<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, 2000
                                              -----------------

                                      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>
<CAPTION>
<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)                                  (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)
</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 31, 2001:

      19,724,967      Common Units
       2,696,946      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

Part I        Financial Information

<TABLE>
<CAPTION>
                                                                                                                       Page
                                                                                                                       ----
<S>                                                                                                                    <C>
              Item 1 - Condensed Consolidated Financial Statements

                  Condensed Consolidated Balance Sheets as of
                     September 30, 2000 and December 31, 2000                                                             3

                  Condensed Consolidated Statements of Operations for the
                     Three months ended December 31, 1999 and December 31, 2000                                           4

                  Condensed Consolidated Statements of Comprehensive Income for the
                     Three months ended December 31, 1999 and December 31, 2000                                           5

                  Condensed Consolidated Statement of Partners' Capital for the three months ended
                     December 31, 2000                                                                                    6

                  Condensed Consolidated Statements of Cash Flows for the three months ended
                     December 31, 1999 and December 31, 2000                                                              7

                  Notes to Condensed Consolidated Financial Statements                                               8 - 14

              Item 2 - Management's Discussion and Analysis of Financial Condition
                     and Results of Operations                                                                      15 - 19

              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>
                                                                                                          December 31,
                                                                                     September 30,           2000
                                                                                         2000             (unaudited)
                                                                                     ------------         -----------
<S>                                                                                  <C>                 <C>
Assets
Current assets:
    Cash and cash equivalents                                                         $    10,910         $    18,285
    Receivables, net of allowance of $1,956 and $3,445 respectively                        66,858             153,350
    Inventories                                                                            34,407              56,375
    Prepaid expenses and other current assets                                              14,815              24,965
                                                                                      -----------         -----------
           Total current assets                                                           126,990             252,975
                                                                                      -----------         -----------

Property and equipment, net                                                               171,300             177,754
Long-term portion of accounts receivable                                                    7,282               7,389
Intangibles and other assets, net                                                         313,404             320,859
                                                                                      -----------         -----------
           Total assets                                                               $   618,976         $   758,977
                                                                                      ===========         ===========
Liabilities and Partners' Capital
Current liabilities:
    Accounts payable                                                                  $    27,874         $    61,456
    Working capital facility borrowings                                                    24,400              94,933
    Current maturities of long-term debt                                                   16,515              30,029
    Accrued expenses                                                                       42,410              50,187
    Unearned service contract revenue                                                      15,654              18,582
    Customer credit balances                                                               37,943              21,981
                                                                                      -----------         -----------
           Total current liabilities                                                      164,796             277,168
                                                                                      -----------         -----------

Long-term debt                                                                            310,414             302,834
Other long-term liabilities                                                                 4,588               4,760

Partners' Capital:
    Common unitholders                                                                    134,672             162,766
    Subordinated unitholders                                                                6,090               8,861
    General partner                                                                        (1,584)             (1,301)
    Accumulated other comprehensive income                                                      -               3,889
                                                                                      -----------         -----------
           Total Partners' Capital                                                        139,178             174,215
                                                                                      -----------         -----------

           Total Liabilities and Partners' Capital                                    $   618,976         $   758,977
                                                                                      ===========         ===========
</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)                                         1999                 2000
                                                                        ----------------    -----------------
<S>                                                                     <C>                 <C>
Sales:
   Product                                                                $    160,540        $  290,591
   Installation, service and appliances                                         26,346            32,913
                                                                          ------------        ----------
       Total sales                                                             186,886           323,504

Costs and expenses:
   Cost of product                                                              86,546           194,386
   Cost of installation, service and appliances                                 30,885            36,916
   Delivery and branch                                                          40,302            49,334
   Depreciation and amortization                                                 8,404             9,647
   General and administrative                                                    4,681             6,893
   TG&E customer acquisition expense                                                 -               653
   Unit compensation expense                                                         -               500
   Net gain on sales of assets                                                      12                11
                                                                          ------------        ----------
       Operating income                                                         16,080            25,186
Interest expense, net                                                            6,473             8,117
Amortization of debt issuance costs                                                129               145
                                                                          ------------        ----------
       Income before income taxes and cumulative effect of
          change in accounting principle                                         9,478            16,924
Income tax expense                                                                 113               716
                                                                          ------------        ----------
       Income before cumulative change in accounting principle                   9,365            16,208
Cumulative effect of change in accounting principle for adoption
   of SFAS No. 133, net of income taxes                                              -             1,466
                                                                          ------------        ----------

