               131,321     32,361     16,152     6,290    185,262   166,157    49,862     16,968        82    232,207
Property and
  equipment, net               72,204    162,680        487         -    235,371    69,400   168,029        796         -    238,225
Long-term portion of
  accounts receivable           6,752          -          -         -      6,752     7,324         -          -         -      7,324
Investment in
  subsidiaries                      -    108,035          -   194,647          -         -   109,410          -   200,155          -
Intangibles and
  other assets, net           381,348     77,750     12,117       219    471,434   377,366    90,953     11,817       217    480,353
                            ---------  ---------  --------- ---------  --------- --------- ---------  --------- ---------  ---------
         Total assets       $ 591,625  $ 380,826  $  28,756 $ 201,156  $ 898,819 $ 620,247 $ 418,254  $  29,581 $ 200,454  $ 958,109
                            =========  =========  ========= =========  ========= ========= =========  ========= =========  =========

Liabilities and              Heating                                       (1)    Heating                                      (1)
Partners' Capital              Oil      Propane     TG&E     Partners    Consol.    Oil     Propane      TG&E    Partners    Consol.
-----------------           ---------  ---------  --------- ---------  --------- --------- ---------  --------- ---------  ---------
Current Liabilities:
  Accounts payable          $  22,407  $   5,682  $   7,711   $     -  $  35,800 $  27,813 $   6,766  $   6,888  $      -  $  41,467
  Working capital
    Facility borrowings             -      8,400      5,466         -     13,866    49,000     8,600      4,222         -     61,822
  Current maturities of
      of long-term debt         1,184      8,702      2,000         -     11,886    26,911    16,702      2,000         -     45,613
  Accrued expenses and
    other current
    liabilities                63,895     10,267      1,052     2,464     77,678    54,595    14,270      1,311     2,447     72,623

  Due to affiliate               (185)    (1,450)     2,069      (434)         -       930    (3,788)     3,220      (362)         -
  Unearned service
    contract revenue           24,575          -          -         -     24,575    28,375         -          -         -     28,375
  Customer credit
    balances                   45,456     18,053      1,698         -     65,207    52,167    16,113      5,413         -     73,693
                            ---------  ---------  --------- ---------  --------- --------- ---------  --------- ---------  ---------
         Total current
           liabilities        157,332     49,654     19,996     2,030    229,012   239,791    58,663     23,054     2,085    323,593
Long-term debt                314,148    142,375        563         -    457,086   258,739   163,025        563         -    422,327
Other long-term
   liabilities                 12,110      2,307         40         -     14,457    12,307     2,335         40         -     14,682
Partners' Capital:
  Equity Capital              108,035    186,490      8,157   199,126    198,264   109,410   194,231      5,924   198,369    197,507
                            ---------  ---------  --------- ---------  --------- --------- ---------  --------- ---------  ---------
Total liabilities and
  Partners' Capital         $ 591,625  $ 380,826  $  28,756 $ 201,156  $ 898,819 $ 620,247 $ 418,254  $  29,581 $ 200,454  $ 958,109
                            =========  =========  ========= =========  ========= ========= =========  ========= =========  =========
</TABLE>

(1)  The consolidated amounts include the necessary entries to eliminate the
     investment in Petro Holdings, Star Gas Propane and TG&E.


                                       12

<PAGE>

4)       Acquisitions

         During the three-month period ending December 31, 2001, the Partnership
         acquired one unaffiliated retail heating oil dealer and three
         unaffiliated retail propane dealers. The aggregate consideration for
         these acquisitions accounted for by the purchase method of accounting
         was approximately $22.5 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:

             (in thousands)                                         Useful Lives
                                                                    ------------
             Land                              $        80          -
             Buildings                                 120          30 years
             Furniture & fixtures                      400          10 years
             Fleet                                   1,056          5 - 30 years
             Tanks and equipment                     4,216          5 - 30 years
             Customer lists                         11,144          7 - 15 years
             Restrictive covenants                      10          5 years
             Goodwill                                4,879          -
             Working capital                           626          -
                                               -----------
                                               $    22,531
                                               ===========
             Total

         Sales and net income have been included in the Condensed Consolidated
         Statements of Operations from the respective dates of acquisition. The
         following pro forma information presents the results of operations for
         the three months ending December 31, 2001 of the Partnership and the
         acquisitions previously described, as if the acquisitions had taken
         place on October 1, 2001.

