UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended September 30, 2001

OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]

For the transition period from _________ to _________

Commission File Number: 33-98490
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STAR GAS PARTNERS, L.P.
-----------------------
(Exact name of registrant as specified in its charter)

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

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class              Name of each exchange on which registered
-----------------------------------    -----------------------------------------
Common Units                             New York Stock Exchange
Senior Subordinated Units                New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of Star Gas Partners, L.P. Common Units held by
non-affiliates of Star Gas Partners, L.P. on December 18, 2001 was approximately
$448,100,000. As of December 18, 2001 the number of Star Gas Partners, L.P.
shares outstanding for each class of common stock was:

23,393,946      Common Units
3,019,653      Senior Subordinated Units
345,364      Junior Subordinated Units
325,729      General Partner Units

Documents Incorporated by Reference:  None

STAR GAS PARTNERS, L.P.
2001 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

PART I

Page

Item  1.     Business                                                                                        3

Item  2.     Properties                                                                                     14

Item  3.     Legal Proceedings - Litigation                                                                 14

Item  4.     Submission of Matters to a Vote of Security Holders                                            14

PART II

Item  5.     Market for the Registrant's Units and Related Matters                                          15

Item  6.     Selected Historical Financial and Operating Data                                               16

Item  7.     Management's Discussion and Analysis of Financial Condition and Results of Operations          18

Item  7A.    Quantitative and Qualitative Disclosures about Market Risk                                     25

Item  8.     Financial Statements and Supplementary Data                                                    25

Item  9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           25

PART III

Item 10.     Directors and Executive Officers of the Registrant                                             26

Item 11.     Executive Compensation                                                                         30

Item 12.     Security Ownership of Certain Beneficial Owners and Management                                 32

Item 13.     Certain Relationships and Related Transactions                                                 32

PART IV

Item 14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K                               33

2

PART I
ITEM 1. BUSINESS

Structure

Star Gas Partners, L.P. ("Star Gas" or the "Partnership") is a diversified home
energy distributor and services provider, specializing in heating oil, propane,
natural gas and electricity. Star Gas is a master limited partnership, which at
September 30, 2001 had 23.4 million common limited partner units (NYSE: "SGU"
representing a 87.4% limited partner interest in Star Gas Partners) and 2.7
million senior subordinated units (NYSE: "SGH" representing a 10.1% limited
partner interest in Star Gas Partners) outstanding. Additional Partnership
interests include 0.3 million junior subordinated units (representing a 1.3%
limited partner interest) and 0.3 million general partner units (representing a
1.2% general partner interest).

Operationally the Partnership is organized as follows:

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

.    Petro Holdings, Inc. ("Petro" or the "heating oil segment"), is the
nation's largest distributor of home heating oil and serves approximately
530,000 customers in the Northeast and Mid-Atlantic. Petro is an indirect
wholly owned subsidiary of Star Gas Propane, L.P.

.    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 New York, New
Jersey, Florida, Maryland and the District of Columbia and serves
approximately 50,000 residential customers. TG&E is currently an 80% owned
subsidiary of Star Gas Partners.

.    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.

Seasonality

The Partnership's fiscal year ends on September 30th. All references in this
document are to fiscal years unless otherwise noted. The seasonal nature of the
Partnership's business results in the sale of approximately 30% of its volume in
the first quarter (October through December) and 45% of its volume in the second
quarter (January through March) of each year, the peak heating season, because
propane, heating oil and natural gas are primarily used for space heating in
residential and commercial buildings. The Partnership generally realizes net
income in both of these quarters and net losses during the quarters ending June
and September. In addition, sales volume typically fluctuates from year to year
in response to variations in weather, wholesale energy prices and other factors.

Propane
-------

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. Customers are served from 112 branch
locations and 54 satellite storage facilities in the Midwest, Northeast, Florida
and Georgia. In addition to its retail business, the segment serves wholesale
customers from its underground cavern and storage facilities in Seymour,
Indiana. Based on sales dollars, approximately 90% of propane sales were to
retail customers and approximately 10% were to wholesale customers. Retail sales
have historically had a greater profit margin, more stable customer base and
less price sensitivity as compared to the wholesale business.

Propane is used primarily for space and water heating, clothes drying and
cooking. Residential customers are typically homeowners, while commercial
customers include motels, restaurants, retail stores and laundromats. Industrial
users, such as manufacturers, use propane as a heating and energy source in
manufacturing and drying processes. In addition, propane is used to supply heat
for drying crops and as a fuel source for certain vehicles.

3

Propane is extracted from natural gas at processing plants or separated from
crude oil during the refining process. Propane is normally transported and
stored in a liquid state under moderate pressure or refrigeration for ease of
handling in shipping and distribution. When the pressure is released or the
temperature is increased, propane is usable as a flammable gas. Propane is
colorless and odorless; an odorant is added to allow its detection. Propane is
clean-burning, producing negligible amounts of pollutants when consumed.
According to the American Petroleum Institute, the domestic retail market for
propane is approximately 9.4 billion gallons annually. As of 1997, propane
accounted for approximately 3.5% of household energy consumption in the United
States.

Home Heating Oil
----------------

Home heating oil customers are served from 35 branch locations in the Northeast
and Mid-Atlantic regions, from which the heating oil segment installs and
repairs heating equipment 24 hours a day, seven days a week, 52 weeks a year,
generally within four hours of request. These services are an integral part of
its basic heating oil business, and are designed to maximize customer
satisfaction and loyalty. In 2001, the heating oil segment's sales were
comprised of approximately 79% from sales of home heating oil; 15% from the
installation and repair of heating and air conditioning equipment; and 6% from
the sale of other petroleum products, including diesel fuel and gasoline, to
commercial customers.

Home heating oil is a primary source of home heat in the Northeast. The region
accounts for approximately two-thirds of the demand for home heating oil in the
United States. During 1997, approximately 6.9 million homes, or approximately
36% of all homes in the Northeast, were heated by oil. In recent years, demand
for home heating oil has been affected by conservation efforts and conversions
to natural gas. In addition, as the number of new homes that use oil heat has
not been significant, there has been virtually no increase in the customer base
due to housing starts. As a result, according to the most recent available data,
residential heating oil consumption in the Northeast has declined from
approximately 5.3 billion gallons in 1982 to 4.6 billion gallons in 1993.

Natural Gas and Electricity
---------------------------

The Partnership is an independent reseller of natural gas and electricity to
households and small commercial customers in deregulated markets, through its
80% controlling interest in TG&E. In the markets in which TG&E operates, natural
gas and electricity are available from wholesalers. Substantially all of TG&E's
natural gas purchases were from major wholesalers in fiscal 2001. Natural gas is
transported to the local utility, through purchased or assigned capacity on
pipelines. All of TG&E's electricity in fiscal 2001 was purchased from a major
New York State wholesaler which delivers the electricity to the local utility
company. The utility then delivers the gas and electricity to TG&E customers
using their distribution system. The utility and TG&E coordinate delivery and
billing, and also compete to sell natural gas and electricity to the ultimate
consumer. Generally, TG&E pays the local utility a service charge to provide
certain customer related costs like billing. Customers pay a separate delivery
charge to the utility for bringing the natural gas or electricity from the
customer's chosen supplier. In all but two of the markets in which TG&E
operates, TG&E and local utility charges are itemized on one customer energy
bill generated by the utility. For the remaining markets, TG&E bills its
customers directly.

4

Industry Characteristics

The retail propane and home heating oil industries are both mature, with total
demand expected to remain relatively flat or to decline slightly. The
Partnership believes that these industries are relatively stable and predictable
due to the largely non-discretionary nature of propane and home heating oil use.
Accordingly, the demand for propane and home heating oil has historically been
relatively unaffected by general economic conditions but has been a function of
weather conditions. It is common practice in both the propane and home heating
oil distribution industries to price products to customers based on a per gallon
margin over wholesale costs. As a result, distributors generally seek to
maintain their margins by passing costs through to customers, thus insulating
themselves from the volatility in wholesale heating oil and propane prices.
However, during periods of sharp price fluctuations in supply costs,
distributors may be unable or unwilling to pass entire cost increases or
decreases through to customers. In these cases, significant increases or
decreases in per gallon margins may result. In addition, the timing of cost
pass-throughs can significantly affect margins. The propane and home heating oil
distribution industries are highly fragmented, characterized by a large number
of relatively small, independently owned and operated local distributors. Each
year a significant number of these local distributors have sought to sell their
business for reasons that include retirement and estate planning. In addition,
the propane and heating oil distribution industries are becoming more complex
due to increasing environmental regulations and escalating capital requirements
needed to acquire advanced, customer oriented technologies. Primarily as a
result of these factors, both industries are undergoing consolidation, and the
propane segment and the heating oil segment have been active consolidators in
each of their markets.

In regard to our natural gas and electricity reselling segment, historically the
local utility provided its customers with all three aspects of electric and
natural gas service: generation, transmission and distribution of natural gas
and electricity. However, under deregulation, state Public Utility Commissions
throughout the country are licensing Energy Supply Companies ("ESCs"), such as
TG&E, to be approved as alternative suppliers of the commodity portion to
end-users. ESCs will provide the "generation" function, supplying electricity to
specific delivery points. ESCs are essentially the "manufacturers" of the
electricity. ESCs also act as natural gas distributors, as they bring natural
gas to the local utility for redistribution on the utility system to the
ultimate end-user, the customer. The local utility companies will continue to
provide the "transmission" and "distribution" function, acting as the
distributor of the electricity and natural gas. Restructuring (commonly called
deregulation) means that consumers now have the option to select a new provider
for the commodity portion of their bill - a new supplier of electricity or
natural gas. ESCs are often able to supply electricity or natural gas to end
users at discounts when compared to what is paid to the current local utility.

Business Strategy

The Partnership's primary objective is to increase cash flow on a per unit
basis. The Partnership intends to pursue this objective principally through (i)
the pursuit of strategic acquisitions which capitalize on the Partnership's
acquisition expertise in the highly fragmented propane and home heating oil
distribution industries, (ii) the realization of operating efficiencies in
existing and acquired operations, (iii) a focus on customer growth and
retention, (iv) the continued enhancement in public awareness of the
Partnership's quality brands and (v) the sale of rationally related products.

In the Partnership's New York and Mid-Atlantic regions, the home heating oil
segment operates almost exclusively under the name of "Petro," rather than the
acquired brand names previously in use. The Partnership has been building the
"Petro" brand name by focusing on delivering premium service to its customers.

As the largest retail distributor of home heating oil and a leading retail
distributor of propane in the United States, the Partnership is able to realize
economies of scale in operating, marketing, information technology and other
areas by spreading costs over a larger customer base. Additionally, the heating
oil segment is using communication and computer technology that is generally not
used by its competitors, which has allowed it to realize operating efficiencies.

Recent Acquisitions

In August 2001, the Partnership completed the purchase of Meenan Oil Co., Inc.,
believed to be the third largest home heating oil dealer in the United States
for $131.8 million. During 2001, the Partnership also purchased twelve other
heating oil dealers for $52.0 million. In addition, the Partnership also
acquired nine retail propane dealers for $60.8 million.

5

Propane

Operations
----------

Retail propane operations are located in the following states:

Connecticut                   Illinois                   Kentucky                   Ohio (continued)           Florida
Stamford                      Scales Mound               Dry Ridge                  Kenton                     Bronson
Hartford                                                 Glencoe                    Lancaster                  Chiefland
Indiana                    Prospect                   Lewisburg                  Crystal River
Maine                         Batesville                 Shelbyville                Lynchburg                  High Springs
Fairfield                     Bedford                                               Macon                      Melbourne
Fryeburg                      Bluffton                   Michigan                   Maumee                     New Smyrna Beach
Wells                         College Corner             Big Rapids                 Mt. Orab                   Old Town
Windham                       Columbia City              Charlotte                  Mt. Vernon                 Silver Spring
Decatur                    Chassell                   North Star
Massachusetts                 Ferdinand                  Coleman                    Ripley
Belchertown                   Germfask                   Hillsdale                  Sabina                     GEORGIA
-------
Rochdale                      Greencastle                Kalamazoo                  Waverly                    Blakely
Westfield                     Jeffersonville             Marquete                   West Union
Swansea                       Lawrence                   Munising
Linton                     Owosso                     West Virginia
New Hampshire                 Madison                    Somerset Center            (from Ironton, OH)
(from Fryeburg, ME)           New Salisbury              Vassar
N. Manchester                                         Wisconsin
New Jersey                    N. Webster                 Minnesota                  Block River Falls
Maple Shade                   Orland                     Minnesota City             Blair
Tuckahoe                      Portland                                              Caledonia
Remington                  Ohio                       Chetek
New York                      Richmond                   Bowling Green              Eau Claire
Addison                       Rushville                  Cincinnati                 LaCrosse
Poughkeepsie                  Seymour                    Columbiana                 Mauston
Washingtonville               Shirley                    Columbus                   Minocqua
Bridgehampton                 Steffen                    Defiance                   Mondoui
Sulphur Springs            Deshler                    Owen
Pennsylvania                  Versailles                 Dover                      Prairie Du Chien
Hazleton                      Warren                     Hebron                     Richland Cenre
Wellsboro                     Waterloo                   Ironton                    Shell Lake
Wind Gap                      Winamac                    Jamestown                  Tomah

Rhode Island
Davisville

In addition to selling propane, the segment also sells, installs and services
equipment related to propane distribution, including heating and cooking
appliances. At several Midwest locations bottled water is sold and water
conditioning equipment is either sold or leased. Typical branch locations
consist of an office, an appliance showroom and a warehouse and service
facility, with one or more 12,000 to 30,000 gallon bulk storage tanks. Satellite
facilities typically contain only storage tanks. The distribution of propane at
the retail level for the most part involves large numbers of small deliveries
averaging 100 to 150 gallons to each customer. Retail deliveries of propane are
usually made to customers by means of the propane segment's fleet of bobtail and
rack trucks.

Currently the propane segment has 550 bobtail and rack trucks. Propane is pumped
from a bobtail truck, which generally holds 2,000 to 3,000 gallons, into a
stationary storage tank at the customer's premises. The capacity of these tanks
ranges from approximately 24 gallons to approximately 1,000 gallons. The propane
segment also delivers propane to retail customers in portable cylinders, which
typically are picked up and replenished at distribution locations, then returned
to the retail customer. To a limited extent, the propane segment also delivers
propane to certain end-users of propane in larger trucks known as transports.
These trucks have an average capacity of approximately 9,000 gallons. End-users
receiving transport deliveries include industrial customers, large-scale heating
accounts, such as local gas utilities that use propane as a supplemental fuel to
meet peak demand requirements, and large agricultural accounts that use propane
for crop drying and space heating.

6

Customers
---------

During 2001, the propane segment grew its residential customer base by less than
0.5% through internal marketing. In addition, the propane segment completed nine
acquisitions with approximately 63,000 customers with annual volumes of 34.7
million gallons. Approximately 65% of the propane segment's retail sales are
made to residential customers and 35% of retail sales are made to commercial and
agricultural customers. Sales to residential customers in 2001 accounted for
approximately 71% of propane gross profit on propane sales, reflecting the
higher-margin nature of this segment of the market. In excess of 95% of the
retail propane customers lease their tanks from the propane segment. In most
states, due to fire safety regulations, a leased tank may only be refilled by
the propane distributor that owns that tank. The inconvenience associated with
switching tanks greatly reduces a propane customer's tendency to change
distributors. Over half of the propane segment's residential customers receive
their propane supply under an automatic delivery system. The amount delivered is
based on weather and historical consumption patterns. Thus, the automatic
delivery system eliminates the customer's need to make an affirmative purchase
decision. The propane segment provides emergency service 24 hours a day, seven
days a week, 52 weeks a year.

Competition
-----------

The propane industry is highly competitive; however, long-standing customer
relationships are typical of the retail propane industry. The ability to compete
effectively within the propane industry depends on the reliability of service,
responsiveness to customers and the ability to maintain competitive prices. The
propane segment believes that its superior service capabilities and customer
responsiveness differentiates it from many of its competitors. Branch operations
offer emergency service 24 hours a day, seven days a week, 52 weeks a year.
Competition in the propane industry is highly fragmented and generally occurs on
a local basis with other large full-service multi-state propane marketers,
smaller local independent marketers and farm cooperatives. Based on industry
publications, the Partnership believes that the ten largest multi-state
marketers, including its propane segment, account for approximately 35% of the
total retail sales of propane in the United States, and that no single marketer
has a greater than 10% share of the total retail market in the United States.
Most of the propane segment's branches compete with five or more marketers or
distributors. The principal factors influencing competition among propane
marketers are price and service. Each retail distribution outlet operates in its
own competitive environment. While retail marketers locate in close proximity to
customers to lower the cost of providing delivery and service, the typical
retail distribution outlet has an effective marketing radius of approximately 35
miles.

In addition, propane competes primarily with electricity, natural gas and fuel
oil as an energy source on the basis of price, availability and portability. In
certain parts of the country, propane is generally less expensive to use than
electricity for space heating, water heating, clothes drying and cooking.
Propane is generally more expensive than natural gas, but serves as an
alternative to natural gas in rural and suburban areas where natural gas is
unavailable or portability of product is required. The expansion of natural gas
into traditional propane markets has historically been inhibited by the capital
costs required to expand distribution and pipeline systems. Although the
extension of natural gas pipelines tends to displace propane distribution in the
areas affected, the Partnership believes that new opportunities for propane
sales arise as more geographically remote areas are developed. Although propane
is similar to fuel oil in space heating and water heating applications, as well
as in market demand and price, propane and fuel oil have generally developed
their own distinct geographic markets. Because furnaces that burn propane will
not operate on fuel oil, a conversion from one fuel to the other requires the
installation of new equipment.

7

Home Heating Oil

Operations
----------

The Partnership's heating oil segment serves approximately 530,000 customers in
the Northeast and Mid-Atlantic states. In addition to selling home heating oil,
the heating oil segment installs and repairs heating and air conditioning
equipment. To a limited extent, it also markets other petroleum products. During
the twelve months ended September 30, 2001, the total sales in the heating oil
segment were comprised of approximately 79% from sales of home heating oil; 15%
from the installation and repair of heating equipment; and 6% from the sale of
other petroleum products. The heating oil segment provides home heating
equipment repair service 24 hours a day, seven days a week, 52 weeks a year,
generally within four hours of a request. It also regularly provides various
service incentives to obtain and retain customers. The heating oil segment is
consolidating its operations under one brand name, which it is building by
employing an upgraded, professionally trained and managed sales force, together
with a professionally developed marketing campaign, including radio and print
advertising media. The heating oil segment has a nationwide toll free telephone
number, 1-800-OIL-HEAT, which it believes helps build customer awareness and
brand identity.

As a result of a major strategic study, in 1996 the heating oil segment began to
implement an operational restructuring program designed to take advantage of its
size within the home heating oil industry. This program involves regionalization
of its home heating oil operations into three profit centers, which allows it to
operate more efficiently. In addition, this program enables the heating oil
segment to access developments in communication and computer technology that are
in use by other large distribution businesses, but are generally not used by
other retail heating oil companies. This program is designed to reduce operating
costs, improve customer service and establish a brand image among heating oil
consumers.

As part of the implementation of this operational restructuring program, in
April 1996 the heating oil segment opened a regional customer service center on
Long Island, New York. This state-of-the-art facility currently conducts all
activities that interface with its approximately 125,000 Long Island and New
York City home heating oil customers, including sales, customer service, credit
and accounting. Since the establishment of this customer service center, eight
full-function branches were consolidated into four strategically located
delivery and service depots to serve the heating oil segment's customers more
efficiently. Furthermore, in keeping with the focus of its operating strategy,
the heating oil segment has continued to reorganize select branch and corporate
responsibilities in order to eliminate redundant functions and regionalize
responsibilities where they can best serve customers and the home heating oil
business.

Customers
---------

The heating oil segment currently markets in the following states:

New York                              Massachusetts                      New Jersey
Bronx, Queens and Kings Counties      Boston (Metropolitan)              Camden
Dutchess County                       Northeastern Massachusetts         Lakewood
Staten Island                          (Centered in Lawrence)            Newark (Metropolitan)
Eastern Long Island                   Worcester                          North Brunswick
Western Long Island                                                      Rockaway
Westchester/Putnam Counties                                              Trenton
Orange County

Connecticut                           Pennsylvania                       Rhode Island
Bridgeport--New Haven                 Allentown                          Providence
Litchfield County                     Berks County                       Newport
Fairfield County                       (Centered in Reading)
Bucks County                       Maryland/Virginia/D.C.
(Centered in Southampton)         Arlington
Lebanon County                     Baltimore
(Centered in Palmyra)             Washington, D.C. (Metropolitan)
Philadelphia

8

During the twelve months ended September 30, 2001, approximately 86% of the
heating oil segment's heating oil sales were made to homeowners, with the
remainder to industrial, commercial and institutional customers. In 2001, the
heating oil segment experienced net attrition of 0.7%, representing gains of
approximately 13.1% and losses of 13.8%. Net account growth for the heating oil
segment for fiscal 2000 was 1.3%. Attrition of existing customers had averaged
approximately 5% per year over the five years through 1999. Gross customer
losses are the result of various factors, including customer relocation, price,
natural gas conversions and credit problems. Customer gains are a result of
marketing and service programs and other incentives. While the heating oil
segment often loses customers when they move from their homes, it is able to
retain a majority of these homes by obtaining the purchaser as a customer.
Approximately 90% of the heating oil customers receive their home heating oil
under an automatic delivery system without the customer having to make an
affirmative purchase decision. These deliveries are scheduled by computer, based
upon each customer's historical consumption patterns and prevailing weather
conditions. The heating oil segment delivers home heating oil approximately six
times during the year to the average customer. The segment's practice is to bill
customers promptly after delivery. Approximately 33% of its customers are on a
budget payment plan, whereby their estimated annual oil purchases and service
contract are paid for in a series of equal monthly payments over a twelve month
period.

Approximately 39% of the heating oil sales are made to individual customers
under agreements pre-establishing a fixed or maximum price per gallon over a
twelve month period. The fixed or maximum price at which home heating oil is
sold to these price plan customers is generally renegotiated prior to the
heating season of each year based on current market conditions. The segment
currently enters into derivative instruments (futures, options, collars and
swaps) covering a substantial majority of the heating oil it sells to these
price plan customers in advance and at a fixed cost. Should events occur after a
price plan customer's price is established that increases the cost of home
heating oil above the amount anticipated, margins for the price plan customers
whose heating oil was not purchased in advance would be lower than expected,
while those customers whose heating oil was purchased in advance would be
unaffected. Conversely, should events occur during this period that decrease the
cost of heating oil below the amount anticipated, margins for the price plan
customers whose heating oil was purchased in advance could be lower than
expected, while those customers whose heating oil was not purchased in advance
would be unaffected or higher than expected.

Competition
-----------

The heating oil segment competes with distributors offering a broad range of
services and prices, from full service distributors, like itself, to those
offering delivery only. Long-standing customer relationships are typical in the
industry. Like most companies in the home heating oil business, the heating oil
segment provides home heating equipment repair service on a 24-hour a day basis.
This tends to build customer loyalty. As a result of these factors, it may be
difficult for the heating oil segment to acquire new retail customers, other
than through acquisitions. In some instances homeowners have formed buying
cooperatives that seek to purchase fuel oil from distributors at a price lower
than individual customers are otherwise able to obtain. The heating oil segment
also competes for retail customers with suppliers of alternative energy
products, principally natural gas, propane, and electricity. The rate of
conversion from the use of home heating oil to natural gas is primarily affected
by the relative prices of the two products and the cost of replacing an oil
fired heating system with one that uses natural gas. The heating oil segment
believes that approximately 1% of its home heating oil customer base annually
converts from home heating oil to natural gas.

9

Natural Gas and Electricity

Operations
----------

The Partnership's natural gas and electricity segment serves approximately
50,000 customers in four states and the District of Columbia. In 2001, the sales
were comprised of 81% from sales of approximately 66.5 million therms of natural
gas and 19% from sales of approximately 232 million kilowatts of electricity.

The initial business strategy of TG&E was to increase its market share in
deregulated natural gas and electricity. Its current business plan is to expand
its market share by concentrating on obtaining new natural gas customers in
areas where it believes they will be profitable and stable. As a result, TG&E
ceased serving approximately 25,000 customers who bought only electricity. TG&E
will continue to market the resale of electricity to existing natural gas
customers while continuing to look for future opportunities.

Customers
---------

TG&E currently markets in the following states:

New York                   New Jersey                    Maryland
--------                   ----------                    --------

Buffalo                    Central New Jersey            Baltimore
Orange County              Southern New Jersey
Rockland County                                          Washington, D.C.
Westchester County         Florida                       ----------------
New York City              -------

In 2001, approximately 98% of TG&E sales were made to households, with the
remainder to industrial and commercial customers. New accounts are currently
obtained through the utilization of a third party telemarketing firm on a
commission basis. Approximately 55% of TG&E's customers are on a budget plan,
whereby their estimated purchases are paid for in a series of equal monthly
payments over a twelve month period.

Competition
-----------

TG&E's primary competition is with the local utility company. In many markets,
however, the utility prefers that a customer buys from an independent reseller
in that the utility tariff structure is commodity neutral. The utility makes its
money by transporting the commodity and not from the sale of the commodity.
Other competitors fall into two distinct categories; national or local marketing
companies. National marketing companies are generally pipeline, producer or
utility subsidiaries. These companies have mainly focused their attention on
large commercial and industrial customers. Local companies typically only
service one or two utility markets. These companies generally do not have the
ability to offer equipment service and may be capital constrained.

10

Suppliers and Supply Arrangements
---------------------------------

Propane Segment
---------------

The propane segment obtains propane from over 20 sources, all of which are
domestic or Canadian companies, including BP Canada Energy Marketing Corp.,
Chevron-Texaco, Dynegy Inc., Ferrell North America, Gas Supply Resources, Inc.,
Kinetic Resources, U.S.A., Marathon Oil Company, Markwest Hydrocarbons,
ExxonMobil LPG, Sea-3 Inc., Shell Canada Limited, Sun Mid America Marketing &
Refining, Enterprise Products Partners, and Phillips. Supplies from these
sources have traditionally been readily available, although there is no
assurance that supplies of propane will continue to be readily available.

Substantially all of the propane supply for the Northeast retail operations is
purchased under annual or longer term supply contracts that generally provide
for pricing in accordance with market prices at the time of delivery. Some of
the contracts provide for minimum and maximum amounts of propane to be
purchased. During 2001, none of the propane segment's Northeast suppliers
accounted for more than 10% of its Northeast volume. The propane segment
typically supplies its Midwest retail and wholesale operations by a combination
of: (1) spot purchases from suppliers at Mont Belvieu, Texas, that are
transported by pipeline to the propane segment's 21 million gallon underground
storage facility in Seymour, Indiana, and then delivered to the Midwest
branches; and (2) purchases from a number of Midwest refineries that are
transported by truck to the branches either directly or via the Seymour
facility. Most of the refinery and terminal purchases are purchased under market
based contracts. The Seymour facility is located on the TEPPCO Partners, L.P.
pipeline system. The pipeline is connected to the Mont Belvieu, Texas storage
facilities and is one of the largest conduits of supply for the U.S. propane
industry. The Seymour facility allows the propane segment to buy and store large
quantities of propane during periods of low demand that generally occur during
the summer months. The Partnership believes that this ability allows it to
achieve cost savings to an extent generally not available to competitors in the
propane segment's Midwest markets and provides the Partnership with a security
of supply in times of high demand that is not available to the competition. The
Partnership believes that its diversification of suppliers will enable it to
purchase all of its supply needs at market prices if supplies are interrupted
from any of these sources without a material disruption of its operations.

The propane segment's Florida and Georgia operations are supplied by annual
contracts at market pricing. Suppliers there are the same as some of the above,
including Dynegy Inc., Sea-3 Inc. and Chevron-Texaco.

The financial hedging instruments of Star Gas Propane are limited to major
companies. One of the companies contracted to provide Star Gas Propane with
hedging instruments, Enron has filed for bankruptcy on December 2, 2001. Star
Gas has contracts with Enron to hedge 19.2 million gallons of propane purchases
through March, 2002. The market value of these contracts, on December 1, 2001,
would have resulted in Star Gas Propane owing Enron approximately $2.4 million.
The market price per gallon of propane would have to increase almost 73% or
20.6(cent) per gallon in order for the company to be in a position of creditor
with Enron.

Heating Oil Segment
-------------------

The heating oil segment obtains fuel oil in either barge, pipeline, or truckload
quantities, and has contracts with over 80 terminals for the right to
temporarily store heating oil at facilities it does not own. Purchases are made
under supply contracts or on the spot market. The home heating oil segment has
market price based contracts for substantially all of its petroleum requirements
with 12 different suppliers, the majority of which have significant domestic
sources for their product, and many of which have been suppliers for over 10
years. The segment's current suppliers are: Amerada Hess Corporation; Citgo
Petroleum Corp.; Coastal New York; Equiva Trading Co., Global Companies, LLC;
Transmontaigne Product Services Inc.; Mieco, Inc.; Mobil Oil Corporation;
Northville Industries, Sprague Energy; Sun Oil Company; and Tosco Refining Co.
Supply contracts typically have terms of 12 months. All of the supply contracts
provide for maximum and in some cases minimum quantities. In most cases the
supply contracts do not establish in advance the price of fuel oil. This price,
like the price to most of its home heating oil customers, is based upon market
prices at the time of delivery. The Partnership believes that its policy of
contracting for substantially all of its supply needs with diverse and reliable
sources will enable it to obtain sufficient product should unforeseen shortages
develop in worldwide supplies. The Partnership also believes that relations with
its current suppliers are satisfactory.

11

Natural Gas and Electricity Operations
--------------------------------------

The TG&E segment purchases natural gas at either the well-head, the pipeline
pooling point or delivered to the city gate. Purchases are at market based
pricing from a variety of different suppliers. The segment's current suppliers
are: Crown Energy Services, Inc., Duke Energy Trading & Marketing, Inc.,
Equitable Energy, LLC., Mirant Americas Energy Marketing, L.P., Sempra Energy
Trading Corp., Scana Energy Marketing, Inc., Sprague Energy Corp. and Texaco
Natural Gas, Inc. All of the segment's electricity requirements are currently
purchased at market from Niagara Mohawk Energy Marketing, Inc. and New York
Independent System Operator. During fiscal 2001, the majority of TG&E's electric
purchases were made under fixed price arrangements.

Employees

As of September 30, 2001, the propane segment had 915 full-time employees, of
whom 63 were employed by the corporate office and 852 were located in branch
offices. Of these 852 branch employees, 286 were managerial and administrative;
393 were engaged in transportation and storage and 173 were engaged in field
servicing. Approximately 69 of the segment's employees are represented by six
different local chapters of labor unions. Management believes that its relations
with both its union and non-union employees are satisfactory.

As of September 30, 2001, the home heating oil segment had 3,155 employees, of
whom 879 were office, clerical and customer service personnel; 1,146 were
heating equipment repairmen; 472 were oil truck drivers and mechanics; 343 were
management and staff and 315 were employed in sales. In addition, approximately
350 seasonal employees are rehired annually to support the requirements of the
heating season. The heating oil segment has approximately 1,100 employees, which
are represented by 16 different local chapters of labor unions. Management
believes that its relations with both its union and non-union employees are
satisfactory.

As of September 30, 2001, the TG&E segment had 49 employees, of whom 37 were
office, clerical and customer service personnel; 10 were management and staff
and 2 were employed in sales.

Government Regulations

The Partnership is subject to various federal, state and local environmental,
health and safety laws and regulations. Generally, these laws impose limitations
on the discharge of pollutants and establish standards for the handling of solid
and hazardous wastes. These laws include the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), the Clean Air Act, the Occupational Safety and Health Act, the
Emergency Planning and Community Right to Know Act, the Clean Water Act and
comparable state statutes. CERCLA, also known as the "Superfund" law, imposes
joint and several liabilities without regard to fault or the legality of the
original conduct on certain classes of persons that are considered to have
contributed to the release or threatened release of a hazardous substance into
the environment. Propane is not a hazardous substance within the meaning of
CERCLA. However, certain automotive waste products generated by the
Partnership's fleet could subject the Partnership to liability under CERCLA.
These laws and regulations could result in civil or criminal penalties in cases
of non-compliance or impose liability for remediation costs. To date, the
Partnership has not been named as a party to any litigation in which it is
alleged to have violated or otherwise incurred liability under any of the above
laws and regulations.

National Fire Protection Association Pamphlets No. 54 and 58, which establish
rules and procedures governing the safe handling of propane, or comparable
regulations, have been adopted as the industry standard in all of the states in
which the Partnership operates. In some states these laws are administered by
state agencies, and in others they are administered on a municipal level. With
respect to the transportation of propane by truck, the Partnership is subject to
regulations promulgated under the Federal Motor Carrier Safety Act. These
regulations cover the transportation of hazardous materials and are administered
by the United States Department of Transportation. The Partnership conducts
ongoing training programs to help ensure that its operations are in compliance
with applicable regulations. The Partnership maintains various permits that are
necessary to operate some of its facilities, some of which may be material to
its operations. The Partnership believes that the procedures currently in effect
at all of its facilities for the handling, storage and distribution of propane
are consistent with industry standards and are in compliance in all material
respects with applicable laws and regulations.

12

For acquisitions that involve the purchase of real estate, the Partnership
conducts a due diligence investigation to attempt to determine whether any
regulated substance has been sold from or stored on, any of that real estate
prior to its purchase. This due diligence includes questioning the seller,
obtaining representations and warranties concerning the seller's compliance with
environmental laws and performing site assessments. During this due diligence
the Partnership's employees, and, in certain cases, independent environmental
consulting firms review historical records and databases and conduct physical
investigations of the property to look for evidence of hazardous substances,
compliance violations and the existence of underground storage tanks.

Future developments, such as stricter environmental, health or safety laws and
regulations thereunder, could affect Partnership operations. It is not
anticipated that the Partnership's compliance with or liabilities under
environmental, health and safety laws and regulations, including CERCLA, will
have a material adverse effect on the Partnership. To the extent that there are
any environmental liabilities unknown to the Partnership or environmental,
health or safety laws or regulations are made more stringent, there can be no
assurance that the Partnership's results of operations will not be materially
and adversely affected.

Total Gas & Electric is an authorized supplier of electric and/or gas in the
states of New York, New Jersey, Maryland, Connecticut, Florida, Pennsylvania and
the District of Columbia, which allow consumers to choose their electric and/or
gas supplier. TG&E is either licensed and/or registered to serve as an
alternative competitive supplier in each state. The incumbent utility continues
to serve as the transmission and distribution company, which delivers the
commodity, and in many instances continues to send customers the monthly bill
for the energy delivered. However, TG&E offers an alternative for the commodity
portion of the consumers bill. As an alternative supplier, TG&E is subject to
oversight by state public utility commissions, including licensing or
registration requirements, information regarding rates and conditions of
service, and in some instances annual filing requirements regarding numbers of
customers, numbers of complaints, energy portfolio components, and other
information relative to the company's conduct of operations. Total Gas &
Electric currently has been subject to investigations by the Attorneys General
of New York and New Jersey and an informal investigation by the Pennsylvania
Public Utility Commission into its practices for soliciting customers. Total Gas
& Electric has been in discussions with these agencies to resolve their
investigations, has settled the New Jersey investigation and anticipates that
the remaining investigations will be satisfactorily resolved. Total Gas &
Electric has adopted a comprehensive sales compliance program to comply with
applicable regulations.

13

ITEM 2. PROPERTIES

Propane Segment
---------------

As of September 30, 2001, the propane segment owned 93 of its 112 branch
locations and 47 of its 54 satellite storage facilities and leased the balance.
In addition, it owns the Seymour facility, in which it stores propane for itself
and third parties. The propane segment's corporate headquarters are located in
Stamford, Connecticut and is leased.

The transportation of propane requires specialized equipment. The trucks used
for this purpose carry specialized steel tanks that maintain the propane in a
liquefied state. As of September 30, 2001, Star Gas Propane had a fleet of 17
tractors, 28 transport trailers, 550 bobtail and rack trucks and 507 other
service and pick-up trucks, the majority of which are owned.

As of September 30, 2001, the propane segment owned 389 bulk storage tanks with
typical capacities of 12,000 to 35,000 gallons; approximately 280,000 stationary
customer storage tanks with typical capacities of 24 to 1,000 gallons; and
35,000 portable propane cylinders with typical capacities of 5 to 24 gallons.
The Partnership's obligations under its borrowings are secured by liens and
mortgages on all of its real and personal property.

Heating Oil Segment
-------------------

The heating oil segment provides services to its customers from 35
branches/depots and 31 satellites, 27 of which are owned and 39 of which are
leased, in 29 marketing areas in the Northeast and Mid-Atlantic Regions of the
United States. The heating oil's corporate headquarters is located in Stamford,
Connecticut and is leased. As of September 30, 2001, the heating oil segment had
a fleet of 1,239 truck and transport vehicles the majority of which are owned
and 1,444 services vans the majority of which are leased. The Partnership's
obligations under its borrowings are secured by liens and mortgages on all of
its real and personal property.

TG&E Segment
------------

The natural gas and electric reseller segment provides services to its customers
from its Fort Lauderdale, Florida corporate headquarters which is leased. This
segment does not have any vehicles.

The Partnership believes its existing facilities are maintained in good
condition and are suitable and adequate for its present needs. In addition,
there are numerous comparable facilities available at similar rentals in each of
its marketing areas should they be required.

ITEM 3. LEGAL PROCEEDINGS - LITIGATION

Litigation
----------

The Partnership's operations are subject to all operating hazards and risks
normally incidental to handling, storing and transporting and otherwise
providing for use by consumers of combustible liquids such as propane and home
heating oil. As a result, at any given time the Partnership is a defendant in
various legal proceedings and litigation arising in the ordinary course of
business. The Partnership maintains insurance policies with insurers in amounts
and with coverages and deductibles as the general partner believes are
reasonable and prudent. However, the Partnership cannot assure that this
insurance will be adequate to protect it from all material expenses related to
potential future claims for personal and property damage or that these levels of
insurance will be available in the future at economical prices. In addition, the
occurrence of an explosion may have an adverse effect on the public's desire to
use the Partnership's products.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the security holders of the Partnership
during the fourth quarter ended September 30, 2001.

14

PART II
ITEM 5. MARKET FOR REGISTRANT'S UNITS AND RELATED MATTERS

The common units, representing common limited partner interests in the
Partnership, are listed and traded on the New York Stock Exchange, Inc. ("NYSE")
under the symbol "SGU". The common units began trading on the NYSE on May 29,
1998. Previously, the common units had traded on the NASDAQ National Market
under the symbol "SGASZ."

The Partnership's senior subordinated units began trading on the NYSE on March
29, 1999 under the symbol "SGH." The Senior Subordinated Units became eligible
to receive distributions in February 2000, and the first distribution was made
in August 2000. The following tables set forth the high and low closing price
ranges for the common and senior subordinated units and the cash distribution
declared on each unit for the fiscal 2000 and 2001 quarters indicated.

SGU - Common Unit Price Range
-----------------------------                      Distributions
High                        Low                  Declared Per Unit
------------------          -----------------           -----------------
Quarter Ended         2000          2001          2000         2001          2000          2001
----          ----          ----         ----          ----          ----

December 31,         $16.88       $17.81         $12.88       $15.50        $0.575        $0.575
March 31,            $15.88       $19.00         $13.25       $16.94        $0.575        $0.575
June 30,             $16.00       $21.68         $13.00       $18.70        $0.575        $0.575
September 30,        $17.94       $21.45         $15.19       $18.20        $0.575        $0.575

SGH - Senior Subordinated Unit Price Range
-------------------------------------------------         Distributions
High                             Low             Declared Per Unit
--------------------            -----------             -----------------
Quarter Ended         2000         2001           2000         2001          2000          2001
----         ----           ----         ----          ----          ----

December 31,         $ 9.00       $ 9.13         $ 4.88       $ 8.00             -        $0.250
March 31,            $ 6.12       $17.10         $ 4.38       $ 9.19             -        $0.575
June 30,             $ 6.75       $18.85         $ 4.50       $16.85             -        $0.575
September 30,        $ 9.19       $22.50         $ 6.06       $19.25        $0.250        $0.575

As of September 30, 2001, there were approximately 755 holders of record of
common units, and approximately 111 holders of record of senior subordinated
units.

There is no established public trading market for the Partnership's 345,364
Junior Subordinated Units and 325,729 general partner units.

In general, the Partnership distributes to its partners on a quarterly basis,
all of its Available Cash in the manner described below. Available Cash is
defined for any of the Partnership's fiscal quarters, as all cash on hand at the
end of that quarter, less the amount of cash reserves that are necessary or
appropriate in the reasonable discretion of the general partner to (i) provide
for the proper conduct of the business; (ii) comply with applicable law, any of
its debt instruments or other agreements; or (iii) provide funds for
distributions to the common unitholders and the senior subordinated unitholders
during the next four quarters, in some circumstances.

The general partner may not establish cash reserves for distributions to the
senior subordinated units unless the general partner has determined that the
establishment of reserves will not prevent it from distributing the minimum
quarterly distribution on all common units and any common unit arrearages for
the next four quarters. The full definition of Available Cash is set forth in
the Agreement of Limited Partnership of the Partnership. The information
concerning restrictions on distributions required in this section is
incorporated herein by reference to the Partnership's Consolidated Financial
Statements, which begin on page F-1 of this Form 10-K.

15

ITEM 6. SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

The following table sets forth selected historical and other data of the
Partnership and should be read in conjunction with the more detailed financial
statements included elsewhere in this report. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.

The Selected Financial Data is derived from the financial information of the
Partnership and should be read in conjunction therewith.

(in thousands, except per unit data)

Fiscal Year Ended September 30,
------------------------------------------------------------------
Statement of Operations Data:                                     1997          1998         1999/(c)/     2000           2001
----          ----         ------        ----           ----

Sales                                                          $ 135,159    $ 111,685     $ 224,020     $ 744,664     $ 1,085,973
Costs and expenses:
Cost of sales                                                72,211       49,498       131,649       501,589         771,317
Delivery and branch                                          36,427       37,216        86,489       156,862         200,059
General and administrative                                    7,113        6,336        11,717        19,862          35,771
TG&E customer acquisition                                         -            -             -         2,082           1,868
Unit compensation                                                 -            -             -           649           3,315
Depreciation and amortization                                10,242       11,462        22,713        34,708          44,396
---------    ---------     ---------     ---------     -----------
Operating income (loss)                                            9,166        7,173       (28,548)       28,912          29,247
Interest expense, net                                         6,966        7,927        15,435        26,784          33,727
Amortization of debt issuance costs                             163          176           347           534             737
---------    ---------     ---------     ---------     -----------
Income (loss) before income taxes, minority interest and
cumulative effect of change in accounting principle             2,037         (930)      (44,330)        1,594          (5,217)
Minority interest in net loss of TG&E                             -            -             -           251               -
Income tax expense (benefit)                                     25           25       (14,780)          492           1,498
---------    ---------     ---------     ---------     -----------
Income (loss) before cumulative change in accounting
principle                                                        2,012         (955)      (29,550)        1,353          (6,715)
Cumulative effect of change in accounting principle for
adoption of SFAS No. 133, net of income taxes                        -            -             -             -           1,466
---------    ---------     ---------     ---------     -----------
Net income (loss)                                         $   2,012    $    (955)    $ (29,550)    $   1,353     $    (5,249)
=========    =========     =========     =========     ===========

Weighted average number of limited partner units                   5,271        6,035        11,447        18,288          22,439

Per Unit Data:
Net income (loss) per unit/(a)/                              $    0.37    $   (0.16)    $   (2.53)    $    0.07     $     (0.23)
Cash distribution declared per common unit                   $    2.20    $    2.20     $    2.25     $    2.30     $      2.30
Cash distribution declared per senior sub. unit              $       -    $       -     $       -     $    0.25     $     1.975

Balance Sheet Data (end of period):
Current assets                                            $  14,165    $  17,947     $  86,868     $ 126,990     $   185,262
Total assets                                                147,469      179,607       539,344       618,976         898,819
Long-term debt                                               85,000      104,308       276,638       310,414         457,086
Partners' Capital                                            51,578       57,347       150,176       139,178         198,264

Summary Cash Flow Data:

Net Cash provided by operating activities                 $  18,964    $   9,264     $  10,795     $  20,364     $    63,144
Net Cash used in investing activities                        (4,905)     (13,276)       (2,977)      (65,172)       (256,134)
Net Cash provided by (used in) financing activities         (14,276)       4,238        (4,441)       51,226         199,308

Other Data:
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 (EBITDA) before
the impact of SFAS No. 133/(b)/                          $  19,703    $  18,906     $  (5,752)    $  66,210     $    85,004
Retail propane gallons sold                                  94,893       98,870        99,457       107,557         137,031
Heating oil gallons sold                                          -            -        74,039       345,684         427,168

16

ITEM 6. SELECTED HISTORICAL FINANCIAL AND OPERATING DATA (Continued)

(a)    Net income (loss) per unit is computed by dividing the limited partners'
interest in net income (loss) by the weighted average number of limited
partner units outstanding.

(b)    EBITDA is defined as operating income (loss) plus depreciation and
amortization, TG&E customer acquisition expense and unit compensation
expense, less net gain (loss) on sales of fixed assets before the impact
of SFAS No. 133. 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. EBITDA is calculated for the fiscal years ended
September 30 as follows:

1997           1998            1999            2000           2001
----           ----            ----            ----           ----

Operating income (loss)                          $   9,166      $   7,173     $  (28,548)     $  28,912      $   29,247
Plus:
Depreciation and amortization                     10,242         11,462         22,713         34,708          44,396
TG&E customer acquisition expense                      -              -              -          2,082           1,868
Unit compensation expense                              -              -              -            649           3,315
Net (gain) loss on sales of fixed assets             295            271             83           (141)             26
Impact of SFAS No. 133                                 -              -              -              -           6,152
----------      ---------     ----------      ---------      ----------

EBITDA                                      $  19,703      $  18,906     $   (5,752)     $  66,210      $   85,004
==========      =========     ==========      =========      ==========

(c)    The results of operations for the year ended September 30, 1999 include
Petro's results of operations from March 26, 1999. Since Petro was
acquired after the heating season, the results for the year ended
September 30, 1999 include expected third and fourth fiscal quarters
losses but do not include the profits from the heating season.
Accordingly, results of operations for the year ended September 30, 1999
presented are not indicative of the results to be expected for a full
year.