       Net income                                                         $      9,365        $   17,674
                                                                          ============        ==========

       General Partner's interest in net income                           $        174        $      283
                                                                          ------------        ----------

Limited Partners' interest in net income                                  $      9,191        $   17,391
                                                                          ============        ==========

Net income per Limited Partner unit:
   Basic                                                                  $       0.53        $     0.87
                                                                          ============        ==========
   Diluted                                                                $       0.53        $     0.86
                                                                          ============        ==========

Weighted average number of Limited Partner units outstanding:
   Basic                                                                        17,200            20,073
                                                                          ============        ==========
   Diluted                                                                      17,200            20,186
                                                                          ============        ==========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>

                   STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                           Three Months Ended December 31,
                                                                          --------------------------------
(in thousands)                                                                1999                2000
                                                                          -----------         ------------
<S>                                                                      <C>                 <C>
Net income                                                                $    9,365           $    17,674

Other comprehensive income (loss)
   Unrealized loss on derivative instruments                                       -                (6,305)
                                                                          ----------           -----------
Comprehensive income                                                      $    9,365           $    11,369
                                                                          ==========           ===========

Reconciliation of Accumulated Other Comprehensive Income

Balance, beginning of period                                              $        -           $         -
   Cumulative effect of the adoption of SFAS No. 133                               -                10,544
   Current period reclassification to earnings                                     -                  (350)
   Current period other comprehensive loss                                         -                (6,305)
                                                                          ----------           -----------
Balance, end of period                                                    $        -           $     3,889
                                                                          ==========           ===========
</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, 2000         16,045    2,587     345       326  $ 134,672    $ 6,125  $ (35)   $ (1,584)    $     -    $ 139,178

Issuance of Common
  Units                       1,495                                23,364                                                 23,364

Issuance of Senior
  Subordinated Units                     110                                     859                                         859

Net income                                                         14,811      2,279    301         283                   17,674

Other comprehensive
  income
    Net change for
    the adoption of
    SFAS No 133                                                                                               3,889        3,889
Distributions:
  ($0.575 per common
    unit)                                                         (10,081)                                               (10,081)
  ($0.25 per senior
    subordinated Unit)                                                          (668)                                       (668)
                         -------------------------------------------------------------------------------------------------------
Balance as of
  December 31, 2000          17,540    2,697     345       326  $ 162,766    $ 8,595  $ 266    $ (1,301)    $ 3,889    $ 174,215
                         =======================================================================================================
</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,
                                                                                     -------------------------------------
                                                                                            1999                 2000
                                                                                     ------------------      -------------
<S>                                                                                   <C>                        <C>
Cash flows from operating activities:
Net income                                                                            $    9,365                 $   17,674
Adjustments to reconcile net income to net cash
 provided by operating activities:
Depreciation and amortization                                                              8,404                      9,647
Amortization of debt issuance cost                                                           129                        145
Unit compensation expense                                                                      -                        500
Provision for losses on accounts receivable                                                  430                      1,337
Gain on sales of assets                                                                      (12)                       (11)
Cumulative effect of change in accounting principle for the adoption of SFAS
 No. 133                                                                                       -                     (1,466)
Changes in operating assets and liabilities, net of amounts acquired:
   Increase in receivables                                                               (41,376)                   (86,467)
   Increase in inventories                                                                (1,679)                   (16,322)
   Decrease (increase) in other assets                                                     2,727                    (10,155)
   Increase in accounts payable                                                            7,410                     33,726
   Decrease in other current and long-term liabilities                                    (6,876)                    (6,067)
                                                                                      ----------                 ----------
      Net cash used in operating activities                                              (21,478)                   (57,459)
                                                                                      ----------                 ----------

Cash flows from investing activities:
Capital expenditures                                                                      (1,569)                    (4,118)
Proceeds from sales of fixed assets                                                          135                        127
Acquisitions                                                                              (3,615)                   (19,621)
                                                                                      ----------                 ----------
      Net cash used in investing activities                                               (5,049)                   (23,612)
                                                                                      ----------                 ----------

Cash flows from financing activities:
Working capital facility  borrowings                                                      47,600                     79,190
Working capital facility repayments                                                       (9,425)                    (8,657)
Acquisition facility borrowings                                                            5,000                     11,700
Acquisition facility repayments                                                                -                    (41,800)
Proceeds from issuance of debt                                                                 -                     40,292
Repayment of debt                                                                         (2,709)                    (4,258)
Increase in deferred charges                                                                   -                        (97)
Proceeds from issuance of Common Units, net                                                    -                     23,364
Distributions                                                                             (8,270)                   (10,749)
Other                                                                                       (251)                      (539)
                                                                                      ----------                 ----------
      Net cash provided by financing activities                                           31,945                     88,446
                                                                                      ----------                 ----------