             (in thousands, except per unit data)
             Sales                                                    $ 286,829
             Net income                                               $  11,571
             General Partner's interest in net income                 $     140
             Limited Partners' interest in net income                 $  11,431
             Basic net income per limited partner unit                $    0.43
             Diluted net income per limited partner unit              $    0.42

5)       Supplemental Disclosure of Cash Flow Information

             (in thousands)                      Three Months Ended December 31,
                                                 -------------------------------
                                                    2000                 2001
                                                 ----------          -----------
             Cash paid during the period for:

                  Income taxes                   $       16          $       349
                  Interest                       $   10,187          $     9,356







                                       13

<PAGE>

6)       Earnings Per Limited Partner Unit


<TABLE>
<CAPTION>
                                                                 Three Months Ended December 31,
                                                                 -------------------------------
             (in thousands, except per unit data)                        (unaudited)
                                                                         -----------
                                                                   2000                2001
                                                                 -------             -------
<S>                                                              <C>                <C>
Income  before cumulative effect of change in
  accounting principle per Limited Partner unit
  Basic                                                          $  0.80             $  0.42
  Diluted                                                        $  0.79             $  0.42

Cumulative effect of change in accounting principle per
  Limited Partner unit

  Basic                                                          $  0.07             $     -
  Diluted                                                        $  0.07             $     -

Net income per Limited Partner unit

  Basic                                                          $  0.87             $  0.42
  Diluted                                                        $  0.86             $  0.42

Basic Earnings Per Unit:
-----------------------
Net income                                                       $17,674             $11,503
Less:  General Partner's interest in net income                      283                 139
                                                                 -------             -------
  Limited Partners' interest in net income                       $17,391             $11,364
                                                                 =======             =======


Common Units                                                      17,052              23,395
Senior Subordinated Units                                          2,676               3,020
Junior Subordinated Units                                            345                 345
                                                                 -------             -------
  Weighted average number of Limited Partner units
     Outstanding                                                  20,073              26,760
                                                                 =======             =======
  Basic earnings per unit                                        $  0.87             $  0.42
                                                                 =======             =======

Diluted Earnings Per Unit:
                                                                                     -------
  Limited Partners' interest in net income                       $17,391             $11,364
                                                                 =======             =======

  Weighted average number of Limited Partner units
     outstanding                                                  20,073              26,760
  Senior  subordinated  units  anticipated  to be  issued
     under  employee incentive plan                                  113                 228
                                                                 -------             -------
    Diluted number of Limited Partner units                       20,186              26,988
                                                                 =======             =======
     Diluted earnings per unit                                   $  0.86             $  0.42
                                                                 =======             =======
</TABLE>

7)       Subsequent Events

         Cash Distributions - On January 31, 2002, the Partnership announced
         that it would pay a cash distribution of $0.575 per unit on all units
         for the quarter ended December 31, 2001. The distribution will be paid
         on February 14, 2002, to unitholders of record on February 11, 2002.

         Equity Offering - On January 7, 2002, the Partnership sold 1.7 million
         Common Units (including the exercise of the over-allotment option) of
         limited partner interests in a publicly underwritten offering. The
         offering price was $21.10 per unit. A portion of the net proceeds of
         $34.2 million were used to repay $18.7 million of the propane
         operations' revolving acquisition line of credit. The remaining net
         proceeds will be used to fund acquisitions and growth capital
         expenditures. Pending such uses, the funds will be used to finance
         seasonal working capital requirements and for general partnership
         purposes.

                                       14

<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, propane, electricity and natural gas 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 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 primary use for heating oil, propane and natural gas is for space 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 effect gross margins
without necessarily impacting total sales.

The heating oil, propane and natural gas 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.

The Partnership adopted SFAS No. 133 on October 1, 2000 and has since recorded
its derivatives at fair market value. As a result, net income for the quarter
ended December 31, 2000 was $1.2 million more than it would have been had the
Standard not been adopted and net income for the quarter ended December 31, 2001
was $6.2 million more than it would have been had the Standard not been adopted.
The effect of the Standard has no impact in how the Partnership evaluates its
ability to make the minimum quarterly distribution.