17

ITEM 7. 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, natural gas and electricity and the ability of the
Partnership to obtain new accounts and retain existing accounts. All statements
other than statements of historical facts included in this Report including,
without limitation, the statements under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business" and elsewhere
herein, are forward-looking statements. Although the Partnership believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Partnership's expectations ("Cautionary Statements") are disclosed in this
Report, including without limitation and in conjunction with the forward-looking
statements included in this report. All subsequent written and oral
forward-looking statements attributable to the Partnership or persons acting on
its behalf are expressly qualified in their entirety by the Cautionary
Statements.

Overview

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

The Petro acquisition was made on March 26, 1999. Accordingly, the results of
operations for the year ended September 30, 1999 only include Petro's results
from March 26, 1999. Since Petro was acquired after the heating season, the
results for the year ended September 30, 1999 include expected third and fourth
fiscal quarters losses but do not include the profits from the heating season.

The Total Gas and Electric (TG&E) acquisition was made on April 7, 2000.
Accordingly, the results of operations for the year ended September 30, 2001
include TG&E's results for the entire period whereas the results for the
previous corresponding fiscal year only include TG&E's results of operations for
only approximately six months.

The primary use of 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 affect gross margins
without necessarily impacting total sales.

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 2001 was $4.7
million less than what it would have been had the Standard not been adopted. The
$4.7 million is comprised of $6.2 million additional cost of goods sold offset
by $1.5 million of net income attributable to the cumulative effect of change in
accounting principle. The effect of the Standard has no impact in how the
Partnership evaluates its ability to make the minimum quarterly distribution.

18

FISCAL YEAR ENDED SEPTEMBER 30, 2001
COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 2000
------------------------------------------------

Volume

For fiscal 2001, retail volume of home heating oil and propane increased 111.0
million gallons, or 24.5%, to 564.2 million gallons, as compared to 453.2
million gallons for the fiscal 2000. This increase was due to an additional 81.5
million gallons provided by the heating oil segment and a 29.5 million gallon
increase in the propane segment. Volume increased in the heating oil and propane
segments largely due to the impact of colder temperatures and as a result of
additional volume provided by acquisitions. The propane segment estimates that
its volume was adversely impacted by approximately 7.5 million gallons due to
consumer conservation. Temperatures in the Partnership's areas of operations
were an average of 12.0% colder than in the prior year and approximately 2%
colder than normal.

Sales

For fiscal 2001, sales increased $341.3 million, or 45.8%, to $1.1 billion, as
compared to $744.7 million for fiscal 2000. This increase was attributable to
$197.1 million provided by the home heating oil segment, a $76.2 million
increase in the propane segment and by a $68.1 million of increased TG&E sales.
Sales rose in both the heating oil and propane segments due to increased retail
volume and to a lesser extent from increased selling prices. 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 $22.7 million and by
$7.1 million in the propane division due to increases in the sales of rationally
related products including heating, air conditioning and water softening
equipment installation and service.

Cost of Sales

For fiscal 2001, cost of product increased $269.7 million, or 53.8%, to $771.3
million, as compared to $501.6 million for fiscal 2001. This increase was due to
$160.5 million of additional cost of product at the home heating segment, $61.3
million of increased TG&E cost of product and a $47.9 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 retail volumes sales and as a
result of higher supply cost. In addition, cost of product increased by $6.2
million due to the impact of SFAS No. 133 on 2001 results. While both selling
prices and supply cost increased on a per gallon basis, the increase in selling
prices was greater than the increase in supply costs (excluding the impact of
SFAS #133), which resulted in an increase in per gallon margins. Cost of sales
for both the heating oil and propane segments also increased due to additional
sales of rationally related products and as a result of additional service cost
due to the colder temperatures.

Delivery and Branch Expenses

For fiscal 2001, delivery and branch expenses increased $43.2 million, or 27.5%,
to $200.1 million, as compared to $156.9 million for fiscal 2000. This increase
was due to an additional $30.1 million of delivery and branch expenses at the
heating oil segment, and a $13.0 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

For fiscal 2001, depreciation and amortization expenses increased $9.7 million,
or 27.9%, to $44.4 million, as compared to $34.7 million for fiscal 2000. This
increase was primarily due to additional depreciation and amortization for
heating oil and propane acquisitions and $1.5 million of increased depreciation
and amortization expenses for TG&E.

General and Administrative Expenses

For fiscal 2001, general and administrative expenses increased $15.9 million, or
80.0%, to $35.8 million, as compared to $19.9 million for fiscal 2000. This
increase was primarily due to $10.7 million of additional TG&E general and
administrative expenses and a $3.3 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. General and administrative expenses increased
$1.9 million in total for the heating oil and propane segments due to increased
incentive compensation and for acquisition related expenditures.

19

The $10.7 million increase in expenses at TG&E was largely due to a $6.4 million
provision to increase its allowance for bad debts (representing a $6.0 million
increase over the prior year provision), $2.4 million of start up and
organizational expenses and inclusion of a full year of general and
administration expense. Since its acquisition, TG&E has struggled with customer
credit deficiencies and problems collecting its receivables. TG&E currently has
more than 50,000 terminated customers who collectively owe $15.5 million,
virtually all of which is greater than 90 days old. This balance includes $5.3
million of accounts receivable that predated TG&E's acquisition by the
Partnership. These pre-acquisition receivables were assigned no value and are
not reflected on TG&E's books. Consequently, the gross amount of receivables
from terminated accounts on the Company's books before bad debt reserves
currently approximates $10 million.

The Partnership has recently allocated substantial resources to a collection
effort targeting these terminated accounts. Based on a sample group of accounts'
preliminary collection results, the Partnership added $5.7 million to TG&E's bad
debt provision for the year ended September 30, 2001. This brought the total bad
debt reserve on terminated accounts to $6.0 million. Consequently, out of the
roughly $15 million owed TG&E by terminated accounts, all but $4 million has
been reserved. In addition, TG&E provided a $0.7 million bad debt provision
against its active accounts receivable for the year ended September 30, 2001
bringing the total allowances to $0.9 million for active accounts at that time.

In the course of 2001, TG&E has instituted entirely new credit policies
including a detailed procedure to approve new accounts. Simultaneously, new
information systems have been purchased and adopted to TG&E's needs. The new
systems are currently being implemented at TG&E. As a result, TG&E believes its
delinquency levels and bad debt experience will improve. Once the system
enhancements are fully in place and all of TG&E's customers have gone through
the new credit approval procedures, bad debt losses should approximate the
experience of the Partnership's other two operating segments.

TG&E incurred approximately $2.4 million of start up and organizational expenses
involving compliance, legal and data processing costs, which were included in
general and administrative expenses in 2001.

TG&E Customer Acquisition Expense

For fiscal 2001, TG&E customer acquisition expense decreased $0.2 million, or
10.3%, to $1.9 million, as compared to $2.1 million for fiscal 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 fiscal 2001, unit compensation expense increased $2.7 million, or 410.8%, to
$3.3 million, as compared to $0.6 million for fiscal 2000. These expenses were
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. The increase in fiscal 2001 resulted from the
increased market price of the Subordinated Units, which was the basis for
calculating unit compensation expense as well as for additional units that
vested during fiscal 2001.

Interest Expense, net

For fiscal 2001, net interest expense increased $6.9 million, or 25.9%, to $33.7
million, as compared to $26.8 million for fiscal 2000. This increase was due to
additional interest expense for higher working capital borrowings necessitated
by the higher cost of product and additional interest expense for the financing
of propane and heating oil acquisitions.

Income Tax Expense

For fiscal 2001, income tax expense increased $1.0 million, or 204.5%, to $1.5
million, as compared to $0.5 million for fiscal 2000. This increase was due to
additional state income taxes for certain higher pretax earnings achieved for
fiscal 2001.

Cumulative Effect of Adoption of Accounting Principle

For fiscal 2001, the Partnership recorded a $1.5 million increase in net income
arising from the adoption of SFAS No. 133.

20

Net Income (loss)

For fiscal 2001, net income decreased $6.6 million to a loss of $5.2 million, as
compared to net income of $1.4 million for fiscal 2000. The decrease was due to
a $9.6 million increase in net income at the propane segment offset by $3.6
million of less income at the heating oil segment, $8.2 million of additional
net loss for TG&E and a $4.5 million additional net loss at the Partnership
level, largely the result of the increase in unit compensation expense recorded
at the Partnership level. The increase in net income for the propane segment was
largely due to colder weather and as a result of acquisitions. The decrease in
net income for the heating oil segment was largely due to the timing of when
acquisitions were completed.

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

For the fiscal 2001, 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 $18.8 million, or
28.4%, to $85.0 million as compared to $66.2 million, for fiscal 2000. This
increase was due to a $14.9 million increase in the propane segment EBITDA,
$11.3 million of additional EBITDA generated by the heating oil segment
partially offset by $3.3 million of additional expenses at the Partnership level
and by $4.1 million of lower TG&E EBITDA. The increase in the heating oil and
propane segments was largely due to additional EBITDA provided by the impact of
colder temperatures and 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.

FISCAL YEAR ENDED SEPTEMBER 30, 2000
COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 1999
------------------------------------------------

Volume

For fiscal 2000, retail volume of propane and heating oil increased 279.7
million gallons, or 161.2%, to 453.2 million gallons, as compared to 173.5
million gallons for fiscal 1999. This increase was due to 271.6 million gallons
of additional volume provided by the heating oil segment and a 8.1 million
gallon increase in the propane segment. While retail propane volume was
favorably impacted by acquisitions and internal growth, a 2.5 million gallon
reduction in agriculture sales and slightly warmer temperatures negatively
impacted volumes. The abnormal weather conditions during the first fiscal
quarter resulted in a very dry fall harvest, which significantly reduced propane
demand for crop drying. In the Partnership's propane operating areas,
temperatures for fiscal 2000 were 0.6% warmer than in the prior year's
comparable period and 11.4% warmer than normal.

Sales

For fiscal 2000, sales increased $520.7 million, or 232.2%, to $744.7 million,
as compared to $224.0 million for fiscal 1999. This increase was attributable to
$454.5 million additional sales provided by the heating oil segment, $23.6
million of TG&E sales and a $42.6 million increase in propane sales. Propane
sales increased due to higher selling prices in response to higher propane
supply costs and from the increased retail volume. Sales in the propane division
also rose by $2.6 million due to an increased focus on the sales of rationally
related products.

Cost of Sales

For fiscal 2000, cost of product increased $369.9 million, or 281.0%, to $501.6
million, as compared to $131.6 million for fiscal 1999. This increase was due to
$247.0 million of additional costs attributable to the heating oil cost of
product, $22.0 million of TG&E cost of product and for higher propane supply
cost of $34.7 million. While both propane selling prices and propane supply
costs increased on a per gallon basis, the increase in selling prices was more
than the increase in supply costs, which resulted in an increase in per gallon
margins. Cost of sales also increased due to the inclusion of $66.2 million of
additional costs relating to the heating oil segment's cost of installation and
service.

21

Delivery and Branch Expenses

For fiscal 2000, delivery and branch expenses increased $70.4 million, or 81.4%,
to $156.9 million, as compared to $86.5 million for fiscal 1999. This increase
was due to $67.4 million of additional heating oil operating costs and $3.0
million of additional operating costs for the propane segment. The increase for
the propane segment was due to additional cost of acquired propane companies and
expenses related to the propane segment's tank set program, which has increased
same store residential volume by approximately 2%.

Depreciation and Amortization

For fiscal 2000, depreciation and amortization expenses increased $12.0 million,
or 52.8%, to $34.7 million, as compared to $22.7 million for fiscal 1999. This
increase was primarily due to $11.8 million of additional heating oil segment
depreciation and amortization.

General and Administrative Expenses

For fiscal 2000, general and administrative expenses increased $8.1 million, or
69.5%, to $19.9 million, as compared to $11.7 million for fiscal 1999. This
increase was due to the inclusion of an additional $4.3 million of general and
administrative expenses for the heating oil segment, $2.0 million of TG&E
general and administrative expenses, a $1.1 million increase in general and
administrative expenses at the Partnership level and a $0.7 million increase for
the propane segment. The increase in expenses at the Partnership level was
primarily due to a full year inclusion of expenses for the office of the chief
executive officer. The $0.7 million increase in general and administrative
expenses at the propane segment was largely due to an increase in acquisition
travel related expenditures as well as for normal inflationary increases.

TG&E Customer Acquisition Expense

For fiscal 2000, TG&E customer acquisition expense was $2.1 million. This TG&E
segment expense is for the cost of acquiring new accounts through the services
of a third party direct marketing company. Since its acquisition, TG&E added
approximately 50,000 new customers.

Unit Compensation Expense

For fiscal 2000, unit compensation expense was $0.6 million. This expense was
incurred under the Employee Unit Incentive Plans whereby certain employees and
directors were granted senior subordinated units as incentive for increased
efforts during employment and as an inducement to remain in the service of the
Partnership.

Interest Expense, net

For fiscal 2000, net interest expense increased $11.3 million, or 73.5%, to
$26.8 million, as compared to $15.4 million for fiscal 1999. This change was
primarily due to $9.9 million of additional interest expense at the heating oil
segment, $0.6 million of net interest expense for TG&E and additional interest
expense for the financing of the propane acquisitions.

Income Tax Expense (Benefit)

For fiscal 2000, income tax expense increased $15.3 million to $0.5 million, as
compared to an income tax benefit of $14.8 million for fiscal 1999. The change
was primarily due to $12.0 million of deferred tax benefits for the heating oil
segment and $2.9 million of deferred tax benefits at the propane segment level
for fiscal 1999. These tax benefits resulted from the deferred tax assets
generated by operating losses incurred in fiscal 1999 by the heating oil segment
and by losses incurred by a certain propane company subsidiary.

22

Net Income (Loss)

For fiscal 2000, net income increased $31.0 million, to $1.4 million, as
compared to a net loss of $29.6 million for fiscal 1999. Additional net income
provided by the heating oil segment was $35.4 million, TG&E incurred a $3.3
million net loss for the period, while a $1.2 million larger loss was incurred
at the partnership level for the full year inclusion of cost as previously
mentioned. The $0.2 million increase in net income for the propane segment was
due to the segment's acquisition program, internal growth and a per gallon
improvement in gross profit margins, offset by the reduction in deferred income
tax benefit.

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

Earnings before interest, taxes, depreciation and amortization, TG&E customer
acquisition expense and unit compensation expense, less net gain (loss) on sales
of equipment (EBITDA) increased $72.0 million, to $66.2 million for fiscal 2000,
as compared to a negative EBITDA of $5.8 million for the prior fiscal year. This
increase was due to $69.6 million of additional EBITDA generated by the heating
oil segment, a $3.9 million increase in the propane segment, a $1.1 million
decrease in the EBITDA generated at the partnership level and $0.5 million of
negative EBITDA for TG&E. The increase in the propane segment was due to
additional EBITDA provided by propane acquisitions, propane internal growth and
higher per gallon propane gross profit margins. 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 year ended September 30, 2001, the Partnership sold 7.3 million
common units, the net proceeds of which, was $123.8 million. These funds
combined with net cash provided by operating activities of $63.1 million, $175.9
million of long-term debt borrowings ($143.0 million of senior secured notes
issued by the heating oil segment, $29.5 million of senior notes issued by the
propane segment and $3.4 million of acquisition related notes) and $0.6 million
in proceeds from the sale of fixed assets amounted to $363.4 million. Such funds
were used for acquisitions of $239.0 million, distributions of $50.6 million,
debt repayment of $9.0 million and net working capital and acquisition facility
repayment of $35.4 million, capital expenditures of $17.7 million and other
financing activities of $5.4 million. As a result of the above activity, cash
increased by $6.3 million to $17.2 million.

The $143.0 million of senior secured notes mentioned above represent two
separate issuances of notes by the heating oil segment. The first was a $40.0
million series of notes issued to three institutional lenders to refinance $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. The
second was a $103.0 million series of notes issued to institutional lenders to
complete a refinancing of $36.0 million of indebtedness incurred under its bank
acquisition facility with the remaining proceeds of $67.0 million used to
partially fund the Meenan acquisition. The Senior Notes bear interest at the
rate of 8.25% and have an average life of seven years with a final maturity of
August 1, 2013.

The $29.5 million of senior notes mentioned above were issued to several
institutional lenders by the propane segment to complete a refinancing of $25.0
million of indebtedness incurred under its bank acquisition facility. The
balance of the proceeds, $4.5 million, were used to fund acquisition activity
and to refinance maturities of senior notes. The senior notes bear interest at
the rate of 7.89% per year and have an average life of nine years with a final
maturity date of April 1, 2011.

For fiscal 2002, the Partnership anticipates paying interest of approximately
$43.0 million and anticipates growth and maintenance capital additions of
approximately $15 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 2002.

23

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.
Furthermore, 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 September 30, 2001, the Partnership had unamortized goodwill in the amount
of $263.3 million. The Partnership also had $207.4 million of unamortized
identifiable intangible assets, of which $201.2 will be subject to the
transition provisions of SFAS No. 141 and No. 142. Amortization expense related
to goodwill was $7.4 million and $7.9 million for the years ended September 30,
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.

24

ITEM 7A.
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 September 30, 2001, the Partnership had outstanding borrowings of
approximately $31.9 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 $0.3 million annually.

The Partnership also selectively uses derivative financial instruments to manage
its exposure to market risk related to changes in the current and futures 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 home heating oil, propane or natural gas
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 September 30, 2001, the potential impact on the
Partnership's hedging activity would be to increase the fair market value of
these outstanding derivatives by $5.0 million to a fair market value loss of
$(1.0) million; and conversely a hypothetical ten percent decrease in the cost
of product would decrease the fair market value of these outstanding derivatives
by $4.0 million to a fair market value loss of $(10.0) million.

ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SEE INDEX TO FINANCIAL STATEMENTS PAGE F-1

ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NONE

25

PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Partnership Management

Star Gas LLC is the general partner of the Partnership. The membership interests
in Star Gas LLC are owned by Audrey L. Sevin, Irik P. Sevin and Hanseatic
Americas Inc. The General Partner manages and operates the activities of the
Partnership. Unitholders do not directly or indirectly participate in the
management or operation of the Partnership. The General Partner owes a fiduciary
duty to the Unitholders. However, the Partnership agreement contains provisions
that allow the General Partner to take into account the interest of parties
other than the Limited Partners' in resolving conflict of interest, thereby
limiting such fiduciary duty. Notwithstanding any limitation on obligations or
duties, the General Partner will be liable, as the general partner of the
Partnership, for all debts of the Partnership (to the extent not paid by the
Partnership), except to the extent that indebtedness or other obligations
incurred by the Partnership are made specifically non-recourse to the General
Partner.

William P. Nicoletti, Thomas J. Edelman and I. Joseph Massoud, who are neither
officers nor employees of the General Partner nor directors, officers or
employees of any affiliate of the General Partner, have been appointed to serve
on the Audit Committee of the General Partner's Board of Directors. The Audit
Committee has the authority to review, at the request of the General Partner,
specific matters as to which the General Partner believes there may be a
conflict of interest in order to determine if the resolution of such conflict
proposed by the General Partner is fair and reasonable to the Partnership. Any
matters approved by the Audit Committee will be conclusively deemed fair and
reasonable to the Partnership, approved by all partners of the Partnership and
not a breach by the General Partner of any duties it may owe the Partnership or
the holders of Common Units. In addition, the Audit Committee reviews the
external financial reporting of the Partnership, recommends engagement of the
Partnership's independent accountants and reviews the Partnership's procedures
for internal auditing and the adequacy of the Partnership's internal accounting
controls. With respect to the additional matters, the Audit Committee may act on
its own initiative to question the General Partner and, absent the delegation of
specific authority by the entire Board of Directors, its recommendations will be
advisory.

As is commonly the case with publicly traded limited partnerships, the
Partnership does not directly employ any of the persons responsible for managing
or operating the Partnership. The management and workforce of Star Gas Propane
and certain employees of Petro manage and operate the Partnership's business as
officers of the General Partner and its Affiliates. See Item 1 -
Business--Employees.

26

Directors and Executive Officers of the General Partner

Directors are elected for one-year terms. The following table shows certain
information for directors and executive officers of the general partner:

Name                                              Age        Position with the General Partner
----                                              ---        ---------------------------------

Irik P. Sevin/(b)/ .............................  54         Chairman of the Board and Chief
Executive Officer
William G. Powers, Jr. .........................  48         Executive Vice President - Heating Oil
and Member of the Office of President
Joseph P. Cavanaugh ............................  64         Executive Vice President - Propane
and Member of the Office of President
Ami Trauber ....................................  62         Chief Financial Officer
Carolyn LoGalbo ................................  51         Executive Vice President
Richard F. Ambury ..............................  44         Vice President and Treasurer
James Bottiglieri ..............................  45         Vice President
Audrey L. Sevin ................................  75         Secretary
Paul Biddelman/(a)//(b)/ .......................  55         Director
Thomas J. Edelman/(c)/ .........................  50         Director
I. Joseph Massoud/(c)/ .........................  33         Director
William P. Nicoletti/(c)/ ......................  56         Director
Stephen Russell/(a)/ ...........................  61         Director

____________________________________________
/(a)/  Member of the Compensation Committee
/(b)/  Member of the Distribution Committee
/(c)/  Member of the Audit Committee

Irik P. Sevin has been the Chairman of the Board of Directors of Star Gas LLC
since March 1999. From December 1993 to March 1999, Mr. Sevin served as Chairman
of the Board of Directors of Star Gas Corporation, the predecessor general
partner. Mr. Sevin has been a Director of Petro since its organization in
October 1983, and Chairman of the Board of Petro since January 1993 and served
as President of Petro from 1983 through January 1997. Mr. Sevin was an associate
in the investment banking division of Kuhn Loeb & Co. and then Lehman Brothers
Kuhn Loeb Incorporated from February 1975 to December 1978.

William G. Powers, Jr. has been Executive Vice President of the heating oil
division and member of the Office of the President of Star Gas LLC since March
1999. From December 1997 to March 1999 Mr. Powers served as President of Petro.
Mr. Powers served as President and Chief Executive Officer of Star Gas
Corporation, the predecessor general partner from December 1993 to November
1997. From 1984 to 1993 Mr. Powers was employed by Petro where he served in
various capacities, including Regional Operations Manager and Vice President of
Acquisitions. From 1977 to 1983, he was employed by The Augsbury Corporation, a
company engaged in the wholesale and retail distribution of fuel oil and
gasoline throughout New York and New England and served as Vice President of
Marketing and Operations.

Joseph P. Cavanaugh has been Executive Vice President of the propane division
and member of the Office of the President of Star Gas LLC since March 1999. From
December 1997 to March 1999 Mr. Cavanaugh served as President and Chief
Executive Officer of Star Gas Corporation, the predecessor general partner. From
October 1985 to December 1997, Mr. Cavanaugh held various financial and
management positions with Petro. Prior to his current appointment Mr. Cavanaugh
was also active in the Partnership's management with the development of
safety/compliance programs, assisting with acquisitions and their subsequent
integration into the Partnership.

Ami Trauber has been Chief Financial Officer of Star Gas LLC since November
2001. From 1996 to 2001, Mr. Trauber was the Chief Financial Officer of Syratech
Corporation, a consumer goods company. From 1991 to 1995, Mr. Trauber was the
President, Chief Operating Officer and part owner of Ed's West, Inc., an apparel
company. From 1978 to 1990, Mr. Trauber was Corporate Vice President - Finance
and Controller of Harcourt General, Inc., a fortune 500 conglomerate.

27

Carolyn LoGalbo has been Executive Vice President of Star Gas LLC since November
2000. Ms. LoGalbo was Chief Marketing Officer at MetLife in the institutional
business prior to joining Star Gas. Previously she was Chief Marketing Officer
for MFS Communications, a start up telecommunications company and from 1980-
1993, she held various positions at Kraft Foods in general management and
marketing.

Richard F. Ambury has been Vice President and Treasurer of Star Gas LLC since
March 1999. From February 1996 to March 1999, Mr. Ambury served as Vice
President - Finance of Star Gas Corporation, the predecessor general partner.
Mr. Ambury was employed by Petro from June 1983 through February 1996, where he
served in various accounting/finance capacities. From 1979 to 1983, Mr. Ambury
was employed by a predecessor firm of KPMG, a public accounting firm. Mr. Ambury
has been a Certified Public Accountant since 1981.

James J. Bottiglieri has been Vice President of Star Gas LLC since March 1999,
and has served as Controller of Petro since 1994. Mr. Bottiglieri was Assistant
Controller of Petro from 1985 to 1994 and was elected Vice President in December
1992. From 1978 to 1984, Mr. Bottiglieri was employed by a predecessor firm of
KPMG, a public accounting firm. Mr. Bottiglieri has been a Certified Public
Accountant since 1980.

Audrey L. Sevin has been a Director of Star Gas LLC since March 1999 and was a
Director of Star Gas Corporation, the predecessor general partner from December
1993 to March 1999. Mrs. Sevin served as the Secretary of Star Gas Corporation
from June 1994 to March 1999. Mrs. Sevin had been a Director and Secretary of
Petro since its organization in October 1983. Mrs. Sevin was a Director,
executive officer and principal shareholder of A. W. Fuel Co., Inc. from 1952
until its purchase by Petro in May 1981.

Paul Biddelman has been a Director of Star Gas LLC since March 1999 and was a
Director of Star Gas Corporation, the predecessor general partner from December
1993 to March 1999. Mr. Biddelman had been a director of Petro since October
1994. Mr. Biddelman has been President of Hanseatic Corporation since December
1997. From April 1992 through December 1997, he was Treasurer of Hanseatic
Corporation. Mr. Biddelman is a director of Celadon Group, Inc., Insituform
Technologies, Inc., Six Flags, Inc. and System One Technologies, Inc.

Thomas J. Edelman has been a Director of Star Gas LLC since March 1999 and was a
Director of Star Gas Corporation, the predecessor general partner from December
1993 to March 1999. Mr. Edelman had been a Director of Petro since its
organization in October 1983. Mr. Edelman has been Chairman of Patina Oil & Gas
Corporation since its formation in May 1996. Mr. Edelman also serves as Chairman
of Range Resources Corporation. He co-founded Snyder Oil Corporation and was its
President and a Director from 1981 through February 1997. From 1975 to 1981, he
was a Vice President of The First Boston Corporation.

I. Joseph Massoud has been a Director of Star Gas LLC since October 1999. Since
1998 he has been President of The Compass Group International LLC, a private
equity investment firm based in Westport, CT. From 1995 to 1998, Mr. Massoud was
employed by Petro as a Vice President. From 1993 to 1995, Mr. Massoud was a Vice
President of Colony Capital, Inc., a Los Angeles based private equity firm
specializing in acquiring distressed real estate and corporate assets. Mr.
Massoud is also a director of CBS Personnel and CPM Acquisition Corp.

William P. Nicoletti has been a Director of Star Gas LLC since March 1999 and
was a Director of Star Gas Corporation, the predecessor general partner from
November 1995 to March 1999. Mr. Nicoletti is Managing Director of Nicoletti &
Company Inc., a private investment banking firm servicing clients in the energy
and transportation industries. In addition, Mr. Nicoletti serves as a Senior
Advisor to the Energy Investment Banking Group of McDonald Investments Inc. From
March 1998 until July 1999, Mr. Nicoletti was a Managing Director and co-head of
Energy Investment Banking for McDonald Investments Inc. Prior to forming
Nicoletti & Company Inc. in 1991, Mr. Nicoletti was a Managing Director and head
of Energy Investment Banking for PaineWebber Incorporated. Previously, he held a
similar position at E.F. Hutton & Company Inc. He is chairman of the board of
directors of Russell-Stanley Holdings, Inc., a manufacturer and marketer of
plastic and steel industrial containers and a director of StatesRail, Inc., a
short-line railroad holding company.

Stephen Russell has been a Director of Star Gas LLC since October 1999 and was a
director of Petro from July 1996 to March 1999. He has been Chairman of the
Board and Chief Executive Officer of Celadon Group Inc., an international
transportation company, since its inception in July 1986. Mr. Russell has been a
member of the Board of Advisors of the Johnson Graduate School of Management,
Cornell University since 1983.

28

Audrey Sevin is the mother of Irik P. Sevin. There are no other familial
relationships between any of the directors and executive officers.

Meetings and Compensation of Directors

During fiscal 2001, the Board of Directors met six times. All Directors attended
each meeting except that Mr. Russell and Mr. Massoud did not attend one meeting
and Mr. Nicoletti did not attend one other meeting. Star Gas LLC pays each
director including the chairman, an annual fee of $27,000. Members of the audit
committee receive an additional $5,000 per annum.

Committees of the Board of Directors

Star Gas LLC's Board of Directors has an Audit Committee, a Compensation
Committee and a Distribution Committee. The members of each committee are
appointed by the Board of Directors for a one-year term and until their
respective successors are elected.

Audit Committee

The duties of the Audit Committee are described above under "Partnership
Management".

The current members of the Audit Committee are William P. Nicoletti, Thomas J.
Edelman and I. Joseph Massoud. During fiscal 2001, the audit committee met six
times. Members of the Audit Committee may not be employees of Star Gas LLC or
its affiliated companies.

Compensation Committee

The current members of the Compensation Committee are Paul Biddelman and Stephen
Russell. The duties of the Compensation Committee are (i) to determine the
annual salary, bonus and other benefits, direct and indirect, of any and all
named executive officers (as defined under Regulation S-K promulgated by the
Securities and Exchange Commission) and (ii) to review and recommend to the full
Board any and all matters related to benefit plans covering the foregoing
officers and any other employees. During fiscal 2001, the Compensation Committee
met five times.

Distribution Committee

The current members of the Distribution Committee are Irik Sevin and Paul
Biddelman. The duties of the Distribution Committee are to discuss and review
the Partnership's distributions. During fiscal 2001, the Distribution Committee
met four times.

Reimbursement of Expenses of the General Partner

The General Partner does not receive any management fee or other compensation
for its management of Star Gas Partners. The general partner is reimbursed at
cost for all expenses incurred on the behalf of Star Gas Partners, including the
cost of compensation, which is properly allocable to Star Gas Partners. The
partnership agreement provides that the general partner shall determine the
expenses that are allocable to Star Gas Partners in any reasonable manner
determined by the general partner in its sole discretion. In addition, the
general partner and its affiliates may provide services to Star Gas Partners for
which a reasonable fee would be charged as determined by the general partner.

29

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the annual salary, bonuses and all other
compensation awards and payouts to the President and Chief Executive Officer and
to certain named executive officers of the General Partner for services rendered
to Star Gas Partners and its subsidiaries during the fiscal years ended
September 30, 2001, 2000 and 1999.

Summary Compensation Table                     Long-Term
--------------------------
Annual Compensation                        Compensation
------------------------------------------------ -------------------------------
Other         Restricted          Securities
Annual          Stock             Underlying
Name and Principal Position      Year    Salary             Bonus        Compensation       Awards               UARs
---------------------------      ----    ------             -----        ------------     ----------          ----------

Irik P. Sevin,                   2001   $550,000       $1,137,200/(5)/   $ 7,966/(8)/   $495,000/(10)(11)/
Chairman of the Board and        2000   $500,000       $  511,250/(6)/   $11,650/(8)/   $723,188/(9)/         400,000/(12)/
Chief Executive Officer          1999   $325,000/(1)/  $  225,000        $ 2,900/(8)/

William G. Powers, Jr.,          2001   $325,000       $  346,250/(5)/   $15,965/(8)/
Executive Vice President/(2)/    2000   $250,000       $  182,750/(6)/   $12,900/(8)/
1999   $125,000/(3)/  $   75,000        $ 3,900/(8)/         _/(11)/

Joseph P. Cavanaugh,             2001   $245,200       $  300,150/(5)/   $18,768/(7)/
Executive Vice President         2000   $225,000       $   89,250/(6)/   $18,768/(7)/
1999   $225,000       $   50,000        $18,768/(7)/         _/(11)/

George Leibowitz,                2001   $172,500       $  246,200/(5)/   $ 8,950/(8)/
Chief Financial Officer/(4)/     2000   $292,500/(5)/  $   37,625/(6)/   $10,225/(8)/
1999   $202,500/(5)/  $  100,000        $ 2,150/(8)/         _/(11)/

Richard F. Ambury                2001   $183,950       $  169,375/(5)/   $27,657/(7)/
Vice President and Treasurer     2000   $180,000       $   83,375/(6)/   $27,657/(7)/         _/(11)/
1999   $160,000       $   70,000        $26,022/(7)/

/(1)/  Amount does not include $175,000 of compensation paid by Petro prior to
its acquisition by the Partnership.
/(2)/  Mr. Powers assumed the position of President of Petro on November 30,
1997.
/(3)/  Amount does not include $125,000 of compensation paid by Petro prior to
its acquisition by the Partnership.
/(4)/  Mr. Trauber replaced Mr. Leibowitz who will be retiring on December 31,
2001, as the Chief Financial Officer effective November 1, 2001.
/(5)/  Fiscal 2001 bonus amount includes the value of Senior Subordinated Units
vested in fiscal 2001 under the Partnership's Employee Unit Incentive
Plan as follows: Irik P. Sevin - $400,000, William G. Powers, Jr. -
$160,000, Joseph P. Cavanaugh - $120,000, George Leibowitz - $226,200 and
Richard F. Ambury - $100,000. Mr. Sevin was also granted 8,250 Common
Units (vesting as of January 2002) in lieu of cash compensation for his
2001 bonus performance at a value of $165,000.
/(6)/  Fiscal 2000 bonus amount includes the value of Senior Subordinated Units
granted and vested in fiscal 2000 under the Partnership's Employee Unit
Incentive Plan as follows; Irik P. Sevin - $117,500, William G. Powers,
Jr. - $47,000, Joseph P. Cavanaugh - $35,250, George Leibowitz - $17,625
and Richard F. Ambury - $29,375. Mr. Sevin was also granted 20,149 Senior
Subordinated Units in December 2000 in lieu of cash compensation for his
2000 bonus performance at a value of $168,750 on the grant date.
/(7)/  These amounts represent funds paid in lieu of contributions to the
Partnership's retirement plans.
/(8)/  These amounts represent contributions under Petro's defined contribution
retirement plan.
/(9)/  This award represents the granting of 87,000 Restricted Senior
Subordinated units that vest equally in four installments on December 1,
2001, December 1, 2002, December 1, 2003 and December 1, 2004.
Distributions on the restricted units will accrue (to the extend
declared) from June 30, 2000.
/(10)/ This award represents the granting of 24,750 Restricted Common Units that
vest equally in three installments on January 1, 2003, January 1, 2004
and January 1, 2005. Distributions on these units will accrue to the
extent declared.
/(11)/ As of September 30, 2001, the following Restricted grants of Senior
Subordinated Units granted under the Partnership's Employee Unit
Incentive Plan valued at the September 30, 2001 closing price were
outstanding as follows: Irik P. Sevin - $1,335,000 (60,000 units),
William G. Powers, Jr. - $534,000 (24,000 units), Joseph P. Cavanaugh -
$400,500 (18,000 units), and Richard F. Ambury - $333,750 (15,000 units).
/(12)/ Mr. Sevin was also granted an option to acquire shares in TG&E equal to
approximately three percent of TG&E's outstanding shares as of March 21,
2001.

Option/UAR Grants in Last Fiscal Year

None

30

Aggregated Option/UAR Exercises in Last Fiscal Year
and Fiscal Year End Option/UAR Values

Number of Unexercised UARs at
September 30, 2001         Value of In the Money UARs
Name           Exercisable(E)/Unexercisable(U)     at September 30, 2001
----           -------------------------------     ---------------------
Irik P. Sevin           400,223 (U)                     $5,465,594

Long-Term Incentive Plans - Awards in Last Fiscal

None

Employment Contracts

Agreement with Irik Sevin
-------------------------

The Partnership entered into an employment agreement (the "Employment
Agreement") with Mr. Sevin effective October 1, 2001. Mr. Sevin's Employment
Agreement has an initial term of five years, and automatically renews for
successive one-year periods, unless earlier terminated by the Partnership or by
Mr. Sevin or otherwise terminated in accordance with the Employment Agreement.
The Employment Agreement for Mr. Sevin provides for an annual base salary of
$600,000 which shall increase at the rate of $25,000 per year commencing in
fiscal 2003. In addition, Mr. Sevin may earn a bonus of up to 80% of his annual
base salary (the "Targeted Bonus") for services rendered based upon certain
performance criteria. Mr. Sevin can also earn certain equity incentives if the
Partnership meets certain performance criteria specified in the Employment
Agreement. In addition, Mr. Sevin is entitled to certain supplemental executive
retirement benefits ("SERP") if he retires after age 65. If a "change of
control" (as defined in the Employment Agreement) of the Partnership occurs and
prior thereto or at any time within two years subsequent to such change of
control the Partnership terminates the Executive's employment without "cause" or
the Executive resigns with "good reason" or the Executive terminates his
employment during the thirty day period commencing on the first anniversary of a
change of control, then Mr. Sevin will be entitled to (i) a lump sum payment
equal to Mr. Sevin's anticipated annual basic salaries, Targeted Bonuses and
equity incentives for the three year following the termination date; (ii) the
continuation of Mr. Sevin's group insurance benefits for two years following the
termination date; (iii) a cash payment equal to the value of 325,000 senior
subordinated units; and (iv) the acceleration of Mr. Sevin's SERP benefits. The
Employment Agreement provides that if any payment received by Mr. Sevin is
subject to a federal excise tax under Section 4999 of the Internal Revenue Code,
the payment will be grossed up to permit Mr. Sevin to retain a net amount on an
after-tax basis equal to what he would have received had the excise tax not been
payable.

Agreement with George Leibowitz
--------------------------------

Petro entered into an employment agreement with Mr. Leibowitz, effective April
1, 1997 as modified, which provides (i) for an indefinite period, but ending not
earlier than June 30, 2001 for 60% employment at an annual salary of $180,000.
Upon termination of this agreement, there will be a final period of 6 months at
an annual salary of $135,000 for 45% employment. In addition, if terminated by
the Partnership, all remaining senior subordinated unit grants will vest and
(ii) payments of $18,750 per month for April 1997 to March 2000 were made. This
contract was terminated by mutual agreement effective July 1, 2001.

401(k) Plans

The Star Gas Employee Savings Plan is a voluntary defined contribution plan
covering non-union and union employees who have attained the age of 21 and who
have completed one year of service. Participants in the plan may elect to
contribute a sum not to exceed 15% of a participant's compensation. For
non-union employees, Star Gas Propane contributes a matching amount equaling the
participant's contribution not to exceed 3% of the participant's compensation.
In addition, the plan allows Star Gas Propane to contribute an additional
discretionary amount, which will be allocated to each participant based on such
participant's compensation as a percentage of total compensation of all
participants.

Messrs. Sevin, Powers and Leibowitz are covered under a 401(K) defined
contribution plan maintained by Petro. Participants in the plan may elect to
contribute a sum not to exceed 17% of a participant's compensation or $10,500.
Under this plan, Petro makes a 4% core contribution of a participant's
compensation up to $170,000 and matches 2/3 of each amount that a participant
contributes with a maximum employer match of 2%.

31

ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows the beneficial ownership as of November 15, 2001 of
common units, senior subordinated units, junior subordinated units and general
partner units by:

(1) Star Gas LLC and certain beneficial owners and all of the directors and
officers of Star Gas LLC;
(2) each of the named executive officers of Star Gas LLC; and
(3) all directors and executive officers of Star Gas LLC as a group.

The address of each person is c/o Star Gas Partners, L.P. at 2187 Atlantic
Street, Stamford, Connecticut 06902-0011. An asterisk in the percentage column
refers to a percentage less than one percent.

Senior                      Junior
------                      ------
Common Units          Subordinated Units          Subordinated Units       General Partner Units/(a)/
------------          ------------------          ------------------       --------------------------
Name                     Number       Percentage   Number        Percentage     Number      Percentage    Number          Percentage
------------------       ------       ----------   ------        ----------     ------      ----------    ------          ----------

Star Gas LLC                     -         -  %    29,133           -    %           -         -   %      325,729            100%
Irik P. Sevin                    -         -       55,699(b)       1.8          53,426          15.5      325,729(b)         100
Audrey L. Sevin                  -         -       29,133(b)        -          153,131          44.3      325,729(b)         100
Hanseatic Americas, Inc.   350,000         1.5%    29,133(b)        -          138,807          40.2      325,729(b)         100
Paul Biddelman                   -         -        2,157           *                -            -             -              -
Thomas Edelman                   -         -       97,801(c)(d)    3.2               -            -             -              -
I. Joseph Massoud              519         *        1,852           *                -            -             -              -
William P. Nicoletti             -         -        1,852           *                -            -             -              -
Stephen Russell                  -         -        1,852           *                -            -             -              -
Richard F. Ambury            2,125         *        5,489           *                -            -             -              -
Ami Trauber                      -         -            -           -                -            -             -              -
Carolyn LoGalbo                  -         -        2,724           *                -            -             -              -
James Bottiglieri            1,500         *        1,634           *                -            -             -              -
Joseph P. Cavanaugh          1,000         *        6,600           *                -            -             -              -
William G. Powers, Jr.       1,000         *        8,715           *                -            -             -              -
All officers and
directors and
Star Gas LLC as a group
(13 persons)                 6,144         *      186,375          6.2         206,557          59.8%     325,729            100%

(a)  For purpose of this table, the number of General Partner Units is deemed to
include the 0.01% General Partner interest in Star Gas Propane.
(b)  Assumes each of Star Gas LLC owners may be deemed to beneficially own all
of Star Gas LLC's general partner units and senior subordinated units,
however, they disclaim beneficial ownership of these units.
(c)  Includes senior subordinated units owned by Mr. Edelman's wife and trust
for the benefit of his minor children.
(d)  Includes 6,000 senior subordinated units owned by trusts for the benefit of
Mr. Edelman's siblings for which Mr. Edelman serves as Trustee.  Mr.
Edelman disclaims beneficial ownership of these units.

* Amount represents less than 1%.

Section 16(a) of the Securities Exchange Act of 1934 requires the General
Partner's officers and directors, and persons who own more than 10% of a
registered class of the Partnership's equity securities, to file reports of
beneficial ownership and changes in beneficial ownership with the Securities and
Exchange Commission ("SEC"). Officers, directors and greater than 10 percent
unitholders are required by SEC regulation to furnish the General Partner with
copies of all Section 16(a) forms.

Based solely on its review of the copies of such forms received by the General
Partner, or written representations from certain reporting persons that no Form
5's were required for those persons, the General Partner believes that during
fiscal year 2001 all filing requirements applicable to its officers, directors,
and greater than 10 percent beneficial owners were met in a timely manner.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Partnership and the General Partner have certain ongoing relationships with
Petro and its affiliates. Affiliates of the General Partner, including Petro,
perform certain administrative services for the General Partner on behalf of the
Partnership. Such affiliates do not receive a fee for such services, but are
reimbursed for all direct and indirect expenses incurred in connection
therewith.

The Partnership has agreed to pay Mr. Edelman a finder's fee of 1% of the
purchase price if the Partnership acquires a company that Mr. Edelman has
introduced to the Partnership. The Partnership is under no obligation to pursue
this acquisition and the terms of such
acquisition have not yet been determined.

32

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      1.     Financial Statements

See "Index to Consolidated Financial Statements and
Financial Statement Schedule" set forth on page F-1.

2.     Financial Statement Schedule.

See "Index to Consolidated Financial Statements and
Financial Statement Schedule" set forth on page F-1.

3.     Exhibits.

See "Index to Exhibits" set forth on page 34.

(b)             Reports on Form 8-K.

The Partnership did not file a Form 8-K during the quarter
ended September 30, 2001.