      Net increase in cash                                                                 5,418                      7,375
Cash at beginning of period                                                                4,492                     10,910
                                                                                      ----------                 ----------
Cash at end of period                                                                 $    9,910                 $   18,285
                                                                                      ==========                 ==========
</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 who at December 31, 2000 had 17.5 million common
     limited partner units (trading symbol "SGU" representing a 83.9% limited
     partner interest in Star Gas Partners) and 2.7 million senior subordinated
     units (trading symbol "SGH" representing a 12.9% limited partner interest
     in Star Gas Partners) are traded on the New York Stock Exchange. Additional
     interest in Star Gas Partners are represented by 0.3 million junior
     subordinated units (representing a 1.6% limited partner interest in Star
     Gas Partners) and 0.3 million general partner units (representing a 1.6%
     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 retail distributor of home heating oil and serves
       approximately 385,000 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 Star Gas Partners. Star Gas Propane markets
       and distributes propane gas and related products to more than 210,000
       customers in the Midwest and Northeast.

     . 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 homeowners in deregulated energy markets in the Northeast
       and Mid-Atlantic states of New York, New Jersey, Pennsylvania and
       Maryland and serves approximately 110,000 residential customers. TG&E is
       a 72.7% owned subsidiary of Star Gas Partners.

2)   Summary of Significant Accounting Policies

     Basis of Presentation
     The Consolidated Financial Statements for the period October 1, 1999
     through April 6, 2000 include the accounts of Star Gas Partners, L.P., and
     subsidiaries, principally Petro and Star Gas Propane. Beginning April 7,
     2000, the Consolidated Financial Statements also include the accounts and
     results of operations of TG&E and reflects the amounts related to the 23.7%
     minority interest holder.

     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 months ended December 31, 2000 are
     not necessarily indicative of the results to be expected for the full year.

     Inventories
     Inventories are stated at the lower 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, 2000       December 31, 2000
                                              ------------------       -----------------
<S>                                           <C>                      <C>
     (in thousands)
     Propane gas                                   $ 6,323                    $12,256
     Propane appliances and equipment                2,313                      2,373
     Fuel oil                                       14,263                     24,460
     Fuel oil parts and equipment                    7,374                      7,488
     Natural gas                                     4,134                      9,798
                                                   -------                    -------
                                                   $34,407                    $56,375
                                                   =======                    =======
</TABLE>

                                       8
<PAGE>

2)   Summary of Significant Accounting Policies - (continued)

     Accounting Changes

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standard No. 133 "Accounting for
     Derivative Instruments and Hedging Activities" (SFAS No. 133) as amended by
     SFAS No. 137 and No. 138. SFAS No. 133 which establishes accounting and
     reporting standards for derivative instruments, including certain
     derivative instruments embedded in other contracts, and hedging activities.
     It requires the recognition of all derivative instruments as assets or
     liabilities in the Partnership's balance sheet and measurement of those
     instruments at fair value and requires that a company formally document,
     designate and assess the effectiveness of transactions that receive hedge
     accounting.

     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. For derivatives recognized as Fair Value
     Hedges, changes in fair value are recognized in the income statement and
     are offset by related changes in the fair value of the item hedged. 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.

     The Partnership periodically hedges a portion of its 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 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 Partnership adopted SFAS No. 133 on October 1, 2000, and records its
     derivatives at fair market value. As a result of adopting the Standard, the
     Partnership recognized current assets of $12.0 million, a $1.5 million
     increase in net income and a $10.5 million increase in additional other
     comprehensive income which were recorded as cumulative effect of a change
     in accounting principle. For the three month period ended December 31,
     2000, the Partnership recorded a net decrease of $6.3 million to other
     comprehensive income for the net change in value of derivative instruments
     designated as cash flow hedges, and recorded a net loss of approximately
     $0.4 million representing the net change in the fair value of all the
     derivative contracts which are no longer outstanding at December 31, 2000.
     The fair value of these contracts is recorded in the Partnership's balance
     sheets. The estimated net amount of existing gains currently within other
     comprehensive income are expected to be reclassified into earnings within
     the next six months.

3)   Long-term Debt

     On October 25, 2000, the heating oil division completed a refinancing of
     $40 million of indebtedness incurred under its bank acquisition facility
     through the issuance of senior notes. The senior notes bear an average
     interest rate of 8.96% per year, have an average life of five and three-
     quarter years and are guaranteed by Star Gas Partners. The first maturity
     date of the senior notes is November 1, 2004 with a final maturity date of
     November 1, 2010.