                                       15

<PAGE>

THREE MONTHS ENDED DECEMBER 2001
COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2000
------------------------------------------------

Volume

For the three months ended December 31, 2001, retail volume of home heating oil
and propane decreased 4.2 million gallons, or 2.4%, to 170.7 million gallons, as
compared to 174.9 million gallons for the three months ended December 31, 2000.
This decrease was due to a 4.5 million gallon decrease in the propane segment
partially offset by a 0.3 million gallon increase in the heating oil segment.
The impact of additional volume provided by acquisitions was offset by the
impact of significantly warmer temperatures. Temperatures in the Partnership's
areas of operations were an average of 29.1% warmer than in the prior year's
comparable quarter and approximately 16% warmer than normal.

Sales

For the three months ended December 31, 2001, sales decreased $37.3 million, or
11.5%, to $286.2 million, as compared to $323.5 million for the three months
ended December 31, 2000. This decrease was due to $9.7 million lower home
heating oil sales, $17.1 million lower propane segment sales and a $10.6 million
decrease in TG&E sales. Sales decreased largely as a result of lower selling
prices and from a lesser extent due to the lower retail volume. Selling prices
decreased versus the prior year's comparable period in response to lower supply
costs. These decreases were partially offset in the heating oil segment by $7.2
million and by $1.1 million in the propane segment due to an increase in the
sales of rationally related products including heating equipment installation
and service and water softeners.

Cost of Sales

For the three months ended December 31, 2001, cost of sales decreased $47.1
million, or 20.3%, to $184.2 million, as compared to $231.3 million for the
three months ended December 31, 2000. This decrease was due to $21.7 million of
lower cost of sales at the home heating oil segment, $15.8 million lower propane
segment cost of sales and a $9.6 million decrease in TG&E cost of sales. Cost of
sales decreased due to the impact of lower supply cost and to a lesser extent as
a result of lower retail volume sales. In addition, cost of sales decreased by
$6.5 million due to the impact of SFAS No. 133. While selling prices and supply
cost decreased on a per gallon basis for all three business segments, the
decrease in selling prices was less than the decrease in supply costs (excluding
the impact of SFAS No. 133), which resulted in an increase in per gallon
margins.

Delivery and Branch Expenses

For the three months ended December 31, 2001, delivery and branch expenses
increased $7.0 million, or 14.2%, to $56.3 million, as compared to $49.3 million
for the three months ended December 31, 2000. This increase was due to an
additional $6.8 million of delivery and branch expenses at the heating oil
segment and a $0.2 million increase in delivery and branch expenses for the
propane segment. Delivery and branch expenses increased both at the heating oil
and propane segments due to additional operating cost associated with acquired
companies and for the impact of inflation. The increase in delivery and branch
expenses was mitigated due to the purchase of weather insurance that allowed the
Partnership to record approximately $6.1 million of net weather insurance
recoveries.

Depreciation and Amortization Expenses

For the three months ended December 31, 2001, depreciation and amortization
expenses increased $4.9 million, or 50.3%, to $14.5 million, as compared to $9.6
million for the three months ended December 31, 2000. This increase was
primarily due to additional depreciation and amortization related to heating oil
and propane acquisitions.


                                       16

<PAGE>

General and Administrative Expenses

For the three months ended December 31, 2001, general and administrative
expenses increased $1.3 million, or 18.9%, to $8.2 million, as compared to $6.9
million for the three months ended December 31, 2000. The increase was due to
additional general and administration expenses for the acquisition of Meenan Oil
Co., Inc. and other acquisitions as well as for increased compensation expense
for TG&E staff additions.

TG&E Customer Acquisition Expense

For the three months ended December 31, 2001, TG&E customer acquisition expense
decreased $0.4 million, or 66.2% to $0.2 million, as compared to $0.7 million
for the three months ended December 31, 2000. This TG&E segment expense is for
the cost of acquiring new accounts through the services of a third party direct
marketing company.

Unit Compensation Expense

For the three months ended December 31, 2001, unit compensation expense
increased $0.1 million, or 28.0%, to $0.6 million, as compared to $0.5 million
for the three months ended December 31, 2000. This expense was incurred under
the Partnership's Unit Incentive Plan pursuant to which certain employees were
granted senior subordinated units as an incentive for increased efforts during
employment and as an inducement to remain in the service of the Partnership.

Interest Expense, net

For the three months ended December 31, 2001, interest expense net increased
$2.0 million, or 25.0%, to $10.1 million, as compared to $8.1 million for the
three months ended December 31, 2000. This increase was due to additional
interest expense for the financing of propane and heating oil acquisitions
partially offset by lower interest expense for working capital borrowings.