33

INDEX TO EXHIBITS

Exhibit
Number   Description
-------  -----------
4.2      Form of Agreement of Limited Partnership of Star Gas Partners, L.P.(2)
4.3      Form of Agreement of Limited Partnership of Star Gas Propane, L.P.(2)
4.4      Amendment No. 1 dated as of April 17, 2001 to Amended and Restated
Agreement of Limited Partnership of Star Gas Partners, L.P. (18)
4.5      Unit Purchase Rights Agreement dated April 17, 2001(19)
10.1     Form of Credit Agreement among Star Gas Propane, L.P. and certain
banks(3)
10.2     Form of Conveyance and Contribution Agreement among Star Gas
Corporation, the Partnership and the Operating Partnership.(3)
10.3     Form of First Mortgage Note Agreement among certain insurance
companies, Star Gas Corporation and Star Gas Propane L.P.(3)
10.4     Intercompany Debt(3)
10.5     Form of Non-competition Agreement between Petro and the Partnership(3)
10.6     Form of Star Gas Corporation 1995 Unit Option Plan(3)(17)
10.7     Amoco Supply Contract(3)
10.8     Stock Purchase Agreement dated October 20, 1997 with respect to the
Pearl Gas Acquisition(4)
10.9     Conveyance and Contribution Agreement with respect to the Pearl Gas
Acquisition(4)
10.10    Second Amendment dated as of October 21, 1997 to the Credit Agreement
dated as of December 13, 1995 among the Operating Partnership, Bank
Boston, N.A. and NationsBank, N.A.(4)
10.11    Note Agreement, dated as of January 22, 1998, by and between Star Gas
and The Northwestern Mutual Life Insurance Company(6)
10.12    Third Amendment dated April 15, 1998 to the Bank Credit Agreement (8)
10.13    Fourth Amendment dated November 3, 1998 to the Bank Credit Agreement
(9)
10.14    Agreement and Plan of Merger by and among Petroleum Heat and Power Co.,
Inc., Star Gas Partners, L.P., Petro/Mergeco, Inc., and Star Gas
Propane, L.P. (2)
10.15    Exchange Agreement (2)
10.16    Amendment to the Exchange Agreement dated as of February 10, 1999 (2)
10.17    Seventh amendment dated June 18, 1999 to the Credit Agreement dated
December 13, 1995, between Star Gas Propane, L.P. and BankBoston, N.A.
and NationsBank, N.A.(10)
10.18    Amendment No. 2 dated as of February 15, 2000, to the Credit Agreement,
dated as of March 15.
10.19    $12,500,000 8.67% First Mortgage Notes, Series A, due March 30, 2012
$15,000,000 8.72% First Mortgage Notes, Series B, due March 30, 2015
dated as of March 30, 2000 (12)
10.20    Eighth amendment dated June 30, 2000 to the Credit Agreement dated
December 13, 1995, between Star Gas Propane, L.P. and Fleet National
Bank formerly known as BankBoston, N.A., and Bank of America, N.A.
formerly known as NationsBank, N.A.(13)
10.21    June 2000 Star Gas Employee Unit Incentive Plan (13)(17)
10.22    $40,000,000 Senior Secured Note Agreement (14)
10.23    Note Purchase Agreement for $7,500,000 - 7.62% First
Mortgage Notes, Series A, due April 1, 2008 and $22,000,000 - 7.95%
First Mortgage Notes, Series B, due April 1, 2011. (15)
10.24    Credit Agreement, dated as of March 30, 2001, by Total Gas & Electric,
Inc. and Chase Manhattan Bank, as agent. (15)
10.25    Credit Agreement dated as of June 15, 2001 by Petroleum Heat and Power
Co., Inc., and Bank of America N.A. as agent. (16)
10.26    Credit Agreement dated as of July 30, 2001 by Star Gas Partners,  L.P.,
Petro Holdings, Inc., Petroleum Heat and Power Co., Inc., and the
agents Bank of America, N.A. and First Union Securities, Inc.(1)
10.27    Employment agreement dated as of September 30, 2001 between Star Gas
LLC, and Irik P. Sevin.(1)(17)
10.28    Equity Purchase Agreement dated July 31, 2001(20)
21       Subsidiaries of the Registrant (6)
23.1     Consent of KPMG LLP (1)

(1)      Filed herewith.
(2)      Incorporated by reference to an Exhibit to the Registrant's
Registration Statement on Form S-4, File No. 333-66005, filed with the
Commission on October 22, 1998.
(3)      Incorporated by reference to the same Exhibit to Registrant's
Registration Statement on Form S-1, File No. 33-98490, filed with the
Commission on December 13, 1995.
(4)      Incorporated by reference to the same Exhibit to Registrant's Periodic
Report on Form 8-K, as amended, as filed with the
Commission on October 23 and 29, 1997.
(5)      Incorporated by reference to the same Exhibit to Registrant's
Registration Statement on Form S-1, File No. 333-40855, filed with the
Commission on December 11, 1997.
(6)      Incorporated by reference to the same Exhibit to Registrant's
Registration Statement on Form S-3, File No. 333-47295, filed with the
Commission on March 4, 1998.
(7)      Incorporated by reference to the same Exhibit to Registrant's Statement
on Form S-4, File No. 333-49751, filed with the Commission on April 9,
1998.
(8)      Incorporated by reference to the same Exhibit to Registrant's Quarterly
Report on Form 10-Q filed with the Commission on May 7, 1998.
(9)      Incorporated by reference to the same Exhibit to Registrant's Annual
Report on Form 10-K filed with the Commission on November 24, 1998.
(10)     Incorporated by reference to the same Exhibit to Registrant's Quarterly
Report on Form 10-Q filed with the Commission on August 11, 1999.
(11)     [Intentionally Omitted]
(12)     Incorporated by reference to the same Exhibit to Registrant's Quarterly
Report on Form 10-Q filed with the Commission on April 26, 2000.
(13)     Incorporated by reference to the same Exhibit to Registrant's Quarterly
Report on Form 10-Q filed with the Commission on August 10, 2000.
(14)     In Accordance with item 601(B)(4)(iii) of Regulation S-K, the
Partnership will provide a copy of this document to the SEC upon
request.
(15)     Incorporated by reference to the same Exhibit to Registrant's Quarterly
Report on Form 10-Q filed with the Commission on May 10, 2001
(16)     Incorporated by reference to the same Exhibit to Registrant's Quarterly
Report on Form 10-Q filed with the Commission on August 13, 2001
(17)     Management compensation agreement
(18)     Incorporated by reference to Exhibit 3.1 to the Registrant's Current
Report on Form 8-K dated April 16, 2001.
(19)     Incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form 8-A filed with the Commission on April
18, 2001.
(20)     Incorporated by reference to Exhibit 10.1 to the Registrant's Current
Report on Form 8-K dated July 31, 2001.

34

SIGNATURE

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

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

/s/Irik P. Sevin
---------------------------------------
By:     Irik P. Sevin
Chairman of the Board and Chief
Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the date
indicated:

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

/s/  Irik P. Sevin                                        Chairman of the Board, Chief Executive              December 20, 2001
-----------------------------------------------           Officer and Director
Irik P. Sevin
Star Gas LLC

/s/  Ami Trauber                                          Chief Financial Officer                             December 20, 2001
-----------------------------------------------           Star Gas LLC
Ami Trauber
(Principal Financial and Accounting Officer)

/s/  Audrey L. Sevin                                      Director                                            December 20, 2001
-----------------------------------------------           Star Gas LLC
Audrey L. Sevin

/s/  Paul Biddelman                                       Director                                            December 20, 2001
-----------------------------------------------           Star Gas LLC
Paul Biddelman

/s/  Thomas J. Edelman                                    Director                                            December 20, 2001
-----------------------------------------------           Star Gas LLC
Thomas J. Edelman

/s/  I. Joseph Massoud                                    Director                                            December 20, 2001
-----------------------------------------------           Star Gas LLC
I. Joseph Massoud

/s/  William P. Nicoletti                                 Director                                            December 20, 2001
-----------------------------------------------           Star Gas LLC
William P. Nicoletti

/s/  Stephen Russell                                      Director                                            December 20, 2001
-----------------------------------------------           Star Gas LLC
Stephen Russell

35

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

PAGE
----

Part II   Financial Information:

Item 8 - Financial Statements

Independent Auditors' Report ......................................     F-2

Consolidated Balance Sheets as of September 30, 2000 and 2001 .....     F-3

Consolidated  Statements of Operations for the years ended
September 30, 1999, 2000 and 2001 .................................     F-4

Consolidated Statements of Comprehensive Income for the
years ended September 30, 1999, 2000 and 2001 .....................     F-5

Consolidated Statement of Partners' Capital for the years ended
September 30, 1999, 2000 and 2001 .................................     F-6

Consolidated Statements of Cash Flows for the years ended
September 30, 1999, 2000 and 2001 .................................     F-7

Notes to Consolidated Financial Statements ........................     F-8 - F-30

Schedule for the years ended September 30, 1999, 2000 and 2001

II.  Valuation and Qualifying Accounts ......................     F-31

All other schedules are omitted because they are
not applicable or the required information is shown
in the consolidated financial statements or the notes
therein.

F-1

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT

The Partners of Star Gas Partners, L.P.:

We have audited the consolidated financial statements of Star Gas Partners,
L.P. and Subsidiaries as listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we have also audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of Star Gas
Partners, L.P. and Subsidiaries as of September 30, 2000 and 2001 and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 2001, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

Stamford, Connecticut                                                  KPMG LLP
December 20, 2001

F-2

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

September 30,
----------------------------------
(in thousands)                                                                             2000                 2001
-------------        -------------

Assets
Current assets:

Cash and cash equivalents                                                          $      10,910        $      17,228
Receivables, net of allowance of $1,956 and $11,364, respectively                         66,858              104,973
Inventories                                                                               34,407               41,130
Prepaid expenses and other current assets                                                 14,815               21,931
-------------        -------------
Total current assets                                                              126,990              185,262
-------------        -------------

Property and equipment, net                                                                  171,300              235,371
Long-term portion of accounts receivable                                                       7,282                6,752
Intangibles and other assets, net                                                            313,404              471,434
-------------        -------------
Total assets                                                                $     618,976        $     898,819
=============        =============
Liabilities and Partners' Capital
Current liabilities:

Accounts payable                                                                   $      27,874        $      35,800
Working capital facility borrowings                                                       24,400               13,866
Current maturities of long-term debt                                                      16,515               11,886
Accrued expenses                                                                          42,410               77,678
Unearned service contract revenue                                                         15,654               24,575
Customer credit balances                                                                  37,943               65,207
-------------        -------------
Total current liabilities                                                         164,796              229,012
-------------        -------------

Long-term debt                                                                               310,414              457,086
Other long-term liabilities                                                                    4,588               14,457

Partners' Capital:
Common unitholders                                                                       134,672              209,911
Subordinated unitholders                                                                   6,090                2,772
General partner                                                                           (1,584)              (2,220)
Accumulated other comprehensive income                                                         -              (12,199)
-------------        -------------
Total Partners' Capital                                                           139,178              198,264
-------------        -------------

Total Liabilities and Partners' Capital                                     $     618,976        $     898,819
=============        =============

See accompanying notes to consolidated financial statements.

F-3

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended September 30,
--------------------------------------------------------
(in thousands, except per unit data)                                           1999                  2000                 2001
-------------         -------------        -------------

Sales                                                                     $     224,020         $     744,664        $   1,085,973

Costs and expenses:
Cost of sales                                                                131,649               501,589              771,317
Delivery and branch expenses                                                  86,489               156,862              200,059
Depreciation and amortization                                                 22,713                34,708               44,396
General and administrative expenses                                           11,717                19,862               35,771
TG&E customer acquisition expense                                                  -                 2,082                1,868
Unit compensation expense                                                          -                   649                3,315
-------------         -------------        -------------
Operating income (loss)                                                  (28,548)               28,912               29,247
Interest expense, net                                                            15,435                26,784               33,727
Amortization of debt issuance costs                                                 347                   534                  737
-------------         -------------        -------------
Income (loss) before income taxes, minority
interest and cumulative effect of change
in accounting principle                                             (44,330)                 1,594               (5,217)
Minority interest in net loss of TG&E                                                 -                   251                    -
Income tax expense (benefit)                                                    (14,780)                  492                1,498
-------------         -------------        -------------
Income (loss) before cumulative change in
accounting principle                                                   (29,550)                1,353               (6,715)
Cumulative effect of change in accounting principle for
adoption of SFAS No. 133, net of income taxes                                       -                     -                1,466
-------------         -------------        -------------
Net income (loss)                                                  $     (29,550)        $       1,353        $      (5,249)
=============         =============        =============

General Partner's interest in net income (loss)                    $        (587)        $          24        $         (75)
-------------         -------------        -------------

Limited Partners' interest in net income (loss)                           $     (28,963)        $       1,329        $      (5,174)
=============         =============        =============

Basic and diluted net income (loss) per Limited Partner unit              $       (2.53)        $          07        $        (.23)
=============         =============        =============

Basic and diluted weighted average number of Limited
Partner units outstanding                                                      11,447                18,288               22,439
=============         =============        =============

See accompanying notes to consolidated financial statements.

F-4

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended September 30,
--------------------------------------------
(in thousands)                                                           1999            2000               2001
----            ----               ----

Net income (loss)                                                     $ (29,550)       $   1,353          $ (5,249)

Other comprehensive income (loss)
Unrealized loss on derivative instruments                                  -                -           (16,121)
Unrealized loss on pension plan obligations                                -                -            (4,149)
---------        ---------          --------
Comprehensive income (loss)                                           $ (29,550)       $   1,353          $(25,519)
=========        =========          ========

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                                -                -            (2,473)
Current period other comprehensive loss                                    -                -           (20,270)
---------        ---------          --------
Balance, end of period                                                $       -        $       -          $(12,199)
=========        =========          ========

See accompanying notes to condensed consolidated financial statements.

F-5

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Years Ended September 30, 1999, 2000 and 2001

(in thousands, except per unit amounts)

Number of Units
-------------------------------------------
Senior Junior  General                       Senior   Junior    General
Common   Sub.     Sub.   Sub.    Partner    Common    Sub.      Sub.      Sub.    Partner
------   ----     ----   ----    -------    ------    ----      ----      ----    -------

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

Balance  as of
September 30, 1998       3,859   2,396        -      -          - $  58,686 $ (1,446) $       - $      -   $   107
Exchange of ownership in
connection with the Star
Gas / Petro Transaction           (2,396)   2,477    345        326    (8,958)  (2,754)    11,903      797      (988)
Issuance of Units in
equity offerings          10,076                                      135,816
Issuance of Units in
redemption of Petro's
12 7/8% Preferred Stock      401                                        5,399
Issuance of Units in
redemption of Petro's
Junior Preferred Stock       103                                        1,459
Net loss                                                                 (26,141)   4,200     (6,165)    (857)     (587)
Distributions
($2.25 per common unit)                                                (19,484)                                  (140)
Other                           (61)                                        (871)                200
---------------------------------------------------------------------------------------------
Balance as of
September 30, 1999      14,378       -    2,477    345        326   145,906        -      5,938      (60)   (1,608)

Issuance of Common Units      1,667                                       22,611
Issuance of Senior
Subordinated Units                             110                                             649
Net income                                                                 1,122                 182       25        24
Distributions:
($2.30 per common unit)                                                (34,967)
($0.25 per senior Sub.                                                                        (644)
unit)
---------------------------------------------------------------------------------------------
Balance as of
September 30, 2000      16,045       -    2,587    345        326   134,672        -      6,125      (35)   (1,584)

Issuance of Common Units      7,349                                      123,846
Issuance of Senior
Subordinated Units                             130                                           3,319
Net loss                                                                  (4,475)               (620)     (79)      (75)
Other Comprehensive
loss, net
Distributions:
($2.300 per common unit)                                               (44,132)
($1.975 per senior sub.                                                                     (5,341)
unit)
($1.725 per junior sub.                                                                                (597)
unit)
($1.725 per general
partner unit)                                                                                                  (561)
---------------------------------------------------------------------------------------------
Balance as of
September 30, 2001      23,394       -    2,717    345        326 $ 209,911   $    -  $   3,483 $   (711)  $(2,220)
=============================================================================================

Other
Compre-     Total
hensive    Partners'
Income     Capital
------     -------

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

Balance  as of
September 30, 1998               $     -    $  57,347

Exchange of ownership in
connection with the Sta
Gas / Petro Transaction                               -

Issuance of Units in

equity offerings                                135,816
Issuance of Units in
redemption of Petro's

12 7/8% Preferred Stock                           5,399
Issuance of Units in
redemption of Petro's

Junior Preferred Stock                            1,459
Net loss                                           (29,550)
Distributions
($2.25 per common unit)                          (19,624)
Other                                                 (671)
---------------------
Balance as of
September 30, 1999                     -      150,176

Issuance of Common Units                            22,611
Issuance of Senior
Subordinated Units                                   649
Net income                                           1,353
Distributions:
($2.30 per common unit)                          (34,967)
($0.25 per senior Sub.                              (644)
unit)

---------------------
Balance as of
September 30, 2000                     -      139,178

Issuance of Common Units                           123,846
Issuance of Senior
Subordinated Units                                 3,319
Net loss                                            (5,249)

Other Comprehensive
loss, net                           (12,199)     (12,199)
Distributions:

($2.300 per common unit)                         (44,132)
($1.975 per senior sub.                           (5,341)
unit)
($1.725 per junior sub.                             (597)
unit)
($1.725 per general
partner unit)                                     (561)
---------------------

Balance as of
September 30, 2001               $(12,199)  $ 198,264
=====================

See accompanying notes to consolidated financial statements.

F-6

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)                                                                                 Years Ended September 30,
-----------------------------------------
1999            2000            2001
---------       ---------       ---------

Cash flows provided by (used in) operating activities:
Net income (loss)                                                                     $ (29,550)      $   1,353       $  (5,249)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization                                                            22,713          34,708          44,396
Amortization of debt issuance cost                                                          347             534             737
Minority interest in net loss of TG&E                                                         -            (251)              -
Unit compensation expense                                                                     -             649           3,315
Provision for losses on accounts receivable                                                 371           2,669          10,624
(Gains) loss on sales of fixed assets                                                        83            (143)             26
Deferred tax benefit                                                                    (14,946)              -               -
Cumulative effect of change in accounting principle for the adoption of
SFAS No. 133                                                                                 -               -          (1,466)
Changes in operating assets and liabilities:
Decrease (increase) in receivables                                                  27,954         (22,327)        (44,905)
Increase in inventories                                                             (1,962)         (6,272)         (3,824)
Increase in other assets                                                            (8,460)         (3,134)        (15,066)
Increase (decrease) in accounts payable                                             (1,922)          6,589          10,942
Increase in other current and long-term liabilities                                 16,167           5,989          63,614
---------       ---------       ---------
Net cash provided by operating activities                                  10,795          20,364          63,144
---------       ---------       ---------

Cash flows provided by (used in) investing activities:
Capital expenditures                                                                     (7,383)         (7,560)        (17,687)
Proceeds from sales of fixed assets                                                         207           1,136             596
Cash acquired in acquisitions                                                            19,151             876               5
Acquisitions                                                                            (14,952)        (59,624)       (239,048)
---------       ---------       ---------
Net cash used in investing activities                                      (2,977)        (65,172)       (256,134)
---------       ---------       ---------

Cash flows provided by (used in) financing activities:
Working capital facility borrowings                                                      20,350         104,450         114,250
Working capital facility repayments                                                     (21,970)        (85,801)       (124,784)
Acquisition facility borrowings                                                          21,000          65,800          70,700
Acquisition facility repayments                                                         (16,700)        (36,200)        (95,600)
Repayment of debt, net                                                                 (198,062)         (9,426)         (8,980)
Proceeds from issuance of debt                                                           87,552          28,726         175,923
Distributions                                                                           (19,624)        (35,611)        (50,631)
Increase in deferred charges                                                               (944)           (442)         (5,527)
Proceeds from issuance of Common Units, net                                             136,065          22,611         123,846
Redemption of preferred stock                                                           (11,746)              -               -
Other                                                                                      (362)         (2,881)            111
---------       ---------       ---------
Net cash provided by (used in) financing activities                        (4,441)         51,226         199,308
---------       ---------       ---------

Net increase in cash                                                        3,377           6,418           6,318
Cash at beginning of period                                                               1,115           4,492          10,910
---------       ---------       ---------
Cash at end of period                                                                 $   4,492       $  10,910       $  17,228
=========       =========       =========

See accompanying notes to consolidated financial statements.

F-7

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

1)   Partnership Organization

Star Gas Partners, L.P. ("Star Gas Partners" or the "Partnership") is a
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 September 30, 2001 had 23.4 million
common limited partner units (trading symbol "SGU" representing a 87.4%
limited partner interest in Star Gas Partners) and 2.7 million senior
subordinated units (trading symbol "SGH" representing a 10.1% 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).

The Partnership acquired Petro on March 26, 1999 in a series of
transactions, which closed concurrently (see footnote 7). This acquisition
was accounted for under the purchase method of accounting. Petro, Star Gas
Partners and Star Gas Propane entered into a merger agreement. Under the
terms of this agreement, a newly formed subsidiary of Star Gas Propane was
merged with Petro, with Petro surviving the merger as a wholly-owned
indirect subsidiary of Star Gas Propane.

Operationally the Partnership is organized as follows:

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

.  Petro Holdings, Inc. ("Petro" or the "heating oil segment"), is the
nation's largest distributor of home heating oil and serves
approximately 530,000 customers in the Northeast and Mid-Atlantic. Petro
is an indirect wholly owned subsidiary of Star Gas Propane, L.P.

.  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 for the period October 1, 1998
through March 25, 1999 include the accounts of Star Gas Partners, L.P., and
subsidiaries, principally Star Gas Propane. Beginning March 26, 1999, the
Consolidated Financial Statements also include the accounts and results of
operations of Petro. Beginning April 7, 2000, the Consolidated Financial
Statements also include the accounts and results of operations of TG&E. 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.

Reclassification

Certain prior year amounts have been reclassified to conform with the
current year presentation.

Use of Estimates

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

Revenue Recognition

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

F-8

2)   Summary of Significant Accounting Policies - (continued)

Basic and Diluted Net Income (Loss) per Limited Partner Unit

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

Cash Equivalents

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

Inventories

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

Property, Plant, and Equipment

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

Intangible Assets

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

Goodwill is the excess of cost over the fair value of net assets in the
acquisition of a company. The Partnership amortizes goodwill using the
straight-line method over a twenty-five year period for goodwill acquired
prior to July 1, 2001. In accordance with SFAS No. 142, goodwill acquired
after June 30, 2001 is not amortized.

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

Customer lists are the names and addresses of the acquired company's
patrons. Based on the historical retention experience of these lists, Star
Gas Propane amortizes customer lists on a straight-line method over fifteen
years, Petro amortizes customer lists on a straight-line method over seven
to ten years and TG&E amortizes customer lists on a accelerated method over
six years.

Deferred charges represent the costs associated with the issuance of debt
instruments and are amortized using the interest method over the lives of
the related debt instruments.

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

Advertising Expenses

Advertising costs are expensed as they are incurred.

Customer Credit Balances

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

Environmental Costs

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

F-9

2)   Summary of Significant Accounting Policies - (continued)

TG&E Customer Acquisition Expense

TG&E customer acquisition expense represents the purchase of new accounts
from a third party direct marketing company for the Partnership's natural
gas and electric reseller division. Such costs are charged as incurred upon
acquisition of new customers.

Employee Unit Incentive Plan

When applicable, the Partnership accounts for stock-based compensation
arrangements in accordance with APB No. 25. Compensation costs for fixed
awards on pro-rata vesting are recognized straight-line over the vesting
period. The Partnership adopted an employee unit incentive plan to grant
certain employees senior subordinated units of limited partner interest of
the Partnership ("incentive units"), as an incentive for increased efforts
during employment and as an inducement to remain in the service of the
Partnership. Grants of incentive units vest twenty percent immediately,
with the remaining amount vesting over four consecutive installments if the
Partnership achieves annual targeted distributable cash flow. The
Partnership records an expense for the incentive units granted, which
require no cash contribution, over the vesting period for those units,
which are probable of being issued.

Income Taxes

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

For all corporate subsidiaries of the Partnership excluding TG&E, a
consolidated Federal income tax return is filed. TG&E files a separate
Federal income tax return. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amount of assets and liabilities
and their respective tax bases and operating loss carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled.

Concentration of Revenue with Price Plan Customers

Approximately 45% of the volume sold in the Partnership's heating oil
segment is sold to individual customers under an agreement pre-establishing
a fixed or maximum sales price of home heating oil over a twelve month
period. The fixed or maximum price at which home heating oil is sold to
these price plan customers is generally renegotiated prior to the heating
season of each year based on current market conditions. The heating oil
segment currently enters into derivative instruments (futures, options,
collars and swaps) for a substantial majority of the heating oil it sells
to these price plan customers in advance and at a fixed cost. Should events
occur after a price plan customer's price is established that increases the
cost of home heating oil above the amount anticipated, margins for the
price plan customers whose heating oil was not purchased in advance would
be lower than expected, while those customers whose heating oil was
purchased in advance would be unaffected. Conversely, should events occur
during this period that decrease the cost of heating oil below the amount
anticipated, margins for the price plan customers whose heating oil was
purchased in advance could be lower than expected, while those customers
whose heating oil was not purchased in advance would be unaffected or
higher than expected.

Derivatives and Hedging

Prior to October 2000 and in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 80. "Accounting for Futures Contracts,"
futures contracts were classified as a hedge when the item to be hedged
exposed the Partnership to price risk and the futures contract reduced that
risk exposure. Future contracts that related to transactions that were
expected to occur were accounted for as a hedge when the significant
characteristics and expected terms of the anticipated transactions were
identified and it was probable that the anticipated transaction would
occur. If a transaction did not meet the criteria to qualify as a hedge, it
was considered to be speculative. Any gains or losses associated with

F-10

2)   Summary of Significant Accounting Policies - (continued)

futures contracts which were classified as speculative were recognized in
the current period. If a futures contract that had been accounted for as a
hedge was closed or matured before the date of the anticipated transaction,
the accumulated change in value of the contract was carried forward and
included in the measurement of the related transaction. Option contracts
were accounted for in the same manner as futures contracts.

To hedge a substantial portion of the purchase price associated with
heating oil gallons being sold to its price plan customers, the heating oil
segment at September 30, 2000 had outstanding 88 million gallons of futures
contracts to buy heating oil with a notional value of $71 million and a
fair market value of $79.4 million; 62.6 million gallons of futures
contracts to sell heating oil with a notional value of $49.7 million and a
fair market value of $55.7 million; 101 million gallons of option contracts
to buy heating oil with a notional value of $57.9 million and a fair market
value of $68.3 million and 108 million gallons of option contracts to sell
heating oil. None of the heating oil segment's outstanding options to sell
heating oil, which allow the Partnership the right to sell heating oil at a
fixed price, were in the money at September 30, 2000. The contracts expired
at various times with no contract expiring later than June 2001.

To hedge a substantial portion of the purchase price associated with
propane gallons anticipated to be sold to its fixed price customers, the
propane segment at September 30, 2000 had outstanding futures contracts to
buy 7.6 million gallons of propane with a notional value of $3.2 million
and a fair market value totaling $3.0 million. The contracts expired at
various times with no contracts expiring later than March 2001.

To hedge a substantial portion of its natural gas inventories, the TG&E
segment at September 30, 2000, had outstanding futures contracts to sell
670,000 dekatherms of natural gas with a notional value of $2.8 million and
fair market value of $3.4 million.

At September 30, 2000, the unrealized gain (losses) on the heating oil
segment's, propane segment's and TG&E's hedging activity was approximately
$12.7 million, $(0.2) million and $(0.6) million, respectively. The heating
oil segment's hedging activity was designed to help it achieve its planned
margins and represented approximately 52% of the expected total home
heating oil volume sold in a twelve month period. The propane segment's
hedging activity was also designed to help it achieve its planned margins
and represented approximately 5% of the expected total propane volume sold
in a twelve month period. TG&E's hedging activity was also designed to help
achieve its planned margins and represents a hedge on 100% of its required
physical inventory of natural gas at September 30, 2000.

The carrying amount of all hedging financial instruments at September 30,
2000, was approximately $1.7 million and was included in Prepaid expenses
on the Consolidated Balance Sheet at that date. The risk that
counterparties to such instruments may be unable to perform is minimized by
limiting the counterparties to major oil companies and major financial
institutions, including the New York Mercantile Exchange. The Partnership
did not incur any losses due to counterparty default.

In October 2000, the Partnership adopted the provisions of the Financial
Accounting Standards Board ("FASB") 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 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 Partnership periodically hedges a portion of its home heating oil,
propane and natural gas purchases through futures, options, collars and
swap agreements. The purpose of the hedges is to provide a measure of
stability in the volatile environment of home heating oil, propane and
natural gas and to manage its exposure to commodity price risk under
certain existing sales commitments. The Partnership also has derivitive
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.

Upon adoption of SFAS No. 133 on October 1, 2000, 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 all of which were recorded as cumulative effect of a change in
accounting principle.

F-11

2)   Summary of Significant Accounting Policies - (continued)

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 year ended September 30, 2001, the Partnership has recognized the
following for derivative instruments designated as cash flow hedges: $11.1
million gain due to instruments expiring during the current year, $8.1
million loss in other comprehensive income due to the effective portion of
derivative instruments outstanding at September 30, 2001, $4.2 million loss
due to hedge ineffectiveness for derivative instruments outstanding at
September 30, 2001 and $1.0 million loss relating to the time value
writeoff of outstanding option agreements at September 30, 2001. For
derivative instruments accounted for as fair value hedges, the Partnership
has recognized a $3.3 million loss due to instruments expiring during the
current year, and a $0.2 million gain for the change in the fair market
value of derivative instruments outstanding at September 30, 2001. For
derivative instruments not designated as hedging instruments, the
Partnership recognized a $0.2 million gain due to instruments expiring
during the year, and a $0.4 million gain for the change in fair market
value of derivative instruments outstanding at September 30, 2001.

All of the existing losses in accumulated other comprehensive income are
expected to be reclassified into earnings over the next 12 months.

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.

F-12

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 September 30, 2001, the Partnership had unamortized goodwill in the
amount of $263.3 million. The Partnership also had $207.4 million of
unamortized identifiable intangible assets, of which $201.2 will be subject
to the transition provisions of SFAS No. 141 and No. 142. Amortization
expense related to goodwill was $7.4 million and $7.9 million for the year
ended September 30, 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 improvement 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)   Quarterly Distribution of Available Cash

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

The senior subordinated units, the junior subordinated units, and general
partner units are each a separate class of interest in Star Gas Partners,
and the rights of holders of those interests to participate in
distributions differ from the rights of the holders of the common units.

F-13

3)   Quarterly Distribution of Available Cash - (continued)

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

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

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

In August 2000, the Partnership commenced quarterly distributions on its
senior subordinated units at an initial rate of $0.25 per unit. In February
2001, the Partnership decided to increase the quarterly distributions on
its senior subordinated units, junior subordinated units and general
partner units to $0.575 per unit.

The subordination period will end once the Partnership has met the
financial tests stipulated in the partnership agreement, but it generally
cannot end before October 1, 2003. However, if the general partner is
removed under some circumstances, the subordination period will end. When
the subordination period ends, all senior subordinated units and junior
subordinated units will convert into Class B common units on a one-for-one
basis, and each common unit will be redesignated as a Class A common unit.
The main difference between the Class A common units and Class B common
units is that the Class B common units will continue to have the right to
receive incentive distributions and additional units.

The subordination period will generally extend until the first day of any
quarter beginning on or after October 1, 2003 that each of the following
three events occur:

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

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

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

4)   Segment Reporting

In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," the Partnership has four reportable
segments, retail distribution of heating oil, a retail distribution of
propane, reselling 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.

F-14

4)       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.

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 heating oil
segment was consolidated with the propane ent beginning March 26,
1999, and the electric and natural gas resng segment (TG&E) was
added beginning April 7, 2000. There were nter-segment sales.

(in thousands)                               Years Ended September 30,
-------------------------------------------------------------
2000
-------------------------------------------------------------
Statements of                Heating
Operations                     Oil        Propane       TG&E      Partners      Consol.
----------                     ---        -------       ----      --------      -------

Sales                       $ 570,877    $ 150,184   $   23,603   $     --    $   744,664
Cost of sales                 403,260       76,303       22,026         --        501,589
Delivery and branch           112,820       44,042           --         --        156,862
Deprec. and amort              22,373       11,916          416          3         34,708
G & A expense                   9,196        6,129        2,041      2,496         19,862
TG&E customer
acquisition expense              --           --        2,082         --          2,082
Unit compensation                  --           --           --        649            649
---------    ---------   ----------   --------    -----------
Operating
income (loss)           23,228       11,794       (2,962)    (3,148)        28,912
Net interest expense           17,069        9,509          635       (429)        26,784
Amortization of debt
issuance costs                  343          191           --         --            534
---------    ---------   ----------   --------    -----------
Income (loss)
before income taxes
& minority interest           5,816        2,094       (3,597)    (2,719)         1,594
Minority interest in
net loss of TG&E                 --           --          251         --            251
Income tax expense                400           90            2         --            492
---------    ---------   ----------   --------    -----------
Income (loss) before
cumulative change in         5,416        2,004       (3,348)    (2,719)         1,353
accounting principle
Cumulative change in
accounting principle            --           --           --         --             --
---------    ---------   ----------   --------    -----------
Net income (loss)   $   5,416    $   2,004   $   (3,348)  $ (2,719)   $     1,353
=========    =========   ==========   ========    ===========

Capital expenditures        $   3,478    $   3,927   $      155   $     --    $     7,560
=========    =========   ==========   ========    ===========

(in thousands)                               Years Ended  September 30,
-------------------------------------------------------------
2001
-------------------------------------------------------------
Statements of                Heating
Operations                     Oil        Propane       TG&E      Partners      Consol.
----------                     ---        -------       ----      --------      -------

Sales                       $ 767,959    $ 226,340   $   91,674   $     --    $ 1,085,973
Cost of sales                 563,803      124,164       83,350         --        771,317
Delivery and branch           142,968       57,091           --         --        200,059
Deprec. and amort              28,586       13,867        1,934          9         44,396
G & A expense                  10,240        6,992       12,720      5,819         35,771
TG&E customer
acquisition expense              --           --        1,868         --          1,868
Unit compensation                  --           --           --      3,315          3,315
---------    ---------   ----------   --------    -----------
Operating
income (loss)           22,362       24,226       (8,198)    (9,143)        29,247
Net interest expense           20,891       11,863        2,934     (1,961)        33,727
Amortization of debt
issuance costs                  506          231           --         --            737
---------    ---------   ----------   --------    -----------
Income (loss)
before income taxes
& minority interest             965       12,132      (11,132)    (7,182)        (5,217)
Minority interest in
net loss of TG&E                 --           --           --         --             --
Income tax expense              1,200          297            1         --          1,498
---------    ---------   ----------   --------    -----------
Income (loss) before
cumulative change in          (235)      11,835      (11,133)    (7,182)        (6,715)
accounting principle
Cumulative change in
accounting principle         2,093         (229)        (398)        --          1,466
Net income (loss)   $   1,858    $  11,606   $  (11,531)  $ (7,182)   $    (5,249)
=========    =========   ==========   ========    ===========

Capital expenditures        $  11,979    $   5,390   $      318   $     --    $    17,687
=========    =========   ==========   ========    ===========

(in thousands)                                  Year Ended September 30, 1999
-------------------------------------------------
Statement of Operations                   Heating Oil    Propane     Partners      Consol.
-----------------------                   -----------    -------     --------      -------

Sales                                      $ 116,399    $ 107,621    $      --    $ 224,020
Cost of sales                               90,070       41,579           --      131,649
Delivery and branch                         45,470       41,019           --       86,489
Depreciation and amortization               10,531       12,182           --       22,713
General and administrative                   4,882        5,395        1,440       11,717
---------    ---------    ---------    ---------
Operating income (loss)               (34,554)       7,446       (1,440)     (28,548)
Interest expense, net                          7,128        8,307           --       15,435
Amortization of debt issuance cos                167          180           --          347
---------    ---------    ---------    ----------
Loss before income taxes              (41,849)      (1,041)      (1,440)     (44,330)
Income tax expense (benefit)                (11,900)      (2,880)          --      (14,780)
---------    ---------    ---------    ---------

Net income (loss)                  $ (29,949)   $   1,839    $  (1,440)   $ (29,550)
=========    =========    =========    ---------

Capital expenditures                       $   2,323    $   5,060    $      --    $   7,383
=========    =========    =========    =========

F-15

4)    Segment Reporting - (continued)

(in thousands)

September 30, 2000
----------------------------------------------------
Heating                                     (1)
Balance Sheets                       Oil      Propane     TG&E    Partners    Consol.
--------------                       ---      -------     ----    --------    -------

Assets
Current assets:
Cash and cash
equivalents                   $   6,288  $   2,765  $    222  $   1,635  $  10,910
Receivables, net                   51,475      9,976     5,407          -     66,858
Inventories                        21,637      8,636     4,134          -     34,407
Prepaid expenses and
other current assets             12,502      1,017     2,157          -     14,815
---------  ---------  --------  ---------  ---------
Total current assets            91,902     22,394    11,920      1,635    126,990
Property and
equipment, net                     39,026    132,008       266          -    171,300
Long-term portion of
accounts receivable                 7,282          -         -          -      7,282
Investment in
subsidiaries                            -     69,309         -    143,036          -
Intangibles and
other assets, net                 236,069     63,003    14,174        158    313,404
---------  ---------  --------  ---------  ---------
Total assets             $ 374,279  $ 286,714  $ 26,360  $ 144,829  $ 618,976
=========  =========  ========  =========  =========

Liabilities and                    Heating                                     (1)
Partners' Capital                 Oil       Propane     TG&E     Partners   Consol.
---       -------     ----     --------   -------

Current Liabilities:
Accounts payable                $  11,887  $   7,436  $  8,551  $       -  $  27,874
Working capital
Facility  borrowings             17,000        800     6,600          -     24,400
Current maturities of
of long-term debt               7,669      8,846         -          -     16,515
Accrued expenses and
other current liabilities        36,882      4,006     1,521          -     42,410
Due to affiliate                   (1,115)    (3,674)        -      4,789          -
Unearned service
contract revenue                 15,654          -         -          -     15,654
Customer credit
balances                         26,101      9,805     2,037          -     37,943
---------  ---------  --------  ---------  ---------
Total current
liabilities              114,078     27,219    18,709      4,789    164,796
Long-term debt                      186,397    122,154     1,863          -    310,414
Other long-term
liabilities                        4,495         93         -          -      4,588
Partners' Capital:
Equity Capital                     69,309    137,248     5,788    140,040    139,178
---------  ---------  --------  ---------  ---------

Total liabilities and
Partners' Capital               $ 374,279  $ 286,714  $ 26,360  $ 144,829  $ 618,976
=========  =========  ========  =========  =========

(in thousands)
September 30, 2001
----------------------------------------------------

Heating                                     (1)
Balance Sheets                       Oil      Propane     TG&E    Partners    Consol.
--------------                       ---      -------     ----    --------    -------

Assets
Current assets:
Cash and cash
equivalents                   $   7,181  $   3,655  $    102  $   6,290  $  17,228
Receivables, net                   82,484     12,002    10,487          -    104,973
Inventories                        24,735     13,181     3,214          -     41,130
Prepaid expenses and
other current assets             16,921      3,523     2,349          -     21,931
---------  ---------  --------  --------- ----------
Total current asset            131,321     32,361    16,152      6,290    185,262
Property and
equipment, net                     72,204    162,680       487          -    235,371
Long-term portion of
accounts receivable                 6,752          -         -          -      6,752
Investment in
subsidiaries                            -    108,035         -    194,647          -
Intangibles and
other assets, net                 381,348     77,750    12,117        219    471,434
---------  ---------  --------  ---------  ---------
Total assets             $ 591,625  $ 380,826  $ 28,756  $ 201,156  $ 898,819
=========  -========  ========  =========  =========

Liabilities and                    Heating                                      (1)
Partners' Capital                 Oil       Propane     TG&E    Partners    Consol.
---       -------     ----    --------    -------

Current Liabilities:
Accounts payable                $  22,407   $  5,682  $  7,711  $       -  $  35,800
Working capital
Facility  borrowings                  -      8,400     5,466          -     13,866
Current maturities of
of long-term debt               1,184      8,702     2,000          -     11,886
Accrued expenses and
other current liabilities        63,895     10,267     1,052      2,464     77,678
Due to affiliate                     (185)    (1,450)    2,069       (434)         -
Unearned service
contract revenue                 24,575          -         -          -     24,575
Customer credit
balances                         45,456     18,053     1,698          -     65,207
---------  ---------  --------  ---------  ---------
Total current
liabilities              157,332     49,654    19,996      2,030    229,012
Long-term debt                      314,148    142,375       563          -    457,086
Other long-term
liabilities                       12,110      2,307        40          -     14,457
Partners' Capital:
Equity Capital                    108,035    186,490     8,157    199,126    198,264
---------  ---------  --------  ---------  ---------

Total liabilities and
Partners' Capital               $ 591,625  $ 380,826  $ 28,756  $ 201,156  $ 898,819
=========  =========  ========  =========  =========

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

The $10.7 million increase in expenses at TG&E was largely due to a $6.4
million provision to increase its allowance for bad debts (representing a
$6.0 million increase over the prior year provision), $2.4 million of
start up and organizational expenses and inclusion of a full year of
general and administration expense. Since its acquisition, TG&E has
struggled with customer credit deficiencies and problems collecting its
receivables. TG&E currently has more than 50,000 terminated customers who
collectively owe $15.5 million, virtually all of which is greater than 90
days old. This balance includes $5.3 million of accounts receivable that
predated TG&E's acquisition by the Partnership. These pre-acquisition
receivables were assigned no value and are not reflected on TG&E's books.
Consequently, the gross amount of receivables from terminated accounts on
the Company's books before bad debt reserves currently approximates $10
million.

The Partnership has recently allocated substantial resources to a
collection effort targeting these terminated accounts. Based on a sample
group of accounts' preliminary collection results, the Partnership added
$5.7 million to TG&E's bad debt provision for the year ended September 30,
2001. This brought the total bad debt reserve on terminated accounts to
$6.0 million. Consequently, out of the roughly $15 million owed TG&E by
terminated accounts, all but $4 million has been reserved. In addition,
TG&E provided a $0.7 million bad debt provision against its active
accounts receivable for the year ended September 30, 2001 bringing the
total allowances to $0.9 million for active accounts at that time.

In the course of 2001, TG&E has instituted entirely new credit policies
including a detailed procedure to approve new accounts. Simultaneously,
new information systems have been purchased and adopted to TG&E's needs.
The new systems are currently being implemented at TG&E. As a result, TG&E
believes its delinquency levels and bad debt experience will improve. Once
the system enhancements are fully in place and all of TG&E's customers
have gone through the new credit approval procedures, bad debt losses
should approximate the experience of the Partnership's other two operating
segments.

TG&E incurred approximately $2.4 million of start up and organizational
expenses involving compliance, legal and data processing costs, which were
included in gerneral administrative expenses in 2001.

F-16

5)   Inventories

The components of inventory were as follows:

(in thousands)
September 30, 2000    September 30, 2001
------------------    ------------------

Propane gas                             $  6,323            $  9,546
Propane appliances and equipment           2,313               3,635
Fuel oil                                  14,263              12,403
Fuel oil parts and equipment               7,374              12,332
Natural gas                                4,134               3,214
--------            --------
$ 34,407            $ 41,130
========            ========

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

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

The Partnership is an independent reseller of natural gas and electricity
to residential homeowners in deregulated markets, through its 80%
controlling interest in TG&E. In the markets in which TG&E operates,
natural gas and electricity are available from wholesale natural gas
producers and electricity generating companies. Substantially all purchases
were from major US wholesalers, who transport the natural gas to the
incumbent utility company for TG&E, through purchased or assigned capacity
using existing pipelines. Additionally, all of TG&E's electricity was
purchased from a major New York State wholesaler, who transports the
electricity to the incumbent utility company, through scheduled deliveries
using existing electric lines.

The incumbent utility company then delivers the natural gas and electricity
to TG&E customers using existing pipelines and electric lines. The
incumbent utility and TG&E coordinate delivery and billing, and also
compete to sell the natural gas and electricity to the ultimate consumer.
Generally, customers pay the incumbent utility a service charge to cover
customer related costs like meter readings, billing, equipment and
maintenance. Customers also pay a separate delivery charge to the incumbent
utility for bringing the natural gas or electricity from the customer's
chosen supplier. The energy service company is then paid by the customer
for the natural gas or electricity that was supplied. In most markets in
which TG&E operates, these charges are itemized on one customer energy bill
from the utility company. In other markets, TG&E directly bills the
customer for the natural gas or electricity supplied.

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

F-17

6)   Property, Plant and Equipment

The components of property, plant and equipment and their estimated useful
lives were as follows:

(in thousands)

September 30, 2000        September 30, 2001     Estimated Useful Lives
------------------        ------------------     ----------------------

Land                                                  $ 10,688                  $ 17,872
Buildings and leasehold improvements                    22,295                    32,662            4 - 30 years
Fleet and other equipment                               39,600                    56,359            3 - 30 years
Tanks and equipment                                    131,901                   165,275            8 - 30 years
Furniture and fixtures                                  17,500                    30,265            5 - 12 years
--------                  --------
Total                                                221,984                   302,433
Less accumulated depreciation                           50,684                    67,062
--------                  --------
Total                                               $171,300                  $235,371
========                  ========

7)   Intangibles and Other Assets

The components of intangibles and other assets were as follows at the
indicated dates:

(in thousands)

September 30, 2000                                           September 30, 2001
----------------------------------------------------   ---------------------------------------------------
Heating                                               Heating
Propane       Oil       TG&E    Partners    Total     Propane      Oil       TG&E      Partners    Total
-------       ---       ----    --------    -----     -------      ---       ----      --------    -----

Goodwill            $ 36,622   $150,807   $  6,629   $      -   $194,058   $ 35,223   $238,377   $ 10,036   $      -   $283,636
Covenants not to
compete             3,586      3,314          -          -      6,900      6,966      4,725          -          -     11,691
Customer lists        41,272    102,759      6,077          -    150,108     59,475    174,594      2,670          -    236,739
Deferred charges       3,546      3,300          -        161      7,007      4,244      7,990        170        231     12,635
--------   --------   --------   --------   --------   --------   --------   --------   --------   --------
Total intangibles   85,026    260,180     12,706        161    358,073    105,908    425,686     12,876        231    544,701
Less accumulated
amortization        22,290     24,430        361          3     47,084     28,320     44,841      2,198         12     75,371
--------   --------   --------   --------   --------   --------   --------   --------   --------   --------
Net intangibles     62,736    235,750     12,345        158    310,989     77,588    380,845     10,678        219    469,330
Other assets             267        319      1,829          -      2,415        162        503      1,439          -      2,104
--------   --------   --------   --------   --------   --------   --------   --------   --------   --------

Intangibles and
other assets     $ 63,003   $236,069   $ 14,174   $    158   $313,404   $ 77,750   $381,348   $ 12,117   $    219   $471,434
========   ========   ========   ========   ========   ========   ========   ========   ========   ========

In 1999 the Partnership acquired Petro in a four part transaction ("Star
Gas / Petro Transaction"), which closed concurrently. This acquisition was
accounted for under the purchase method of accounting.

Merger and Exchange
-------------------

Petro, Star Gas Partners and Star Gas Propane entered into a merger
agreement (the "merger agreement"). Under the terms of the merger
agreement, a newly formed subsidiary of Star Gas Propane was merged with
Petro, with Petro surviving the merger as a wholly owned indirect
subsidiary of Star Gas Propane.

As a result of the merger:

.    each outstanding share of Petro Class A common stock, par value $0.10
per share, and Petro Class C common stock, par value $0.10 per share,
other than shares that were exchanged (the "Exchange"), was converted
into 0.11758 senior subordinated units (2,476,797 senior subordinated
units issued in total);
.    each outstanding share of Petro junior convertible preferred stock was
converted into 0.13064 common units (102,848 total common units); and
.    each outstanding share of Petro Series C exchangeable preferred stock
due 2009 was converted into the right to receive $10.69 in cash per
share plus accrued and unpaid dividends, except for an aggregate of
505,000 shares of Series C preferred stock that were converted into an
aggregate of 400,531 common units, plus accrued and unpaid dividends
on the preferred, with the right to receive an additional 175,000
Senior Subordinated Units contingent upon Petro achieving certain
operating results.

F-18

7)   Intangibles and Other Assets - (continued)

The Exchange occurred immediately prior to the merger and was comprised of
the following elements.