                                       9
<PAGE>

4)   Segment Reporting

     In accordance with SFAS No. 131, "Disclosures about Segments of an
     Enterprise and Related Information," the Partnership has four reportable
     segments, as a retail distributor of heating oil, as a retail distributor
     of propane, a reseller of natural gas and electricity and as 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.

     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 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 nine markets in the
     Northeast/Mid-Atlantic states where competition for energy suppliers range
     from independent resellers, like TG&E, to large public utilities.

     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. The electric and natural gas
     reselling segment was added beginning April 7, 2000. There were no inter-
     segment sales.

                                       10
<PAGE>

4)     Segment Reporting - (continued)

<TABLE>
<CAPTION>
       (in thousands)                                                   Three Months Ended
                                ---------------------------------------------------------------------------------------------------
                                             December 31, 1999                                 December 31, 2000
                                -----------------------------------------  --------------------------------------------------------
                                   Heating                                  Heating
       Statements of Operations      Oil     Propane  Partners   Consol.      Oil       Propane      TG&E   Partners     Consol.
       ------------------------      ---     -------  --------   -------      ---       -------      ----   --------     -------
       <S>                         <C>       <C>      <C>       <C>        <C>          <C>        <C>      <C>          <C>
       Sales:
        Product                    $123,885   36,655   $   -    $160,540   $204,944      $65,649   $ 19,998  $      -    $290,591
        Installation, service,
         and appliance               22,448    3,898       -      26,346     27,119        5,794          -         -      32,913
                                   --------  -------   -----    --------   --------      -------   --------  --------    --------
         Total sales                146,333   40,553       -     186,886    232,063       71,443     19,998         -     323,504
       Costs and expenses:
        Cost of product              68,887   17,659       -      86,546    137,094       39,417     17,875         -     194,386
        Cost of installation,
         service, and appliances     29,512    1,373       -      30,885     34,942        1,974          -         -      36,916
        Delivery and branch          29,176   11,126       -      40,302     35,677       13,657          -         -      49,334
        Depreciation and
         amortization                 5,306    3,098       -       8,404      6,273        3,133        239         2       9,647
        General and
         administrative               2,586    1,471     624       4,681      2,390        1,670      1,692     1,141       6,893
        TG&E customer
         acquisition expense              -        -       -           -          -            -        653         -         653
        Unit compensation
         expense                          -        -       -           -          -            -          -       500         500
        Net gain (loss) on
         sales of assets                  3        9       -          12        (13)          24          -         -          11
                                   --------  -------   -----    --------   --------      -------   --------  --------    --------
         Operating income (loss)     10,869    5,835    (624)     16,080     15,674       11,616       (461)   (1,643)     25,186
       Interest expense (income),
        net                           4,276    2,199      (2)      6,473      5,164        2,726        526      (299)      8,117
       Amortization of debt
        issuance costs                   84       45       -         129         94           51          -         -         145
                                   --------  -------   -----    --------   --------      -------   --------  --------    --------
         Income (loss) before
          income taxes                6,509    3,591    (622)      9,478     10,416        8,839       (987)   (1,344)     16,924
       Income tax expense                75       38       -         113        675           41          -         -         716
                                   --------  -------   -----    --------   --------      -------   --------  --------    --------
        Income (loss) before
        cumulative effect of
        adoption of
        accounting principle          6,434    3,553    (622)      9,365      9,741        8,798       (987)   (1,344)     16,208
       Cumulative effect of
         adoption of
         accounting principle             -        -       -           -      2,093         (229)      (398)        -       1,466
                                   --------  -------   -----    --------   --------      -------   --------  --------    --------

         Net income (loss)         $  6,434  $ 3,553   $(622)   $  9,365   $ 11,834      $ 8,569   $ (1,385) $ (1,344)   $ 17,674
                                   ========  =======   =====    ========   ========      =======   ========  ========    ========

       Capital expenditures        $    453  $ 1,116   $   -    $  1,569   $  2,440      $ 1,621   $     57  $      -    $  4,118
                                   ========  =======   =====    ========   ========      =======   ========  ========    ========
</TABLE>

                                       11
<PAGE>

4)     Segment Reporting - (continued)