Income Tax Expense

For the three months ended December 31, 2001, income tax expense decreased $0.6
million to $0.1 million, as compared to $0.7 million for the three months ended
December 31, 2000. This decrease was due to lower state income taxes based upon
the lower pretax earnings achieved for the three months ended December 31, 2001.

Cumulative Effect of Adoption of Accounting Principle

For the three months ended December 31, 2000, the Partnership recorded a $1.5
million increase in income arising from the adoption of SFAS No. 133.

Net Income

For the three months ended December 31, 2001, net income decreased $6.2 million,
or 34.9%, to $11.5 million, as compared to $17.7 million for the three months
ended December 31, 2000. The decrease was due to $2.2 million decrease in net
income at the heating oil segment, a $2.7 million decrease in net income at the
propane segment and $1.3 million increase in the net loss at TG&E. The reduction
in the net income for these segments was due to the impact of the warmer
weather, partially offset by a per gallon improvement in gross profit margins,
net weather insurance recoveries and from net income generated by acquisitions.


                                       17

<PAGE>

Earnings before interest, taxes, depreciation and amortization, TG&E customer
acquisition expense and unit compensation expense, less net gain (loss) on sales
of fixed assets and before the impact of SFAS No. 133 (EBITDA)

For the three months ended December 31, 2001, earnings before interest, taxes,
depreciation and amortization, TG&E customer acquisition expense and unit
compensation expense, less net gain (loss) on sales of fixed assets and before
the impact of SFAS No. 133 (EBITDA) decreased $5.0 million, or 13.8% to $31.3
million as compared to $36.3 million, for the three months ended December 31,
2000. This decrease was due to $2.6 million of less EBITDA generated by the
heating oil segment, a $0.9 million decrease in the propane segment EBITDA and a
$1.3 million decrease in the TG&E segment's EBITDA. The decrease in EBITDA was
due to the impact of warmer temperatures, partially offset by higher per gallon
gross profit margins, net weather insurance recoveries and EBITDA generated by
acquisitions. 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.

Liquidity and Capital Resources

During the three months ended December 31, 2001, net cash was provided by $60.6
million in net working capital and acquisition facility borrowings, $1.1 million
in proceeds from the sale of fixed assets, and $0.9 million from operating
activities, totaling $62.6 million. Such funds were used for acquisitions of
$22.5 million, distributions of $15.4 million, debt repayment of $13.7 million,
capital expenditures of $5.4 million and other financing activities of $0.1
million. As a result of the above activity cash increased by $5.5 million to
$22.7 million.

On January 7, 2002, the Partnership sold 1.7 million Common Units (including the
exercise of the over-allotment option) of limited partner interests in a
publicly underwritten offering. The offering price was $21.10 per unit. A
portion of the net proceeds of $34.2 million were used to repay $18.7 million of
the propane operations' revolving acquisition line of credit. The balance of the
net proceeds will be used to fund acquisitions and for growth capital
expenditures. Pending such uses, the funds will be used to finance seasonal
working capital requirements and for general partnership purposes.

For the remainder of fiscal 2002, the Partnership anticipates paying interest of
approximately $30 million and anticipates growth and maintenance capital
additions of approximately $12 million. In addition, the Partnership plans to
pay distributions on its units to the extent there is sufficient available cash
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 debt and equity. The
Partnership's note and bank facility agreements contain various restrictive and
affirmative covenants that could negatively impact the Partnership's
availability to incur additional debt, pay distributions and cause certain debt
to become currently payable, if such covenants are not complied with. Based on
its current cash position, proceeds from the above mentioned common unit
offering, bank credit availability and anticipated net cash to be generated from
operating activities, the Partnership expects to be able to meet all of its
obligations for the next twelve months.


                                       18

<PAGE>

Impact of Recently Issued Accounting Standards

In July 2001, the FASB issued Statement No. 141, "Business Combinations" and
Statement No. 142, "Goodwill and Other Intangible Assets." Statement No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as for all purchase method
business combinations completed after June 30, 2001. Statement No. 141 also
specifies criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill.
Statement No. 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of Statement No.
142. Statement No. 142 will also require that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of."

The Partnership adopted the provisions of Statement No. 141 effective July 1,
2001 and Statement No. 142 is required to be adopted effective October 1, 2002.
Futhermore, any goodwill and any intangible asset determined to have an
indefinite useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue to be
evaluated for impairment in accordance with the appropriate pre-Statement No.
142 accounting literature. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 will continue to be amortized prior
to the adoption of Statement No. 142.