(a) Certain holders of Petro common stock, consisting of Irik P. Sevin,
Audrey L. Sevin, Hanseatic Corp. and Hanseatic Americas Inc., who are
referred to as the "LLC Owners," formed Star Gas LLC, to which they
contributed their outstanding shares of Petro common stock in exchange for
all of the limited liability company interests in Star Gas LLC. Star Gas
LLC contributed those shares to Star Gas Partners in exchange for general
partner units (325,729 general partner units). In addition, the LLC Owners
contributed their remaining shares of Petro common stock to Star Gas
Partners in exchange for junior subordinated units (345,364 junior
subordinated units).

(b) Other Petro common stockholders who were affiliates of Petro
contributed shares of Petro common stock to Star Gas Partners in exchange
for Star Gas Partners senior subordinated units. The senior subordinated
units, junior subordinated units and general partnership units can earn,
pro rata, 303,000 additional senior subordinated units each year that the
heating oil segment meets certain financial goals. A maximum of 909,000
additional senior subordinated units can be issued.

Financings and Refinancings
---------------------------

Star Gas Partners offered and sold to the public 9.0 million common units
in an equity offering (including 230,000 overallotment common units), the
net proceeds of which were approximately $118.8 million. Petro offered and
sold, in a private placement, $90.0 million of senior secured notes, the
net proceeds of which were approximately $87.6 million. Star Gas Partners
and Petro Holdings guaranteed the notes.

All of the $118.8 million of net proceeds of the equity offering, together
with the $87.6 million of net proceeds from the debt offering and $5.4
million of Petro's cash were used:

.    to redeem $80.2 million principal amount of Petro's 12 1/4% Senior
Subordinated Debentures due 2005, $48.7 million principal amount of
Petro's 10 1/8% Senior Subordinated Notes due 2003, $74.3 million
principal amount of Petro's 9 3/8% Senior Subordinated Debentures due
2006 and the $17.4 million of Petro's 12 7/8% preferred stock at an
aggregate redemption price of $201.3 million;

.    to repurchase Petro's 1989 preferred stock at an aggregate redemption
price of $4.2 million; and

.    to pay $6.3 million of the expenses of the transaction.

In addition, Star Gas Partners issued 0.4 million of common units to redeem
certain holder's $12.6 million Petro 12 7/8% preferred stock.

New General Partner
-------------------

Since Star Gas Corporation is a wholly-owned subsidiary of Petro, which
became a subsidiary of the Partnership in the transaction, it was no longer
able to serve as Star Gas Partners' general partner. Star Gas Partners' new
general partner is Star Gas LLC, which is owned by the LLC Owners. The
Partnership agreement allows for the removal of the General Partner by a
2/3 vote of the common unitholders. Star Gas LLC's sole business activity
is being the general partner.

Amendment of Partnership Agreement
----------------------------------

In order to complete the transaction, certain amendments to the Partnership
agreement were required, including increasing the Minimum Quarterly
Distribution ("MQD") from $0.55 to $0.575 per unit, or $2.30 per unit
annually. The increase in the MQD raised the threshold needed to end the
subordination period (see footnote 3).

F-19

7)   Intangibles and Other Assets - (continued)

The table below summarizes the allocation by the Partnership of the excess
of purchase price over book value related to the 1999 acquisition of Petro.
The allocation of the purchase price was based on the results of an
appraisal of property, plant and equipment, customer lists and the March
26, 1999 recorded values for tangible assets and liabilities as follows:

(in thousands)
Consideration given for the exchange of Petro shares                                         $  20,822

Fair market value of Petro's assets and liabilities as of March 26, 1999:
Current assets                                                                           (107,102)
Property, plant and equipment                                                             (40,109)
Value of Petro's investment in the Partnership                                            (21,864)
Current liabilities                                                                        78,792
Long-term debt                                                                            276,568
Deferred income taxes                                                                      12,000
Other liabilities                                                                           7,251
Preferred stock                                                                            12,978
Junior preferred stock                                                                      1,459
---------
Sub-total                                                                              219,973
---------

Total value assigned to intangibles and other assets                                    $ 240,795
=========

Consisting of:  Customer lists                                                          $  94,000
Goodwill                                                                  146,080
Other assets                                                                  715
---------
Total                                                              $ 240,795
=========

The fair market value for property, plant and equipment, excluding real
estate, was established using the replacement cost approach method. The
market approach was used in valuing the real estate. The value assigned to
customer lists was derived using a discounted cash flow analysis. The cash
attributable to the customer lists were discounted back at an equity risk
adjusted cost of capital to the net present value. Any excess was
attributable to goodwill.

8)   Long-Term Debt and Bank Facility Borrowings

Long-term debt consisted of the following at the indicated dates:

September 30,         September 30,
(in thousands)                                                                    2000                  2001
-------------         -------------

Propane Segment:
8.04% First Mortgage Notes (a)                                                 $  85,000            $  83,077
7.17% First Mortgage Notes (a)                                                    11,000               11,000
8.70% First Mortgage Notes (a)                                                    27,500               27,500
7.89% First Mortgage Notes (a)                                                         -               29,500
Acquisition Facility Borrowings (b)                                                7,500                    -
Working Capital Facility Borrowings (b)                                              800                8,400

Heating Oil Segment:
7.92% Senior Notes (c)                                                            90,000               90,000
9.0% Senior Notes (d)                                                             61,779               57,170
8.25% Senior Notes (e)                                                                 -              103,000
10.25% Senior and Subordinated Notes (f)                                           4,137                2,000
8.96% Senior Notes (g)                                                                 -               40,000
Acquisition Facility Borrowings (h)                                               34,000               16,000
Working Capital Facility Borrowings(h)                                            17,000                    -
Acquisition Notes Payable (i)                                                      1,135                4,147
Subordinated Debentures (j)                                                        3,015                3,015

TG&E Segment:
Working Capital Facility Borrowings (k)                                            6,600                5,466
Acquisition Facility Borrowings (k)                                                1,400                2,000
14.5% Junior Convertible Subordinated Notes Payable (l)                              463                  563
---------            ---------
351,329              482,838
Less current maturities                                                          (16,515)             (11,886)
Less working capital facility borrowings                                         (24,400)             (13,866)
---------            ---------
Total                                                                 $ 310,414            $ 457,086
=========            =========

F-20

8)   Long-Term Debt and Bank Facility Borrowings - (continued)

(a) In December 1995, Star Gas Propane assumed $85.0 million of first
mortgage notes (the "First Mortgage Notes") with an annual interest rate of
8.04% in connection with the initial Partnership formation. In January
1998, Star Gas Propane issued an additional $11.0 million of First Mortgage
Notes with an annual interest rate of 7.17%. In March 2000, the Star Gas
Propane segment issued $27.5 million of 8.70% First Mortgage Notes. In
March 2001, the Star Gas segment issued $29.5 million of senior notes with
an average annual interest rate of 7.89% per year. Obligations under the
First Mortgage Note Agreements are secured, on an equal basis with Star Gas
Propane's obligations under the Star Gas Propane Bank Credit Facilities, by
a mortgage on substantially all of the real property and liens on
substantially all of the operating facilities, equipment and other assets
of Star Gas Propane. The First Mortgage Notes will require semiannual
prepayments, without premium on the principal thereof, beginning on March
15, 2001 and have a final maturity of March 30, 2015. Interest on the Notes
is payable semiannually in March and September. The First Mortgage Note
Agreements contain various restrictive and affirmative covenants applicable
to Star Gas Propane; the most restrictive of these covenants relate to the
incurrence of additional indebtedness and restrictions on dividends,
certain investments, guarantees, loans, sales of assets and other
transactions.

(b) The Star Gas Propane Bank Credit Facilities currently consist of a
$25.0 million Acquisition Facility and a $18.0 million Working Capital
Facility. At September 30, 2001, $8.4 million was borrowed under the
Working Capital Facility. The agreement governing the Bank Credit
Facilities contains covenants and default provisions generally similar to
those contained in the First Mortgage Note Agreements. The Bank Credit
Facilities bear interest at a rate based upon, at the Partnership's option,
either the London Interbank Offered Rate plus a margin or a Base Rate (each
as defined in the Bank Credit Facilities). The Partnership is required to
pay a fee for unused commitments which amounted to $0.1 million in each of
fiscal years ending September 30, 1999, through September 30, 2001. For
fiscal 2000 and 2001, the weighted average interest rate on borrowings
under these facilities was 8.68% and 8.0%, respectively. At September 30,
2001 the interest rate on the borrowings outstanding was 6.825%.

The Working Capital Facility expires on June 30, 2003, but may be extended
annually thereafter with the consent of the banks. Borrowings under the
Acquisition Facility will revolve until September 30, 2002, after which
time any outstanding loans thereunder, will amortize in quarterly principal
payments with a final payment due on September 30, 2005. However, there
must be no amount outstanding under the Working Capital Facility for at
least 30 consecutive days during each fiscal year.

(c) Petro issued $90.0 million of 7.92% Senior Secured Notes in six
separate series in a private placement to institutional investors as part
of its acquisition by the Partnership. The Senior Secured Notes are
guaranteed by Star Gas Partners and are secured equally and ratably with
Petro's existing senior debt and bank credit facilities by Petro's cash,
accounts receivable, notes receivable, inventory and customer list. Each
series of Senior Secured Notes will mature between April 1, 2003 and April
1, 2014. Only interest on each series is due semiannually. On the last
interest payment date for each series, the outstanding principal amount is
due and payable in full.

The note agreements for the senior secured notes contain various negative
and affirmative covenants, the most restrictive of the covenants include
restrictions on payment of dividends or other distributions by Star Gas
Partners on any partnership interest if the ratio of consolidated pro forma
operating cash flow to consolidated pro forma interest expense, do not meet
the requirements in the agreement for the period of the four most recent
fiscal quarters ending on or prior to the date of the dividend or
distribution.

(d) The Petro 9.0% Senior Secured Notes, which pay interest semiannually,
were issued under agreements that are substantially identical to the
agreements under which the $90.0 million of Senior Secured Notes were
issued, including negative and affirmative covenants. The 9.0% Senior Notes
are guaranteed by Star Gas Partners. The notes have various sinking fund
payments of which the largest are $11.6 million due on October 1, 2001, and
a final maturity payment of $45.3 million due on October 1, 2002. All such
notes are redeemable at the option of the Partnership, in whole or in part
upon payment of a premium as defined in the note agreement. The holders of
these notes have the right to extend $30.0 million of the maturity due on
October 1, 2002 for a one year period at an annual rate of 10.9%. In August
2001, the holders of these notes exercised their option to extend $15.0
million of the original maturities due on October 1, 2001 to October 1,
2002.

F-21

8)   Long-Term Debt and Bank Facility Borrowings - (continued)

(e) The Petro 8.25% Senior Notes which pay interest semiannually also were
issued under agreements that are substantially identical to the agreement
under which the $90.0 million and 9.0% Senior Notes were issued. These
notes are also guaranteed by Star Gas Partners. The largest series has a
maturity date of August 1, 2006 in the amount of $73.0 million. The
remaining series are due in equal sinking fund payments due August 1, 2009
and ending on August 1, 2013.

(f) The Petro 10.25% Senior and Subordinated Notes which pay interest
quarterly also were issued under agreements that are substantially
identical to the agreements under which the $90.0 million and the 9.0%
Senior Notes were issued. These notes are also guaranteed by Star Gas
Partners. Petro is required to make a final maturity payment of $2.0
million on January 15, 2002. No premium is payable in connection with these
required payments. In connection with a one year extension exercised by the
noteholders the interest rate increased to 14.1%.

(g) The Petro 8.96% Senior Notes which pay interest semiannually, were
issued under agreements that are substantially identical to the agreements
under which the Partnership's other Senior Notes were issued. These notes
are also guaranteed by Star Gas Partners. These notes were issued in three
separate series. The largest series has annual sinking fund payments of
$2.8 million due beginning November 1, 2004 and ending November 1, 2010.
The other two series are due on November 1, 2004 and November 1, 2005.

(h) The Petro Bank Facilities consist of three separate facilities; a $123
million working capital facility, a $20 million insurance letter of credit
facility and a $50 million acquisition facility. At September 30, 2001
there was no outstanding borrowings under the working capital facility,
$18.1 million of the insurance letter of credit facility was used, $16.0
million was outstanding under the acquisition facility, along with an
additional $4.0 million outstanding from the acquisition facility in the
form of letter of credits (see footnote i below). The working capital
facility and letter of credit facility will expire on June 30, 2004. The
acquisition facility will convert to a term loan on June 30, 2004 which
will be payable in eight equal quarterly principal payments. Amounts
borrowed under the working capital facility are subject to a requirement to
maintain a zero balance for 45 consecutive days during the period from
April 1 to September 30 of each year. In addition, each facility will bear
an interest rate that is based on either the London Interbank Offer Rate or
another base rate plus a set percentage. The bank facilities agreement
contains covenants and default provisions generally similar to those
contained in the note agreement for the senior secured notes. The
Partnership is required to pay a commitment fee, which amounted to $0.5
million for both of the years ended September 30, 2000 and 2001. For the
years ended September 30, 2000 and 2001, the weighted average interest rate
for borrowings under these facilities was 8.15% and 8.46%, respectively. As
of September 30, 2001, the interest rate on the borrowings outstanding was
5.87%

(i) These Petro notes were issued in connection with the purchase of fuel
oil dealers and other notes payable and are due in monthly and quarterly
installments. Interest is at various rates ranging from 7% to 15% per
annum, maturing at various dates through 2007. Approximately $4.0 million
of letter of credits issued under the Petro Bank Acquisition Facility are
issued to support these notes.

(j) Petro also has outstanding $1.3 million of 10 1/8% Subordinated
Debentures due 2003, $0.7 million of 9 3/8% Subordinated Notes due 2006 and
$1.1 million of 12 1/4% Subordinated Notes due 2005. In October 1998, the
indentures under which the 10 1/8%, 9 3/8% and 12 1/4% subordinated notes
were issued were amended to eliminate substantially all of the covenants
provided by the indentures.

(k) The TG&E Bank Facilities currently consist of a $3.0 million
Acquisition Facility and a $15.4 million Working Capital Facility and are
secured by substantially all of the assets of TG&E. At September 30, 2001,
$2.0 million and $5.5 million was borrowed under the Acquisition Facility
and Working Capital Facility, respectively. These facilities are guaranteed
by Star Gas Partners. The agreement covering the Bank Credit Facilities
contains various restrictive and affirmative covenants and default
provisions applicable to TGE the most restrictive of these covenants
relate to the incurrence of additional indebtedness and restrictions on
certain investments, guarantees, loans, sale of assets and other
transactions. The Bank Credit Facilities bear interest at a rate based
upon, at the Partnership's option, either the London Interbank Offered Rate
plus a margin or a Base Rate (each as defined in the Bank Credit
Facilities). The Partnership is required to pay a fee for unused
commitments, which amounts to less than $0.1 million for fiscal 2000 and
2001. For fiscal 2001, the weighted average interest rate on borrowings
under these facilities was 8.6%. At September 30, 2001 the interest rate on
the borrowings outstanding was 5.67%.

The Working Capital Facility will expire on March 30, 2002. The Acquisition
Facility will revolve until March 30, 2002, after which time any
outstanding loans thereunder; will be due as a single payment on September
30, 2002.

F-22

8)   Long-Term Debt and Bank Facility Borrowings - (continued)

(l) These TG&E notes were issued to the minority interest equity holders of
TG&E and are due on December 31, 2005. These notes bear interest at a rate
of 14.5% and are convertible, at the option of the holder, into common
shares of TG&E at the rate of one share for each $23.333 in principal
amount of the convertible notes.

As of September 30, 2001, the Partnership was in compliance with all debt
covenants. As of September 30, 2001, the maturities during fiscal years
ending September 30 are set forth in the following table:

(in thousands)
2002              $ 25,752
2003                71,410
2004                22,516
2005                49,224
2006               114,197
Thereafter          199,739
--------
$482,838
========

9)   Acquisitions

In August 2001, the Partnership completed the purchase of Meenan Oil Co.,
Inc., believed to be the third largest home heating oil dealer in the
United States; for $131.8 million. During fiscal 2001, the Partnership also
purchased twelve other unaffiliated heating oil dealers for $52.2 million.
In addition to these thirteen unaffiliated oil dealers, acquired during
fiscal 2001, the Partnership also acquired nine unaffiliated retail propane
dealers for $60.8 million.

During fiscal 2000, the Partnership acquired nine unaffiliated retail
heating oil dealers, five unaffiliated retail propane dealers and a 72.7%
controlling interest in an electricity and natural gas reseller (see
footnote 1). The aggregate consideration for these acquisitions accounted
for by the purchase method of accounting was approximately $59.6 million.

The following table indicates the allocation of the aggregate purchase
price paid and the respective periods of amortization assigned for the 2000
and 2001 acquisitions.

(in thousands)                               2000                   2001           Useful Lives
--------               --------         ------------

Land                                       $  1,794               $  7,002                     -
Buildings                                       650                  8,816              30 years
Furniture and equipment                         679                  2,236              10 years
Fleet                                         4,103                 14,995            5-30 years
Tanks and equipment                          16,049                 30,753            5-30 years
Customer lists                               17,458                 84,976            6-15 years
Restrictive covenants                         4,539                  4,742               5 years
Goodwill                                     18,170                 84,401              25 years
Minority interest                             1,578                      -                     -
Working capital                              (5,396)                 6,911                     -
--------               --------
Total                                  $ 59,624               $244,832
========               ========

The acquisitions were accounted for under the purchase method of
accounting. 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 Consolidated Balance Sheets.
Sales and net income have been included in the Consolidated Statements of
Operations from the respective dates of acquisition.

F-23

9)   Acquisitions - (continued)

The following unaudited pro forma information presents the results of
operations of the Partnership and the acquisitions previously described, as
if the acquisitions had taken place on October 1, 1999.

(in thousands)

Years Ended September 30,
-------------------------------------
2000                   2001
-------------             -----------

Sales                                                         $   1,187,261             $1,418,876
=============             ==========

Net income                                                    $      11,228             $   11,497
=============             ==========

General Partner's interest in net income                      $         161             $      164
=============             ==========

Limited Partners' interest in net income                      $      11,067             $   11,333
=============             ==========

Basic net income per limited partner unit                     $        0.42             $     0.43
=============             ==========

Diluted net income per limited partner unit                   $        0.41             $     0.42
=============             ==========

10)  Employee Benefit Plans

Propane Segment

The propane segment has a 401(k) plan, which covers certain eligible
non-union and union employees. Subject to IRS limitations, the 401(k) plan
provides for each employee to contribute from 1.0% to 15.0% of
compensation. The propane segment contributes to non-union participants a
matching amount up to a maximum of 3.0% of compensation. Aggregate matching
contributions made to the 401(k) plan during fiscal 1999, 2000 and 2001
were $0.3 million, $0.4 million and $0.4 million, respectively. For the
fiscal years 1999, 2000 and 2001 the propane segment made monthly
contributions on behalf of its union employees to union sponsored defined
benefit plans of $0.4 million, $0.4 million and $0.5 million, respectively.

Heating Oil Segment

The heating oil segment has a 401(k) plan, which covers certain eligible
non-union and union employees. Subject to IRS limitations, the 401(k) plan
provides for each employee to contribute from 1.0% to 17.0% of
compensation. The Partnership makes a 4% core contribution of a
participant's compensation and matches 2/3 of each amount a participant
contributes up to a maximum of 2.0% of a participant's compensation. The
Partnership's aggregate contributions to the heating oil segment's 401(k)
plan during fiscal 1999, 2000 and 2001 were $1.5 million, $2.7 million and
$2.7 million, respectively.

As a result of the Petro acquisition, the Partnership assumed Petro's
pension liability. Effective December 31, 1996, the heating oil segment
consolidated all of its defined contribution pension plans and froze the
benefits for non-union personnel covered under defined benefit pension
plans. In 1997, the heating oil segment froze the benefits of its New York
City union defined benefit pension plan as a result of operation
consolidations. Benefits under the frozen defined benefit plans were
generally based on years of service and each employee's compensation. As
part of the Meenan acquisition, the Partnership assumed the pension plan
obligations and assets for Meenan's company sponsored plan. This plan will
be frozen and merged into the Partnership's defined benefit pension for
non-union personnel as of January 1, 2002. The Partnership's pension
expense for all defined benefit plans during fiscal 1999, 2000 and 2001
were $0.2 million, $0.3 million and $0.2 million, respectively.

F-24

10)  Employee Benefit Plans - (continued)

The following tables provide a reconciliation of the changes in the heating
oil segment's plan benefit obligations, fair value of assets, and a
statement of the funded status at the indicated dates:

(in thousands)                                                                Year Ended          Year Ended
September 30,        September 30,
Reconciliation of Benefit Obligations                                            2000                 2001
-------------------------------------                                       -------------        -------------

Benefit obligations at beginning of year                                        $ 24,486             $ 24,021
Service cost                                                                           -                   36
Interest cost                                                                      1,778                1,720
Actuarial loss                                                                       624                  694
Benefit payments                                                                  (1,524)              (2,242)
Settlements                                                                       (1,343)                   -
Meenan's benefit obligations assumed                                                   -               32,914
--------             --------
Benefit obligation at end of year                                               $ 24,021             $ 57,143
========             ========

Reconciliation of Fair Value of Plan Assets
-------------------------------------------
Fair value of plan assets at beginning of year                                  $ 21,069             $ 21,473
Actual return on plan assets                                                       1,217               (1,079)
Employer contributions                                                             2,054                2,090
Benefit payments                                                                  (1,524)              (2,241)
Settlements                                                                       (1,343)                   -
Meenan's asset assumed                                                                 -               27,130
--------             --------
Fair value of plan assets at end of year                                        $ 21,473             $ 47,373
========             ========

Funded Status
-------------
Benefit obligation                                                              $ 24,021             $ 57,143
Fair value of plan assets                                                         21,473               47,373
Amount included in comprehensive income                                                -               (4,149)
Unrecognized net actuarial (gain) loss                                              (659)               4,025
--------             --------
Prepaid (accrued) benefit cost                                                  $ (3,207)            $ (9,894)
========             ========

Components of Net Periodic Benefit Cost
---------------------------------------
Service cost                                                                    $      -             $     36
Interest cost                                                                      1,778                1,720
Expected return on plan assets                                                     1,745                1,795
Net amortization                                                                      87                  240
Settlement loss                                                                      210                    -
--------             --------
Net periodic benefit cost                                                       $    330             $    201
--------             --------

Weighted-Average Assumptions Used in the Measurement of the
-----------------------------------------------------------
Partnership's Benefit Obligation as of the period indicated
-----------------------------------------------------------
Discount rate                                                                       7.50%                7.25%
Expected return on plan assets                                                      8.50%                8.50%
Rate of compensation increase                                                        N/A                  N/A

In addition, the heating oil segment made contributions to
union-administered pension plans of $1.1 million for fiscal 1999, $3.5
million for fiscal 2000 and $4.6 million for fiscal 2001.

The Partnership recorded an additional minimum pension liability for
underfunded plans of $4.1 million as of September 30, 2001, representing
the excess of unfunded accumulated benefit obligations over plan assets. A
corresponding amount is recognized as an intangible asset except to the
extent that these additional liabilities exceed the related unrecognized
prior service costs and net transition obligation, in which case the
increase in liabilities is charged as a reduction of partner's capital of
$4.1 million as of September 30, 2001.

F-25

11)  Income Taxes

Income tax expense (benefit) was comprised of the following for the
indicated periods:

(in thousands)                    Years Ended September 30,
---------------------------------------
1999            2000           2001
----            ----           ----
Current:
Federal                $      -        $      -       $      -
State                       166             492          1,498
Deferred                   (14,946)              -              -
--------        --------       --------
$(14,780)       $    492       $  1,498
========        ========       ========

The sources of the deferred income tax expense (benefit) and the tax
effects of each were as follows:

(in thousands)                                                                  Years Ended September 30,
---------------------------
2000               2001
----               ----

Excess of tax over book (book over tax) depreciation                            $  (619)           $    77
Excess of (book over tax) amortization expense                                   (2,252)            (2,616)
Excess of book over tax vacation expense                                           (172)               (98)
Excess of tax over book restructuring expense                                       212                 68
Excess of book over tax bad debt expense                                           (118)            (5,233)
Excess of tax over book hedge accounting                                              -                782
Excess of tax over book supplemental benefit expense                                262                200
Excess of tax over book pension contribution                                        692                726
Other, net                                                                           12                  -
Utilization of (increase in) net operating loss carryforward                      2,054                  -
Recognition of tax benefit of net operating loss to the extent
of current and previous recognized temporary differences                            -             (1,862)
Change in valuation allowance                                                       (71)             7,956
-------            -------
$     -            $     -
=======            =======

The components of the net deferred taxes and the related valuation
allowance for the years ended September 30, 2000 and September 30, 2001
using current rates are as follows:

(in thousands)                                                           Years Ended September 30,
-----------------------------
Deferred Tax Assets:                                                     2000                 2001
--------------------                                                     ----                 ----

Net operating loss carryforwards                                               $ 26,471            $ 28,333
Excess of book over tax vacation expense                                          1,929               2,027
Excess of book over tax restructuring expense                                       322                 254
Excess of book over tax bad debt expense                                            388               5,621
Excess of book over tax supplemental benefit expense                                447                 247
Other, net                                                                          309                 309
--------            --------
Total deferred tax assets                                                      29,866              36,791
Valuation allowance                                                             (16,377)            (24,333)
--------            --------
Net deferred tax assets                                                    $ 13,489            $ 12,458
========            ========

Deferred Tax Liabilities:
------------------------
Excess of tax over book depreciation                                           $  6,977            $  7,054
Excess of tax over book amortization                                              4,762               2,146
Excess of tax over book pension contribution                                      1,750               2,476
Excess of tax over book hedge accounting                                              -                 782
--------            --------
Total deferred tax liabilities                                               $ 13,489            $ 12,458
========            ========

Net deferred taxes                                                           $      -            $       -
========            ========

F-26

11)  Income Taxes - (continued)

In order to fully realize the net deferred tax assets the Partnership's
corporate subsidiaries will need to generate future taxable income. A
valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. Based upon the
level of current taxable income and projections of future taxable income of
the Partnership's corporate subsidiaries over the periods which the
deferred tax assets are deductible, management believes it is more likely
than not that the Partnership will realize the benefits of these deductible
differences, net of existing valuation allowance at September 30, 2001. The
amount of deferred tax assets considered realizable, however, could be
reduced if estimates of future taxable income during the carryforward
period are reduced.

At September 30, 2001, the Partnership had net income tax loss
carryforwards for Federal income tax reporting purposes of approximately
$69 million of which approximately $18.6 million are limited in accordance
with Federal income tax law. The losses are available to offset future
Federal taxable income through 2021.

12)  Lease Commitments

The Partnership has entered into certain operating leases for office space,
trucks and other equipment.

The future minimum rental commitments at September 30, 2001 under operating
leases having an initial or remaining non-cancelable term of one year or
more are as follows:

(in thousands)                           Heating Oil          Propane
Segment            Segment           TG&E                Total
-----------        ----------         -------            ---------

2002                                     $     5,888         $   1,751         $   119            $   7,758
2003                                           6,163             1,464             107                7,734
2004                                           5,619             1,177              18                6,814
2005                                           4,196               524               -                4,720
2006                                           3,455               305               -                3,760
Thereafter                                    14,158               993               -               15,151
-----------         ---------         -------            ---------
Total minimum lease payments             $    39,479         $   6,214         $   244            $  45,937
===========         =========         =======            =========

The Partnership's rent expense was $4.4 million, $8.0 million and $9.0
million in 1999, 2000 and 2001, respectively.

13)  Unit Grants

In June 2000, the Partnership granted 552 thousand restricted senior
subordinated units to senior management and outside directors. These units
were granted under the Partnership's Employee and Director Incentive Unit
Plans. One-fifth of the units immediately vested with the remaining units
vesting annually in four equal installments if the Partnership achieves
specified performance objectives for each of the respective fiscal years.
The Partnership recognized $.6 million and $2.7 million of unit
compensation expense for these units for the years ended September 30, 2000
and 2001, respectively.

In September 2000, the Partnership granted 350 thousand unit appreciation
rights and 87 thousand restricted senior subordinated units to Irik P.
Sevin. The unit appreciation rights vest in four equal installments on
January 31, 2001, December 1, 2001, December 1, 2002 and December 1, 2003.
The exercise price for these unit appreciation rights is $8.625. Mr. Sevin
will be entitled to receive payment in cash for these rights equal to the
excess of the fair market value of a senior subordinated unit on the
vesting date over the exercise price. The grant of restricted senior
subordinated units will vest in four equal installments on December 1 of
2001 through 2004. Distributions on the restrictive units will accrue to
the extent declared. The Partnership recognized $476 of unit compensation
expense for the restricted senior subordinated units and $2,448 of
compensation expense for the unit appreciation rights for the year ended
September 30, 2001.

F-27

14)  Supplemental Disclosure of Cash Flow Information

(in thousands)                                                Years Ended September 30,
---------------------------------------------
1999               2000              2001
----               ----              ----

Cash paid during the period for:
Income taxes                                      $    106           $  4,047          $  1,298
Interest                                          $ 15,703           $ 28,912          $ 31,145

Non-cash investing activities:
Acquisitions:
Net long-term assets                              $ (2,945)          $      -          $(12,526)
Increase in assumed pension obligation            $      -           $      -          $  5,784
Accrued expense                                   $      -           $      -          $  6,742
Deferred income tax liability                     $  2,945           $      -          $      -
Non-cash financing activities:
Issuance of Common Units                          $  6,858           $      -          $      -
Redemption of preferred stock                     $ (6,858)          $      -          $      -

15)  Commitments and Contingencies

In the ordinary course of business, the Partnership is threatened with, or
is named in, various lawsuits. The Partnership is not a party to any
litigation, which individually or in the aggregate could reasonably be
expected to have a material adverse effect on the Partnership.

16)  Related Party Transactions

Prior to March 26, 1999, the Partnership was managed by the Star Gas
Corporation, a wholly owned subsidiary of Petro. Pursuant to the
Partnership Agreement that was in effect at the time, Star Gas Corporation
was entitled to reimbursement for all direct and indirect expenses incurred
or payments it made on behalf of the Partnership, and all other necessary
or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by Star Gas Corporation in connection with operating
the Partnership's business. Indirect expenses were allocated to the
Partnership on a basis consistent with the type of expense incurred. For
example, services performed by employees of Star Gas Corporation on behalf
of the Partnership were reimbursed on the basis of hours worked and rent
expense was reimbursed on the proportion of the square footage leased by
the Partnership. For the fiscal year ended September 30, 1999 (until the
Star Gas / Petro Transaction resulting in Star Gas Corporation being
replaced as the General Partner by Star Gas LLC), the Partnership
reimbursed Star Gas Corporation and Petro $10.2 million, representing
salary, payroll tax and other compensation paid to the employees of the
Star Gas Corporation. In addition, the Partnership reimbursed Petro $0.4
million for the fiscal year ended September 30, 1999, relating to the
Partnership's share of the costs incurred by Petro in conducting the
operations of a certain shared branch location, which included managerial
services.

17)  Subsequent Events

Cash Distribution

On October 26, 2001, the Partnership announced that it would pay cash
distributions of $0.575 per unit on all units for the quarter ended
September 30, 2001. The distributions were paid on November 14, 2001 to
holders of record as of November 5, 2001. Additionally, as a result of the
heating oil segment achieving certain financial test specified in the
Partnership agreement - 303,000 Senior Subordinated Units were distributed
proportionally to the Senior Subordinated, Junior Subordinated and General
Partner Unitholders of record as of November 5, 2001. Holders of Senior
Subordinated, Junior Subordinated and General Partner units received one
additional Senior Subordinated unit for every 11.1807 Senior Subordinated,
Junior Subordinated or General Partner unit held as of the November 5/th/
record date.

Acquisitions

On October 23, 2001, the Partnership completed the acquisition of certain
assets of a retail propane distributor located in New York, with annual
propane sales of approximately six million gallons.

F-28

18)  Disclosures About the Fair Value of Financial Instruments

Cash, Accounts Receivable, Notes Receivable and Other Current Assets, Bank
--------------------------------------------------------------------------
Facility Borrowings, Accounts Payable and Accrued Expenses
----------------------------------------------------------

The carrying amount approximates fair value because of the short maturity
of these instruments.

Long-Term Debt
--------------

The fair values of each of the Partnership's long-term financing
instruments, including current maturities, are based on the amount of
future cash flows associated with each instrument, discounted using the
Partnership's current borrowing rate for similar instruments of comparable
maturity.

The estimated fair value of the Partnership's long-term debt is summarized
as follows:

(in thousands)           At September 30, 2000       At September 30, 2001
-----------------------     ------------------------
Carrying    Estimated      Carrying     Estimated
Amount      Fair Value      Amount      Fair Value
------      ----------      ------      ----------
Long-term debt         $326,929      $320,540      $468,972     $470,371

Limitations
-----------

Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.

19)  Earnings Per Limited Partner Units

(in thousands, except per unit data)                                                             September 30,
-----------------------------------------
1999           2000         2001
----           ----         ----

Income (loss) before cumulative effect of change in accounting
Principle per Limited Partner unit:
Basic                                                                          $  (2.53)       $    .07       $   (.30)
Diluted                                                                        $  (2.53)       $    .07       $   (.30)

Cumulative effect of change in accounting principle per
Limited Partner unit:
Basic                                                                                 -               -       $    .07
Diluted                                                                               -               -       $    .07

Net income (loss) per Limited Partner unit:
Basic                                                                          $  (2.53)       $    .07       $   (.23)
Diluted                                                                        $  (2.53)       $    .07       $   (.23)

Basic Earnings Per Unit:
-----------------------
Net income (loss)                                                                 $(29,550)       $  1,353       $ (5,249)
Less:  General Partner's interest in net income (loss)                                (587)             24            (75)
--------        --------       --------
Limited Partner's interest in net income (loss)                                  $(28,963)       $  1,329       $ (5,174)
========        ========       ========

Common Units                                                                         8,830          15,438         19,406
Senior Subordinated Units                                                            1,283           2,505          2,688
Junior Subordinated Units                                                              179             345            345
Subordinated Units                                                                   1,155               -              -
--------        --------       --------
Weighted average number of Limited Partner units outstanding                       11,447          18,288         22,439
========        ========       ========

Basic earnings (losses) per unit                                                  $  (2.53)       $    .07       $   (.23)
========        ========       ========

Diluted Earnings Per Unit:
-------------------------
Effect of dilutive securities                                                     $      -        $      -       $      -
--------        --------       --------
Limited Partner's interest in net income (loss)                                  $(28,963)       $  1,329       $ (5,174)
========        ========       ========

Effect of dilutive securities                                                            -               -              -
--------        --------       --------
Weighted average number of Limited Partner units outstanding                       11,447          18,288         22,439
========        ========       ========

Diluted earnings (losses) per unit                                                $  (2.53)       $    .07       $   (.23)
========        ========       ========

Fiscal 2001 fully diluted per unit does not include 33 common units
granted to Mr. Sevin in December 2001 as well as the 110 subordinated
units that vested pursuant to the employee incentive plan in December
2001 and the 303 senior subordinated units distributed in November 2001
pursuant to the heating oil segment achieving certain financial test
because the impact of these issuances are antidilutive.

F-29

20)  Selected Quarterly Financial Data (unaudited)

The seasonal nature of the Partnership's business results in the sale by
the Partnership of approximately 30% of its volume in the first fiscal
quarter and 45% of its volume in the second fiscal quarter of each year.
The Partnership generally realizes net income in both of these quarters and
net losses during the quarters ending June and September.

The results of operations for the year ended September 30, 1999, include
Petro's results of operations from March 26, 1999. Since the heating oil
division was acquired after the heating season, the results for the year
ended September 30, 1999 include expected third and fourth fiscal quarter
losses but do not include the profits from the heating season. Accordingly,
results of operations for the year ended September 30, 1999 presented are
not indicative of the results to be expected for full year. The TG&E
acquisition was made on April 7, 2000. Accordingly, the results of
operations for the year ended September 30, 2000 only include TG&E's
results from April 7, 2000.

(in thousands)                                                     Three Months Ended
-------------------------------------------------------------------------
December 31, 2000     March 31, 2001  June 30, 2001  September 30, 2001      Total
-----------------     --------------  -------------  ------------------   -----------

Sales                                 $ 323,504             $  470,447       $  166,052      $   125,970        $ 1,085,973
Operating income (loss)                  25,186                 74,191          (23,629)         (46,501)            29,247
Income (loss) before taxes,
minority interest and
cumulative effect of change
in accounting principle                16,924                 65,037          (31,677)         (55,501)            (5,217)
Net income (loss)                        17,674                 64,114          (31,791)         (55,246)            (5,249)
Limited Partner interest in
net income (loss)                      17,391                 63,150          (31,342)         (54,373)            (5,174)
Net income (loss) per
Limited Partner Unit Basic/(a)/     $    0.87             $     2.86       $    (1.38)     $     (2.18)       $     (0.23)
Limited Partner Unit Diluted/(a)/   $    0.86             $     2.85       $    (1.38)     $     (2.18)       $     (0.23)

Three Months Ended
------------------------------------------------------------------------
December 31, 1999     March 31, 2000   June 30, 2000  September 30, 2000    Total
-----------------     --------------   -------------  ------------------ ---------

Sales                                       $ 186,886          $ 321,695       $ 130,163        $ 105,920      $ 744,664
Operating income (loss)                        16,080             58,930         (15,448)         (30,650)        28,912
Income (loss) before taxes
and minority interest                         9,478             51,902         (22,197)         (37,589)         1,594
Net income (loss)                               9,365             51,687         (21,991)         (37,708)         1,353
Limited Partner interest in
net income (loss)                             9,191             50,772         (21,617)         (37,017)         1,329
Net income (loss) per
Limited Partner Unit Basic
and Diluted/(a)/                          $    0.53          $    2.80       $   (1.15)       $   (1.95)     $     .07

Three Months Ended
-----------------------------------------------------------------------------
December 31, 1998    March 31, 1999       June 30, 1999    September 30, 1999    Total
-----------------    ---------------    ----------------   ------------------- ---------

Sales                                    $  30,237           $  52,101          $  79,092       $  62,590          $ 224,020
Operating income (loss)                      3,523              14,753            (18,226)        (28,598)           (28,548)
Income (loss) before taxes                   1,300              12,347            (23,575)        (34,402)           (44,330)
Net income (loss)                            1,294              12,315            (18,213)        (24,946)           (29,550)
Limited Partner interest in
net income (loss)                       1,268              12,069            (17,849)        (24,451)           (28,963)
Net income (loss) per
Limited Partner Unit Basic
and Diluted/(a)/                     $    0.20           $    1.75          $   (1.11)      $   (1.47)         $   (2.53)

(a) The sum of the quarters do not add-up to the total due to the weighting
of Limited Partner Units outstanding.

F-30

Schedule II
Star Gas Partners, L.P.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended September 30, 1999, 2000 and 2001
(in thousands)

Additions
------------------------------------
Balance at
Beginning of         Charged to     Other Changes           Balance at
Year              Description                  Year          Costs & Expenses   Add(Deduct)           End of Year
----              -----------                  ----          ----------------   -----------           -----------

$ 1,437/(b)/
1999    Allowance for doubtful accounts       $   252              $   371        (1,112)/(a)/          $   948
=======              =======       =======                =======

$ 5,330/(c)/
2000    Allowance for doubtful accounts       $   948              $ 2,669        (6,991)/(a)/          $ 1,956
=======              =======       =======                =======

$ 2,203/(d)/
2001    Allowance for doubtful accounts       $ 1,956              $10,624       $(3,419)/(a)/          $11,364
=======              =======       =======                =======

(a)  Bad debts written off (net of recoveries).
(b)  Amount acquired as part of the Petro acquisition.
(c)  Amount acquired as part of the TG&E acquisition.
(d)  Amount acquired as part of the Meenan and Midwest Bottle Gas acquisitions.

F-31

EXHIBIT 10.26

================================================================================

Star Gas Partners, L.P.
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

$103,000,000 Senior Secured Notes

$73,000,000 8.05% Series A Senior Secured Notes due August 1, 2006
$30,000,000 8.73% Series B Senior Secured Notes due August 1, 2013

_________________

Note Purchase Agreement

_________________

Dated as of July 30, 2001

================================================================================

Table of Contents

(Not a part of the Agreement)

Section                               Heading                                                  Page

Section 1.          Authorization of Notes ...................................................   1

Section 2.          Sale and Purchase of Notes ...............................................   2

Section 3.          Closing ..................................................................   3

Section 4.          Conditions to Closing ....................................................   3

Section 4.1.   Representations and Warranties ...........................................   3
Section 4.2.   Performance; No Default. .................................................   3
Section 4.3.   Basic Documents ..........................................................   3
Section 4.4.   Security Documents .......................................................   3
Section 4.5.   Compliance Certificates ..................................................   4
Section 4.6.   Opinions of Counsel ......................................................   4
Section 4.7.   Purchase Permitted By Applicable Law, etc ................................   4
Section 4.8.   Sale of Other Notes ......................................................   4
Section 4.9.   Payment of Special Counsel Fees. .........................................   4
Section 4.10.  Private Placement Number .................................................   5
Section 4.11.  Changes in Corporate Structure ...........................................   5
Section 4.12.  Related Transactions .....................................................   5
Section 4.13.  Proceedings and Documents ................................................   5

Section 5.          Representations and Warranties of the Constituent Companies ..............   5

Section 5.1.   Organization; Power and Authority ........................................   5
Section 5.2.   Authorization, etc .......................................................   6
Section 5.3.   Disclosure ...............................................................   6
Section 5.4.   Organization

and Ownership of Shares of Subsidiaries; Affiliates .........   6
Section 5.5.   Financial Statements .....................................................   7
Section 5.6.   Compliance with Laws, Other Instruments, etc .............................   7
Section 5.7.   Governmental Authorizations, etc .........................................   7
Section 5.8.   Litigation; Observance of Agreements, Statutes and Orders ................   8
Section 5.9.   Taxes ....................................................................   8
Section 5.10.  Title to Property; Leases ................................................   8
Section 5.11.  Licenses, Permits, etc ...................................................   9
Section 5.12.  Compliance with Erisa ....................................................   9
Section 5.13.  Private Offering by the Company ..........................................  10
Section 5.14.  Use of Proceeds; Margin Regulations ......................................  10

-i-

Section 5.15.    Existing Indebtedness; Future Liens ................................   10
Section 5.16.    Foreign Assets Control Regulations, etc ............................   11
Section 5.17.    Status under Certain Statutes ......................................   11
Section 5.18.    Environmental Matters ..............................................   11
Section 5.19.    Parity Debt ........................................................   12

Section 6.            Representations of the Purchaser ...................................   12

Section 6.1.     Purchase for Investment ............................................   12
Section 6.2.     Source of Funds ....................................................   12

Section 7.       Information as to Constituent Companies ............................   13

Section 7.1.     Financial and Business Information .................................   13
Section 7.2.     Officer's Certificate ..............................................   17
Section 7.3.     Inspection .........................................................   17

Section 8.            Prepayment of the Notes ............................................   18

Section 8.1.     Required Prepayments ...............................................   18
Section 8.2.     Optional Prepayments with Make-whole Amount ........................   18
Section 8.3.     Prepayment on Change of Control ....................................   19
Section 8.4.     Allocation of Partial Prepayments ..................................   21
Section 8.5.     Maturity; Surrender, etc ...........................................   21
Section 8.6.     Purchase of Notes ..................................................   22
Section 8.7.     Make-Whole Amount ..................................................   22

Section 9.            Affirmative Covenants ..............................................   23

Section 9.1.     Compliance with Law ................................................   23
Section 9.2.     Insurance ..........................................................   24
Section 9.3.     Maintenance of Properties ..........................................   24
Section 9.4.     Payment of Taxes and Claims ........................................   24
Section 9.5.     Corporate Existence, etc ...........................................   24
Section 9.6.     Maintenance of Ownership of Petro Holdings and the Company .........   25
Section 9.7.     Maintenance of a Rating of the Notes ...............................   25

Section 10.           Negative Covenants .................................................   25

Section 10.1.    Petro Holdings and its Subsidiaries ................................   25
Section 10.1.1.  Line of Business ..............................................   25
Section 10.1.2.  Incurrence of Debt ............................................   25
Section 10.1.3.  Liens .........................................................   26
Section 10.1.4.  Restricted Payments and Restricted Investments ................   28
Section 10.1.5.  No Limitation on Dividends by Subsidiaries ....................   29
Section 10.1.6.  Sale of Assets, etc ...........................................   30
Section 10.1.7.  Merger, Consolidation, etc ....................................   30
Section 10.1.8.  Transactions with Affiliates ..................................   32

-ii-

Section 10.2.    Star Partners and its Subsidiaries ....................................  32
Section 10.2.1.  Restricted Payments and Restricted Investments ...................  32
Section 10.2.2.  Merger, Consolidation, etc .......................................  32

Section 11.           Events of Default .....................................................  33

Section 12.           Remedies on Default, etc ..............................................  36

Section 12.1.    Acceleration ..........................................................  36
Section 12.2.    Other Remedies ........................................................  36
Section 12.3.    Rescission ............................................................  37
Section 12.4.    No Waivers or Election of Remedies, Expenses, etc .....................  37

Section 13.           Registration; Exchange; Substitution of Notes .........................  37

Section 13.1.    Registration of Notes .................................................  37
Section 13.2.    Transfer and Exchange of Notes ........................................  37
Section 13.3.    Replacement of Notes ..................................................  38

Section 14.           Payments on Notes .....................................................  38

Section 14.1.    Place of Payment ......................................................  38
Section 14.2.    Home Office Payment ...................................................  39

Section 15.           Expenses, etc .........................................................  39

Section 15.1.    Transaction Expenses ..................................................  39
Section 15.2.    Survival ..............................................................  39

Section 16.           Survival of Representations and Warranties; Entire Agreement ..........  39

Section 17.           Amendment and Waiver ..................................................  40

Section 17.1.    Requirements ..........................................................  40
Section 17.2.    Solicitation of Holders of Notes ......................................  40
Section 17.3.    Binding Effect, etc ...................................................  41
Section 17.4.    Notes Held by Company, etc ............................................  41

Section 18.           Notices ...............................................................  41

Section 19.           Reproduction of Documents .............................................  42

Section 20.           Miscellaneous .........................................................  42

Section 20.1.    Intercreditor Agreement; Successors and Assigns .......................  42
Section 20.2.    Payments Due on Non-business Days .....................................  42

-iii-

Section 20.3.  Severability ...........................................  42
Section 20.4.  Construction ...........................................  42
Section 20.5.  Counterparts ...........................................  43
Section 20.6.  Governing Law ..........................................  43

Signature ..................................................................  44

Schedule A       --   Information Relating to Purchasers

Schedule B       --   Defined Terms

Schedule 5.4     --   Subsidiaries of the Company and Ownership of Subsidiary
Stock

Schedule 5.5     --   Financial Statements

Schedule 5.15    --   Existing Indebtedness

Schedule 10.1.4  --   Existing Investments

Exhibit 1(a)     --   Form of Senior Secured Notes

Exhibit 1(c)-1   --   Form of Original Intercreditor Agreement

Exhibit 1(c)-2   --   Form of First Intercreditor Agreement Supplement

Exhibit 1(c)-3   --   Form of Second Intercreditor Agreement Supplement

Exhibit 1(e)     --   Intercreditor Agreement and Security Documents Amendments

Exhibit 4.6(a)   --   Form of Opinion of Special Counsel for the Company

Exhibit 4.6(b)   --   Form of Opinion of Special Counsel for the Purchasers

Exhibit 20.1     --   Form of Intercreditor Agreement Joinder

-iv-

Star Gas Partners, L.P.
Petro Holdings, INC.
Petroleum Heat and Power Co., Inc.
Davenport Street
Stamford, Connecticut 06904

$103,000,000 Senior Secured Notes

$73,000,000 8.05% Series A Senior Secured Notes due August 1, 2006
$30,000,000 8.73% Series B Senior Secured Notes due August 1, 2013

Dated as of
July 30, 2001

To each of the Purchasers listed in
the attached Schedule A:

Ladies and Gentlemen:

Star Gas Partners, L.P., a Delaware limited partnership, Petro Holdings,
Inc., a Minnesota corporation, and Petroleum Heat and Power Co., Inc., a
Minnesota corporation (respectively, "Star Partners", "Petro Holdings" and the
"Company" and collectively, the "Constituent Companies"), agree with you as
follows:

Section 1.  Authorization of Notes.