<TABLE>
<CAPTION>
       (in thousands)                   September 30, 2000                                    December 31, 2000
                        ----------------------------------------------------  ----------------------------------------------------
                           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      $  6,288   $  2,765   $    222  $  1,635   $ 10,910  $  5,481   $  5,557   $  6,613  $    634   $ 18,285
       Receivables, net     51,475      9,976      5,407         -     66,858   113,587     27,285     12,478         -    153,350
       Inventories          21,637      8,636      4,134         -     34,407    31,948     14,629      9,798         -     56,375
       Prepaid expenses
         and other
         current assets     12,502      1,017      2,157         -     14,815    18,608      3,731      3,488         -     24,965
                           -------   --------   --------  --------   --------  --------   --------   --------  --------   --------
          Total current
             assets         91,902     22,394     11,920     1,635    126,990   169,624     51,202     32,377       634    252,975
     Property and
        equipment, net      39,026    132,008        266         -    171,300    42,046    135,404        304         -    177,754
     Long-term portion
        of accounts
          receivable         7,282          -          -         -      7,282     7,389          -          -         -      7,389
     Investment in
        subsidiaries             -     69,309          -   143,036          -         -     85,298          -   179,805          -
     Intangibles and
       other assets, net   236,069     63,003     14,174       158    313,404   242,938     63,623     14,082       216    320,859
                          --------   --------   --------  --------   --------  --------   --------   --------  --------   --------
          Total assets    $374,279   $286,714   $ 26,360  $144,829   $618,976  $461,997   $335,527   $ 46,763  $180,655   $758,977
                          ========   ========   ========  ========   ========  ========   ========   ========  ========   ========


     Liabilities and       Heating                                     (1)     Heating                                       (1)
       Partners' Capital    Oil      Propane     TG&E     Partners   Consol.     Oil      Propane      TG&E    Partners    Consol.
                            ---      -------     ----     --------   -------     ---      -------      ----    --------    -------
     Current Liabilities:
       Accounts payable   $ 11,887   $  7,436   $  8,551  $      -   $ 27,874  $ 27,637   $ 18,114   $ 15,705  $      -   $ 61,456
       Working capital
         facility
           borrowings       17,000        800      6,600         -     24,400    72,000     10,640     12,293         -     94,933
       Current maturities
         of long-term debt   7,669      8,846          -         -     16,515    26,806      3,223          -         -     30,029
       Accrued expenses
         and other current
         liabilities        36,882      4,006      1,521         -     42,410    36,929      9,300      3,753       205     50,187
       Due to affiliate     (1,115)    (3,674)         -     4,789          -    (2,278)    (2,634)      (461)    5,373          -
       Unearned service
         contract revenue   15,654          -          -         -     15,654    18,582          -          -         -     18,582
       Customer credit
         balances           26,101      9,805      2,037         -     37,943    14,298      4,708      2,975         -     21,981
                          --------   --------   --------  --------   --------  --------   --------   --------  --------   --------
          Total current
            liabilities    114,078     27,219     18,709     4,789    164,796   193,974     43,351     34,265     5,578    277,168
     Long-term debt        186,397    122,154      1,863         -    310,414   178,154    121,577      3,103         -    302,834
     Other long-term
        liabilities          4,495         93          -         -      4,588     4,571         97         92         -      4,760
     Partners' Capital:
       Equity Capital       69,309    137,248      5,788   140,040    139,178    85,298    170,502      9,303   175,077    174,215
                          --------   --------   --------  --------   --------  --------   --------   --------  --------   --------
     Total liabilities
       and Partners'
       Capital            $374,279   $286,714   $ 26,360  $144,829   $618,976  $461,997   $335,527   $ 46,763  $180,655   $758,977
                          ========   ========   ========  ========   ========  ========   ========   ========  ========   ========
</TABLE>

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

                                       12
<PAGE>

5)   Acquisitions

     During the three month period ending December 31, 2000, the Partnership
     acquired five unaffiliated retail heating oil dealers and three
     unaffiliated retail propane dealers. The aggregate consideration for these
     acquisitions accounted for by the purchase method of accounting was
     approximately $19.6 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:

               (in thousands)                                     Useful Lives
                                                                  ------------
               Land                                    $   751    -
               Buildings                                   362    30 years
               Furniture and fixtures                       40    10 years
               Fleet                                     1,764    5 - 30 years
               Tanks and equipment                       3,069    5 - 30 years
               Customer lists                            7,660    7 - 15 years
               Restrictive covenants                     1,660    5 years
               Goodwill                                  3,570    25 years
               Working capital                             745    -
                                                       -------
                   Total                               $19,621
                                                       =======


     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, 2000 of the Partnership and the
     acquisitions previously described, as if the acquisitions had taken place
     on October 1, 2000.