Statement No. 141 will require upon adoption of Statement No. 142, that the
Partnership evaluate its existing intangible assets and goodwill that were
acquired in a prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in Statement No. 141
for recognition apart from goodwill. Upon adoption of Statement No. 142, the
Partnership will be required to reassess the useful lives and residual values of
all intangible assets acquired in purchase business combinations, and make any
necessary amortization period adjustments by the end of the first interim period
after adoption. In addition, to the extent an intangible asset is identified as
having an indefinite useful life, the Partnership will be required to test the
intangible asset for impairment in accordance with the provisions of Statement
No. 142 within the first interim period. Any impairment loss will be measured as
of the date of adoption and recognized as the cumulative effect of change in
accounting principle in the first interim period.

In connection with the transitional goodwill impairment evaluation, Statement
No. 142 will require the Partnership to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption. To
accomplish this the Partnership must identify its reporting units and determine
the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units as of the date of adoption. The Partnership will then have up to
six months from the date of adoption to determine the fair value of each
reporting unit and compare it to the reporting unit's carrying amount. To the
extent a reporting unit's carrying amount exceeds its fair value, an indication
exists that the reporting unit's goodwill may be impaired and the Partnership
must perform the second step of the transitional impairment test. In the second
step, the Partnership must compare the implied fair value of the reporting
unit's goodwill, determined by allocating the reporting unit's fair value to all
of its assets (recognized and unrecognized) and liabilities in a manner similar
to a purchase price allocation in accordance with Statement No. 141, to its
carrying amount, both of which would be measured as of the date of adoption.
This second step is required to be completed as soon as possible, but no later
than the end of the year of adoption. Any transitional impairment loss will be
recognized as the cumulative effect of a change in accounting principle in the
Partnership's statement of operations.

As of December 31, 2001, the Partnership had unamortized goodwill in the amount
of $267.9 million. The Partnership also had $211.8 million of unamortized
identifiable intangible assets, of which $205.9 will be subject to the
transition provisions of SFAS No. 141 and No. 142. Amortization expense related
to goodwill was $1.9 million and $2.1 million for the three months ended
December 31, 2000 and 2001, respectively. Because of the extensive effort needed
to comply with adopting Statements No. 141 and No. 142, it is not practicable to
reasonably estimate the impact of adopting these Statements on the Partnership's
financial statements at the date of this report, including whether any
transitional impairment losses will be required to be recognized as the
cumulative effect of change in accounting principle.


                                       19

<PAGE>

Impact of Recently Issued Accounting Standards (continued)

In August 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 requires recording the
fair market value of an asset retirement obligation as a liability in the period
in which a legal obligation associated with the retirement of tangible
long-lived assets is incurred. SFAS No. 143 also requires recording the contra
asset to the initial obligation as an increase to the carrying amount of the
related long-lived asset and to depreciate that cost over the life of the asset.
The liability is then increased at the end of each period to reflect the passage
of time and changes in the initial fair value measurement. The Partnership is
required to adopt the provisions of SFAS No. 143, effective October 1, 2002 and
has not yet determined the extent of its impact, if any.

In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. It also extends the reporting requirements to report
separately as discontinued operations, components of an entity that have either
been disposed of or classified as held for sale. The Partnership is required to
adopt the provisions of SFAS No. 144, effective October 1, 2002 and has not yet
determined the extent of its impact, if any.

Item. 3.        Quantitive 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, 2001, the Partnership had outstanding borrowings of
approximately $92.5 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
$0.9 million annually.

The Partnership also selectively uses derivative financial instruments to manage
its exposure to market risk related to changes in the current and future market
price of home heating oil, propane and natural gas. 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 product 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 product at
December 31, 2001, the potential gain on the Partnership's hedging activity
would be to increase the fair market value of these outstanding derivatives by
$1.9 million to a fair market value of a negative $5.2 million; and conversely a
hypothetical ten percent decrease in the cost of product would decrease the fair
market value of these outstanding derivatives by $1.9 million to a fair market
value of negative $9.0 million.

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

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

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

         None

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

         None


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<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/ Ami Trauber                 Chief Financial Officer         January 31, 2002
    --------------------------
    Ami Trauber                 Star Gas LLC
                                (Principal Financial Officer)

/s/ James J. Bottiglieri        Vice President                  January 31, 2002
    --------------------------
    James J. Bottiglieri        Star Gas LLC



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