(a)  The Company will authorize the issue and sale of $103,000,000
aggregate principal amount of its Senior Secured Notes, comprised of $73,000,000
8.05% Series A Senior Secured Notes due August 1, 2006 and $30,000,000 8.73%
Series B Senior Secured Notes due August 1, 2013 (respectively, the "Series A
Notes" and the "Series B Notes" and collectively, the "Notes," each such term to
include any such notes issued in substitution therefor pursuant to Section 13 of
this Agreement or the Other Agreements (as hereinafter defined)). The Notes
shall be substantially in the form set out in Exhibit 1(a), with such changes
therefrom, if any, as may be approved by you and the Company. Certain
capitalized terms used in this Agreement are defined in Schedule B; references
to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule
or an Exhibit attached to this Agreement.

(b)  Pursuant to the Intercreditor Agreement Joinder you and the Other
Purchasers will join into the Intercreditor Agreement.

(c)  Giving effect to the Intercreditor Agreement Joinder, the Notes will
be secured by (i) an Intercreditor and Trust Agreement substantially in the form
attached hereto as Exhibit 1(c)-1 (the "Original Intercreditor Agreement"), as
supplemented by the First Supplement dated as of October 1, 2000, substantially
in the form attached hereto as Exhibit 1(c)-2 (the "First Intercreditor
Agreement Supplement"), and by the Second Supplement

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

dated as of June 1, 2001, substantially in the form attached hereto as Exhibit
1(c)-3 (the "Second Intercreditor Agreement Supplement"; the Original
Intercreditor Agreement, as supplemented by the First Intercreditor Agreement
Supplement and the Second Intercreditor Agreement Supplement being hereinafter
referred to as the "Intercreditor Agreement"), securing the Notes, the 1999
Senior Notes, the 2000 Senior Notes, other Parity Debt and the Debt outstanding
under the Credit Agreement and (ii) the Security Documents referred to in the
Intercreditor Agreement.

(d)  Giving effect to the Intercreditor Agreement Joinder, the payment of
the Notes will be jointly and severally guaranteed by (i) Star Partners and
Petro Holdings (collectively, the "Parent Guarantors") under and pursuant to a
Guarantee Agreement, substantially in the form attached to the Original
Intercreditor Agreement as Exhibit A thereto, as amended by the First
Intercreditor Agreement Supplement (as so amended, the "Parent Guarantee
Agreement"), and (ii) the Subsidiaries of Petro Holdings (other than the
Company) (collectively, the "Subsidiary Guarantors"; the Subsidiary Guarantors
together with the Parent Guarantors being hereinafter referred to collectively
as the "Guarantors") under and pursuant to a Guarantee Agreement, substantially
in the form attached to the Original Intercreditor Agreement as Exhibit B, as
amended by the First Intercreditor Agreement Supplement (as so amended, the
"Subsidiary Guarantee Agreement"). The Subsidiary Guarantee Agreement and the
Parent Guarantee Agreement are hereinafter referred to collectively as the
"Guarantee Agreements".

(e)  The Constituent Companies will use their best efforts to cause the
Intercreditor Agreement and the Security Documents to be amended to make the
changes indicated by blacklining in Exhibit 1(e) hereto. If such amendments have
not been executed and delivered by all necessary parties to give them full force
and effect by February 1, 2002, the Company will on that date pay you a fee in
the amount of 0.25% of your commitment set forth in Schedule A hereto.

Section 2.  Sale and Purchase of Notes.

Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and you will purchase from the Company, at the Closing
provided for in Section 3, Notes of the Series and in the principal amount
specified opposite your name in Schedule A at the purchase price of 100% of the
principal amount thereof. Contemporaneously with entering into this Agreement,
the Company is entering into separate Note Purchase Agreements (the "Other
Agreements") identical with this Agreement with each of the other purchasers
named in Schedule A (the "Other Purchasers"), providing for the sale at such
Closing to each of the Other Purchasers of Notes in the principal amount and of
the Series specified opposite its name in Schedule A. Your obligation hereunder,
and the obligations of the Other Purchasers under the Other Agreements, are
several and not joint obligations, and you shall have no obligation under any
Other Agreement and no liability to any Person for the performance or
nonperformance by any Other Purchaser thereunder.

-2-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Section 3.  Closing.

The sale and purchase of the Notes to be purchased by you and the Other
Purchasers shall occur at the offices of Chapman and Cutler, 111 West Monroe
Street, Chicago, Illinois 60603 at 10:00 A.M. Chicago time, at a closing (the
"Closing") on August 13, 2001 or on such other Business Day thereafter on or
prior to August 31, 2001 as may be agreed upon by the Company and you and the
Other Purchasers. At the Closing the Company will deliver to you the Notes to be
purchased by you in the form of a single Note (or such greater number of Notes
in denominations of at least $200,000 or, if less, the aggregate amount of your
purchase, as you may request at least three Business Days prior to the Closing)
dated the date of the Closing and registered in your name (or in the name of
your nominee), against delivery by you to the Company or its order of
immediately available funds in the amount of the purchase price therefor by wire
transfer of immediately available funds to Petro, Inc., Chase Manhattan Bank,
Account #022-0-98571, ABA #021000021. If at the Closing the Company shall fail
to tender such Notes to you as provided above in this Section 3, or any of the
conditions specified in Section 4 shall not have been fulfilled to your
satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.

Section 4.  Conditions to Closing.

Your obligation to purchase and pay for the Notes to be sold to you at the
Closing is subject to the fulfillment to your satisfaction, prior to or at the
Closing, of the following conditions:

Section 4.1.  Representations and Warranties. The representations and
warranties of the Constituent Companies in this Agreement shall be correct when
made and at the time of the Closing.

Section 4.2.  Performance; No Default. Each Constituent Company shall have
performed and complied with all agreements and conditions contained in this
Agreement and the other Basic Documents to which it is a party required to be
performed or complied with by it prior to or at the Closing, and after giving
effect to the issue and sale of the Notes (and the application of the proceeds
thereof), no Default or Event of Default shall have occurred and be continuing.
None of the Constituent Companies nor any Subsidiary shall have entered into any
transactions since the date of the Memorandum that would have been prohibited by
Section 10 hereof had such Section applied since such date.

Section 4.3.  Basic Documents. The Basic Documents shall have been duly
executed and delivered by the parties thereto.

Section 4.4.  Security Documents. The Security Documents (or financing
statements or other notices with respect thereto) shall have been duly recorded
or filed for record in all public

-3-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

offices where such recording or filing is necessary to perfect the Lien and
security interest thereof as against creditors of and purchasers from the
grantors.

Section 4.5. Compliance Certificates.

(a)  Officer's Certificate. Each Constituent Company shall have delivered
to you an Officer's Certificate, dated the date of the Closing, certifying that
the conditions specified in Sections 4.1 through 4.4, both inclusive, and
Section 4.11 have been fulfilled.

(b)  Secretary's Certificate. Each Constituent Company and each Subsidiary
of Petro Holdings shall have delivered to you a certificate certifying as to the
resolutions attached thereto and other corporate proceedings relating to the
authorization, execution and delivery of the Basic Documents to which it is a
party.

Section 4.6.  Opinions of Counsel. You shall have received opinions in form
and substance satisfactory to you, dated the date of the Closing (a) from
Phillips Nizer Benjamin Krim & Ballon LLP, counsel for the Constituent
Companies, covering the matters set forth in Exhibit 4.6(a) and covering such
other matters incident to the transactions contemplated hereby as you or your
counsel may reasonably request (and the Constituent Companies hereby instruct
their counsel to deliver such opinion to you) and (b) from Chapman and Cutler,
your special counsel in connection with such transactions, substantially in the
form set forth in Exhibit 4.6(b) and covering such other matters incident to
such transactions as you may reasonably request.

Section 4.7.  Purchase Permitted by Applicable Law, etc. On the date of the
Closing your purchase of Notes shall (i) be permitted by the laws and
regulations of each jurisdiction to which you are subject, without recourse to
provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting
limited investments by insurance companies without restriction as to the
character of the particular investment, (ii) not violate any applicable law or
regulation (including, without limitation, Regulation T, U or X of the Board of
Governors of the Federal Reserve System) and (iii) not subject you to any tax,
penalty or liability under or pursuant to any applicable law or regulation,
which law or regulation was not in effect on the date hereof. If requested by
you, you shall have received an Officer's Certificate certifying as to such
matters of fact as you may reasonably specify to enable you to determine whether
such purchase is so permitted.

Section 4.8.  Sale of Other Notes. Contemporaneously with the Closing, the
Company shall sell to the Other Purchasers, and the Other Purchasers shall
purchase, the Notes to be purchased by them at the Closing as specified in
Schedule A.

Section 4.9.  Payment of Special Counsel Fees. Without limiting the provisions
of Section 15.1, the Company shall have paid on or before the Closing the fees,
charges and disbursements of your special counsel referred to in Section 4.6 to
the extent reflected in a

-4-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

statement of such counsel rendered to the Company at least one Business Day
prior to the Closing.

Section 4.10.  Private Placement Number. A Private Placement Number issued
by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities
Valuation Office of the National Association of Insurance Commissioners) shall
have been obtained for each Series of the Notes.

Section 4.11.  Changes in Corporate Structure. None of the Constituent
Companies shall have changed its jurisdiction of incorporation or been a party
to any merger or consolidation and shall not have succeeded to all or any
substantial part of the liabilities of any other entity, at any time following
the date of the most recent financial statements referred to in Schedule 5.5.

Section 4.12.  Related Transactions. Contemporaneously with the Closing,
the Meenan Acquisition shall have been consummated and the Star Partners Public
Offering shall have been consummated, and you shall have received an opinion
from special counsel for the Company to that effect.

Section 4.13.  Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
satisfactory to you and your special counsel, and you and your special counsel
shall have received all such counterpart originals or certified or other copies
of such documents as you or they may reasonably request.

Section 5.  Representations and Warranties of the Constituent Companies.

The Constituent Companies jointly and severally represent and warrant to
you that:

Section 5.1.   Organization; Power and Authority. Each Constituent Company
other than Star Partners is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation, and is
duly qualified as a foreign corporation and is in good standing in each
jurisdiction in which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in good standing
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Star Partners is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Each Constituent Company has the corporate or partnership power and authority to
own or hold under lease the properties it purports to own or hold under lease,
to transact the business it transacts and proposes to transact, to execute and
deliver the Basic Documents to which it is a party and to perform the provisions
hereof and thereof. Star Gas LLC is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the power and authority to perform its obligations as general partner of
Star Partners and Star Propane. Each representation and warranty made by any

-5-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Constituent Company in or pursuant to the Credit Agreement was true and correct
in all material respects when made.

Section 5.2. Authorization, etc. The Basic Documents to which it is a party
have been duly authorized by all necessary corporate or partnership action, as
applicable, on the part of each Constituent Company, and this Agreement
constitutes, and upon execution and delivery thereof each other Basic Document
to which it is a party will constitute, a legal, valid and binding obligation of
such Constituent Company enforceable against such Constituent Company in
accordance with its terms, except as such enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).

Section 5.3. Disclosure. The Company, through its agents, Banc of America
Securities, LLC and First Union Securities, Inc., has delivered to you and each
Other Purchaser a copy of a Confidential Private Placement Memorandum, dated
June, 2001 (the "Memorandum"), relating to the transactions contemplated hereby.
Taken as a whole, the Memorandum fairly describes, in all material respects, the
general nature of the business and principal properties of Star Partners and its
Subsidiaries and the transactions contemplated hereby. This Agreement, the other
Basic Documents, the Memorandum and the financial statements listed in Schedule
5.5, taken as a whole, do not contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were made. Since
September 30, 2000, there has been no change in the financial condition,
operations, business, properties or prospects of any Constituent Company or any
of its Subsidiaries except as set forth in the Memorandum and except changes
that individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect on such Constituent Company. There is no fact known to
any Constituent Company that could reasonably be expected to have a Material
Adverse Effect on such Constituent Company that has not been set forth herein or
in the Memorandum.

Section 5.4. Organization and Ownership of Shares of Subsidiaries;
Affiliates. (a) Schedule 5.4 contains (except as noted therein) complete and
correct lists (i) of Star Partners' Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its organization, and
the percentage of shares of each class of its capital stock or similar equity
interests outstanding owned by Star Partners and each other Subsidiary, (ii) of
Star Partners' Affiliates, other than Subsidiaries, and (iii) of each
Constituent Company's directors and senior officers.

(b) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in Schedule 5.4 as being owned by Star
Partners and its Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by Star Partners or another Subsidiary free and
clear of any Lien (except as otherwise disclosed in Schedule 5.4).

-6-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(c) Each Subsidiary of Star Partners identified in Schedule 5.4 is a
corporation or other legal entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and is duly
qualified as a foreign corporation or other legal entity and is in good standing
in each jurisdiction in which such qualification is required by law, other than
those jurisdictions as to which the failure to be so qualified or in good
standing could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on any Constituent Company. Each such Subsidiary
has the corporate or other power and authority to own or hold under lease the
properties it purports to own or hold under lease and to transact the business
it transacts and proposes to transact.

(d) No Subsidiary of Star Partners is a party to, or otherwise subject to,
any legal restriction or any agreement (other than this Agreement, the
agreements listed on Schedule 5.4 and customary limitations imposed by corporate
law statutes) restricting the ability of such Subsidiary to pay dividends out of
profits or make any other similar distributions of profits to the Company or any
of its Subsidiaries that owns outstanding shares of capital stock or similar
equity interests of such Subsidiary.

Section 5.5. Financial Statements. Each Constituent Company has delivered to
each Purchaser copies of the financial statements of such Constituent Company
and its Subsidiaries listed on Schedule 5.5. All of said financial statements
(including in each case the related schedules and notes) fairly present in all
material respects the consolidated financial position of such Constituent
Company and its Subsidiaries as of the respective dates specified in such
Schedule and the consolidated results of their operations and cash flows for the
respective periods so specified and have been prepared in accordance with GAAP
consistently applied throughout the periods involved except as set forth in the
notes thereto (subject, in the case of any interim financial statements, to
normal year-end adjustments).

Section 5.6. Compliance with Laws, Other Instruments, etc. The execution,
delivery and performance by each Constituent Company of the Basic Documents to
which it is a party will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect of
any property of such Constituent Company or any Subsidiary under, any indenture,
mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate
charter or by-laws, or any other agreement or instrument to which such
Constituent Company or any Subsidiary is bound or by which such Constituent
Company or any Subsidiary or any of their respective properties may be bound or
affected, (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to such Constituent Company or
any Subsidiary or (iii) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to such Constituent Company
or any Subsidiary.

Section 5.7. Governmental Authorizations, etc. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in

-7-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

connection with the execution, delivery or performance by any Constituent
Company of the Basic Documents to which it is a party.

Section 5.8.  Litigation; Observance of Agreements, Statutes and Orders. (a)
There are no actions, suits or proceedings pending or, to the knowledge of any
Constituent Company, threatened against or affecting such Constituent Company or
any Subsidiary or any property of such Constituent Company or any Subsidiary in
any court or before any arbitrator of any kind or before or by any Governmental
Authority that, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect on such Constituent Company.

(b) No Constituent Company nor any Subsidiary is in default under any term
of any agreement or instrument to which it is a party or by which it is bound,
or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on
such Constituent Company.

Section 5.9.  Taxes. Each Constituent Company and its Subsidiaries have filed
all tax returns that are required to have been filed in any jurisdiction, and
have paid all taxes shown to be due and payable on such returns and all other
taxes and assessments levied upon them or their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and payable
and before they have become delinquent, except for any taxes and assessments (i)
the amount of which is not individually or in the aggregate Material to such
Constituent Company or (ii) the amount, applicability or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which such Constituent Company or a Subsidiary, as the case may be,
has established adequate reserves in accordance with GAAP. No Constituent
Company knows of any basis for any other tax or assessment that could reasonably
be expected to have a Material Adverse Effect on such Constituent Company. The
charges, accruals and reserves on the books of each Constituent Company and its
Subsidiaries in respect of Federal, state or other taxes for all fiscal periods
are adequate. The Federal income tax liabilities of the Company and its
Subsidiaries have been determined by the Internal Revenue Service and paid for
all fiscal years up to and including the fiscal year ended December 31, 1992.

Section 5.10. Title to Property; Leases. Each Constituent Company and its
Subsidiaries have good and sufficient title to their respective properties,
including all such properties reflected in its most recent audited balance sheet
referred to in Section 5.5 or purported to have been acquired by such
Constituent Company or any Subsidiary after said date (except as sold or
otherwise disposed of in the ordinary course of business and except for title
defects which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on any Constituent Company), in each
case free and clear of Liens prohibited by this Agreement. All leases that
individually or in the aggregate are Material to any Constituent Company are
valid and subsisting and are in full force and effect in all Material respects.

-8-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Section 5.11. Licenses, Permits, etc. (a) Each Constituent Company and its
Subsidiaries own or possess all licenses, permits, franchises, authorizations,
patents, copyrights, service marks, trademarks and trade names, or rights
thereto, that individually or in the aggregate are Material to such Constituent
Company, without known conflict with the rights of others.

(b) To the best knowledge of each Constituent Company, no product of such
Constituent Company infringes in any Material respect any license, permit,
franchise, authorization, patent, copyright, service mark, trademark, trade name
or other right owned by any other Person.

(c) To the best knowledge of each Constituent Company, there is no Material
violation by any Person of any right of such Constituent Company or any of its
Subsidiaries with respect to any patent, copyright, service mark, trademark,
trade name or other right owned or used by such Constituent Company or any of
its Subsidiaries.

Section 5.12. Compliance with ERISA. (a) Each Constituent Company and each
ERISA Affiliate of such Constituent Company has operated and administered each
Plan in compliance with all applicable laws except for such instances of
noncompliance as have not resulted in and could not reasonably be expected to
result in a Material Adverse Effect on such Constituent Company. Neither any
Constituent Company nor any ERISA Affiliate of such Constituent Company has
incurred any liability pursuant to Title I or IV of ERISA or the penalty or
excise tax provisions of the Code relating to employee benefit plans (as defined
in section 3 of ERISA), and no event, transaction or condition has occurred or
exists that could reasonably be expected to result in the incurrence of any such
liability by such Constituent Company or any ERISA Affiliate, or in the
imposition of any Lien on any of the rights, properties or assets of such
Constituent Company or any ERISA Affiliate of such Constituent Company, in
either case pursuant to Title I or IV of ERISA or to such penalty or excise tax
provisions or to section 401(a)(29) or 412 of the Code, other than such
liabilities or Liens as would not be individually or in the aggregate Material
to such Constituent Company.

(b) The present value of the aggregate benefit liabilities under each of
the Plans (other than Multiemployer Plans), determined as of December 31, 1999
on the basis of the actuarial assumptions specified for funding purposes in such
Plan's most recent actuarial valuation report, did not exceed the aggregate
current value of the assets of such Plan allocable to such benefit liabilities
by more than $6,500,000 in the aggregate for all Plans. The term "benefit
liabilities" has the meaning specified in section 4001 of ERISA and the terms
"current value" and "present value" have the meanings specified in section 3 of
ERISA.

(c) Each Constituent Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material to such Constituent
Company.

-9-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(d) The expected post-retirement benefit obligation (determined as of the
last day of each Constituent Company's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106, without
regard to liabilities attributable to continuation coverage mandated by section
4980B of the Code) of such Constituent Company and its Subsidiaries is not
Material to such Constituent Company.

(e) The execution and delivery of the Basic Documents and the issuance and
sale of the Notes hereunder will not involve any transaction that is subject to
the prohibitions of section 406 of ERISA or in connection with which a tax could
be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation
by the Constituent Companies in the first sentence of this Section 5.12(e) is
made in reliance upon and subject to the accuracy of your representation in
Section 6.2 as to the sources of the funds used to pay the purchase price of the
Notes to be purchased by you.

Section 5.13. Private Offering by the Company. Neither the Company nor anyone
acting on its behalf has offered the Notes or any similar securities for sale
to, or solicited any offer to buy any of the same from, or otherwise approached
or negotiated in respect thereof with, any Person other than you, the Other
Purchasers and not more than 60 other Institutional Investors, each of which has
been offered the Notes at a private sale for investment. Neither the Company nor
anyone acting on its behalf has taken, or will take, any action that would
subject the issuance or sale of the Notes to the registration requirements of
Section 5 of the Securities Act.

Section 5.14. Use of Proceeds; Margin Regulations. The net proceeds from the
sale of the Notes will be used for corporate purposes. None of the transactions
contemplated in the Basic Documents (including, without limitation thereof, the
use of proceeds from the issuance of the Notes) will violate or result in a
violation of Section 7 of the Exchange Act or any regulation issued pursuant
thereto, including, without limitation, Regulations U, T and X of the Board of
Governors of the Federal Reserve System, 12 C.F.R., Chapter II. Neither the
Company nor any Subsidiary owns or intends to carry or purchase any "margin
stock" within the meaning of said Regulation U. None of the proceeds from the
sale of the Notes will be used to purchase, or refinance any borrowing, the
proceeds of which were used to purchase any "security" within the meaning of the
Exchange Act.

Section 5.15. Existing Indebtedness; Future Liens. (a) Schedule 5.15 sets
forth a complete and correct list of all outstanding Indebtedness of each
Constituent Company and its Subsidiaries as of June 30, 2001, since which date
there has been no Material change in the amounts, interest rates, sinking funds,
installment payments or maturities of the Indebtedness of any Constituent
Company or its Subsidiaries. Neither any Constituent Company nor any Subsidiary
is in default and no waiver of default is currently in effect, in the payment of
any principal or interest on any Indebtedness of any Constituent Company or any
Subsidiary and no event or condition exists with respect to any Indebtedness of
any Constituent Company or any Subsidiary that would permit (or that with notice
or the lapse of time, or both, would permit) one

-10-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

or more Persons to cause such Indebtedness to become due and payable before its
stated maturity or before its regularly scheduled dates of payment.

(b) Except as disclosed in Schedule 5.15, neither Petro Holdings nor
any Subsidiary has agreed or consented to cause or permit in the future (upon
the happening of a contingency or otherwise) any of its property, whether now
owned or hereafter acquired, to be subject to a Lien other than the Lien of the
Security Documents.

Section 5.16. Foreign Assets Control Regulations, etc. Neither the
sale of the Notes by the Company hereunder nor its use of the proceeds thereof
will violate the Trading with the Enemy Act, as amended, or any of the foreign
assets control regulations of the United States Treasury Department (31 CFR,
Subtitle B, Chapter V, as amended) or any enabling legislation or executive
order relating thereto.

Section 5.17. Status under Certain Statutes. Neither any Constituent
Company nor any Subsidiary is an "investment company" registered or required to
be registered under the Investment Company Act of 1940, as amended, or is
subject to regulation under the Public Utility Holding Company Act of 1935, as
amended, the ICC Termination Act of 1995, as amended, or the Federal Power Act,
as amended.

Section 5.18. Environmental Matters. Neither any Constituent Company
nor any of its Subsidiaries has knowledge of any claim or has received any
notice of any claim, and no proceeding has been instituted raising any claim
against any Constituent Company or any of its Subsidiaries or any of their
respective real properties now or formerly owned, leased or operated by any of
them or other assets, alleging any damage to the environment or violation of any
Environmental Laws, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect on any Constituent Company.
Without limiting the foregoing:

(a) neither any Constituent Company nor any of its
Subsidiaries has knowledge of any facts which would give rise to any
claim, public or private, of violation of Environmental Laws or damage
to the environment emanating from, occurring on or in any way related
to real properties now or formerly owned, leased or operated by any of
them or to other assets or their use, except, in each case, such as
could not reasonably be expected to result in a Material Adverse
Effect on any Constituent Company;

(b) neither any Constituent Company nor any of its
Subsidiaries has stored any Hazardous Materials on real properties now
or formerly owned, leased or operated by any of them or has disposed
of any Hazardous Materials in a manner contrary to any Environmental
Laws in each case in any manner that could reasonably be expected to
result in a Material Adverse Effect on any Constituent Company; and

(c) all buildings on all real properties now owned, leased
or operated by each Constituent Company or any of its Subsidiaries are
in compliance with applicable

-11-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Environmental Laws, except where failure to comply could not
reasonably be expected to result in a Material Adverse Effect on
such Constituent Company.

Section 5.19. Parity Debt. Upon delivery thereof the Notes will
constitute "Parity Debt" within the meaning of the Intercreditor Agreement and
the Security Documents, and you will be entitled to all rights and benefits of a
Secured Party under the Intercreditor Agreement and the Security Documents upon
your execution and delivery of the Intercreditor Agreement Joinder.

Section 6.     Representations of the Purchaser.

Section 6.1.  Purchase for Investment. You represent that you are
purchasing the Notes for your own account or for one or more separate accounts
maintained by you or for the account of one or more pension or trust funds and
not with a view to the distribution thereof, provided that the disposition of
your or their property shall at all times be within your or their control. You
understand that the Notes have not been registered under the Securities Act and
may be resold only if registered pursuant to the provisions of the Securities
Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required
by law, and that the Company is not required to register the Notes. You
acknowledge that the Company has no obligation hereunder or under any of the
other Basic Documents to register the Notes pursuant to the provisions of the
Securities Act.

Section 6.2.  Source of Funds. You represent that at least one of the
following statements is an accurate representation as to each source of funds (a
"Source") to be used by you to pay the purchase price of the Notes to be
purchased by you hereunder:

(a) the Source is an "insurance company general account"
within the meaning of Department of Labor Prohibited Transaction
Exemption ("PTE") 95-60 (issued July 12, 1995) and there is no
employee benefit plan, treating as a single plan all plans
maintained by the same employer or employee organization, with
respect to which the amount of the general account reserves and
liabilities for all contracts held by or on behalf of such plan,
exceeds 10% of the total reserves and liabilities of such general
account (exclusive of separate account liabilities) plus surplus,
as set forth in the NAIC Annual Statement filed with your state of
domicile; or

(b) the Source is either (i) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January
29, 1990), or (ii) a bank collective investment fund, within the
meaning of the PTE 91-38 (issued July 12, 1991) and, except as you
have disclosed to the Company in writing pursuant to this paragraph
(b), no employee benefit plan or group of plans maintained by the
same employer or employee organization beneficially owns more than
10% of all assets allocated to such pooled separate account or
collective investment fund; or

-12-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(c)    the Source constitutes assets of an "investment fund" (within
the meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of the
QPAM Exemption), no employee benefit plan's assets that are included in
such investment fund, when combined with the assets of all other employee
benefit plans established or maintained by the same employer or by an
affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of
such employer or by the same employee organization and managed by such
QPAM, exceed 20% of the total client assets managed by such QPAM, the
conditions of Part I(c) and (g) of the QPAM Exemption are satisfied,
neither the QPAM nor a Person controlling or controlled by the QPAM
(applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and (i) the identity
of such QPAM and (ii) the names of all employee benefit plans whose assets
are included in such investment fund have been disclosed to the Company in
writing pursuant to this paragraph (c); or

(d)    the Source is a governmental plan; or

(e)    the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee benefit
plans, each of which has been identified to the Company in writing pursuant
to this paragraph (e); or

(f)    the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.

If you or any subsequent transferee of the Notes indicates that you or such
transferee are relying on any representation contained in paragraph (b), (c) or
(e) above, the Company shall deliver on the date of Closing and on the date of
any applicable transfer a certificate, which shall either state that (i) it is
neither a party in interest nor a "disqualified person" (as defined in section
4975(e)(2) of the Code), with respect to any plan identified pursuant to
paragraphs (b) or (e) above, or (ii) with respect to any plan identified
pursuant to paragraph (c) above, neither it nor any "affiliate" (as defined in
Section V(c) of the QPAM Exemption) has at such time, and during the immediately
preceding one year, exercised the authority to appoint or terminate said QPAM as
manager of any plan identified in writing pursuant to paragraph (c) above or to
negotiate the terms of said QPAM's management agreement on behalf of any such
identified plan. As used in this Section 6.2, the terms "employee benefit plan",
"governmental plan", "party in interest" and "separate account" shall have the
respective meanings assigned to such terms in section 3 of ERISA.

Section 7.   Information as to Constituent Companies.

Section 7.1. Financial and Business Information. Each Constituent Company
shall deliver to each holder of Notes that is an Institutional Investor:

-13-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(a)  Quarterly Statements -- within 60 days after the end of each
quarterly fiscal period in each fiscal year of such Constituent Company
(other than the last quarterly fiscal period of each such fiscal year),
duplicate copies of:

(i)  consolidated (and in the case of Petro Holdings
consolidating) balance sheets of such Constituent Company and its
Subsidiaries as at the end of such quarter, and

(ii) consolidated (and in the case of Petro Holdings
consolidating) statements of income, changes in shareholders' or
partners' equity and cash flows of such Constituent Company and its
Subsidiaries for such quarter and (in the case of the second and third
quarters) for the portion of the fiscal year ending with such quarter,

setting forth in the case of each consolidated statement in comparative
form the figures for the corresponding periods in the previous fiscal
year, all in reasonable detail, prepared in accordance with GAAP
applicable to quarterly financial statements generally, and certified by a
Senior Financial Officer of such Constituent Company as fairly presenting,
in all material respects, the financial position of the companies being
reported on and their results of operations and cash flows, subject to
changes resulting from year-end adjustments, provided that delivery within
the time period specified above of copies of such Constituent Company's
Quarterly Report on Form 10-Q prepared in compliance with the requirements
therefor and filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this Section 7.1(a);

(b)  Annual Statements -- within 105 days after the end of each fiscal
year of such Constituent Company, duplicate copies of:

(i)  consolidated (and in the case of Petro Holdings
consolidating) balance sheets of such Constituent Company and its
Subsidiaries, as at the end of such year, and

(ii) consolidated (and in the case of Petro Holdings
consolidating) statements of income, changes in shareholders' or
partners' equity and cash flows of such Constituent Company and its
Subsidiaries, for such year,

setting forth in the case of each consolidated statement in comparative
form the figures for the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP, and accompanied by

(A)  an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall state
that such consolidated financial statements present fairly, in all
material respects, the financial position of

-14-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

the companies being reported upon and their results of operations and
cash flows and have been prepared in conformity with GAAP, and that
the examination of such accountants in connection with such
consolidated financial statements has been made in accordance with
generally accepted auditing standards, and that such audit provides a
reasonable basis for such opinion in the circumstances, and

(B) a certificate of such accountants stating that they have
reviewed this Agreement and stating further whether, in making their
audit, they have become aware of any condition or event that then
constitutes a Default or an Event of Default, and, if they are aware
that any such condition or event then exists, specifying the nature
and period of the existence thereof (it being understood that such
accountants shall not be liable, directly or indirectly, for any
failure to obtain knowledge of any Default or Event of Default unless
such accountants should have obtained knowledge thereof in making an
audit in accordance with generally accepted auditing standards or did
not make such an audit),

provided that the delivery within the time period specified above of such
Constituent Company's Annual Report on Form 10-K for such fiscal year
(together with such Constituent Company's annual report to shareholders,
if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared
in accordance with the requirements therefor and filed with the Securities
and Exchange Commission, together with the accountant's certificate
described in clause (B) above, shall be deemed to satisfy the requirements
of this Section 7.1(b);

(c) SEC and Other Reports -- promptly upon their becoming available,
one copy of (i) each financial statement, report, notice or proxy
statement sent by such Constituent Company or any Subsidiary to public
securities holders generally, and (ii) each regular or periodic report,
each registration statement (without exhibits except as expressly
requested by such holder), and each prospectus and all amendments thereto
filed by such Constituent Company or any Subsidiary with the Securities
and Exchange Commission and of all press releases and other statements
made available generally by such Constituent Company or any Subsidiary to
the public concerning developments that are Material to such Constituent
Company;

(d) Notice of Default or Event of Default -- promptly, and in any
event within five days after a Responsible Officer of such Constituent
Company becoming aware of the existence of any Default or Event of Default
or that any Person has given any notice or taken any action with respect
to a claimed default hereunder or that any Person has given any notice or
taken any action with respect to a claimed default of the type referred to
in Section 11(f), a written notice specifying the nature and period of
existence thereof and what action such Constituent Company is taking or
proposes to take with respect thereto;

-15-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(e)  ERISA Matters -- promptly, and in any event within five days
after a Responsible Officer of such Constituent Company becoming aware of
any of the following, a written notice setting forth the nature thereof
and the action, if any, that such Constituent Company or an ERISA
Affiliate of such Constituent Company proposes to take with respect
thereto:

(i)   with respect to any Plan, any reportable event, as defined
in section 4043(b) of ERISA and the regulations thereunder, for which
notice thereof has not been waived pursuant to such regulations as in
effect on the date hereof; or

(ii)  the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by such Constituent
Company or any ERISA Affiliate of such Constituent Company of a
notice from a Multiemployer Plan that such action has been taken by
the PBGC with respect to such Multiemployer Plan; or

(iii) any event, transaction or condition that could result in
the incurrence of any liability by such Constituent Company or any
ERISA Affiliate of such Constituent Company pursuant to Title I or IV
of ERISA or the penalty or excise tax provisions of the Code relating
to employee benefit plans, or in the imposition of any Lien on any of
the rights, properties or assets of such Constituent Company or any
ERISA Affiliate of such Constituent Company pursuant to Title I or IV
of ERISA or such penalty or excise tax provisions, if such liability
or Lien, taken together with any other such liabilities or Liens then
existing, could reasonably be expected to have a Material Adverse
Effect on such Constituent Company;

(f)  Notices from Governmental Authority -- promptly, and in any
event within 30 days of receipt thereof, copies of any notice to such
Constituent Company or any Subsidiary from any Federal or state
Governmental Authority relating to any order, ruling, statute or other law
or regulation that could reasonably be expected to have a Material Adverse
Effect on such Constituent Company; and

(g)  Requested Information -- with reasonable promptness, such other
data and information relating to the business, operations, affairs,
financial condition, assets or properties of such Constituent Company or
any of its Subsidiaries or relating to the ability of such Constituent
Company to perform its obligations under the Basic Documents to which such
Constituent Company is a party as from time to time may be reasonably
requested by any such holder of Notes.

-16-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Section 7.2. Officer's Certificate. Each set of financial statements
delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b)
hereof shall be accompanied by a certificate of a Senior Financial Officer of
such Constituent Company setting forth:

(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether (i) in the case of the
certificate of the Senior Financial Officer of Petro Holdings, whether
Petro Holdings was in compliance with the requirements of Section 10.1
hereof during the quarterly or annual period covered by the statements then
being furnished (including, where applicable, the calculations of the
maximum or minimum amount, ratio or percentage, as the case may be,
permissible under the terms of such Section, and the calculation of the
amount, ratio or percentage then in existence) and (ii) in the case of the
certificate of the Senior Financial Officer of Star Partners, whether Star
Partners was in compliance with the requirements of Section 10.2 hereof
during the quarterly or annual period covered by the statements then being
furnished (including, where applicable, the calculations of the maximum or
minimum amount, ratio or percentage, as the case may be, permissible under
the terms of such Section, and the calculation of the amount, ratio or
percentage then in existence); and

(b) Event of Default -- a statement that such officer has reviewed
the relevant terms hereof and has made, or caused to be made, under his or
her supervision, a review of the transactions and conditions of such
Constituent Company and its Subsidiaries from the beginning of the
quarterly or annual period covered by the statements then being furnished
to the date of the certificate and that such review shall not have
disclosed the existence during such period of any condition or event that
constitutes a Default or an Event of Default or, if any such condition or
event existed or exists (including, without limitation, any such event or
condition resulting from the failure of such Constituent Company or any
Subsidiary to comply with any Environmental Law), specifying the nature and
period of existence thereof and what action such Constituent Company shall
have taken or proposes to take with respect thereto.

Section 7.3. Inspection. Each Constituent Company shall permit the
representatives of each holder of Notes that is an Institutional Investor:

(a) No Default -- if no Default or Event of Default then exists,
at the expense of such holder and upon reasonable prior notice to such
Constituent Company, to visit the principal executive office of such
Constituent Company, to discuss the affairs, finances and accounts of such
Constituent Company and its Subsidiaries with the Company's officers, and
(with the consent of such Constituent Company, which consent will not be
unreasonably withheld) its independent public accountants, and (with the
consent of such Constituent Company, which consent will not be unreasonably
withheld) to visit the other offices and properties of such Constituent
Company and each Subsidiary, all at such reasonable times and as often as
may be reasonably requested in writing; and

-17-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(b)    Default -- if a Default or Event of Default then exists, at
the expense of such Constituent Company, to visit and inspect any of the
offices or properties of such Constituent Company or any Subsidiary, to
examine all their respective books of account, records, reports and other
papers, to make copies and extracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective officers
and independent public accountants (and by this provision such Constituent
Company authorizes said accountants to discuss the affairs, finances and
accounts of such Constituent Company and its Subsidiaries), all at such
times and as often as may be requested.

Section 8.   Prepayment of the Notes.

Section 8.1. Required Prepayments.

(a)   Series A Notes. The entire outstanding principal amount of the Series
A Notes shall be due on August 1, 2006. Except as set forth in Section 8.2, the
Series A Notes may not be prepaid prior to maturity at the option of the
Company.

(b)   Series B Notes. On August 1, 2009 and on the first day of each August
thereafter to and including August 1, 2012, the Company will prepay $6,000,000
principal amount (or such lesser principal amount as shall then be outstanding)
of the Series B Notes at par and without payment of the Make-Whole Amount or any
premium, provided that upon any partial prepayment of the Series B Notes
pursuant to Section 8.2 or 8.3 or purchase of the Series B Notes permitted by
Section 8.6, the principal amount of each required prepayment of the Series B
Notes becoming due under this Section 8.1 on and after the date of such
prepayment or purchase shall be reduced in the same proportion as the aggregate
unpaid principal amount of the Series B Notes is reduced as a result of such
prepayment or purchase.

Section 8.2. Optional Prepayments with Make-Whole Amount. The Company may,
at its option, upon notice as provided below, prepay at any time all, or from
time to time any part of, the Notes, in an amount not less than $1,000,000 or
such lesser principal amount of the Notes as may then be outstanding, at 100% of
the principal amount so prepaid, together with interest accrued thereon to the
date of such prepayment, plus the Make-Whole Amount determined for the
prepayment date with respect to such principal amount. The Company will give
each holder of Notes written notice of each optional prepayment under this
Section 8.2 not less than 30 days and not more than 60 days prior to the date
fixed for such prepayment. Each such notice shall specify such date, the
aggregate principal amount of the Notes to be prepaid on such date, the
principal amount of each Note held by such holder to be prepaid (determined in
accordance with Section 8.4), and the interest to be paid on the prepayment date
with respect to such principal amount being prepaid, and shall be accompanied by
a certificate of a Senior Financial Officer of the Company as to the estimated
Make-Whole Amount due in connection with such prepayment (calculated as if the
date of such notice were the date of the prepayment), setting forth the details
of such computation. Two Business Days prior to such prepayment, the Company
shall deliver

-18-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

to each holder of Notes a certificate of a Senior Financial Officer of the
Company specifying the calculation of such Make-Whole Amount as of the specified
prepayment date.

Section 8.3. Prepayment on Change of Control.

(a) Notice of Change in Control or Control Event. Each Constituent Company
will, within 15 days after such Constituent Company obtains knowledge of the
occurrence of any Change in Control or Control Event, give written notice of
such Change in Control or Control Event to each holder of Notes unless notice in
respect of such Change in Control (or the Change in Control contemplated by such
Control Event) shall have been given pursuant to subparagraph (b) of this
Section. If a Change in Control has occurred, any such notice from the Company
shall contain and constitute an offer to prepay Notes as described in
subparagraph (c) of this Section and shall be accompanied by the certificate
described in subparagraph (g) of this Section.

(b) Condition to Action. No Constituent Company will take any action that
consummates or finalizes a Change in Control unless (i) at least 60 days prior
to such action the Company shall have given to each holder of Notes written
notice containing and constituting an offer to prepay Notes as described in
subparagraph (c) of this Section, accompanied by the certificate described in
subparagraph (g) of this Section, and (ii) contemporaneously with such action,
the Company prepays all Notes required to be prepaid in accordance with this
Section.

(c) Offer To Prepay Notes. The offer to prepay Notes contemplated by
subparagraphs (a) and (b) of this Section shall be an offer to prepay, in
accordance with and subject to this Section, all, but not less than all, the
Notes held by each holder (in this case only, "holder" in respect of any Note
registered in the name of a nominee for a disclosed beneficial owner shall mean
such beneficial owner) on a date specified in such offer (the "Proposed
Prepayment Date"). If such Proposed Prepayment Date is in connection with an
offer contemplated by subparagraph (a) of this Section, such date shall be not
less than 30 days and not more than 90 days after the date of such offer.

(d) Acceptance. A holder of Notes may accept or reject the offer to prepay
made pursuant to this Section by causing a notice of such acceptance or
rejection to be delivered to the Company at least 15 days prior to the Proposed
Prepayment Date. A failure by a holder of Notes to timely respond to an offer to
prepay made pursuant to this Section shall be deemed to constitute an acceptance
of such offer by such holder.

(e) Prepayment. Prepayment of the Notes to be prepaid pursuant to this
Section shall be at 100% of the principal amount of such Notes, plus the
Make-Whole Amount determined for the date of prepayment with respect to such
principal amount, together with interest on such Notes accrued to the date of
prepayment. Two Business Days preceding the date of prepayment, the Company
shall deliver to each holder of the Notes being prepaid a statement showing the
Make-Whole Amount due in connection with such prepayment and setting forth the
details of the

-19-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

computation of such amount. The prepayment shall be made on the Proposed
Prepayment Date except as provided in subparagraph (f) of this Section.

(f)  Deferral Pending Change in Control. The obligation of the Company to
prepay Notes pursuant to the offers required by subparagraph (b) and accepted in
accordance with subparagraph (d) of this Section is subject to the occurrence of
the Change in Control in respect of which such offers and acceptances shall have
been made. In the event that such Change in Control does not occur on the
Proposed Prepayment Date in respect thereof, the prepayment shall be deferred
until and shall be made on the date on which such Change in Control occurs. Each
Constituent Company shall keep each holder of Notes reasonably and timely
informed of (i) any such deferral of the date of prepayment, (ii) the date on
which such Change in Control and the prepayment are expected to occur, and (iii)
any determination by such Constituent Company that efforts to effect such Change
in Control have ceased or been abandoned (in which case the offers and
acceptances made pursuant to this Section in respect of such Change in Control
shall be deemed rescinded). In the event of any such deferral, each holder of
Notes shall have the privilege by written notice to the Company of rescinding
its acceptance pursuant to paragraph (d) of this Section of the Company's offer
to prepay the Notes held by such holder.

(g)  Officer's Certificate. Each offer to prepay the Notes pursuant to this
Section shall be accompanied by a certificate, executed by the Chief Financial
Officer of the Company and dated the date of such offer, specifying: (i) the
Proposed Prepayment Date; (ii) that such offer is made pursuant to this Section
8.3, (iii) the principal amount of each Note offered to be prepaid; (iv) the
estimated Make-Whole Amount due in connection with such prepayment (calculated
as if the date of such notice were the date of prepayment), setting forth
details of such computation; (v) the interest that would be due on each Note
offered to be prepaid, accrued to the Proposed Prepayment Date; (vi) in
reasonable detail, the nature and date or proposed date of the Change in
Control; and (vii) that a failure to timely respond to an offer of prepayment
pursuant to this Section 8.3 shall be deemed to constitute an acceptance of such
offer.