               (in thousands, except per share data)
               Sales                                                   $325,945
                                                                       ========
               Net income                                              $ 17,548
                                                                       ========
               General Partner's interest in net income                $    281
                                                                       ========
               Limited Partners' interest in net income                $ 17,267
                                                                       ========
               Basic net income per limited partner unit               $   0.86
                                                                       ========
               Diluted net income per limited partner unit             $   0.86
                                                                       ========



6)   Supplemental Disclosure of Cash Flow Information

            (in thousands)                      Three Months Ended December  31,
                                                --------------------------------
                                                        1999         2000
                                                        ----         ----
               Cash paid during the period for:
                Income taxes                           $     3      $    16
                Interest                               $ 7,897      $10,187

                                       13
<PAGE>

7)   Earnings Per Limited Partner Units

<TABLE>
<CAPTION>
                                                                                                     Three Months Ended
       (in thousands, except per unit data)                                                             December 31,
                                                                                                        ------------
                                                                                                       1999       2000
                                                                                                       ----       ----
<S>                                                                                                   <C>        <C>
       Income before cumulative effect of change in accounting principle per
         Limited Partner unit
          Basic                                                                                       $  0.53   $  0.80
          Diluted                                                                                     $  0.53   $  0.79

       Cumulative effect of change in accounting principle per Limited Partner unit
          Basic                                                                                       $     -   $  0.07
          Diluted                                                                                     $     -   $  0.07


       Net income per Limited Partner unit
          Basic                                                                                       $  0.53   $  0.87
          Diluted                                                                                     $  0.53   $  0.86

       Basic Earnings Per Unit:
       ------------------------
       Net income                                                                                     $ 9,365   $17,674
       Less:  General Partner's interest in net income                                                    174       283
                                                                                                      -------   -------
          Limited Partner's interest in net income                                                    $ 9,191   $17,391
                                                                                                      =======   =======

       Common Units                                                                                    14,378    17,052
       Senior Subordinated Units                                                                        2,477     2,676
       Junior Subordinated Units                                                                          345       345
                                                                                                      -------   -------
          Weighted average number of Limited Partner units outstanding                                 17,200    20,073
                                                                                                      =======   =======
          Basic earnings per unit                                                                     $  0.53   $  0.87
                                                                                                      =======   =======

       Diluted Earnings Per Unit:
       --------------------------
          Limited Partners' interest in net income                                                     $ 9,191   $17,391
                                                                                                       =======   =======

          Weighted average number of Limited Partner units outstanding                                  17,200    20,073
          Senior subordinated units anticipated to be issued under employee incentive plan                   -       113
                                                                                                       -------   -------
             Diluted number of Limited Partner units                                                    17,200    20,186
                                                                                                       =======   =======
             Diluted earnings per unit                                                                 $  0.53   $  0.86
                                                                                                       =======   =======
</TABLE>

8)   Subsequent Events

     Cash Distribution
     On January 18, 2001, the Partnership announced that it would pay a cash
     distribution of $0.575 per Unit on all units for the three months ended
     December 31, 2000. The distributions will be paid on February 14, 2001 to
     holders of record as of February 5, 2001.

     Acquisitions
     On January 16, 2001, the Partnership completed the acquisition of certain
     assets of a distributor of home heating oil located in New York City, with
     annual sales of 35.0 million gallons of heating oil and 13.0 million
     gallons of commercial fuels. On February 2, 2001, the Partnership also
     completed the acquisition of certain assets of a retail propane
     distributor, located in the states of Wisconsin, Minnesota, Florida and
     Georgia, with annual sales of 22.0 million gallons of propane.

     Equity Offering
     On January 25, 2001, the Partnership sold 2.2 million Common Units
     (including the exercise of the over-allotment option) of limited partner
     interests in a publicly underwritten offering. The offering price was
     $17.4375 per unit. A portion of the net proceeds will be used to repay
     $12.1 million of the heating oil operations' revolving acquisition line of
     credit. The balance of the net proceeds will be used to fund acquisitions,
     and for the growth capital expenditures.

                                       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 Total Gas and Electric (TG&E) acquisition was made on April 7, 2000.
Accordingly, the results of operations for the three month period ended December
31, 2000 include TG&E's results whereas the results for the previous
corresponding quarter do not include TG&E's results.

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.

Also, 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.