(h)  "Change in Control" Defined. "Change in Control" means any of the
following events or circumstances:

(i)  any issue, sale or other disposition of shares of membership
interests in Star Gas LLC which results in the number of membership
interests entitled to vote for directors beneficially owned by the Sevin
Group being less than a majority of the issued and outstanding membership
interests entitled to vote for directors, other than a disposition of
membership interests to a testamentary trust, all beneficiaries of which
are members of the immediate family of a member of the Sevin Group and all
trustees of which are members of the Sevin Group and, under the terms of
the trust, have the power to vote such membership interests on all matters
as to which the holders of such membership interests have the power to
vote, so long as, giving effect to any such disposition, the Sevin Group
has beneficial ownership or voting control of a sufficient number of shares
of the membership interests in Star Gas LLC to entitle them to elect,

-20-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

and they do elect, at least the smallest number of directors that is
necessary to constitute a majority of the Board of Directors of Star Gas
LLC; or

(ii)  any event which results in Star Gas LLC failing to be the sole
general partner of Star Partners or Star Propane.

(i) "Control Event" Defined. "Control Event" means:

(i)   the execution by any Constituent Company or any of its
Subsidiaries or Affiliates of any agreement or letter of intent with
respect to any proposed transaction or event or series of transactions or
events which, individually or in the aggregate, may reasonably be expected
to result in a Change in Control,

(ii)  the execution of any written agreement which, when fully
performed by the parties thereto, would result in a Change in Control, or

(iii) the making of any written offer by any person (as such term is
used in section 13(d) and section 14(d)(2) of the Exchange Act as in effect
on the date of the Closing) or related persons constituting a group (as
such term is used in Rule 13d-5 under the Exchange Act as in effect on the
date of the Closing) to the holders of the common stock or other equity
interest of any Constituent Company or an Affiliate, which offer, if
accepted by the requisite number of holders, would result in a Change in
Control.

(j) "Sevin Group" Defined. "Sevin Group" means Audrey L. Sevin and Irik P.
Sevin and any trust over which such persons have the sole voting power.

Section 8.4. Allocation of Partial Prepayments. In the case of each partial
prepayment of the Notes (other than a prepayment pursuant to Section 8.3 or a
Debt Prepayment Application), the principal amount of the Notes to be prepaid
shall be allocated among all of the Notes of all Series at the time outstanding
in proportion, as nearly as practicable, to the respective unpaid principal
amounts thereof.

Section 8.5. Maturity; Surrender, etc. In the case of each prepayment of
Notes pursuant to this Section 8, the principal amount of each Note to be
prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such date
and the applicable Make-Whole Amount, if any. From and after such date, unless
the Company shall fail to pay such principal amount when so due and payable,
together with the interest and Make-Whole Amount, if any, as aforesaid, interest
on such principal amount shall cease to accrue. Any Note paid or prepaid in full
shall be surrendered to the Company and cancelled and shall not be reissued, and
no Note shall be issued in lieu of any prepaid principal amount of any Note.

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Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Section 8.6. Purchase of Notes. The Company will not and will not permit
any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or
indirectly, any of the outstanding Notes except (a) upon the payment or
prepayment of the Notes in accordance with the terms of this Agreement and the
Notes or (b) pursuant to an offer to purchase made by the Company or an
Affiliate pro rata to the holders of all Notes at the time outstanding upon the
same terms and conditions. Any such offer shall provide each holder with
sufficient information to enable it to make an informed decision with respect to
such offer, and shall remain open for at least 30 Business Days. If the holders
of 25% or more of the principal amount of the Notes then outstanding accept such
offer, the Company shall promptly notify the remaining holders of the Notes of
such fact and the expiration date for the acceptance by such holders shall be
extended by the number of days necessary to give each such remaining holder at
least 10 Business Days from its receipt of such notice to accept such offer. The
Company will promptly cancel all Notes acquired by it or any Affiliate pursuant
to any payment, prepayment or purchase of Notes pursuant to any provision of
this Agreement and no Notes may be issued in substitution or exchange for any
such Notes.

Section 8.7. Make-Whole Amount. The term "Make-Whole Amount" means, with
respect to any Note, an amount equal to the excess, if any, of the Discounted
Value of the Remaining Scheduled Payments with respect to the Called Principal
of such Note over the amount of such Called Principal, provided that the
Make-Whole Amount may in no event be less than zero. For the purposes of
determining the Make-Whole Amount, the following terms have the following
meanings:

"Called Principal" means, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to Section 8.2 or 8.3 or has
become or is declared to be immediately due and payable pursuant to Section
12.1, as the context requires.

"Discounted Value" means, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due
dates to the Settlement Date with respect to such Called Principal, in
accordance with accepted financial practice and at a discount factor
(applied on the same periodic basis as that on which interest on the Notes
is payable) equal to the Reinvestment Yield with respect to such Called
Principal.

"Reinvestment Yield" means, with respect to the Called Principal of
any Note, 0.5% over the yield to maturity implied by (i) the yields
reported, as of 10:00 A.M. (New York City time) on the second Business Day
preceding the Settlement Date with respect to such Called Principal, on the
display designated as "Page PX1" on the Bloomberg Financial Markets
Services Screen (or such other display as may replace Page PX1 on the
Bloomberg Financial Markets Services Screen) for actively traded U.S.
Treasury securities having a maturity equal to the Remaining Average Life
of such Called Principal as of such Settlement Date, or (ii) if such yields
are not reported as of such time or the yields reported as of such time are
not ascertainable, the Treasury Constant Maturity

-22-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Series Yields reported, for the latest day for which such yields have been
so reported as of the second Business Day preceding the Settlement Date
with respect to such Called Principal, in Federal Reserve Statistical
Release H.15 (519) (or any comparable successor publication) for actively
traded U.S. Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date.
Such implied yield will be determined, if necessary, by (a) converting U.S.
Treasury bill quotations to bond-equivalent yields in accordance with
accepted financial practice and (b) interpolating linearly between (1) the
actively traded U.S. Treasury security with the constant maturity closest
to and greater than the Remaining Average Life and (2) the actively traded
U.S. Treasury security with the constant maturity closest to and less than
the Remaining Average Life.

"Remaining Average Life" means, with respect to any Called Principal,
the number of years obtained by dividing (i) such Called Principal into
(ii) the sum of the products obtained by multiplying (a) the principal
component of such Remaining Scheduled Payment with respect to such Called
Principal by (b) the number of years that will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due
date of such Remaining Scheduled Payment.

"Remaining Scheduled Payments" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to
its scheduled due date, provided that if such Settlement Date is not a date
on which interest payments are due to be made under the terms of the Notes,
then the amount of the next succeeding scheduled interest payment will be
reduced by the amount of interest accrued to such Settlement Date and
required to be paid on such Settlement Date pursuant to Section 8.2, 8.3 or
12.1.

"Settlement Date" means, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
Section 8.2 or 8.3 or has become or is declared to be immediately due and
payable pursuant to Section 12.1, as the context requires.

Section 9. Affirmative Covenants.

Star Partners covenants that so long as any of the Notes is outstanding:

Section 9.1. Compliance with Law. Star Partners will, and will cause each
of its Subsidiaries to, comply with all laws, ordinances or governmental rules
or regulations to which they are respectively subject, including, without
limitation, Environmental Laws, and will obtain and maintain in effect all
licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties or to
the conduct of their respective businesses, in each case to the extent necessary
to ensure that non-compliance with

-23-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

such laws, ordinances or governmental rules or regulations or failures to obtain
or maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on any Constituent
Company.

Section 9.2. Insurance. Star Partners will, and will cause each of its
Subsidiaries to, maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses against
such casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance, if adequate
reserves are maintained with respect thereto) as is customary in the case of
entities of established reputations engaged in the same or a similar business
and similarly situated.

Section 9.3. Maintenance of Properties. Star Partners will, and will cause
each of its Subsidiaries to, maintain and keep, or cause to be maintained and
kept, their respective properties in good repair, working order and condition
(other than ordinary wear and tear), so that the business carried on in
connection therewith may be properly conducted at all times, provided that this
Section shall not prevent Star Partners or any Subsidiary from discontinuing the
operation and the maintenance of any of its properties if such discontinuance is
desirable in the conduct of its business and Star Partners has concluded that
such discontinuance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on any Constituent Company.

Section 9.4. Payment of Taxes and Claims. Star Partners will, and will
cause each of its Subsidiaries to, file all tax returns required to be filed in
any jurisdiction and to pay and discharge all taxes shown to be due and payable
on such returns and all other taxes, assessments, governmental charges, or
levies imposed on them or any of their respective properties, assets, income or
franchises, to the extent such taxes and assessments have become due and payable
and before they have become delinquent and all claims for which sums have become
due and payable that have or might become a Lien on properties or assets of Star
Partners or any Subsidiary, provided that neither Star Partners nor any
Subsidiary need pay any such tax or assessment or claims if (i) the amount,
applicability or validity thereof is contested by Star Partners or such
Subsidiary on a timely basis in good faith and in appropriate proceedings, and
Star Partners or such Subsidiary has established adequate reserves therefor in
accordance with GAAP on the books of Star Partners or such Subsidiary or (ii)
the nonpayment of all such taxes and assessments in the aggregate could not
reasonably be expected to have a Material Adverse Effect on any Constituent
Company.

Section 9.5. Corporate Existence, etc. Star Partners will at all times
preserve and keep in full force and effect its partnership existence. Star
Partners will at all times preserve and keep in full force and effect the
corporate or partnership existence, as applicable, of each of its Subsidiaries
and all rights and franchises of Star Partners and its Subsidiaries unless, in
the good faith judgment of Star Partners, the termination of or failure to
preserve and keep in full force and effect such corporate existence, right or
franchise could not, individually or in the aggregate,

-24-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

have a Material Adverse Effect on any Constituent Company. Star Partners will in
all events preserve and keep in full force and effect the corporate existence of
the Company and Petro Holdings, except that nothing in this Section 9.5 or
Section 9.6 shall be deemed to preclude a merger of the Company into Petro
Holdings so long as, giving effect thereto, no Default or Event of Default shall
have occurred and be continuing.

Section 9.6. Maintenance of Ownership of Petro Holdings and the Company.
Star Partners will at all times preserve and maintain its beneficial ownership,
directly or indirectly, of all of the issued and outstanding capital stock of
Petro Holdings, free of all Liens, and Petro Holdings will at all times preserve
and maintain its beneficial ownership of at least 99% of the issued and
outstanding capital stock of the Company, free of all Liens.

Section 9.7. Maintenance of a Rating of the Notes. Star Partners will cause
a rating of the Notes at all times to be maintained in effect by Fitch IBCA,
Inc., or another nationally recognized securities rating organization that has
not been objected to by the Required Holders of any Series.

Section 10.   Negative Covenants.

Section 10.1. Petro Holdings and its Subsidiaries.

Section 10.1.1. Line of Business. Petro Holdings will not, and will not
permit any of its Subsidiaries to, engage in any business if, as a result, the
general nature of the business in which Petro Holdings and its Subsidiaries,
taken as a whole, would then be engaged would be substantially changed from the
general nature of the business in which Petro Holdings and its Subsidiaries,
taken as a whole, are engaged, as described in the Memorandum.

Section 10.1.2. Incurrence of Debt. (a) Neither Petro Holdings nor the
Company will, directly or indirectly, create, incur, assume, guarantee, or
otherwise become directly or indirectly liable with respect to, any Debt, other
than

(i)  Debt of the Company under the Working Capital Facility, so long
as (x) amounts outstanding thereunder do not exceed, at any time, the
lesser of (1) 85% of eligible accounts receivable and (2) $123,000,000, and
(y) there shall have been during the immediately preceding 365 days a
period of at least 45 consecutive days on which there shall have been no
Debt outstanding under the Working Capital Facility;

(ii) Debt of the Company or Petro Holdings issued in exchange for, or
all of the proceeds of which are used to refinance, any outstanding Debt
provided that (x) the principal amount of such Debt shall not exceed the
principal amount of the Debt so exchanged or refinanced, (y) such Debt (1)
shall not mature prior to the stated maturity of the Debt so exchanged or
refinanced and (2) shall have a Weighted Average Life to Maturity equal to
or greater than the remaining Weighted Average Life to Maturity of the

-25-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Debt so exchanged or refinanced, and (z) if the Debt so exchanged or
refinanced is subordinate in ranking to the Notes, such new Debt shall also
be subordinate to the Notes;

(iii) the undrawn balance of the Letter of Credit Facility;

(iv)  Debt of Petro Holdings under the Parent Guarantee Agreement
relating to the Credit Agreement, the 1999 Senior Notes, the 2000 Senior
Notes, the Notes and any other Parity Debt; and

(v)   Debt of the Company or Petro Holdings in addition to that
permitted under clauses (i) through (iv) above, provided that on the date
the Company or Petro Holdings becomes liable with respect to any such Debt
and immediately after giving effect thereto and the concurrent retirement
of any other Debt,

(x) the ratio of Consolidated Pro Forma Total Debt to
Consolidated Pro Forma Operating Cash Flow for the Four-Quarter Period
then most recently ended at least 30 days prior to the date of
determination would not exceed 4.5 to 1.0,

(y) the ratio of Consolidated Pro Forma Operating Cash Flow to
Consolidated Pro Forma Interest Expense is at least 2.25 to 1.0 for
the Four-Quarter Period then most recently ended at least 30 days
prior to the date of determination, and

(z) no Default or Event of Default exists.

(b) Petro Holdings will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, or otherwise become directly or
indirectly liable with respect to any Debt other than; (v) Debt of Subsidiaries
of Petro Holdings ratably guaranteeing the Notes, the Credit Agreement, the 1999
Senior Notes, the 2000 Senior Notes and any other Parity Debt; (w) Debt owing to
Petro Holdings or one of its Wholly-Owned Subsidiaries; (x) Debt secured by
Liens permitted pursuant to the provisions of Section 10.1.3; (y) Debt of the
Company permitted by Section 10.1.2(a) hereof and (z) Debt in addition to that
permitted by the foregoing clauses (v) through (y), provided that on the date
such Subsidiary becomes liable with respect to any such Debt and immediately
after giving effect thereto and the concurrent retirement of any other Debt,
Priority Debt does not exceed 5% of Consolidated Total Assets of Petro Holdings.

Section 10.1.3. Liens. Petro Holdings will not, and will not permit any of
its Subsidiaries to, directly or indirectly create, incur, assume or permit to
exist (upon the happening of a contingency or otherwise) any Lien on or with
respect to any property or asset (including, without limitation, any document or
instrument in respect of goods or accounts receivable) of Petro Holdings or any
such Subsidiary, whether now owned or held or hereafter acquired, or any

-26-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

income or profits therefrom, or assign or otherwise convey any right to receive
income or profits, except:

(a) any Lien existing on property of a Person immediately prior to its
being consolidated with or merged into Petro Holdings or a Subsidiary or
its becoming a Subsidiary, or any Lien existing on any property acquired by
Petro Holdings or any Subsidiary at the time such property is so acquired
(whether or not the Debt secured thereby shall have been assumed), provided
that (i) no such Lien shall have been created or assumed in contemplation
of such consolidation or merger or such Person's becoming a Subsidiary or
such acquisition of property, and (ii) each such Lien shall extend solely
to the item or items of property so acquired and, if required by the terms
of the instrument originally creating such Lien, other property which is an
improvement to or is acquired for specific use in connection with such
acquired property;

(b) any Lien created to secure all or any part of the purchase price,
or to secure Debt incurred or assumed to pay all or any part of the
purchase price or cost of construction, of property (or any improvement
thereon) acquired or constructed by Petro Holdings or a Subsidiary after
the date of the Closing, provided that

(i)   any such Lien shall extend solely to the item or items of
such property (or improvement thereon) so acquired or constructed and,
if required by the terms of the instrument originally creating such
Lien, other property (or improvement thereon) which is an improvement
to or is acquired for specific use in connection with such acquired or
constructed property (or improvement thereon) or which is real
property being improved by such acquired or constructed property (or
improvement thereon),

(ii)  the principal amount of the Debt secured by any such Lien
shall at no time exceed an amount equal to the lesser of (x) the cost
to Petro Holdings or such Subsidiary of the property (or improvement
thereon) so acquired or constructed and (y) the Fair Market Value (as
determined in good faith by the board of directors of Petro Holdings)
of such property (or improvement thereon) at the time of such
acquisition or construction, and

(iii) any such Lien shall be created contemporaneously with, or
within 180 days after, the acquisition or construction of such
property;

(c) Liens on property or assets of any of Petro Holdings' Subsidiaries
securing Debt owing to Petro Holdings or to any of its Wholly-Owned
Subsidiaries;

(d) utility deposits and pledges in connection with workers'
compensation insurance, unemployment insurance and other insurance
coverages required by law;

-27-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(e) any attachment or judgment Lien, unless the judgment it secures
shall not, within 30 days after the entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall not have been discharged
within 30 days after the expiration of any such stay;

(f) Liens for taxes, assessments or other governmental charges which
are not yet due and payable or the payment of which is not at the time
required by Section 9.4;

(g) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other similar Liens, in each case, incurred in
the ordinary course of business for sums not yet due and payable or the
payment of which is not at the time required by Section 9.4;

(h) Liens existing on the date of this Agreement and securing the Debt
of the Company referred to in item 7 of Schedule 5.15;

(i) any Lien renewing, extending or refunding any Lien permitted by
paragraphs (a), (b) or (h) of this Section 10.1.3, provided that (i) the
principal amount of Debt secured by such Lien immediately prior to such
extension, renewal or refunding is not increased or the maturity thereof
reduced, (ii) such Lien is not extended to any other property, and (iii)
immediately after such extension, renewal or refunding no Default or Event
of Default would exist;

(j) any Lien on personal property subject to a lease under which Petro
Holdings or any of its Subsidiaries is lessee and none of Petro Holdings or
its Subsidiaries is lessor, provided that such lease is not (i) a Capital
Lease or (ii) a lease of property of which the lessee claims ownership for
federal income tax purposes;

(k) other Liens not otherwise permitted by paragraphs (a) through (j),
provided that on the date Petro Holdings or such Subsidiary becomes liable
with respect to any such Debt and immediately after giving effect to the
Debt secured by such Liens and the application of the proceeds thereof and
the concurrent retirement of any other Debt, Priority Debt does not exceed
5% of Consolidated Total Assets of Petro Holdings; and

(l) the Lien of the Security Documents.

Section 10.1.4. Restricted Payments and Restricted Investments.

(a) Limitation. Petro Holdings will not declare, make or incur any
liability to make any Restricted Payment, and Petro Holdings will not, and will
not permit any of its Subsidiaries to, make or authorize any Restricted
Investment unless immediately after giving effect to such action:

-28-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(i)   the ratio of Consolidated Operating Cash Flow to Consolidated
Interest Expense of Petro Holdings is greater than 1.75 to 1.0 for its
Four-Quarter Period then most recently ended;

(ii)  the sum of (x) the aggregate value of all Restricted Investments
of Petro Holdings and its Subsidiaries (valued immediately after such
action), plus (y) the aggregate amount of (1) Restricted Payments of Petro
Holdings and its Subsidiaries declared or made during the period commencing
on January 1, 1999, and ending on the date such Restricted Payment or
Restricted Investment is declared or made, inclusive, (2) capital
expenditures of Petro Holdings and its Subsidiaries, other than capital
expenditures relating to the acquisition of a business entity or assets
comprising a line of business of a business entity, during the period
commencing on January 1, 1999, and ending with the fiscal quarter of the
Company then most recently ended, (3) Consolidated Interest Expense
incurred by Petro Holdings and its Subsidiaries and cash income taxes paid
by Petro Holdings and its Subsidiaries (excluding so much of taxes arising
from the Restructuring Transactions as shall not exceed $10,000,000 in the
aggregate), in each case, during the period commencing on January 1, 1999,
and ending with the fiscal quarter of the Company then most recently ended,
would not exceed the sum of

(A) $15,000,000, plus

(B) Consolidated Operating Cash Flow of Petro Holdings, for the
period commencing on January 1, 1999, and ending with the fiscal
quarter of the Company then most recently ended, plus

(C) the aggregate amount of Net Proceeds of capital stock during
the period commencing on January 1, 1999, and ending on the date such
Restricted Payment or Restricted Investment is declared or made,
inclusive, other than the Net Proceeds of capital stock issued in
connection with or on or before the closing of the Restructuring
Transactions; and

(iii) no Default or Event of Default would exist.

(b) Time of Payment. Petro Holdings will not, nor will it permit any of its
Subsidiaries to, authorize a Restricted Payment that is not payable within 60
days of authorization, but Petro Holdings or its Subsidiaries shall be permitted
to make a Restricted Payment that was permitted under paragraph (a) of this
Section at the time of its declaration notwithstanding that it would not be
permitted to be declared on the date of payment.

Section 10.1.5. No Limitation on Dividends by Subsidiaries. Petro Holdings
will not, and will not permit any of its Subsidiaries (other than the Company)
to, enter into any agreement which would restrict such Subsidiary's ability or
right to (i) pay dividends or make any other distributions on its capital stock
or any other equity interest or participation in its profits which

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

are owned by or owed to Petro Holdings or any Subsidiary of Petro Holdings or
pay any Indebtedness owed to Petro Holdings or any of its Subsidiaries; (ii)
make loans or advances to Petro Holdings or to any of its Subsidiaries; or (iii)
transfer any of its properties or assets to Petro Holdings or its Subsidiaries
except for such restrictions existing under or by reason of (v) applicable law,
(w) any instrument governing Debt of a Person acquired by Petro Holdings or any
of its Subsidiaries outstanding at the time of such acquisition (other than
Indebtedness issued in contemplation of, as consideration for, or to provide all
or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such Subsidiary
became a Subsidiary), (x) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of Petro Holdings or any
of its Subsidiaries, (y) customary restrictions on dispositions of real property
interests or so-called "due on sale" clauses found in mortgages of Petro
Holdings or any of its Subsidiaries, and (z) any agreement for the sale or
disposition of a Subsidiary that restricts distributions by such Subsidiary
pending such sale or other disposition.

Section 10.1.6. Sale of Assets, etc. Except as permitted under Section
10.1.7 Petro Holdings will not, and will not permit any of its Subsidiaries to,
make any Asset Disposition unless:

(a) in the good faith opinion of Petro Holdings, the Asset Disposition
is in exchange for consideration having a Fair Market Value at least equal
to that of the property exchanged and is in the best interest of Petro
Holdings;

(b) immediately after giving effect to the Asset Disposition, no
Default or Event of Default would exist; and

(c) immediately after giving effect to the Asset Disposition, the
Disposition Value of all property that was the subject of any Asset
Disposition occurring in the then current fiscal year of Petro Holdings
would not exceed 10% of Consolidated Total Assets as of the end of the then
most recently ended fiscal year of Petro Holdings.

If the Net Proceeds Amount for any Transfer is applied to a Debt Prepayment
Application or a Property Reinvestment Application within 180 days after such
Transfer, then such Transfer, only for the purpose of determining compliance
with subsection (c) of this Section as of any date, shall be deemed not to be an
Asset Disposition.

Section 10.1.7. Merger, Consolidation, etc. Petro Holdings will not, and
will not permit any of its Subsidiaries to, consolidate or merge with any other
corporation or convey, transfer or lease substantially all of its assets in a
single transaction or series of transactions to any Person (except that a
Subsidiary of Petro Holdings other than the Company may (i) consolidate with or
merge with, or convey, transfer or lease substantially all of its assets in a
single transaction or series of transactions to, Petro Holdings or another
Wholly-Owned Subsidiary of Petro Holdings and (ii) convey, transfer or lease all
of its assets in compliance with the provisions of

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Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Section 10.1.6), provided that the foregoing restriction does not apply to the
consolidation or merger of Petro Holdings or the Company (as the case may be,
the "Predecessor Corporation") with, or the conveyance, transfer or lease of
substantially all of the assets of the Predecessor Corporation in a single
transaction or series of transactions to, any Person so long as:

(a) the successor formed by such consolidation or the survivor of such
merger or the Person that acquires by conveyance, transfer or lease
substantially all of the assets of the Predecessor Corporation as an
entirety, as the case may be (the "Successor Corporation"), shall be (i) a
solvent corporation that is organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
(ii) a Wholly-Owned Subsidiary of Star Partners;

(b) if the Predecessor Corporation is not the Successor Corporation,
(i) the Successor Corporation shall have executed and delivered to each
holder of Notes its assumption of the due and punctual performance and
observance of each covenant and condition of this Agreement, the Other
Agreements, the Notes and the other Basic Documents to which the
Predecessor Corporation is a party, and (ii) Star Partners (and, if the
Predecessor Corporation is the Company, Petro Holdings) shall have executed
and delivered to each holder of Notes its affirmation of its obligation
under the Parent Guarantee Agreement, in each case (pursuant to such
agreements and instruments as shall be reasonably satisfactory to the
Required Holders of each Series), and the Company shall have caused to be
delivered to each holder of Notes an opinion of nationally recognized
independent counsel, or other independent counsel reasonably satisfactory
to the Required Holders of each Series, to the effect that all agreements
or instruments effecting such assumption and affirmation are enforceable in
accordance with their terms and comply with the terms hereof;

(c) if the Predecessor Corporation is Petro Holdings, the Successor
Corporation shall have Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of Petro Holdings immediately prior to such
consolidation or merger;

(d) if the Predecessor Corporation is Petro Holdings, Petro Holdings
shall have delivered to the holders of the Notes satisfactory evidence
that, giving effect to the consummation of such consolidation or merger,
the Notes will be accorded a rating of "BBB" or better by Fitch IBCA, Inc.
or another rating agency designated by the Company and not objected to by
the Required Holders of any Series; and

(e) immediately after giving effect to such transaction:

(i) no Default or Event of Default would exist, and

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Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(ii) the Successor Corporation would be permitted by the
provisions of Section 10.1.2(a)(v) hereof to incur at least $1.00 of
additional Debt owing to a Person other than a Subsidiary of the
Successor Corporation.

No such conveyance, transfer or lease of substantially all of the assets of a
Predecessor Corporation shall have the effect of releasing such Predecessor
Corporation or any Successor Corporation from its liability under this Agreement
or the Notes.

Section 10.1.8. Transactions with Affiliates. Petro Holdings will not and
will not permit any of its Subsidiaries to enter into directly or indirectly any
transaction (including without limitation the purchase, lease, sale or exchange
of properties of any kind or the rendering of any service) with any Affiliate
(other than Petro Holdings or another of its Wholly-Owned Subsidiaries), except
in the ordinary course and pursuant to the reasonable requirements of Petro
Holding's or such Subsidiary's business and upon fair and reasonable terms no
less favorable to Petro Holdings or such Subsidiary than would be obtainable in
a comparable arm's-length transaction with a Person not an Affiliate.

Section 10.2.   Star Partners and its Subsidiaries.

Section 10.2.1. Restricted Payments and Restricted Investments.

(a) Limitation. Star Partners will not declare, make or incur any liability
to make any Restricted Payment, and Star Partners will not, and will not permit
any of its Subsidiaries to, make or authorize any Restricted Investment unless
immediately after giving effect to such action:

(i)  the ratio of Consolidated Operating Cash Flow to Consolidated
Interest Expense of Star Partners is greater than 1.75 to 1.0 for its
Four-Quarter Period then most recently ended; and

(ii) no Default or Event of Default would exist.

(b) Time of Payment. Star Partners will not, nor will it permit any of its
Subsidiaries to, authorize a Restricted Payment that is not payable within 60
days of authorization, but Star Partners or its Subsidiaries shall be permitted
to make a Restricted Payment that was permitted under paragraph (a) of this
Section at the time of its declaration notwithstanding that it would not be
permitted to be declared on the date of payment.

Section 10.2.2. Merger, Consolidation, etc. Star Partners will not
consolidate or merge with any other corporation or convey, transfer or lease
substantially all of its assets in a single transaction or series of
transactions to any Person, provided that the foregoing restriction does not
apply to the consolidation or merger of Star Partners with, or the conveyance,
transfer or

-32-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

lease of substantially all of the assets of Star Partners in a single
transaction or series of transactions to, any Person so long as:

(a) the successor formed by such consolidation or the survivor of such
merger or the Person that acquires by conveyance, transfer or lease
substantially all of the assets of Star Partners as an entirety, as the
case may be (the "Successor Entity"), shall be a solvent corporation or
limited partnership that is organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia;

(b) if Star Partners is not the Successor Entity, such Person shall
have executed and delivered to each holder of Notes its assumption of the
due and punctual performance and observance of each covenant and condition
of this Agreement, the Other Agreements, the Parent Guarantee Agreement and
the other Basic Documents to which Star Partners is a party (pursuant to
such agreements and instruments as shall be reasonably satisfactory to the
Required Holders of each Series), and Star Partners shall have caused to be
delivered to each holder of Notes an opinion of nationally recognized
independent counsel, or other independent counsel reasonably satisfactory
to the Required Holders of each Series, to the effect that all agreements
or instruments effecting such assumption are enforceable in accordance with
their terms and comply with the terms hereof;

(c) immediately after giving effect to such transaction no Default or
Event of Default would exist.

No such conveyance, transfer or lease of substantially all of the assets of Star
Partners shall have the effect of releasing Star Partners or any Successor
Entity from its liability under this Agreement or the Parent Guarantee
Agreement.

Section 11.   Events of Default.

An "Event of Default" shall exist if any of the following conditions or
events shall occur and be continuing:

(a) the Company defaults in the payment of any principal or Make-Whole
Amount, if any, on any Note when the same becomes due and payable, whether
at maturity or at a date fixed for prepayment or by declaration or
otherwise; or

(b) the Company defaults in the payment of any interest on any Note
for more than five Business Days after the same becomes due and payable; or

(c) Petro Holdings defaults in the performance of or compliance with
any term contained in Section 10.1 or Star Partners defaults in the
performance of or compliance with any term contained in Section 10.2; or

-33-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(d) any Constituent Company defaults in the performance of or
compliance with any term contained herein (other than those referred to in
paragraphs (a), (b) and (c) of this Section 11) or any other Basic Document
to which such Constituent Company is a party and such default is not
remedied within 30 days after the earlier of (i) a Responsible Officer of
such Constituent Company obtaining actual knowledge of such default and
(ii) such Constituent Company receiving written notice of such default from
any holder of a Note; or

(e) any representation or warranty made in writing by or on behalf of
any Constituent Company or by any officer of any Constituent Company in any
Basic Document or in any writing furnished in connection with the
transactions contemplated hereby proves to have been false or incorrect in
any material respect on the date as of which made; or

(f) (i) Star Partners or any Subsidiary is in default (as principal or
as guarantor or other surety) in the payment of any principal of or premium
or make-whole amount or interest on any Indebtedness that is outstanding in
an aggregate principal amount of at least $2,000,000 beyond any period of
grace provided with respect thereto, or (ii) Star Partners or any
Subsidiary is in default in the performance of or compliance with any term
of any evidence of any Indebtedness in an aggregate outstanding principal
amount of at least $2,000,000 or of any mortgage, indenture or other
agreement relating thereto or any other condition exists, and as a
consequence of such default or condition such Indebtedness has become, or
has been declared (or one or more Persons are entitled to declare such
Indebtedness to be), due and payable before its stated maturity or before
its regularly scheduled dates of payment, or (iii) as a consequence of the
occurrence or continuation of any event or condition (other than (A) the
passage of time or the right of the holder of Indebtedness to convert such
Indebtedness into equity interests, (B) in connection with an exchange or
refinancing permitted under Section 10.1.2(a)(ii) or, in the case of Star
Propane, pursuant to similar provisions in its financing agreements, and
(C) the voluntary prepayment of the Debt described as items 4 through 7,
inclusive, of Schedule 5.15), (x) Star Partners or any Subsidiary has
become obligated to purchase or repay Indebtedness before its regular
maturity or before its regularly scheduled dates of payment in an aggregate
outstanding principal amount of at least $2,000,000, or (y) one or more
Persons have the right to require Star Partners or any Subsidiary so to
purchase or repay such Indebtedness; or

(g) Star Partners or any Subsidiary (i) is generally not paying, or
admits in writing its inability to pay, its debts as they become due, (ii)
files, or consents by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any other petition
in bankruptcy, for liquidation or to take advantage of any bankruptcy,
insolvency, reorganization, moratorium or other similar law of any
jurisdiction, (iii) makes an assignment for the benefit of its creditors,
(iv) consents to the appointment of a custodian, receiver, trustee or other
officer with similar powers with

-34-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

respect to it or with respect to any substantial part of its property, (v)
is adjudicated as insolvent or to be liquidated, or (vi) takes corporate
action for the purpose of any of the foregoing; or

(h) a court or governmental authority of competent jurisdiction enters
an order appointing, without consent by Star Partners or any of its
Subsidiaries, a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for
relief or reorganization or any other petition in bankruptcy or for
liquidation or to take advantage of any bankruptcy or insolvency law of any
jurisdiction, or ordering the dissolution, winding-up or liquidation of
Star Partners or any of its Subsidiaries, or any such petition shall be
filed against Star Partners or any of its Subsidiaries and such petition
shall not be dismissed within 60 days; or

(i) a final judgment or judgments for the payment of money aggregating
in excess of $250,000 are rendered against one or more of Star Partners and
its Subsidiaries and which judgments are not, within 30 days after entry
thereof, bonded, discharged or stayed pending appeal; or

(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought
or granted under section 412 of the Code, (ii) a notice of intent to
terminate any Plan shall have been or is reasonably expected to be filed
with the PBGC or the PBGC shall have instituted proceedings under ERISA
section 4042 to terminate or appoint a trustee to administer any Plan or
the PBGC shall have notified Star Partners or any ERISA Affiliate of Star
Partners that a Plan may become a subject of any such proceedings, (iii)
the aggregate "amount of unfunded benefit liabilities" (within the meaning
of section 4001(a)(18) of ERISA) under all Plans, determined in accordance
with Title IV of ERISA, shall exceed $7,000,000, (iv) Star Partners or any
ERISA Affiliate of Star Partners shall have incurred or is reasonably
expected to incur any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit
plans, (v) Star Partners or any ERISA Affiliate of Star Partners withdraws
from any Multiemployer Plan, or (vi) Star Partners or any Subsidiary
establishes or amends any employee welfare benefit plan that provides
post-employment welfare benefits in a manner that would increase the
liability of Star Partners or any Subsidiary thereunder; and any such event
or events described in clauses (i) through (vi) above, either individually
or together with any other such event or events, could reasonably be
expected to have a Material Adverse Effect on any Constituent Company; or

(k) Any Guarantor repudiates or contests its obligations or
liabilities under the Guarantee Agreement to which it is a party, any
Guarantee Agreement is held to be unenforceable in whole or in part against
any Guarantor by any court of competent

-35-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

jurisdiction, or the Lien of any Security Document is held to be invalid or
unperfected in whole or in part by any court of competent jurisdiction.

As used in Section 11(j), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in section 3 of ERISA.

Section 12.   Remedies on Default, ETC.

Section 12.1. Acceleration. (a) If an Event of Default with respect to any
Constituent Company described in paragraph (g) or (h) of Section 11 has
occurred, all the Notes then outstanding shall automatically become immediately
due and payable.

(b) If any other Event of Default has occurred and is continuing, any
holder or holders of 51% or more of the principal amount of the Notes of either
Series at the time outstanding may at any time at its or their option, by notice
or notices to the Company, declare all the Notes of such Series then outstanding
to be immediately due and payable.

(c) If any Event of Default described in paragraph (a) or (b) of Section 11
has occurred and is continuing, any holder of Notes at the time outstanding
affected by such Event of Default may at any time, at its option, by notice or
notices to the Company, declare all the Notes held by it to be immediately due
and payable.

Upon any Note's becoming due and payable under this Section 12.1, whether
automatically or by declaration, such Note will forthwith mature and the entire
unpaid principal amount of such Note, plus (i) all accrued and unpaid interest
thereon and (ii) the Make-Whole Amount determined in respect of such principal
amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for), and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.

Section 12.2. Other Remedies. If any Default or Event of Default has
occurred and is continuing, and irrespective of whether any Notes have become or
have been declared immediately due and payable under Section 12.1, the holder of
any Note at the time outstanding may proceed to protect and enforce the rights
of such holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in any Note, or for an injunction against a violation of any of the
terms hereof or thereof, or in aid of the exercise of any power granted hereby
or thereby or by law or otherwise.

-36-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Section 12.3. Rescission. At any time after any Notes of either Series have
been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the
holders of not less than 51% in principal amount of the Notes of such Series
then outstanding, by written notice to the Company, may rescind and annul any
such declaration and its consequences if (a) the Company has paid all overdue
interest on the Notes of such Series, all principal of and Make-Whole Amount, if
any, on any Notes of such Series that are due and payable and are unpaid other
than by reason of such declaration, and all interest on such overdue principal
and Make-Whole Amount, if any, and (to the extent permitted by applicable law)
any overdue interest in respect of the Notes of such Series, at the Default
Rate, (b) all Events of Default and Defaults, other than non-payment of amounts
that have become due solely by reason of such declaration, have been cured or
have been waived pursuant to Section 17, and (c) no judgment or decree has been
entered for the payment of any monies due pursuant hereto or to the Notes of
such Series. No rescission and annulment under this Section 12.3 will extend to
or affect any subsequent Event of Default or Default or impair any right
consequent thereon.

Section 12.4. No Waivers or Election of Remedies, Expenses, etc. No course
of dealing and no delay on the part of any holder of any Note in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise prejudice
such holder's rights, powers or remedies. No right, power or remedy conferred by
this Agreement or by any Note upon any holder thereof shall be exclusive of any
other right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. Without limiting the
obligations of the Constituent Companies under Section 15, the Constituent
Companies jointly and severally agree to pay to the holder of each Note on
demand such further amount as shall be sufficient to cover all costs and
expenses of such holder incurred in any enforcement or collection under this
Section 12, including, without limitation, reasonable attorneys' fees, expenses
and disbursements.

Section 13.   Registration; Exchange; Substitution of Notes.

Section 13.1. Registration of Notes. The Company shall keep at its
principal executive office a register for the registration and registration of
transfers of Notes. The name and address of each holder of one or more Notes,
each transfer thereof and the name and address of each transferee of one or more
Notes shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes
hereof, and the Company shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Note that is an
Institutional Investor promptly upon request therefor, a complete and correct
copy of the names and addresses of all registered holders of Notes.

Section 13.2. Transfer and Exchange of Notes. Upon surrender of any Note at
the principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or its attorney duly authorized in

-37-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

writing and accompanied by the address for notices of each transferee of such
Note or part thereof), the Company shall execute and deliver, at the Company's
expense (except as provided below), one or more new Notes (as requested by the
holder thereof) of the same Series in exchange therefor, in an aggregate
principal amount equal to the unpaid principal amount of the surrendered Note.
Each such new Note shall be payable to such Person as such holder may request
and shall be substantially in the form of Exhibit 1(a). Each such new Note shall
be dated and bear interest from the date to which interest shall have been paid
on the surrendered Note or dated the date of the surrendered Note if no interest
shall have been paid thereon. The Company may require payment of a sum
sufficient to cover any stamp tax or governmental charge imposed in respect of
any such transfer of Notes. Notes shall not be transferred in denominations of
less than $100,000, provided that if necessary to enable the registration of
transfer by a holder of its entire holding of Notes, one Note may be in a
denomination of less than $100,000. Any transferee of a Note, or purchaser of a
participation therein, shall, by its acceptance of such Note be deemed to make
the same representations to the Company regarding the Note or participation as
you and the Other Purchasers have made pursuant to Section 6.2, provided that
such entity may (in reliance upon information provided by the Company, which
shall not be unreasonably withheld) make a representation to the effect that the
purchase by such entity of any Note will not constitute a non-exempt prohibited
transaction under section 406(a) of ERISA.

Section 13.3. Replacement of Notes. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note (which evidence shall be, in the case of
an Institutional Investor, notice from such Institutional Investor of such
ownership and such loss, theft, destruction or mutilation), and

(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that if the holder of such Note is, or is a
nominee for, an original Purchaser or another holder of a Note with a
minimum net worth of at least $50,000,000, such Person's own unsecured
agreement of indemnity shall be deemed to be satisfactory), or

(b) in the case of mutilation, upon surrender and cancellation
thereof,

the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note of the same Series as such lost, stolen, destroyed or mutilated Note, dated
and bearing interest from the date to which interest shall have been paid on
such lost, stolen, destroyed or mutilated Note or dated the date of such lost,
stolen, destroyed or mutilated Note if no interest shall have been paid thereon.

Section 14.   Payments on Notes.

Section 14.1. Place of Payment. Subject to Section 14.2, payments of
principal, Make-Whole Amount, if any, and interest becoming due and payable on
the Notes shall be made in New York, New York at the principal office of HSBC
Bank USA in such jurisdiction.

-38-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Section 14.2. Home Office Payment. So long as you or your nominee shall be
the holder of any Note, and notwithstanding anything contained in Section 14.1
or in such Note to the contrary, the Company will pay all sums becoming due on
such Note for principal, Make-Whole Amount, if any, and interest by the method
and at the address specified for such purpose below your name in Schedule A, or
by such other method or at such other address as you shall have from time to
time specified to the Company in writing for such purpose, without the
presentation or surrender of such Note or the making of any notation thereon,
except that upon written request of the Company made concurrently with or
reasonably promptly after payment or prepayment in full of any Note, you shall
surrender such Note for cancellation, reasonably promptly after any such
request, to the Company at its principal executive office or at the place of
payment most recently designated by the Company pursuant to Section 14.1. The
Company will afford the benefits of this Section 14.2 to any Institutional
Investor that is the direct or indirect transferee of any Note purchased by you
under this Agreement and that has made the same agreement relating to such Note
as you have made in this Section 14.2.

Section 15.   Expenses, etc.

Section 15.1. Transaction Expenses. Whether or not the transactions
contemplated hereby are consummated, the Constituent Companies jointly and
severally agree to pay all costs and expenses (including reasonable attorneys'
fees of a special counsel and, if reasonably required, local or other counsel)
incurred by you and each Other Purchaser or holder of a Note in connection with
such transactions and in connection with any amendments, waivers or consents
under or in respect of this Agreement, the Notes or the other Basic Documents
(whether or not such amendment, waiver or consent becomes effective), including,
without limitation: (a) the costs and expenses incurred in enforcing or
defending (or determining whether or how to enforce or defend) any rights under
the Notes and the other Basic Documents or in responding to any subpoena or
other legal process or informal investigative demand issued in connection with
the Notes or the other Basic Documents, or by reason of being a holder of any
Note, and (b) the costs and expenses, including financial advisors' fees,
incurred in connection with the insolvency or bankruptcy of any Constituent
Company or any Subsidiary or in connection with any work-out or restructuring of
the transactions contemplated by the Basic Documents. The Constituent Companies
jointly and severally agree to pay, and will save you and each other holder of a
Note harmless from, all claims in respect of any fees, costs or expenses, if
any, of brokers and finders (other than those retained by you).

Section 15.2. Survival. The obligations of the Constituent Companies under
this Section 15 will survive the payment or transfer of any Note, the
enforcement, amendment or waiver of any provision of the Basic Documents, and
the termination of the Basic Documents.

Section 16.   Survival of Representations and Warranties; Entire Agreement.

All representations and warranties contained herein shall survive the
execution and delivery of the Basic Documents, the purchase or transfer by you
of any Note or portion thereof

-39-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

or interest therein and the payment of any Note, and may be relied upon by any
subsequent holder of a Note, regardless of any investigation made at any time by
or on behalf of you or any other holder of a Note. All statements contained in
any certificate or other instrument delivered by or on behalf of any Constituent
Company pursuant to this Agreement shall be deemed representations and
warranties of such Constituent Company under this Agreement. Subject to the
preceding sentence, the Basic Documents embody the entire agreement and
understanding between you and the Company and supersede all prior agreements and
understandings relating to the subject matter hereof.

Section 17.   Amendment and Waiver.

Section 17.1. Requirements. The Basic Documents may be amended, and the
observance of any term thereof may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Required Holders
of each Series and any other necessary parties, except that (a) no amendment or
waiver of any of the provisions of Section 1, 2, 3, 4, 5 or 6 hereof, or any
defined term (as it is used therein), will be effective as to you unless
consented to by you in writing, and (b) no such amendment or waiver may, without
the written consent of the holder of each Note at the time outstanding affected
thereby, (i) subject to the provisions of Section 12 relating to acceleration or
rescission, change the amount or time of any prepayment or payment of principal
of, or reduce the rate or change the time of payment or method of computation of
interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage
of the principal amount of the Notes the holders of which are required to
consent to any such amendment or waiver, or (iii) amend any of Sections 8,
11(a), 11(b), 12 or 17.

Section 17.2. Solicitation of Holders of Notes.

(a) Solicitation. The Constituent Companies will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions of
the Basic Documents. The Constituent Companies will deliver executed or true and
correct copies of each amendment, waiver or consent effected pursuant to the
provisions of this Section 17 to each holder of outstanding Notes promptly
following the date on which it is executed and delivered by, or receives the
consent or approval of, the requisite holders of Notes.

(b) Payment. The Constituent Companies will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any holder of
Notes as consideration for or as an inducement to the entering into by any
holder of Notes of any waiver or amendment of any of the terms and provisions
hereof or of any other Basic Document unless such remuneration is concurrently
paid, or security is concurrently granted, on the same terms, ratably to each
holder of Notes then outstanding whether or not such holder consented to such
waiver or amendment.

-40-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Section 17.3. Binding Effect, etc. Any amendment, supplement or waiver
consented to as provided in this Section 17 applies equally to all holders of
Notes and is binding upon them and upon each future holder of any Note without
regard to whether such Note has been marked to indicate such amendment or
waiver. No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or waived
or impair any right consequent thereon. No course of dealing between any
Constituent Company and the holder of any Note nor any delay in exercising any
rights hereunder or under any Note shall operate as a waiver of any rights of
any holder of such Note. As used herein, the term "this Agreement" and
references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.

Section 17.4. Notes Held by Company, etc. Solely for the purpose of
determining whether the holders of the requisite percentage of the aggregate
principal amount of Notes of a Series then outstanding approved or consented to
any amendment, waiver or consent to be given under this Agreement or the Notes,
or have directed the taking of any action provided herein or in the Notes to be
taken upon the direction of the holders of a specified percentage of the
aggregate principal amount of Notes of a Series then outstanding, Notes directly
or indirectly owned by the Company or any of its Affiliates shall be deemed not
to be outstanding.

Section 18.   Notices.

All notices and communications provided for hereunder shall be in writing
and sent (a) by telefacsimile if the sender on the same day sends a confirming
copy of such notice by a recognized overnight delivery service (charges
prepaid), or (b) by registered or certified mail with return receipt requested
(postage prepaid), or (c) by a recognized overnight delivery service (with
charges prepaid). Any such notice must be sent:

(i)   if to you or your nominee, to you or it at the address specified
for such communications in Schedule A, or at such other address as you or
it shall have specified to the Company in writing,

(ii)  if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the Company in
writing, or

(iii) if to any Constituent Company, to such Constituent Company at
its address set forth at the beginning hereof to the attention of
President, or at such other address as the Company shall have specified to
the holder of each Note in writing.

Notices under this Section 18 will be deemed given only when actually received.

-41-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Section 19.  Reproduction of Documents.

This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. Each of
the Constituent Companies agrees and stipulates that, to the extent permitted by
applicable law, any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you in
the regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence. This
Section 19 shall not prohibit any Constituent Company or any other holder of
Notes from contesting any such reproduction to the same extent that it could
contest the original, or from introducing evidence to demonstrate the inaccuracy
of any such reproduction.

Section 20.  Miscellaneous.

Section 20.1.  Intercreditor Agreement; Successors and Assigns. All covenants
and other agreements contained in this Agreement by or on behalf of any of the
parties hereto bind and inure to the benefit of their respective successors and
assigns (including, without limitation, any subsequent holder of a Note) whether
so expressed or not. Without limiting the foregoing, pursuant to Section 21(a)
of the Intercreditor Agreement, by your execution hereof and of the
Intercreditor Agreement Joinder substantially in the form attached hereto as
Exhibit 20.1 (the "Intercreditor Agreement Joinder") you agree, and each
subsequent holder of a Note by its acceptance thereof agrees, to be bound by the
terms of the Intercreditor Agreement.

Section 20.2.  Payments Due on Non-Business Days. Anything in this Agreement
or the Notes to the contrary notwithstanding, any payment of principal of or
Make-Whole Amount or interest on any Note that is due on a date other than a
Business Day shall be made on the next succeeding Business Day without including
the additional days elapsed in the computation of the interest payable on such
next succeeding Business Day.

Section 20.3.  Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.

Section 20.4.  Construction. Each covenant contained herein shall be construed
(absent express provision to the contrary) as being independent of each other
covenant contained herein, so that compliance with any one covenant shall not
(absent such an express contrary provision)

-42-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

be deemed to excuse compliance with any other covenant. Where any provision
herein refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person.

Section 20.5. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument. Each counterpart may consist of a number of copies
hereof, each signed by fewer than all, but together signed by all, of the
parties hereto.

Section 20.6. Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the law of
the State of New York excluding choice-of-law principles of the law of such
State that would require the application of the laws of a jurisdiction other
than such State.

* * * * *

-43-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.

Very truly yours,

Star Gas Partners, L.P.

By:   Star Gas LLC, its General Partner

By
Name:
Title:

Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

By
Name:
Title:

Accepted as of the date thereof.

[Variation]

By
Name:
Title:

[By____________________________________
Name:
Title:]

-44-

Information Relating to Commitments and Purchasers

Purchaser                                      Commitment

Series A               Series B

The Guardian Life Insurance Company of America                                           $  5,000,000
The Guardian Life Insurance Company of America                                           $  5,000,000
The Guardian Life Insurance Company of America                                           $  5,000,000
The Guardian Insurance & Annuity Company, Inc.                    $    500,000
Fort Dearborn Life Insurance Company                              $    500,000
Teachers Insurance and Annuity Association of America             $ 15,000,000
Massachusetts Mutual Life Insurance Company                       $  4,000,000
Massachusetts Mutual Life Insurance Company                       $  3,500,000
Massachusetts Mutual Life Insurance Company                       $  1,250,000
Massachusetts Mutual Life Insurance Company                       $  1,000,000
Massachusetts Mutual Life Insurance Company                       $    750,000
C.M. Life Insurance Company                                       $  1,250,000
MassMutual Asia Limited                                           $    250,000
John Hancock Life Insurance Company                               $  6,500,000
John Hancock Life Insurance Company                               $  2,000,000
John Hancock Life Insurance Company                               $  1,000,000
John Hancock Variable Life Insurance Company                      $    500,000
The Ohio National Life Insurance Company                                                 $ 10,000,000
United of Omaha Life Insurance Company                            $  6,000,000
Companion Life Insurance Company                                  $  1,000,000
Phoenix Life Insurance Company                                    $  3,000,000
Phoenix Life Insurance Company                                                           $  3,000,000
PHL Variable Insurance Company                                    $  1,000,000
First Unum Life Insurance Company                                 $  6,000,000
The Equitable Life Assurance Society of the United States         $  6,000,000
Federal Kemper Life Assurance Company-FA                          $  6,000,000
Delta Life & Annuity Company                                      $  3,500,000
The Ohio Casualty Insurance Company                               $  2,500,000
Security Financial Life Insurance Co.                                                    $  2,000,000
Totals                                                            $ 73,000,000           $ 30,000,000

Schedule A
(to Note Purchase Agreement)

A-1

-45-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

The Guardian Life Insurance Company of America
7 Hanover Square
New York, New York  10004-2616
Attention:  Thomas M. Donohue, Investment Department 20-D
Fax Number:  (212) 919-2656/2658

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Petroleum Heat and Power Co., Inc., 8.73% Series B Senior Secured Notes due
2013, PPN 716600 L#6, principal, premium or interest") to:

The Chase Manhattan Bank
FED ABA #021000021
CHASE/NYC/CTR/BNF
A/C 900-9-000200
Reference A/C #G05978, Guardian Life
And the name and CUSIP for which payment is being made

Notices

All notices of payments, on or in respect of the Notes and written confirmation
of each such payment to:

The Guardian Life Insurance Company of America
7 Hanover Square
New York, New York  10004-2616
Attention:  Investment Accounting Dept. 17-B
Fax Number:  (212) 598-7011

All notices and communications other than those in respect to payments to be
addressed as first provided above.

Name of Nominee in which Notes are to be issued:  CUDD & CO.

Taxpayer I.D. Number:  13-6022143

A-2

-46-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

The Guardian Insurance & Annuity Company, Inc.
c/o The Guardian Life Insurance Company of America
7 Hanover Square
New York, New York  10004-2616
Attention:  Thomas M. Donohue, Investment Department 20-D
Fax Number:  (212) 919-2656/2658

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Petroleum Heat and Power Co., Inc., 8.05% Series A Senior Secured Notes due
2006, PPN 716600 L@8, principal, premium or interest") to:

The Chase Manhattan Bank
FED ABA #021000021
CHASE/NYC/CTR/BNF
A/C 900-9-000200
Reference A/C #G53637, GIAC - Guardian Tradition
And the name and CUSIP for which payment is being made

Notices

All notices of payments, on or in respect of the Notes and written confirmation
of each such payment to:

The Guardian Insurance & Annuity Company, Inc.
c/o The Guardian Life Insurance Company of America
7 Hanover Square
New York, New York  10004-2616
Attention:  Investment Accounting Dept. 17-B
Fax Number:  (212) 598-7011

All notices and communications other than those in respect to payments to be
addressed as first provided above.

Name of Nominee in which Notes are to be issued:  CUDD & CO.

Taxpayer I.D. Number:  13-6022143

A-3

-47-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

Fort Dearborn Life Insurance Company
c/o Guardian Asset Management Corp.
Fixed Income Securities
7 Hanover Square -20D
New York,  New York  10004-2616
Attention:  Thomas M. Donohue
Fax Number:  (212) 919-2656/2658

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Petroleum Heat and Power Co., Inc., 8.05% Series A Senior Secured Notes due
2006, PPN 716600 L@ 8, principal, premium or interest") to:

Bank One
ABA #044000037
For further credit to Bank One
Account #980401787
Attention:  A/C #2600218703 Ft. Dearborn Life Insurance Company - Guardian
MVA

Notices

Address for all notices relating to payments:

Fort Dearborn Life Insurance Company
c/o The Guardian Life Insurance Company of America
Attention:  Investment Accounting Department 17-B
7 Hanover Square
New York, New York 10004-2616
Fax Number: (212) 598-7011

All other notices and communications to be addressed as first provided above.

Name of Nominee in which Notes are to be issued:  Bank One & Co.

Taxpayer I.D. Number: 36-2598882

A-4

-48-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

John Hancock Life Insurance Company
John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117

Payments

All payments on account of the Notes or other obligations in accordance with the
provisions thereof shall be made by bank wire transfer of immediately available
funds for credit, not later than 12 noon, Boston time, to:

Fleet Boston
ABA #011000390
Boston, Massachusetts 02110
Account of:  John Hancock Life Insurance Company
Private Placement Collection Account
Account Number 541-55417
On Order of:  [Name of Issuer and PPN Number]
[Full name, interest rate and maturity date of the Notes or other
obligations]

Notices

Contemporaneous with the above wire transfer, advice setting forth (1) the full
name, interest rate and maturity date of the Notes or other obligations; (2)
allocation of payment between principal and interest and any special payment;
and (3) name and address of Bank (or Trustee) from which wire transfer was sent,
shall be faxed and mailed to:

John Hancock Life Insurance Company
200 Clarendon Street
Boston, Massachusetts 02117
Attention:  Investment Accounting Division, B-3
Fax:  (617) 572-0628

All notices with respect to prepayments, both scheduled and unscheduled, whether
partial or in full, and notice of maturity shall also be faxed and mailed as set
forth immediately above.

All other communications which shall include, but not be limited to, financial
statements and certificates of compliance with financial covenants, shall be
faxed and mailed to:

A-5

-49-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

John Hancock Life Insurance Company
200 Clarendon Street
Boston, Massachusetts 02117
Attention:  Bond and Corporate Finance Group, T-57
Fax:  (617) 572-1605

A copy of any notices relating to change in issuer's name, address or principal
place of business or location of collateral and a copy of any legal opinions
shall be faxed and mailed to:

John Hancock Life Insurance Company
200 Clarendon Street
Boston, Massachusetts 02117
Attention:  Investment Law Division, T-30
Fax:  (617) 572-9269

Name in which Notes are to be issued: John Hancock Life Insurance Company

Taxpayer I.D. Number:  04-1414660

A-6

-50-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

John Hancock Life Insurance Company
John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117

Payments

All payments on account of the Notes or other obligations in accordance with the
provisions thereof shall be made by bank wire transfer of immediately available
funds for credit, not later than 12 noon, Boston time, to:

Investors Bank & Trust Company
Boston, Massachusetts 02116
ABA #011001438
Account Name:  Receipts
Account Number:  796509107
Reference:  S/A 18, Account 99266
On Order of:  [Name of Issuer and PPN Number]
[Full name, interest rate and maturity date of the Notes or other
obligations]

Notices

Contemporaneous with the above wire transfer, advice setting forth (1) the full
name, interest rate and maturity date of the Notes or other obligations; (2)
allocation of payment between principal and interest and any special payment;
and (3) name and address of Bank (or Trustee) from which wire transfer was sent,
shall be delivered or faxed and mailed to:

Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
Attention:  Jackie Argenzio
Fax:  (617) 572-8302

All notices with respect to prepayments, both scheduled and unscheduled, whether
partial or in full, and notice of maturity shall also be faxed and mailed as set
forth immediately above.

All other communications which shall include, but not be limited to, financial
statements and certificates of compliance with financial covenants, shall be
delivered or faxed and mailed to:

A-7

-51-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

John Hancock Life Insurance Company
200 Clarendon Street
Boston, Massachusetts 02117
Attention: Bond and Corporate Finance Group, T-57
Fax: (617) 572-1605

A copy of any notices relating to change in issuer's name, address or principal
place of business or location of collateral and a copy of any legal opinions
shall be delivered or faxed and mailed to:

John Hancock Life Insurance Company
200 Clarendon Street
Boston, Massachusetts 02117
Attention: Investment Law Division, T-30
Fax: (617) 572-9269

Name in which Notes are to be issued: John Hancock Life Insurance Company

Taxpayer I.D. Number: 04-1414660

A-8

-52-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

John Hancock Variable Life Insurance Company
John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117

Payments

All payments on account of the Notes or other obligations in accordance with the
provisions thereof shall be made by bank wire transfer of immediately available
funds for credit, not later than 12 noon, Boston time, to:

Fleet Boston
ABA #011000390
Boston, Massachusetts 02110
Account of: John Hancock Life Insurance Company
Private Placement Collection Account
Account Number 541-55417
On Order of: [Name of Issuer and PPN Number]
[Full name, interest rate and maturity date of the Notes or other
obligations]

Notices

Contemporaneous with the above wire transfer, advice setting forth (1) the full
name, interest rate and maturity date of the Notes or other obligations; (2)
allocation of payment between principal and interest and any special payment;
and (3) name and address of Bank (or Trustee) from which wire transfer was sent,
shall be faxed and mailed to:

John Hancock Variable Life Insurance Company
200 Clarendon Street
Boston, Massachusetts 02117
Attention: Investment Accounting Division, B-3
Fax: (617) 572-0628

All notices with respect to prepayments, both scheduled and unscheduled, whether
partial or in full, and notice of maturity shall also be faxed and mailed as set
forth immediately above.

All other communications which shall include, but not be limited to, financial
statements and certificates of compliance with financial covenants, shall be
faxed and mailed to:

A-9

-53-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

John Hancock Life Insurance Company
200 Clarendon Street
Boston, Massachusetts 02117
Attention: Bond and Corporate Finance Group, T-57
Fax: (617) 572-1605

A copy of any notices relating to change in issuer's name, address or principal
place of business or location of collateral and a copy of any legal opinions
shall be faxed and mailed to:

John Hancock Life Insurance Company
200 Clarendon Street
Boston, Massachusetts 02117
Attention: Investment Law Division, T-30
Fax: (617) 572-9269

Name in which Notes are to be issued: John Hancock Variable Life Insurance
Company

Taxpayer I.D. Number: 04-2664016

A-10

-54-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017-3206

Payments

All payments on or in respect of the Notes shall be made in immediately
available funds at the opening of business on the due date by electonic funds
transfer through the Automated Clearing House System to:

Chase Manhattan Bank
ABA #021-000-021
Account of: Teachers Insurance and Annuity Association of America
Account Number 900-2-000200
For further credit to the TIAA Account Number: G07040
Reference: PPN#/Issuer/Mat. Date/Coupon Rate/P&I Breakdown

Notices

Contemporaneous with the above electronic funds transfer, advice setting forth
(1) the full name, private placement number and interest rate of the Notes; (2)
allocation of payment between principal, interest, premium and any special
payment; and (3) name and address of Bank (or Trustee) from which wire transfer
was sent, shall be delivered, mailed or faxed to:

Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
Attention: Securities Accounting Division
Telephone: (212) 916-6004
Fax: (212) 916-6955

A-11

-55-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

All other notices and communications shall be delivered or mailed to:

Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
Attention: Securities Division
Telephone:   (212) 916-6372 (Cynthia Bush)
(212) 916-9000 (General Number)
Fax:         (212) 916-6582 (Team Fax Number)

Name of Nominee in which Notes are to be issued: None

Taxpayer I.D. Number: 13-1624203

A-12

-56-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

Massachusetts Mutual Life Insurance
Company
c/o David L. Babson & Company Inc.
1295 State Street
Springfield, Massachusetts  01111
Attention: Securities Investment Division

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Petroleum Heat and Power Co., Inc., 8.05% Series A Senior Secured Notes due
2006, PPN 716600 L@8, principal, premium or interest") to:

Citibank, N.A
111 Wall Street
New York, New York 10043
ABA #021000089
Re: Description of security, principal and interest split
For credit to the accounts listed below:

Principal Amount                                                  Account
of Notes                     Account Name                       Number

$4,000,000            MassMutual Long-Term Pool                  4067-3488
$3,500,000            MassMutual Spot Priced Contract            3890-4953
$  750,000            MassMutual Structured Settlement Fund      4065-5423

In each case with telephone advice of payment to the Securities Custody and
Collection Department of David L. Babson & Company Inc. at (413) 744-5104 or
(413) 744-5718.

Notices

All notices and communications to be addressed as first provided above, except
notices with respect to payments to be addressed Attention: Securities Custody
and Collection Department, F 381.

Name of Nominee in which Notes are to be issued: None

Taxpayer I.D. Number: 04-1590850

A-13

-57-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

Massachusetts Mutual Life Insurance
Company
c/o David L. Babson & Company Inc.
1295 State Street
Springfield, Massachusetts  01111
Attention: Securities Investment Division

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Petroleum Heat and Power Co., Inc., 8.05% Series A Senior Secured Notes due
2006, PPN 716600 L@8, principal, premium or interest") to:

Chase Manhattan Bank, N.A.
4 Chase MetroTech Center
New York, New York 10081
ABA #021000021
Re: Description of security, principal and interest split

For credit to the accounts listed below:

Principal Amount                                          Account
of Notes                  Account Name                 Number

$1,250,000           MassMutual IMF Non-Traditional     910-2509073
$1,000,000           MassMutual Pension Management      910-2594018

In each case with telephone advice of payment to the Securities Custody and
Collection Department of David L. Babson & Company Inc. at (413) 744-5104 or
(413) 744-5718.

Notices

All notices and communications to be addressed as first provided above, except
notices with respect to payments to be addressed Attention: Securities Custody
and Collection Department, F 381.

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  04-1590850

A-15

-58-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

C.M. Life Insurance Company
c/o Massachusetts Mutual Life Insurance Company
c/o David L. Babson & Company Inc.
1295 State Street
Springfield, Massachusetts  01111
Attention: Securities Investment Division

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Petroleum Heat and Power Co., Inc., 8.05% Series A Senior Secured Notes due
2006, PPN 716600 L@8, principal, premium or interest") to:

Citibank, N.A.
111 Wall Street
New York, New York  10043
ABA #021000089
For Segment 43 - Universal Life Account Number 4068-6561
Re: Description of security, principal and interest split

With telephone advice of payment to the Securities Custody and Collection
Department of David L. Babson & Company Inc. at (413) 744-5104 or (413)
744-5718.

Notices

All notices and communications to be addressed as first provided above, except
notices with respect to payments to be addressed Attention: Securities Custody
and Collection Department, F 381.

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  06-1041383

A-16

-59-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

Massmutual Asia Limited
c/o David L. Babson & Company Inc.
1295 State Street
Springfield, Massachusetts  01111
Attention:
Securities Investment Division

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Petroleum Heat and Power Co., Inc., 8.05% Series A Senior Secured Notes due
2006, PPN 716600 L@8, principal, premium or interest") to:

Citibank, N.A
111 Wall Street
New York, New York 10043
ABA #021000089
Account Number 30413797
Re: Description of security, principal and interest split

With telephone advice of payment to the Securities Custody and Collection
Department of David L. Babson & Company Inc. at (413) 744-5104 or (413)
744-5718.

Notices

All notices and communications to be addressed as first provided above, except
notices with respect to payments to be addressed Attention: Securities Custody
and Collection Department, F 381.

Name of Nominee in which Notes are to be issued:  None

A-17

-60-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

The Ohio National Life Insurance Company
P. O. Box 237
Cincinnati, Ohio  45201
Attention:  Investment Department
Telefacsimile:  (513) 794-4506
Overnight Delivery Address:
One Financial Way
Cincinnati, Ohio  45242

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Petroleum Heat and Power Co., Inc., 8.73% Series B Senior Secured Notes due
2013, PPN 716600 L#6, principal, premium or interest") to:

Firstar Bank, N.A. (ABA #042-0000-13)
Fifth and Walnut Streets
Cincinnati, Ohio  45202

for credit to:  The Ohio National Life Insurance Company
Account Number 910-275-7

Notices

All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  31-0397080

A-17

-61-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

United of Omaha Life Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska  68175-1011
Attention:  4-Investment Loan Administration

Payments

All principal and interest payments on the Notes shall be made by wire transfer
of immediately available funds to:

Chase Manhattan Bank
ABA #021-000-021
Private Income Processing

for credit to:  United of Omaha Life Insurance Company
Account Number 900-9000200
a/c G07097
PPN:  716600 L@8
Interest Amount: _______________________
Principal Amount: ______________________

Notices

All notices of payments, on or in respect of the Notes and written confirmation
of each such payment, corporate actions and reorganization notifications to:

The Chase Manhattan Bank
4 New York Plaza-11th Floor
New York, New York  10004
Attention:  Income Processing-J. Pipperato
a/c:  G07097

All other notices and communications (i.e., quarterly/annual reports, tax
filings, modifications, waivers regarding the indenture) to be addressed as
first provided above.

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  47-0322111

A-18

-62-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

Companion Life Insurance Company
c/o Mutual of Omaha Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska  68175-1011
Attention:  4 - Investment Loan Administration

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds to:

Chase Manhattan Bank
ABA #021000021
Private Income Processing

for credit to:  Companion Life Insurance Company
Account Number 900-9000200
a/c G07903
PPN:  716600 L@8
Interest Amount:__________________
Principal Amount:_________________

Notices

All notices of payments, on or in respect of the Notes and written confirmation
of each such payment, corporate actions and reorganization notifications to:

The Chase Manhattan Bank
4 New York Plaza-11th Floor
New York, New York  10004
Attention:  Investment Processing-J. Pipperato
a/c:  G07903

All other notices and communications (i.e., quarterly/annual reports, tax
filings, modifications, waivers regarding the indenture) to be addressed as
first provided above.

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  13-1595128

A-19

-63-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

Phoenix Life Insurance Company
c/o Phoenix Investment Partners
56 Prospect Street
P. O.  Box 150480
Hartford, Connecticut  06115-0480
Attention:  Private Placements Department
Fax Number:  (860) 403-7248

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds to:

ABA #021 000 021
Chase Manhattan Bank, N.A
New York, New York  10022

Account Number: 900 9000 200
Account Name: Income Processing
Reference: G05520, Phoenix Home, PPN=716600 L@8, OBI=Petroleum Heat and
Power Co., Inc., RATE=8.05%, DUE=2006 (INCLUDE Company name, principal
and interest breakdown and premium, if any)

Notices

All notices and communications, including financial statements, notices with
respect to payments and written confirmation of each such payment, to be
addressed as first provided above.

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  06-0493340

A-20

-64-

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

Phoenix Life Insurance Company
c/o Phoenix Investment Partners
56 Prospect Street
P. O.  Box 150480
Hartford, Connecticut  06115-0480
Attention:  Private Placements Department
Fax Number:  (860) 403-7248

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds to:

ABA #021 000 021
Chase Manhattan Bank, N.A
New York, New York  10022

Account Number:  900 9000 200
Account Name:  Income Processing
Reference: G05123, Phoenix Home, PPN=716600 L#6, OBI=Petroleum Heat and
Power Co., Inc., RATE=8.73%, DUE=2013 (INCLUDE Company name, principal
and interest breakdown and premium, if any)

Notices

All notices and communications, including financial statements, notices with
respect to payments and written confirmation of each such payment, to be
addressed as first provided above.

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number:  06-0493340

A-21

-65-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

PHL Variable Insurance Company
c/o Phoenix Investment Partners
56 Prospect Street
P. O.  Box 150480
Hartford, Connecticut  06115-0480
Attention:  Private Placements Department
Fax Number:  (860) 403-7248

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds to:

ABA #021 000 021
Chase Manhattan Bank, N.A
New York, New York  10022

Account Number:  900 9000 200
Account Name:  Income Processing
Reference: G09163, Phoenix Home, PPN=716600 L@8, OBI=Petroleum Heat and
Power Co., Inc., RATE=8.05%, DUE=2006 (INCLUDE Company name, principal
and interest breakdown and premium, if any)

Notices

All notices and communications, including financial statements, notices with
respect to payments and written confirmation of each such payment, to be
addressed as first provided above.

Name of Nominee in which Notes are to be issued:  None

Taxpayer I.D. Number: 06-1045829

A-22

-66-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

First Unum Life Insurance Company
c/o Provident Investment Management, LLC
Private Placements
One Fountain Square
Chattanooga, Tennessee 37402
Telephone:  (423) 755-1172
Fax:  (423) 755-3351

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds to:

CUDD & CO.
c/o The Chase Manhattan Bank
New York, New York
ABA #021 000 021
SSG Private Income Processing
A/C #900-9-000200
Custodial Account Number G08289

Please reference:   Petroleum Heat and Power Co., Inc.
PPN 716600 L@8
8.05%
Due 2006
Principal=$__________
Interest=$___________

Notices

All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.

Name of Nominee in which Notes are to be issued: CUDD & CO.

Taxpayer I.D. Number for CUDD & CO.: 13-6022143

A-23

-67-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

The Equitable Life Assurance Society
of the United States
c/o Alliance Capital Management Corporation
1345 Avenue of the Americas, 37th Floor
New York, New York 10105
Attention:  Robert Bayer, Vice President of
Alliance Capital Management Corp. and an
Investment Officer of The Equitable Life Assurance
Society of the United States
Telephone: (212) 969-6776

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Petroleum Heat and Power Co., Inc., 8.05% Series A Senior Secured Notes due
2006, PPN 716600 L@8, principal, premium or interest") to:

The Chase Manhattan Bank, N.A.
1251 Avenue of the Americas
New York, New York  10020
ABA #021-000021
Account of: The Equitable Life Assurance Society of the United States
Account Number: 037-2-417394

Notices

All notices of payment, on or in respect of the Notes, and written confirmation
of each such payment to be addressed:

c/o Alliance Capital Management Corporation
500 Plaza Drive, 6th Floor
Secaucus, New Jersey 07094
Attention: Cosmo Valente
Telephone: (201) 319-4880

All notices and communications other than those in respect to payments to be
addressed as first provided above.

Name of Nominee in which Notes are to be issued: None

Taxpayer I.D. Number: 13-5570651

A-24

-68-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

Federal Kemper Life Assurance Company-FA
c/o Zurich Scudder Investments, Inc.
222 South Riverside Plaza
Chicago, Illinois  60606-5808
Attention:  Private Placements

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Petroleum Heat and Power Co., Inc., 8.05% Series A Senior Secured Notes due
2006, PPN 716600 L@ 8, principal, premium or interest") to:

HARE & Co - Account No. 399889
at
The Bank of New York
ABA #021000018
BNF
IOC 566
Attention: Security Income Collection

Notices

All notices and communications, including notices with respect to payments and
written confirmation of each such payment, to be addressed as first provided
above.

Name of Nominee in which Notes are to be issued: HARE & Co

Taxpayer I.D. Number: 04-6046830

A-25

-69-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

Delta LifE & Annuity Company
c/o AmerUs Capital Management
699 Walnut Street, Suite 300
Des Moines, Iowa  50309
Attention: Tamara Harmon
Telephone: (515) 362-3527
Facsimile: (515) 362-3587

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Petroleum Heat and Power Co., Inc., 8.05% Series A Senior Secured Notes due
2006, PPN 716600 L@8, principal, premium or interest") to:

The Bank of New York
New York, New York
ABA #021000018
BNF: IOC566
Attention: P&I Department
Reference: Delta Life & Annuity Account 088733, PPN Number 716600 L@8

All notices and communications with respect to payments and written confirmation
of each such payment, to be addressed:

Delta Life & Annuity Company
c/o AmerUs Capital Management
699 Walnut Street, Suite 300
Des Moines, Iowa  50309
Attention: Denise Waldron
Telephone: (515) 362-3509
Facsimile: (515) 283-3439

All other notices and communications to be addressed as first provided above.

Name of Nominee in which Notes are to be issued: HARE & CO.

Taxpayer I.D. Number for Hare & Co.: 13-6062916

Taxpayer I.D. Number for Delta Life: 71-0599205

A-26

-70-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

The Ohio Casualty Insurance Company
9450 Seward Road
Fairfield, Ohio  45014
Attention:  Greg J. Schmidt, Investments

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Petroleum Heat and Power Co., Inc., 8.05% Series A Senior Secured Notes due
2006, PPN 716600 L@8, principal, premium or interest") to:

CHASE NYC/CUST
ABA #021000021
A/C #900-9-000200
Attention: Income Collection
FAO: A/C G 06431, Ohio Casualty
Re: PPN: 716600 L@8

Notices

All notices and communications to be addressed as first provided above, except
notices with respect to payments and written confirmation of each such payment,
to be addressed as follows:

The Ohio Casualty Insurance Company
9450 Seward Road
Fairfield, Ohio 45014
Attention: Jane A. Schriever, Asset Administration

Name of Nominee in which Notes are to be issued: Cudd & Co.

Taxpayer I.D. Number for Cudd & Co.: 13-6022143

Taxpayer I.D. Number for Ohio Casualty: 31-0396250

A-27

-71-

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Names and Addresses of Purchasers

Security Financial Life Insurance Co.
4000 Pine Lake Road
P. O. Box 82248
Lincoln, Nebraska  68501-2248

Payments

All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
"Petroleum Heat and Power Co., Inc., 8.73% Series B Senior Secured Notes due
2013, PPN 716600 L# 6, principal, premium or interest") to:

Wells Fargo Bank, Nebraska, N.A.
1248 "O" Street
Lincoln, Nebraska  68508
ABA #104-000-058

Account of: Security Financial Life
Account Number 79-40-797-624

Notices

All notices and communications to be addressed as first provided above, except
notices with respect to payments and written confirmation of each such payment
to be addressed:

Security Financial Life Insurance Co.
4000 Pine Lake Road
P. O. Box 82248
Lincoln, Nebraska 68516
Attention: Investment Division
Fax:  (402) 434-9599
Phone: (402) 434-9500

Name of Nominee in which Notes are to be issued: None

Taxpayer I.D. Number: 47-0293990

A-28

-72-

Defined Terms

Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of this
Agreement, the same shall be done in accordance with GAAP, to the extent
applicable, except where such principles are inconsistent with the express
requirements of this Agreement.

Where any provision in this Agreement refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision shall
be applicable whether the action in question is taken directly or indirectly by
such Person.

As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:

"Acquisition Facility" means Facility C under the Credit Agreement for
acquisitions and capital expansions in a maximum principal amount of $50,000,000
at any time outstanding.

"Affiliate" means, at any time, and with respect to any Person, (a) any
other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) any Person beneficially owning or holding, directly
or indirectly, 10% or more of any class of voting or equity interests of any
Constituent Company or any Subsidiary or any corporation of which the
Constituent Companies and their Subsidiaries beneficially own or hold, in the
aggregate, directly or indirectly, 10% or more of any class of voting or equity
interests. As used in this definition, "Control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. Unless the context otherwise clearly requires, any
reference to an "Affiliate" is a reference to an Affiliate of a Constituent
Company.

"Agent" means Bank of America National Trust and Savings Association,
as administrative agent for the Banks under the Credit Agreement.

"Asset Disposition" means any Transfer except:

(a)  any

(i)      Transfer from a Subsidiary to Petro Holdings
or a Wholly-Owned Subsidiary;

(ii)     Transfer from Petro Holdings to a
Wholly-Owned Subsidiary that is a Guarantor; and

(iii)    Sale-and-Leaseback  Transaction  entered
into by Petro Holdings or one of its Subsidiaries within 180
days following the acquisition or construction

Schedule B
(to Note Purchase Agreement)

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

by Petro Holdings or such Subsidiary of the property subject to such
Sale-and-Leaseback Transaction,

so long as immediately before and immediately after the consummation of any
such Transfer and after giving effect thereto, no Default or Event of
Default exists; and

(b) any Transfer made in the ordinary course of business and involving
only property that is either (i) inventory held for sale or (ii) equipment,
fixtures, supplies or materials no longer required in the operation of the
business of Petro Holdings or any of its Subsidiaries or that is obsolete.

"Banks" means the Agent and the other banks as are at the time of reference
parties to the Credit Agreement.

"Basic Documents" means this Agreement, the Other Agreements, the Guarantee
Agreements, the Intercreditor Agreement, the Intercreditor Agreement Joinder,
the other Security Documents and the Notes.

"Business Day" means for the purposes of Section 8.7, Section 11(b) and
Section 20.2, any day other than a Saturday, a Sunday or a day on which
commercial banks in New York City are required or authorized to be closed.

"Capital Lease" means a lease with respect to which the lessee is required
concurrently to recognize the acquisition of an asset and the incurrence of a
liability in accordance with GAAP.

"Capital Lease Obligation" means, with respect to any Person and a Capital
Lease, the amount of the obligation of such Person as the lessee under such
Capital Lease which would, in accordance with GAAP, appear as a liability on a
balance sheet of such Person.

"Closing" is defined in Section 3.

"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.

"Company" means Petroleum Heat and Power Co., Inc., a Minnesota
corporation.

"Consolidated Interest Expense" of any Person for any period means the sum
(without duplication) of (i) all interest deducted (including the interest
component of Capitalized Lease Obligations) net of up to $3,000,000 of interest
income received in any Four Quarter Period (or a ratable portion for any other
period) in determining its Consolidated Net Income, together with all interest
capitalized or deferred during such period and not deducted in determining

B-2

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Consolidated Net Income for such period, and (ii) all Debt issuance cost,
discount and expense amortized.

"Consolidated Net Income" means, with reference to any Person for any
period, the net income (or loss) of such Person and its Subsidiaries for such
period (taken as a cumulative whole), as determined in accordance with GAAP,
after eliminating all offsetting debits and credits between such Person and its
Subsidiaries and all other items required to be eliminated in the course of the
preparation of consolidated financial statements of such Person and its
Subsidiaries in accordance with GAAP, provided that there shall be excluded:

(a) the income (or loss) of any other Person accrued prior to the
date it becomes a Subsidiary or is merged into or consolidated with such
Person or a Subsidiary of such Person, and the income (or loss) of any such
Person, substantially all of the assets of which have been acquired in any
manner, realized by such other Person prior to the date of acquisition,

(b) the income (or loss) of any other Person (other than a
Subsidiary of such Person) in which such Person or any Subsidiary of such
Person has an ownership interest, except to the extent that any such income
has been actually received by such Person or its Subsidiary in the form of
cash dividends or similar cash distributions, it being understood that all
amounts actually received by such Person shall be included in Consolidated
Net Income,

(c) the undistributed earnings of any Subsidiary of such Person to
the extent that the declaration or payment of dividends or similar
distributions by such Subsidiary is not at the time permitted by the terms
of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Subsidiary,

(d) any restoration to income of any contingency reserve, except
to the extent that provision for such reserve was made out of income
accrued during such period,

(e) any aggregate net gain (but not any aggregate net loss) during
such period arising from the sale, conversion, exchange or other
disposition of capital assets (such term to include, without limitation,
(i) all non-current assets and, without duplication, (ii) the following,
whether or not current: all fixed assets, whether tangible or intangible,
all inventory sold in conjunction with the disposition of fixed assets, and
all Securities),

(f) any gains resulting from any write-up of any assets (but not
any loss resulting from any write-down of any assets),

(g) any net gain from the collection of the proceeds of life
insurance policies,

B-3

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(h) any gain arising from the acquisition of any Security, or the
extinguishment, under GAAP, of any Debt, of such Person or any Subsidiary
of such Person,

(i) any net income or gain (but not any net loss) during such period
from (i) any change in accounting principles in accordance with GAAP, (ii)
any prior period adjustments resulting from any change in accounting
principles in accordance with GAAP, (iii) any extraordinary items, or (iv)
any discontinued operations or the disposition thereof,

(j) any deferred credit representing the excess of equity in any
Subsidiary of such Person at the date of acquisition over the cost of the
investment in such Subsidiary,

(k) in the case of a successor to such Person by consolidation or
merger or as a transferee of its assets, any earnings of the successor
corporation prior to such consolidation, merger or transfer of assets, and

(l) any portion of such net income that cannot be freely converted
into United States Dollars.

"Consolidated Net Worth" means, for any Person at any time,

(a) the total assets of such Person and its Subsidiaries which would
be shown as assets on a consolidated balance sheet of such Person and its
Subsidiaries as of such time prepared in accordance with GAAP, after
eliminating all amounts properly attributable to minority interests, if
any, in the stock and surplus of its Subsidiaries, minus

(b) the total liabilities of such Person and its Subsidiaries which
would be shown as liabilities on a consolidated balance sheet of such
Person and its Subsidiaries as of such time prepared in accordance with
GAAP.

"Consolidated Operating Cash Flow" of any Person for any period means the
sum of (i) Consolidated Net Income of such Person for such period plus, to the
extent deducted in arriving at such Consolidated Net Income; (ii) (w)
depreciation, depletion, amortization, and all other non-cash expenses of such
Person for such period; (x) income tax expense of such Person for such period;
(y) interest expense of such Person for such period; and (z) in the case of
fiscal year of the Constituent Companies ending September 30, 1999, so much of
the costs associated with the Restructuring Transactions, the Company's
"corporate identity program" and internal restructuring costs as shall not
exceed $20,000,000 in the aggregate, all determined for such Person and its
Subsidiaries in accordance with GAAP.

B-4

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

"Consolidated Pro Forma Operating Cash Flow" of any Person for any period
means Consolidated Operating Cash Flow of such Person for such period determined
on a Pro Forma Basis.

"Consolidated Pro Forma Interest Expense" of any Person for any period
means Consolidated Interest Expense of such Person for such period determined on
a Pro Forma Basis.

"Consolidated Pro Forma Total Debt" means, as of any date (the
"determination date"), the amount of Debt outstanding on the determination date
of Petro Holdings and its Subsidiaries (excluding Debt outstanding under the
Working Capital Facility as of the determination date but including the High
Balance during the Low Period) determined on a consolidated basis in accordance
with GAAP on a Pro Forma Basis. For purposes of this definition:

"High Balance" during any period shall mean the highest unpaid
principal amount of the Working Capital Facility at any time during such
period.

"Low Period" means the period of 45 consecutive days during which the
average of the High Balances on each such day was the lowest of any period
of 45 consecutive days within the period of 410 days preceding the
determination date.

"Consolidated Total Assets" means, as of any date of determination, the
total assets of Petro Holdings and its Subsidiaries which would be shown as
assets on a consolidated balance sheet of Petro Holdings as of such time,
prepared in accordance with GAAP.

"Credit Agreement" means (i) the Credit Agreement dated as of March 25,
1999 among the Company, the Agent, the Banks and The Chase Manhattan Bank, as
issuer of certain letters of credit, as amended and restated by the Second
Restated Credit Agreement, and (ii) any other agreement entered into by the
Company in replacement thereof or substitution therefor.

"Debt" with respect to any Person means, at any time, without duplication,

(a) its liabilities for borrowed money;

(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the ordinary
course of business but including all liabilities created or arising under
any conditional sale or other title retention agreement with respect to any
such property);

(c) its Capital Lease Obligations;

(d) all liabilities for borrowed money secured by any Lien with respect
to any property owned by such Person (whether or not it has assumed or
otherwise become liable for such liabilities);

B-5

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(e) Swaps of such Person; and

(f) any Guaranty of such Person with respect to liabilities of a type
described in any of clauses (a) through (e) hereof.

Debt of any Person shall include all obligations of such Person of the character
described in clauses (a) through (f) to the extent such Person remains legally
liable in respect thereof notwithstanding that any such obligation is deemed to
be extinguished under GAAP.

"Debt Prepayment Application" means, with respect to any Transfer of
property, the application by Petro Holdings or its Subsidiaries of cash in an
amount equal to the Net Proceeds Amount with respect to such Transfer to pay
Senior Debt of Petro Holdings (other than Senior Debt owing to Petro Holdings,
any of its Subsidiaries or any Affiliate and Senior Debt in respect of any
revolving credit or similar credit facility providing Petro Holdings or any of
its Subsidiaries with the right to obtain loans or other extensions of credit
from time to time, except to the extent that in connection with such payment of
Senior Debt the availability of credit under such credit facility is permanently
reduced by an amount not less than the amount of such proceeds applied to the
payment of such Senior Debt), provided that in the course of making such
application Petro Holdings shall offer to prepay each outstanding Note in
accordance with Section 8.2 in a principal amount which, when added to the
Make-Whole Amount applicable thereto, equals the Ratable Portion for such Note.
If any holder of a Note fails to accept such offer of prepayment, then, for
purposes of the preceding sentence only, Petro Holdings nevertheless will be
deemed to have paid Senior Debt in an amount equal to the Ratable Portion for
such Note. "Ratable Portion" for any Note means an amount equal to the product
of (x) the Net Proceeds Amount being so applied to the payment of Senior Debt
multiplied by (y) a fraction the numerator of which is the outstanding principal
amount of such Note and the denominator of which is the aggregate principal
amount of Senior Debt of Petro Holdings and its Subsidiaries.

"Default" means an event or condition the occurrence or existence of which
would, with the lapse of time or the giving of notice or both, become an Event
of Default.

"Default Rate" means as to the Notes of each Series that rate of interest
that is the greater of (i) 2% per annum above the rate of interest stated in
clause (a) of the first paragraph of the Notes of such Series or (ii) 4.5% over
the rate of interest publicly announced by Bank of America in Charlotte, North
Carolina as its "reference" rate.

"Disposition Value" means, at any time, with respect to any property

(a) in the case of property that does not constitute Subsidiary Stock,
the book value thereof, valued at the time of such disposition in good
faith by Petro Holdings, and

(b) in the case of property that constitutes Subsidiary Stock, an
amount equal to that percentage of book value of the assets of the
Subsidiary that issued such stock as is

B-6

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

equal to the percentage that the book value of such Subsidiary Stock
represents of the book value of all of the outstanding capital stock of
such Subsidiary (assuming, in making such calculations, that all
Securities convertible into such capital stock are so converted and
giving full effect to all transactions that would occur or be required
in connection with such conversion) determined at the time of the
disposition thereof, in good faith by Petro Holdings.

"Distribution" means, in respect of any corporation, association or
other business entity:

(a) dividends or other distributions or payments on capital
stock or other equity interest of such corporation, association or
other business entity (except distributions in such stock or other
equity interest); and

(b) the redemption or acquisition of such stock or other
equity interests or of warrants, rights or other options to purchase
such stock or other equity interests (except when solely in exchange
for such stock or other equity interests) unless made,
contemporaneously, from the net proceeds of a sale of such stock or
other equity interests.

"Environmental Laws" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.

"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with any Constituent
Company under section 414 of the Code.

"Event of Default" is defined in Section 11.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Exchanged Senior Notes" means the following Notes of the Company:
$62,697,000 aggregate original principal amount 9% Senior Secured Notes due
October 1, 2002 and $2,140,000 aggregate original principal amount 10.25% Senior
Secured Notes due January 15, 2001.

B-7

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

"Fair Market Value" means, at any time and with respect to any
property, the sale value of such property that would be realized in an
arm's-length sale at such time between an informed and willing buyer and an
informed and willing seller (neither being under a compulsion to buy or sell).

"First Intercreditor Agreement Supplement" means the First Supplement
dated as of October 1, 2000, substantially in the form attached hereto as
Exhibit 1(c)-2.

"Four-Quarter Period" means with respect to any Person any period of
four consecutive fiscal quarters of such Person.

"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.

"Governmental Authority" means

(a)  the government of

(i)  the United States of America or any State or other
political subdivision thereof, or

(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or which asserts
jurisdiction over any properties of the Company or any
Subsidiary, or

(b)  any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.

"Guarantee Agreements" is defined in Section 1.

"Guarantors" is defined in Section 1.

"Guaranty" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
Indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:

(a)  to purchase such Indebtedness or obligation or any property
constituting security therefor;

(b)  to advance or supply funds (i) for the purchase or payment
of such Indebtedness or obligation, or (ii) to maintain any working
capital or other balance sheet

B-8

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

condition or any income statement condition of any other Person or
otherwise to advance or make available funds for the purchase or
payment of such Indebtedness or obligation;

(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of any other Person to make payment of the
Indebtedness or obligation; or

(d) otherwise to assure the owner of such Indebtedness or
obligation against loss in respect thereof.

In any computation of the Indebtedness or other liabilities of the obligor under
any Guaranty, the Indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.

"Hazardous Material" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).

The term "holder" means, with respect to any Note, the Person in whose
name such Note is registered in the register maintained by the Company pursuant
to Section 13.1.

"Indebtedness" with respect to any Person means, at any time, without
duplication,

(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock;

(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising in
the ordinary course of business but including all liabilities created
or arising under any conditional sale or other title retention
agreement with respect to any such property);

(c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capital Leases;

(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities);

B-9

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(e) all its liabilities in respect of letters of credit or instruments
serving a similar function issued or accepted for its account by banks and
other financial institutions (whether or not representing obligations for
borrowed money);

(f) Swaps of such Person; and

(g) any Guaranty of such Person with respect to liabilities of a type
described in any of clauses (a) through (f) hereof.

Indebtedness of any Person shall include all obligations of such Person of the
character described in clauses (a) through (g) to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
deemed to be extinguished under GAAP.

"Institutional Investor" means (a) any original purchaser of a Note, (b)
any holder of a Note holding more than 2% of the aggregate principal amount of
the Notes of either Series then outstanding, and (c) any bank, trust company,
savings and loan association or other financial institution, any pension plan,
any investment company, any insurance company, any broker or dealer, or any
other similar financial institution or entity, regardless of legal form.

"Intercreditor Agreement" is defined in Section 1(c).

"Intercreditor Agreement Joinder" is defined in Section 20.1.

"Investment" of any Person means any investment, made in cash or by
delivery of property, by such Person or any of its Subsidiaries (i) in any other
Person, whether by acquisition of stock, Indebtedness or other obligation or
Security, or by loan, Guaranty, advance, capital contribution or otherwise, or
(ii) in any property.

"Letter of Credit Facility" means Facility B under the Credit Agreement in
a maximum amount of $20,000,000 at any time outstanding for letters of credit
supporting Debt incurred in connection with (w) performance bonds or letters of
credit issued in the ordinary course of business or reimbursement obligations in
respect thereof, (x) obligations in respect of Swaps, (y) obligations (including
reimbursement obligations in respect of letters of credit) related to workmen's
compensation insurance and (z) bank overdrafts, provided that no such overdraft
shall remain outstanding for a period of more than three Business Days.

"Lien" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).

"Make-Whole Amount" is defined in Section 8.7.

B-10

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

"Material" means with respect to any Constituent Company material in
relation to the business, operations, affairs, financial condition, assets,
properties, or prospects of such Constituent Company and its Subsidiaries taken
as a whole.

"Material Adverse Effect" means with respect to any Constituent Company a
material adverse effect on (a) the business, operations, affairs, financial
condition, assets or properties of such Constituent Company and its Subsidiaries
taken as a whole, or (b) the ability of such Constituent Company to perform its
obligations under the Basic Documents, or (c) the validity or enforceability of
the Basic Documents.