                                       15
<PAGE>

THREE MONTHS ENDED DECEMBER 31, 2000
COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1999
------------------------------------------------


Volume

For the three months ended December 31, 2000, retail volume of home heating oil
and propane increased 38.8 million gallons, or 28.5%, to 174.9 million gallons,
as compared to 136.1 million gallons for the three months ended December 31,
1999. This increase was due to an additional 26.8 million gallons provided by
the heating oil segment and a 12.1 million gallon increase in the propane
segment. Volume increased in the heating oil and propane segments largely due to
the impact of colder temperatures, additional volume provided by acquisitions
and as a result of internal growth. Temperatures in the Partnership's areas of
operations were an average of 25.3% colder than in the prior year's comparable
quarter and 11.0% colder than normal.


Sales

For the three months ended December 31, 2000, sales increased $136.6 million, or
73.1%, to $323.5 million, as compared to $186.9 million for the three months
ended December 31, 1999. This increase was due to an additional $85.7 million
provided by the home heating oil segment, $20.0 million of TG&E sales and a
$30.9 million increase in the propane segment. Sales rose in both the heating
oil and propane segments due to increased selling prices and from increased
retail volume. Selling prices increased versus the prior year's comparable
period in response to higher supply costs. Sales also increased in the heating
oil division by $4.7 million and by $1.9 million in the propane division due to
increases in the sales of rationally related products including heating
equipment installation and service and water softeners.


Cost of Product

For the three months ended December 31, 2000, cost of product increased $107.8
million, or 124.6%, to $194.4 million, as compared to $86.5 million for the
three months ended December 31, 1999. This increase was due to an additional
$68.2 million of cost of product at the home heating segment, $17.9 million of
TG&E cost of product and a $21.8 million increase in the propane segment. The
cost of product for both the heating oil and propane segments increased due to
the impact of higher supply cost and as a result of higher retail volume sales.
While selling prices and supply cost increased on a per gallon basis for both
the heating oil and propane divisions 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, 2000, cost of installation, service and
appliances increased $6.0 million, or 19.5%, to $36.9 million, as compared to
$30.9 million for the three months ended December 31, 1999. This increase was
due to an additional $5.4 million of expenses for the heating oil segment and a
$0.6 million increase in cost for the propane segment. The cost of installation,
service and appliances for both the heating oil and propane segments increased
due to the additional sales of rationally related products and to a lesser
extent as a result of additional service cost due to the colder temperatures.

                                       16
<PAGE>

Delivery and Branch Expenses

For the three months ended December 31, 2000, delivery and branch expenses
increased $9.0 million, or 22.4%, to $49.3 million, as compared to $40.3 million
for the three months ended December 31, 1999. This increase was due to an
additional $6.5 million of delivery and branch expenses at the heating oil
segment and a $2.5 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 higher
retail volume sales, inflation and for additional operating cost of acquired
companies.


Depreciation and Amortization Expenses

For the three months ended December 31, 2000, depreciation and amortization
expenses increased $1.2 million, or 14.8%, to $9.6 million, as compared to $8.4
million for the three months ended December 31, 1999. This increase was
primarily due to $0.2 million of depreciation and amortization expense for TG&E
and additional depreciation and amortization for heating oil and propane
acquisitions.


General and Administrative Expenses

For the three months ended December 31, 2000, general and administrative
expenses increased $2.2 million, or 47.3%, to $6.9 million, as compared to $4.7
million for the three months ended December 31, 1999. The increase was due to
$1.7 million of TG&E general and administrative expenses and a $0.5 million
increase in general and administrative expenses at the Partnership level. The
Partnership level increase was primarily due to an accrual for compensation
earned for unit appreciation rights previously granted and for professional fees
incurred for the recruitment of certain executive positions.


TG&E Customer Acquisition Expense

For the three months ended December 31, 2000, TG&E customer acquisition expense
was $0.7 million. 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, 2000, unit compensation expense was $0.5
million. This expense was incurred under the Partnership's Unit Incentive Plan
whereby certain employees and outside directors 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, 2000, net interest expense increased
$1.6 million, or 25.4%, to $8.1 million, as compared to $6.5 million for the
three months ended December 31, 1999. This increase was due to additional
interest expense for higher working capital borrowings necessitated by the
higher cost of product as well as for additional interest expense for the
financing of propane and heating oil acquisitions.

                                       17
<PAGE>

Income Tax Expense

For the three months ended December 31, 2000, income tax expense increased $0.6
million to $0.7 million, as compared to $0.1 million for the three months ended
December 31, 1999. This increase was due to additional state income taxes for
higher pretax earnings achieved for the three months ended December 31, 2000.


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, 2000, net income increased $8.3 million,
or 88.7%, to $17.7 million, as compared to $9.4 million for the three months
ended December 31, 1999. The increase was due to an additional $5.4 million of
net income at the heating oil segment and a $5.0 million increase in net income
at the propane segment. The improvement in the net income for these segments was
due to colder weather, per gallon improvement in gross profit margins and as a
result of internal growth. Partially offsetting these increases in net income
were $1.4 million of net loss for TG&E and $0.7 million more of net loss at the
Partnership level, largely the result of the increase in unit compensation
expense recorded at the Partnership level.


Earnings before interest, taxes, depreciation and amortization, TG&E customer
acquisition expense and unit compensation expense, less net gain (loss) on sales
of assets (EBITDA)

For the three months ended December 31, 2000, earnings before interest, taxes,
depreciation and amortization, TG&E customer acquisition expense and unit
compensation expense, less net gain (loss) on sales of assets (EBITDA) increased
$11.5 million, or 47.0% to $36.0 million as compared to $24.5 million, for the
three months ended December 31, 1999. This increase was due to $5.8 million of
additional EBITDA generated by the heating oil segment, $0.4 million of TG&E
EBITDA, a $5.8 million increase in the propane segment EBITDA partially offset
by $0.5 million of additional expenses at the Partnership level. The increase in
the heating oil and propane segments was due to additional EBITDA provided by
the impact of colder temperatures, acquisitions, higher per gallon gross profit
margins and by internal growth. 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.

                                       18
<PAGE>

Liquidity and Capital Resources

During October 2000, the Partnership sold 1.5 million common units (including
0.2 million of overallotment units exercised), the net proceeds of which, net of
underwriter's discount, commission, and offering expenses was $23.4 million.
These funds combined with net cash provided by $40.4 million in net working
capital and acquisition facility borrowings, $40.3 million of long-term debt
borrowings ($40.0 million of senior secured notes and $0.3 million of
acquisition related notes) and $0.1 million in proceeds from the sale of fixed
assets amounted to $104.2 million. Such funds were used for operating activities
of $57.5 million, acquisitions of $19.6 million, distributions of $10.7 million,
debt repayment of $4.3 million, capital expenditures of $4.1 million and other
financing activities of $0.6 million. As a result of the above activity, cash
increased by $7.4 million to $18.3 million.

The $40.0 million of senior secured notes mentioned above were issued to three
institutional lenders by the heating oil segment to complete a refinancing of
$40.0 million of indebtedness incurred under its bank acquisition facility. The
senior notes bear interest at the rate of 8.96% per year and have an average
life of five and three-quarter years with a final maturity date of November 1,
2010.

On January 25, 2001, the Partnership sold 2.2 million Common Units (including
the exercise of the over-allotment option) of limited partner interests in a
publicly underwritten offering. The offering price was $17.4375 per unit. A
portion of the net proceeds will be used to repay $12.1 million of the heating
oil operations' revolving acquisition line of credit. The balance of the net
proceeds will be used to fund acquisitions, and for the growth capital
expenditures.

For the remainder of fiscal 2001, the Partnership anticipates paying interest of
approximately $23 million and anticipates growth and maintenance capital
additions of approximately $11 million. 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 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 2001.

                                       19
<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, 2000, the Partnership had outstanding borrowings of
approximately $105.7 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
$1.1 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, 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, 2000, the potential unrealized gain on the
Partnership's hedging activity would be increased by $3.6 million to an
unrealized gain of $5.3 million; and conversely a hypothetical ten percent
decrease in the cost of product would be a decrease of $3.5 million to an
unrealized loss of $1.8 million.



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


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

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

          (27) Financial Data Schedule



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

          10/25/00  This Form 8-K consists of the following historical press
                    release: Star Gas Partners, L.P. Reports Significant EBITDA
                    Improvement in Fiscal 2000 Third Quarter Declares Common
                    Unit Distribution and Announces Commencement of Senior
                    Subordinated Unit Distribution (Released July 25, 2000).

          10/27/00  This Form 8-K consists of a copy of the underwriting
                    agreement for a firm commitment public offering of 1,300,000
                    common units of the registrant that were previously
                    registered pursuant to a shelf registration statement on
                    Form S-3 (SEC File No. 333-94031).

                                       20
<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 8, 2001
    -------------------------
    George Leibowitz              Star Gas LLC
                                  (Principal Financial Officer)

/s/ James J. Bottiglieri          Vice President                February 8, 2001
    -------------------------
    James J. Bottiglieri          Star Gas LLC



                                       21