"Meenan Acquisition" means the purchase by Petro, Inc. of (i) all of the
limited partnership interests in Meenan Oil Co., L.P., a Delaware limited
partnership, (ii) all of the capital stock of Meenan Oil Co., Inc., a Delaware
corporation (and the sole general partner of Meenan Oil Co. L.P. and majority
shareholder of Blueray Systems, Inc.), and (iii) directly or indirectly, all of
the shares of capital stock of Blueray Systems, Inc., a Delaware corporation.

"Memorandum" is defined in Section 5.3.

"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such
term is defined in section 4001(a)(3) of ERISA).

"Net Proceeds" means, with respect to capital stock, with respect to any
period, cash proceeds (net of all costs and out-of-pocket expenses in connection
therewith, including, without limitation, placement, underwriting and brokerage
fees and expenses), received by Petro Holdings and its Subsidiaries during such
period, from the sale of all capital stock (other than Redeemable capital stock)
of Petro Holdings, including in such net proceeds:

(a) the net amount paid upon issuance and exercise during such period
of any right to acquire any capital stock, or paid during such period to
convert a convertible debt Security to capital stock (but excluding any
amount paid to Petro Holdings upon issuance of such convertible debt
Security); and

(b) any amount paid to Petro Holdings upon issuance of any convertible
debt Security issued after April 1, 1999, and thereafter converted to
capital stock during such period.

"Net Proceeds Amount" means, with respect to any Transfer of any Property
by any Person, an amount equal to the difference of

(a) the aggregate amount of the consideration (valued at the Fair
Market Value of such consideration at the time of the consummation of such
Transfer) received by such Person in respect of such Transfer, minus

B-11

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(b)  all ordinary and reasonable out-of-pocket costs and expenses
actually incurred by such Person in connection with such Transfer.

"1999 Senior Notes" means the following Notes of the Company: the Exchanged
Senior Notes, the $11,000,000 aggregate original principal amount 7.56% Series A
Senior Secured Notes, due April 1, 2003, $8,000,000 aggregate original principal
amount 7.61% Series B Senior Secured Notes, due April 1, 2004, $10,000,000
aggregate original principal amount 7.71% Series C Senior Secured Notes, due
April 1, 2005, $3,000,000 aggregate original principal amount 7.82% Series D
Senior Secured Notes, due April 1, 2006, $38,000,000 aggregate original
principal amount 7.97% Series E Senior Secured Notes due April 1, 2007 and
$20,000,000 aggregate original principal amount 8.27% Series F Senior Secured
Notes due April 1, 2014.

"Notes" is defined in Section 1.

"Officer's Certificate" means a certificate of a Senior Financial Officer
or of any other officer of a Constituent Company whose responsibilities extend
to the subject matter of such certificate.

"Other Agreements" is defined in Section 2.

"Other Purchasers" is defined in Section 2.

"Parent Guarantee Agreement" is defined in Section 1.

"Parent Guarantors" is defined in Section 1.

"Parity Debt" means Senior Debt of the Company that (i)(x) is outstanding
on the date hereof or (y) is incurred within the limitations of Section
10.1.2(a)(i), (iii) or (v); (ii) is issued under and secured by the
Intercreditor Agreement and the other Security Documents and is supported by the
Guarantees; and (iii) does not have the benefit of any other security or
guarantees.

"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.

"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.

"Petro Holdings" means Petro Holdings, Inc., a Minnesota corporation.

"Petro, Inc." means Petro, Inc. a Delaware corporation and a Wholly-Owned
Subsidiary of the Company.

B-12

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

"Plan" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by any Constituent Company or any ERISA
Affiliate or with respect to which such Constituent Company or any ERISA
Affiliate may have any liability.

"Preferred Stock" means any class of capital stock of a corporation that is
preferred over any other class of capital stock of such corporation as to the
payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.

"Priority Debt" means the sum of (i) all Debt secured by Liens permitted by
Section 10.1.3(k) and (ii) all Debt of Subsidiaries permitted by Section
10.1.2(b)(z).

The terms "property" or "properties" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.

"Pro Forma Basis" means the adjustment of any item of income or expense of
any Person for any period as follows:

(1) if such Person or any of its Subsidiaries has incurred, repaid,
discharged or defeased any Debt since the beginning of such period,
Consolidated Operating Cash Flow and Consolidated Interest Expense of such
Person for such period will be calculated after giving effect on a pro
forma basis to (A) the incurrence of any Debt as if such Debt had been
incurred on the first day of such period, (B) the discharge of any other
Debt repaid, repurchased, defeased or otherwise discharged as if such
discharge had occurred on the first day of such period, and (C) the
interest income realized by such Person and its Subsidiaries on the
proceeds of such Debt, to the extent not yet applied at the date of
determination, assuming such proceeds earned interest at the rate of 5% per
annum from the date such proceeds were received through such date of
determination,

(2) if since the beginning of such period such Person or any of its
Subsidiaries will have made any Asset Disposition, Consolidated Operating
Cash Flow for such period will be reduced by an amount equal to
Consolidated Operating Cash Flow (if positive) directly attributable to the
assets which are the subject of such Asset Disposition for such period, or
increased by an amount equal to Consolidated Operating Cash Flow (if
negative), directly attributable thereto for such period, and Consolidated
Interest Expense for such period will be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Debt of such
Person or any of its Subsidiaries repaid, repurchased, defeased or
otherwise discharged with respect to such Person and its continuing
Subsidiaries in connection with such Asset Dispositions for such period
(or, if the capital stock of any of its Subsidiaries is sold, the
Consolidated Interest Expense for such period directly attributable to the
Debt of such Subsidiary to the extent such Person and its continuing
Subsidiaries are no longer liable for such Debt after such sale),

B-13

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(3) if since the beginning of such period such Person or any of its
Subsidiaries (by merger or otherwise) will have made an Investment in any
Subsidiary (or any Person which becomes a Subsidiary) or an acquisition of
assets, including any acquisition of assets occurring in connection with a
transaction causing a calculation to be made hereunder, which constitutes
all or substantially all of the assets of an operating unit of a business,
Consolidated Interest Expense for such period will be calculated after
giving pro forma effect thereto (including the incurrence of any Debt) as
if such Investment or acquisition occurred on the first day of such period
and

(4) Consolidated Net Income will be calculated without reduction for
expenses incurred in connection with the Restructuring Transactions.

For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Debt incurred in
connection therewith, such pro forma calculations will be determined in good
faith by the Senior Financial Officer of such Person; provided, however, that
such officer shall assume (i) the historical sales and gross profit margins
associated with such assets for the most recent consecutive 12-month period
ended prior to the date of purchase for which financial statements are available
(provided that the first month of such period will be no more than 18 months
prior to such date of purchase), less estimated post-acquisition loss of
customers (not to be less than 5%) and (ii) other expenses as if such assets had
been owned by such Person since the first day of such period. If any Debt bears
a floating rate of interest and is being given pro forma effect, the interest on
such Debt will be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period.

"Property Reinvestment Application" means, with respect to any Transfer of
property, the application of an amount equal to the Net Proceeds Amount with
respect to such Transfer to the acquisition by Petro Holdings or any of its
Subsidiaries of operating assets of Petro Holdings or any of its Subsidiaries to
be used in the principal business of such Person.

"PTE" is defined in Section 6.2.

"QPAM Exemption" means Prohibited Transaction Class Exemption 84-14 issued
by the United States Department of Labor.

"Redeemable" means, with respect to the capital stock of any Person, each
share of such Person's capital stock that is:

(a) redeemable, payable or required to be purchased or otherwise
retired or extinguished, or convertible into Debt of such Person (i) at a
fixed or determinable date, whether by operation of sinking fund or
otherwise, (ii) at the option of any Person other than such Person, or
(iii) upon the occurrence of a condition not solely within the control of
such Person; or

B-14

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(b) convertible into other Redeemable capital stock.

"Remaining Average Life" is defined in Section 8.7.

"Required Holders" of any Series means, at any time, the holders of at
least 66-2/3% in principal amount of the Notes of such Series at the time
outstanding (exclusive of Notes then owned by the Company or any of its
Affiliates).

"Responsible Officer" means any Senior Financial Officer and any other
officer of a Constituent Company with responsibility for the administration of
the relevant portion of this Agreement.

"Restricted Investments" of any Person means all Investments except the
following:

(a) property to be used in the ordinary course of business of such
Person and its Subsidiaries including Investments acquired for hedging
purposes and not for speculative purposes (and not necessarily hedging for
GAAP purposes) (i) for purposes of Section 10.1.4 applicable to Petro
Holdings and its Subsidiaries, to hedge home heating oil prices, provided
that the number of gallons of home heating oil hedged (on a net basis)
shall not exceed the greater of (x) 200 million gallons of home heating
oil, and (y) the number of gallons of home heating oil that equals the
number of gallons of home heating oil that Petro Holdings and its
Subsidiaries has sold, based on maximum or fixed pricing, and (ii) for
purposes of Section 10.2.1 applicable to Star Partners and its Subsidiaries
(other than Petro Holdings and its Subsidiaries), to hedge commodity prices
for commodities sold by such Person and its Subsidiaries;

(b) current assets arising from the sale of goods and services in the
ordinary course of business of such Person and its Subsidiaries;

(c) Investments in one or more Wholly-Owned Subsidiaries of such
Person or any other Person that concurrently with such Investment becomes a
Wholly-Owned Subsidiary of such first Person or merged into or consolidated
with such first Person or a Wholly-Owned Subsidiary of such first Person;

(d) Investments existing on the date of the Closing and disclosed in
Schedule 10.1.4;

(e) Investments in United States Governmental Securities, provided
that such obligations mature within 365 days from the date of acquisition
thereof;

(f) Investments in certificates of deposit or banker's acceptances
issued by an Acceptable Bank, provided that such obligations mature within
365 days from the date of acquisition thereof;

B-15

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(g) Investments in commercial paper given the highest rating by a
credit rating agency of recognized national standing and maturing not more
than 270 days from the date of creation thereof;

(h) Investments in Repurchase Agreements;

(i) Investments in tax-exempt obligations of any state of the United
States of America, or any municipality of any such state, in each case
rated "AA" or better by S&P, "Aa2" or better by Moody's or an equivalent
rating by any other credit rating agency of recognized national standing,
provided that such obligations mature within 365 days from the date of
acquisition thereof; and

(j) Investments in acquisitions of business entities or assets
comprising lines of business or business entities for which such first
Person pays only in common stock or other common equity of such Person.

As of any date of determination, each Restricted Investment of such Person shall
be valued at the greater of:

(x) the amount at which such Restricted Investment is shown on the
books of such Person or any of its Subsidiaries (or zero if such Restricted
Investment is not shown on any such books); and

(y) either

(i)  in the case of any Guaranty of the obligation of any other
Person, the amount which such first Person or any of its Subsidiaries
has paid on account of such obligation less any recoupment by such
first Person or such Subsidiary of any such payments, or

(ii) in the case of any other Restricted Investment, the excess
of (x) the greater of (A) the amount originally entered on the books
of such Person or any of its Subsidiaries with respect thereto and (B)
the cost thereof to such Person or its Subsidiary over (y) any return
of capital (after income taxes applicable thereto) upon such
Restricted Investment through the sale or other liquidation thereof or
part thereof or otherwise.

As used in this definition of "Restricted Investments":

"Acceptable Bank" means any bank or trust company (i) which is
organized under the laws of the United States of America or any State
thereof, (ii) which has capital, surplus and undivided profits aggregating
at least $500,000,000, and (iii) whose long-term unsecured debt obligations
(or the long-term unsecured debt obligations of the bank

B-16

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

holding company owning all of the capital stock of such bank or trust
company) shall have been given a rating of "A" or better by S&P, "A2" or
better by Moody's or an equivalent rating by any other credit rating agency
of recognized national standing.

"Acceptable Broker-Dealer" means any Person other than a natural
person (i) which is registered as a broker or dealer pursuant to the
Exchange Act and (ii) whose long-term unsecured debt obligations shall have
been given a rating of "A" or better by S&P, "A2" or better by Moody's or
an equivalent rating by any other credit rating agency of recognized
national standing.

"Moody's" means Moody's Investors Service, Inc.

"Repurchase Agreement" means any written agreement

(a) that provides for (i) the transfer of one or more United
States Governmental Securities in an aggregate principal amount at
least equal to the amount of the Transfer Price (defined below) to
such Person or any of its Subsidiaries from an Acceptable Bank or an
Acceptable Broker-Dealer against a transfer of funds (the "Transfer
Price") by such Person or such Subsidiary to such Acceptable Bank or
Acceptable Broker-Dealer, and (ii) a simultaneous agreement by such
Person or such Subsidiary, in connection with such transfer of funds,
to transfer to such Acceptable Bank or Acceptable Broker-Dealer the
same or substantially similar United States Governmental Securities
for a price not less than the Transfer Price plus a reasonable return
thereon at a date certain not later than 365 days after such transfer
of funds,

(b) in respect of which such Person or such Subsidiary shall have
the right, whether by contract or pursuant to applicable law, to
liquidate such agreement upon the occurrence of any default
thereunder, and

(c) in connection with which such Person or such Subsidiary, or
an agent thereof, shall have taken all action required by applicable
law or regulations to perfect a Lien in such United States
Governmental Securities.

"S&P" means Standard & Poor's Ratings Group, a Division of The McGraw
Hill Companies, Inc.

"United States Governmental Security" means any direct obligation of,
or obligation guaranteed by, the United States of America, or any agency
controlled or supervised by or acting as an instrumentality of the United
States of America pursuant to authority granted by the Congress of the
United States of America, so long as such obligation or guarantee shall
have the benefit of the full faith and credit of the United

B-17

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

States of America which shall have been pledged pursuant to authority
granted by the Congress of the United States of America.

"Restricted Payment" of any Person means

(a)  any Distribution in respect of such Person or any Subsidiary of
such Person (other than on account of capital stock or other equity
interests of a Subsidiary of such Person owned legally and beneficially by
such Person or another Subsidiary of such Person), including, without
limitation, any Distribution resulting in the acquisition by such Person of
Securities which would constitute treasury stock, and

(b)  any payment, repayment, redemption, retirement, repurchase or
other acquisition, direct or indirect, by such Person or any Subsidiary of
such Person of, on account of, or in respect of, the principal of any
Subordinated Debt (or any installment thereof) prior to the regularly
scheduled maturity date thereof (as in effect on the date such Subordinated
Debt was originally incurred).

For purposes of this Agreement, the amount of any Restricted Payment made in
property shall be the greater of (x) the Fair Market Value of such property (as
determined in good faith by the board of directors (or equivalent governing
body) of the Person making such Restricted Payment) and (y) the net book value
thereof on the books of such Person, in each case determined as of the date on
which such Restricted Payment is made.

"Restructuring Transactions" means a series of related transactions
consummated on or about April 1, 1999 pursuant to which (i) the Company became a
99.99% owned subsidiary of Petro Holdings; (ii) Petro Holdings became an
indirect wholly-owned subsidiary of Star Partners; (iii) Star/Petro (an indirect
Subsidiary of Star Partners and the direct parent of Petro Holdings) became an
additional obligor under Star Propane's 8.04% First Mortgage Notes and 7.17%
First Mortgage Notes; and (iv) Star Gas LLC replaced Star Gas Corporation as the
sole general partner of Star Partners and Star Propane, all as more fully
described in the annual report of Star Partners on Form 10-K for its fiscal year
ended September 30, 1999 in footnote 2 to consolidated financial statements.

"Sale-and-Leaseback Transaction" means a transaction or series of
transactions pursuant to which Petro Holdings or any Subsidiary of Petro
Holdings shall sell or transfer to any Person (other than Petro Holdings or a
Subsidiary of Petro Holdings) any property, whether now owned or hereafter
acquired, and, as part of the same transaction or series of transactions, Petro
Holdings or any Subsidiary of Petro Holdings shall rent or lease as lessee, or
similarly acquire the right to possession or use of, such property or one or
more properties which it intends to use for the same purpose or purposes as such
property.

"Second Intercreditor Agreement Supplement" means the Second Supplement
dated as of June 1, 2001, substantially in the form attached hereto as Exhibit
1(c)-3.

B-18

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

"Second Restated Credit Agreement" means the Second Amended and Restated
Credit Agreement dated as of June 15, 2001 among the Company, the Agent and the
Banks.

"Securities Act" means the Securities Act of 1933, as amended from time to
time.

"Security" has the meaning set forth in section 2(a)(1) of the Securities
Act.

"Security Documents" is defined in the Intercreditor Agreement.

"Senior Debt" means Debt which Petro Holdings or any of its Subsidiaries is
permitted to have outstanding at any time under the provisions of the Agreement,
except Subordinated Debt. Senior Debt, however, shall not include (a)
Indebtedness or amounts owed for compensation to employees, or for goods or
materials purchased in the ordinary course of business, or for services or (b)
Indebtedness of the Company to a Subsidiary or Affiliate for money borrowed or
advances from such Subsidiary or Affiliate.

"Senior Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or comptroller of a Constituent Company.

"Series" of Notes means the Series A Notes or the Series B Notes.

"Series A Notes" and "Series B Notes" are defined in Section 1.

"Source" is defined in Section 6.2.

"Star Gas LLC" means Star Gas LLC, a Delaware limited liability company and
the general partner of Star Partners and Star Propane.

"Star Partners" means Star Gas Partners, L.P., a Delaware limited
partnership.

"Star Partners Public Offering" means the $60 million public offering of
limited partner interests in Star Partners under Star Partners' existing $200
million shelf registration statement, the proceeds of which offering will be
indirectly contributed to Petro, Inc., to be used to pay the purchase price to
be paid by Petro, Inc. in the Meenan Acquisition.

"Star/Petro" means Star/Petro, Inc., a Minnesota corporation.

"Star Propane" means Star Gas Propane, L.P., a Delaware limited
partnership.

"Subordinated Debt" with respect to the Company means any Debt of the
Company which is subordinate to the Notes and with respect to each Guarantor
means any Debt of such Guarantor which is subordinate to the obligations of such
Guarantor under the Guarantee Agreement to which it is a party.

B-19

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

"Subsidiary" means, as to any Person, any corporation, association or other
business entity in which such Person or one or more of its Subsidiaries or such
Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Any reference to a "Subsidiary" is a reference to a Subsidiary of
the Constituent Company suggested by the context. Star Propane shall be deemed
to be a Subsidiary of Star Partners so long as Star Partners owns a majority of
the limited partnership interests in Star Propane and Star Gas LLC is the sole
general partner of Star Propane.

"Subsidiary Guarantee Agreement" is defined in Section 1.

"Subsidiary Guarantor" is defined in Section 1.

"Subsidiary Stock" means, with respect to any Person, the stock (or any
options or warrants to purchase stock or other Securities exchangeable for or
convertible into stock) of any Subsidiary of such Person.

"Successor Corporation" is defined in Section 10.1.7.

"Successor Entity" is defined in Section 10.2.2.

"Swaps" means, with respect to any Person, payment obligations with respect
to interest rate swaps and similar obligations obligating such Person to make
payments, whether periodically or upon the happening of a contingency. For the
purposes of this Agreement, the amount of the obligation under any Swap shall be
the amount determined in respect thereof as of the end of the then most recently
ended fiscal quarter of such Person, based on the assumption that such Swap had
terminated at the end of such fiscal quarter, and in making such determination,
if any agreement relating to such Swap provides for the netting of amounts
payable by and to such Person thereunder or if any such agreement provides for
the simultaneous payment of amounts by and to such Person, then in each such
case, the amount of such obligation shall be the net amount so determined.

"Transfer" means, with respect to any Person, any transaction in which such
Person sells, conveys, transfers or leases (as lessor) any of its property,
including, without limitation, Subsidiary Stock. For purposes of determining the
application of the Net Proceeds Amount in respect of any Transfer, the Company
may designate any Transfer as one or more separate Transfers each yielding a
separate Net Proceeds Amount. In any such case, the Disposition Value of any
property subject to each such separate Transfer shall be determined by ratably

B-20

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

allocating the aggregate Disposition Value of all property subject to all such
separate Transfers to each such separate Transfer on a proportionate basis.

"2000 Senior Notes" means the following Notes of the Company: $10,000,000
aggregate original principal amount 8.83% Series A Senior Secured Notes due
November 1, 2004; $10,000,000 aggregate original principal amount 8.88% Series B
Senior Secured Notes due November 1, 2005; and $20,000,000 aggregate original
principal amount 9.07% Series C Senior Secured Notes due November 1, 2010.

"Weighted Average Life to Maturity" of any Debt means the number of years
(calculated to the nearest one-twelfth year) obtained by dividing (i) the
principal amount of such Debt into (ii) the sum of the products obtained by
multiplying (a) the principal component of each mandatory prepayment, sinking
fund or installment with respect to such Debt by (b) the number of years
(calculated to the nearest one-twelfth year) that will elapse between the date
of determination and the scheduled due date of such mandatory prepayment,
sinking fund or installment with respect to such Debt.

"Wholly-Owned Subsidiary" means, at any time as to any Constituent Company,
any Subsidiary of such Constituent Company 100% of all of the equity interests
(except directors' qualifying shares) and voting interests of which are owned by
any one or more of such Constituent Company and such Constituent Company's other
Wholly-Owned Subsidiaries at such time. Notwithstanding the foregoing, the
Company shall be deemed to be a Wholly-Owned Subsidiary of Star Partners and
Petro Holdings so long as Petro Holdings owns at least 99% of all of the equity
interests and voting interests in the Company.

"Working Capital Facility" means Facility A under the Credit Agreement
providing for loans for working capital.

B-21

Subsidiaries of the Constituent Companies and Ownership of Subsidiary Stock

1. Star Partners' Subsidiaries

JURISDICTION OF                     OWNERSHIP
NAME                                    FORMATION                               %
--------------------------------------- -----------------------------   -----------------

Star Gas Propane, L.P.                  Delaware Partnership                 99.99%
Total Gas & Electric Co.                Florida Corporation                   72.7%

2. Star Partners' Affiliates

JURISDICTION OF
NAME                                    INCORPORATION                        100% OWNED BY
--------------------------------------- -----------------------------   ----------------------------------

Star/Petro, Inc.                        Minnesota                       Star Gas Propane, L.P.
Stellar Propane Service Corp.           New York                        Star/Petro, Inc.
Petro Holdings, Inc.                    Minnesota                       Star/Petro, Inc.
Winico, Inc.                            Ohio                            Star/Petro, Inc.
Jark, Inc.                              Ohio                            Star/Petro, Inc.
Ohio Gas & Appliance Co., Inc.          Ohio                            Star/Petro, Inc.
Petroleum Heat and Power Co., Inc.      Minnesota                       Petro Holdings, Inc.
Ortep of Connecticut, Inc.              Connecticut                     Petroleum Heat and Power Co., Inc.
Ortep of Pennsylvania, Inc.             Pennsylvania                    Petroleum Heat and Power Co., Inc.
Ortep of New Jersey, Inc.               New Jersey                      Petroleum Heat and Power Co., Inc.
Maxwhale Corp.                          Minnesota                       Petroleum Heat and Power Co., Inc.
Star Gas Corporation                    Delaware                        Petroleum Heat and Power Co., Inc.
Petro, Inc.                             Delaware                        Petroleum Heat and Power Co., Inc.
Petro Crystal Corp.                     New York                        Petroleum Heat and Power Co., Inc.
Marex Corporation                       Maryland                        Petro, Inc.
A.P. Woodson Company                    Washington, D.C.                Petro, Inc.
SyLuba, Inc.                            New York                        Petro, Inc.

3. Star Partners' Senior Officers

Irik P. Sevin                   Chief Financial Officer
William Powers                  Executive Vice President
Joseph Cavanaugh                Executive Vice President
George Leibowitz                Chief Financial Officer
Richard Ambury                  Vice President/Treasurer
James Bottiglieri               Vice President
Audrey L. Sevin                 Secretary

Schedule 5.4
(to Note Purchase Agreement)

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

4. Petro Holdings' Senior Officers and Directors

Officers

Irik P. Sevin                           Chairman and CEO
James Bottiglieri                       Vice President
George Leibowitz                        Treasurer
Audrey L. Sevin                         Secretary
William G. Powers, Jr.                  President and COO
C. Justin McCarthy                      Vice President

Directors

Irik P. Sevin
Audrey L. Sevin

5. The Company's Senior Officers and Directors

Officers

Irik P. Sevin                           Chairman and Chief Executive Officer
William G. Powers, Jr.                  President and COO
C. Justin McCarthy                      Vice-President
James Bottiglieri                       Vice-President
Angelo Catania                          Vice-President
Mathew Ryan                             Vice-President
John D. Ryan                            Vice-President
Peter B. Terenzio                       Vice-President
George Leibowitz                        Treasurer
Audrey L. Sevin                         Secretary

Directors

Irik P. Sevin
Audrey L. Sevin

5.4-2

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

6. Star Gas LLC Senior Officers and Directors

Officers

Irik P. Sevin                          Chief Executive Officer
William Powers/Joseph P. Cavanaugh     Office of the President
William Powers                         Executive Vice-President
Joseph Cavanaugh                       Executive Vice-President
George Leibowitz                       Chief Financial Officer
Mathew Ryan                            Vice-President (Supply)
Richard Ambury                         Vice-President/Treasurer
James Bottiglieri                      Vice-President/Controller
Audrey L. Sevin                        Secretary

Directors

Paul Biddelman
Irik P. Sevin
Audrey L. Sevin
I. Joseph Massoud
Stephen Russell
Thomas Edelman
William Nicoletti

7. Star Propane Senior Officers

Officers

Joseph Cavanaugh                       President and CEO
Richard Ambury                         Vice President - Finance
Bill Corbin                            Vice President - Operations
Edwin Miller                           Vice President - Safety and Compliance
Audrey L. Sevin                        Secretary

5.4-3

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

8. Total Gas & Electric, Inc. Senior Officers and Directors

Officers

Bill Kinneary                            Chairman and Chief Executive Officer
Phillip Baratz                           President
Richard Ambury                           Vice-President
George Leibowitz                         Treasurer
Audrey L. Sevin                          Secretary

Directors

Irik P. Sevin
Bill Kinneary
Phillip Baratz
Richard Rudin

Star/Petro Senior Officers and Directors

Officers

Irik P. Sevin                            President
James Bottiglieri                        Vice-President
George Leibowitz                         Treasurer
Audrey L. Sevin                          Secretary
Richard Ambury                           Vice-President

Directors

Irik P. Sevin
Audrey L. Sevin

5.4-4

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Restrictions On Distributions Pursuant to Section 5.4(d)

Star Propane First Mortgage Notes
Star/Petro, Inc. First Mortgage Notes
Star Propane Credit Facility
9% Senior Secured Notes
14.10% Senior and Subordinated Notes
Senior Secured Notes - $90 million
Senior Secured Notes - $40 million
Petro Credit Facility

5.4-5

Financial Statements

1.   Unaudited financial statements of Petro Holdings for the six months ended
March 31, 2001 and March 31, 2000.

2.   Audited financial statements of Petro Holdings for the fiscal year ended
September 30, 2000.

3.   Audited financial statements of Petro Holdings for the nine months ended
September 30, 1999.

4.   SEC Form 10-K of Star Partners for the fiscal year ended September 30,
1999.

5.   SEC Form 10-K of the Company for the fiscal year ended September 30, 2000.

6.   SEC Form 10-Q of Star Partners for the fiscal quarter ended March 31, 2001.

Schedule 5.5
(to Note Purchase Agreement)

Existing Indebtedness as of June 30, 2001

Indebtedness of Star Partners and its Subsidiary Star Propane

Amount in
000's
----------

Star Propane First Mortgage Notes                                         $  57,000
Star/Petro, Inc. First Mortgage Notes                                        95,543
----------
$ 152,543
----------

Indebtedness of Star Partners And its Subsidiary Star Propane

1.  9% Senior Secured Notes Due October 1, 2002                           $  57,170
2.  10.25% Senior and Subordinated Notes Due January 15, 2001                 2,000
3.  Senior Secured Notes                                                     90,000
a.     $11,000,000 7.56% Series A Senior Secured Notes due 2003
b.     $8,000,000 7.61% Series B Senior Secured Notes due 2004
c.     $10,000,000 7.71% Series C Senior Secured Notes due 2005
d.     $3,000,000 7.82% Series D Senior Secured Notes due 2006
e.     $38,000,000 7.97% Series E Senior Secured Notes due 2007
f.     $20,000,000 8.27% Series F Senior Secured Notes due 2014
4.  Senior Secured Notes                                                     40,000
a.     $10,000,000 8.83% Series A Senior Secured Notes due 2004
b.     $10,000,000 8.88% Series A Senior Secured Notes due 2005
c.     $20,000,000 9.07% Series C Senior Secured Notes due 2010
5.  9-3/8% Subordinated Debentures due 2006                                     666
6.  10-1/8% Subordinated Notes due 2003                                       1,261
7.  12-1/4% Subordinated Debentures due 2005                                  1,088
8.  Private Acquisition Notes                                                 4,120
9.  Bank Acquisition Facility Borrowings                                     30,000
10.  Bank Working Capital Facility Borrowing                               $   8,000
----------
$ 234,305
----------

Indebtedness of Star Partners Subsidiary Total Gas & Electric Co.

Amount in
000's
----------

1.  Borrowings under Bank Acquisition Facility                            $   2,000
2.  Various Acquisition Notes Payable                                     $     563
3.  Bank Working Capital Facility Borrowing                               $   9,210
----------
$  11,773
----------

Schedule 5.15
(to Note Purchase Agreement)

Existing Investments

None

Schedule 10.1.4
(to Note Purchase Agreement)

[Form of Note]

Petroleum Heat and Power Co., Inc.

[__]/1/% Series [___] Senior Secured Note Due August 1, [_______]/2/

No. [_________]                                                          [Date]
$[____________]                                             PPN[____________]/3/

For Value Received, the undersigned, Petroleum Heat and Power Co., Inc.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Minnesota, hereby promises to pay to [________________], or
registered assigns, the principal sum of [________________] Dollars On August 1,
[______]/2/, with interest (computed on the basis of a 360-day year of twelve
30-day months) (a) on the unpaid balance thereof at the rate of [__]/1/% per
annum from the date hereof, payable semiannually, on the first day of each
February and August in each year, commencing with February 1, 2002, until the
principal hereof shall have become due and payable, and (b) to the extent
permitted by law on any overdue payment (including any overdue prepayment) of
principal, any overdue payment of interest and any overdue payment of any
Make-Whole Amount (as defined in the Note Purchase Agreements referred to
below), payable semiannually as aforesaid (or, at the option of the registered
holder hereof, on demand), at a rate per annum from time to time equal to the
greater of (i) [__]/4/% or (ii) 4.5% over the rate of interest publicly
announced by Bank of America from time to time in Charlotte, North Carolina, as
its "reference" rate.

Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at the principal office of HSBC Bank USA in New York, New York.

This Note is one of several series of promissory notes (herein called
the "Notes") issued pursuant to separate Note Purchase Agreements, each dated as
of July 30, 2001 (as from time to time amended, the "Note Agreements"), between
the Company and the respective Purchasers named therein and is entitled to the
benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, to have made the representation set forth in Section 6.2 of the Note
Agreements, provided that such holder may (in reliance upon information provided
by the Company, which shall not be unreasonably withheld) make a representation
to the effect that the

________________________________

/1/    8.05% in the Series A Notes and 8.73% in the Series B Notes.

/2/    2006 in the Series A Notes and 2013 in the Series B Notes.

/3/    716600 L@8 in the Series A Notes and 716600 L#6 in the Series B Notes.

/4/    10.05% in the Series A Notes and 10.73% in the Series B Notes.

Exhibit 1(a)
(to Note Purchase Agreement)

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

purchase by such holder of any Note will not constitute a non-exempt prohibited
transaction under section 406(a) of ERISA.

This Note is a registered Note and, as provided in the Note Agreements,
upon surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company will not be affected by any notice to the contrary.

This Note and the other Notes are, together with certain other
Indebtedness (as defined in the Note Agreements) of the Company, secured by the
Intercreditor and Trust Agreement dated as of March 25, 1999, as supplemented
from time to time (as so supplemented, the "Intercreditor Agreement") among the
Company, HSBC Bank USA (the "Trustee") and the other parties thereto and the
Security Documents referred to therein. Reference is made to the Intercreditor
Agreement, a copy of which is on file with the Trustee, for a description of the
security afforded thereby. The Notes also have the benefit of the Guarantee
Agreements (as defined in the Note Agreements).

This Note is subject to [required and]/1/ optional prepayment, in whole
or from time to time in part, at the times and on the terms specified in the
Note Agreements, but not otherwise.

If an Event of Default, as defined in the Note Agreements, occurs and
is continuing, the principal of this Note may be declared or otherwise become
due and payable in the manner, at the price (including any applicable Make-Whole
Amount (as defined in the Note Agreements)) and with the effect provided in the
Note Agreements.

______________________

/1/  Included only in Series of Notes subject to mandatory prepayments.

E-1(a)-2

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of New York
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.

Petroleum Heat and Power Co., Inc.

By
Name:
Title:

E-1(a)-3

Provisions of Intercreditor Agreement and Security Documents To Be Amended

Section 1(c) of the Intercreditor Agreement:

"Parity Debt" means indebtedness of Petro Holdings or the Company
incurred in accordance with Section 10.1.2(a)(i), (iii) or (v) of the Note
Exchange Agreements, Section 10.1.2(a)(i), (iii) or (v) of the New Note
Agreements, Section 8.2.2(a)(iv) of the Credit Agreement and corresponding
provisions of the other Parity Debt Agreements and secured by the Security
Documents pursuant to Section 10.1.3(l) of the Note Exchange Agreements,
Section 10.1.3(l) of the New Note Agreements, Section 5.10 of the Credit
Agreement and the corresponding provisions of the Parity Debt Agreements.

"Required Parity Debt Holders" means any holder or holders of 66-2/3%
or more of the aggregate principal amount of the Parity Debt at the time
outstanding.

"Requisite Percentage" means either of the following: (a) the holders
of more than 66-2/3% in aggregate principal amount of the Exchanged Senior
Notes, the New Notes, the Commitments (or, if an Event of Default (as
defined in the Credit Agreement) exists or the Company is otherwise
prohibited from being able to make draws under the Credit Agreement, the
Obligations and the Letter of Credit Exposure) and the Parity Debt,
collectively at the time outstanding or (b) the Required Exchanged Senior
Note Holders, the Required New Note Holders, the Required Parity Debt
Holders and the Required Lenders.

Section 4(c)(i) of the Intercreditor Agreement:

(c)  Sale or Other Disposition of Collateral. All proceeds received by
the Trustee on account of the sale, transfer or other disposition of any of
the Collateral by Petro Holdings, the Company or any Subsidiary in
accordance with Section 4.12 of the Company Security Agreement or Section
4.12 of the Petro Holdings Security Agreement, shall be applied as follows:

(i) such proceeds shall be held by the Trustee, provided that
such proceeds shall, unless a Default or Event of Default exists, be
paid over to Petro Holdings, the Company or such Subsidiary, as the
case may be, or as such entity may direct in writing upon receipt by
the Trustee of an Officer's Certificate certifying that the Company,
Petro Holdings or such Subsidiary, as the case may be, has applied
such proceeds in accordance with the provisions of Section 8.2.8(b) of
the Credit Agreement, the last paragraph of Section 10.1.6 of the Note
Exchange Agreements, Section 10.1.6 of the New Note Agreements and the
corresponding provisions of the Parity Debt Agreements and so long as
no Default or Event of Default exists; and

Exhibit 1(e)
(to Note Purchase Agreement)

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Section 8 of the Intercreditor Agreement:

Section 8.   Amendments, etc., of Security Documents.

In any case where the agreement or consent of the Trustee is required to
any amendment, modification, cancellation or termination of any of the Security
Documents, or in any case where the Trustee is required to give any consent,
waiver or approval under any of the Security Documents, the Trustee shall agree
or consent to such amendment, modification, cancellation or termination, or give
such consent, waiver or approval, with (but only with) the prior written consent
of the Requisite Percentage, provided that the Trustee shall not, without the
prior written consent of all Secured Parties, agree to (a) any change in the
definition of Requisite Percentage or the definition of Parity Debt, (b) any
change in the manner in which the proceeds of any Security, including, without
limitation, any proceeds received under any Guarantee Agreement are distributed,
(c) release all or substantially all of the Security or release all or
substantially all of the guarantors, or (d) any change in this section.

Section 21(b) of the Intercreditor Agreement:

(b) This Agreement may be changed, waived, discharged or terminated (other
than by operation of Section 17) only by an instrument in writing signed by the
Obligors, by the Trustee and by the Requisite Percentage, provided that this
Agreement shall not be changed, waived, discharged or terminated in such a
manner that (i) the definition of Parity Debt or Requisite Percentage is
changed, (ii) the manner in which proceeds of any Security, including, without
limitation the proceeds from any Guarantee Agreement, are distributed is
changed, (iii) all or substantially all of the Security is released or all or
substantially all of the guarantors is released, or (iv) this Section or Section
8 is changed or modified in any respect, without the prior written consent of
all of the Secured Parties and further provided that the consent of the Trustee
and the Obligors shall not be required for the amendment of any of the
provisions hereof which relate solely to the arrangements among the Secured
Parties.

In connection with any change, waiver, discharge or termination, the
Trustee shall be entitled to receive, and shall be fully protected in relying
upon, a certificate signed by the Requisite Percentage and an opinion of
counsel, each stating that the execution of any such change, waiver, discharge
or termination is authorized or permitted by this Agreement and that all
conditions precedent, if any, to the execution and delivery thereof have been
satisfied. Subject to the preceding sentence, the Trustee shall not sign any
change, waiver, discharge or termination if the same would adversely affect the
rights, duties, liabilities or immunities of the Trustee, unless the Secured
Parties shall have agreed to indemnify the Trustee for any such adverse affects.

E-1(e)-2

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Section 5(a)(vi) of the Form of Supplemental Agreement Attached as Exhibit E to
the Intercreditor Agreement:

(vi) appropriate duly executed termination statements (Form
UCC-3) signed by all persons disclosed on current financing statements
as secured parties in the jurisdictions referred to in clause (v)
above in form for filing under the UCC of such jurisdictions (except
with respect to liens permitted under Section 8.2.3 of the Credit
Agreement, Section 10.1.3 of the Note Exchange Agreements, Section
10.1.3 of the New Note Agreements and the corresponding provisions of
the Parity Debt Agreements);

Section 1.01 of the Company Security Agreement:

"Parity Debt Agreements" has the meaning specified in the Intercreditor
Agreement, as amended from time to time.

"Parity Debt" shall mean (a) the Company's obligations in respect of the
due and punctual payment of the principal of and interest on the Loans and all
amounts drawn under the Letters of Credit, when and as due, whether at maturity,
by acceleration, upon one or more dates set for prepayment or otherwise, (b) all
fees, expenses, indemnities and expense reimbursement obligations of the Company
under the Credit Agreement, the L/C-Related Documents or any other Loan
Document, (c) all other obligations, monetary or otherwise, of the Company or
any other Loan Party under any Loan Document to which it is a party and any
other document executed and delivered in connection therewith or herewith,
whether on account of principal, interest, reimbursement obligations, fees,
indemnitees, costs and expenses or otherwise, in each case, whether now owing or
hereafter existing, and whether or not currently contemplated, due or to become
due, direct or contingent, joint, several or independent, secured or unsecured
and whether matured or unmatured, (d) the principal of and premium, if any, and
interest on the Senior Notes, the New Notes and debt outstanding under the
Parity Debt Agreements, (e) all other obligations (monetary or otherwise) of the
Company or any other Loan Party under the Note Exchange Agreements, the New Note
Agreements, the Parity Debt Agreements, the Senior Notes, the New Notes, debt
outstanding under the Parity Debt Agreements and the Security Documents whether
now owing or hereafter existing, and whether or not currently contemplated, due
or to become due, direct or contingent, joint, several or independent, secured
or unsecured and whether matured or unmatured and (f) all indebtedness of the
Company and its Subsidiaries (i) permitted to be incurred under Section
8.2.2(a)(iv) of the Credit Agreement, Section 10.1(2)(a)(i), (iii) or (v) of the
Note Exchange Agreements, Section 10.1(2)(a)(i), (iii) or (v) of the New Note
Agreements and the corresponding provisions of the Parity Debt Agreements and
(ii) permitted to be secured in accordance with Section 5.10 of the Credit
Agreement, Section 10.1.3(l) of the Note Exchange Agreements, Section 10.1.3(l)
of the New Note Agreements and the corresponding provisions of the Parity Debt
Agreements.

E-1(e)-3

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

"Secured Obligations" of any Grantor shall mean, (a) in the case of the
Company, all Parity Debt, (b) in the case of all other Grantors, all amounts now
and hereafter payable by any such Grantor under the Subsidiaries Guarantee
Agreement, and (c) in the case of any Grantor, all expenses (including
reasonable counsel fees and expenses) incurred in enforcing any rights of the
Trustee and the Secured Parties against such Grantor under this Agreement.

Section 4.09 of the Company Security Agreement:

Section 4.09. Limitation on Liens on Collateral. No Grantor will create,
permit or suffer to exist, but will defend the Collateral and each Grantor's
rights with respect thereto against and take such other action as is necessary
to remove, any security interest, encumbrance, claim or other Lien in respect of
the Collateral other than the security interests created hereunder and the Liens
permitted under Section 8.2.3 of the Credit Agreement, Section 10.1.3 of the
Note Exchange Agreements, Section 10.1.3 of the New Note Agreements and the
corresponding provisions of the Parity Debt Agreements.

Section 4.12 of the Company Security Agreement:

Section 4.12. Limitations on Dispositions of Collateral. Unless an Event of
Default shall have occurred and be continuing, each Grantor may sell, transfer,
lease or otherwise dispose of any of the Collateral, or attempt, offer or
contract to do so to the extent not expressly prohibited by Sections 8.2.7 and
8.2.8 of the Credit Agreement, Sections 10.1.6 and 10.1.7 of the Note Exchange
Agreements, Sections 10.1.6 and 10.1.7 of the New Note Agreements and the
corresponding provisions of the Parity Debt Agreements upon which occurrence,
the Trustee shall grant a release thereof from the Lien of this Agreement in
accordance with Section 2.06 hereof; provided that nothing contained herein
shall limit the security interests granted in the Proceeds thereof and provided
further that, to the extent required by the Intercreditor Agreement, such
Grantor, if at the time of such sale, transfer or other disposition, such
Grantor would not have been permitted to sell, transfer or otherwise dispose of
such Collateral pursuant to Section 8.2.7 of the Credit Agreement, Section
10.1.6 of the Note Exchange Agreements, Section 10.1.6 of the New Note
Agreements or the corresponding provisions of the Parity Debt Agreements without
a subsequent application of the proceeds of such sale to acquisition of assets
or the prepayment of outstanding indebtedness in accordance with Section
8.2.8(b)(2) of the Credit Agreement, the last paragraph of Section 10.1.6 of the
Note Exchange Agreements, the last paragraph of Section 10.1.6 of the New Note
Agreements or the corresponding provisions of the Parity Debt Agreements, then
concurrently with such Grantor sale, transfer or other disposition, such Grantor
shall have deposited such Proceeds with the Trustee. The inclusion of Proceeds
of the Collateral under the security interests granted hereby shall not be
deemed a consent by the Trustee to any sale or disposition of any Collateral
other than as permitted by this Section 4.12.

E-1(e)-4

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Sections 5.01(a)(i) and (ii) of the Company Security Agreement:

Section 5.01. Right To Receive Distributions on Pledged Collateral and
Investment Property; Voting. (a) So long as no Event of Default shall have
occurred and be continuing:

(i)  Each Grantor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Securities and Investment
Property or any part thereof for any purpose permitted by the terms of this
Agreement, the Credit Agreement, the Note Exchange Agreements, the New Note
Agreements and the corresponding provisions of the Parity Debt Agreements.

(ii) Each Grantor shall be entitled to receive and retain any and all
dividends, interest and principal paid in cash on the Pledged Securities
and Investment Property to the extent and only to the extent that such cash
dividends, interest and principal are permitted by, and otherwise paid in
accordance with, the terms and conditions of the Credit Agreement, the Note
Exchange Agreements, the New Note Agreements, the Parity Debt Agreements
and applicable laws. Other than pursuant to the first sentence of this
paragraph (a)(ii), all principal, all noncash dividends, interest and
principal, and all dividends, interest and principal paid or payable in
cash or otherwise in connection with a partial or total liquidation or
dissolution, return of capital, capital surplus or paid-in surplus, and all
other distributions made on or in respect of Pledged Securities or
Investment Property, whether paid or payable in cash or otherwise, whether
resulting from a subdivision, combination or reclassification of the
outstanding Capital Stock of the issuer of any Pledged Securities or
Investment Property or received in exchange for Pledged Securities or
Investment Property or any part thereof, or in redemption thereof, or as a
result of any merger, consolidation, acquisition or other exchange of
assets to which such issuer may be a party or otherwise, shall be and
become part of the Collateral, and, if received by a Grantor, shall not be
commingled by such Grantor with any of its other funds or property but
shall be held separate and apart therefrom, shall be held in trust for the
benefit of the Trustee and shall be forthwith delivered to the Trustee in
the form in which received (with any necessary endorsement).

Irrevocable Proxy (Form attached as Exhibit B to Company Security Agreement).

The form of proxy attached as Exhibit B to the Company Security Agreement will
be amended by adding a reference to the Parity Debt Agreements and the debt
outstanding thereunder to the enumeration of the instruments that must be
satisfied before the proxy can be revoked, and the outstanding proxies will be
replaced with new proxies in that form.

Section 1.01 of Holdings Security Agreement:

"Parity Debt Agreements" has the meaning specified in the Intercreditor
Agreement, as amended from time to time.

E-1(e)-5

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

"Parity Debt" shall mean (a) the Company's obligations in respect of the
due and punctual payment of the principal of and interest on the Loans and all
amounts drawn under the Letters of Credit, when and as due, whether at maturity,
by acceleration, upon one or more dates set for prepayment or otherwise, (b) all
fees, expenses, indemnities and expense reimbursement obligations of the Company
under the Credit Agreement, the L/C Related Documents or any other Loan
Document, (c) all other obligations, monetary or otherwise, of the Company or
any other Loan Party under any Loan Document to which it is a party and any
other document executed and delivered in connection therewith or herewith,
whether on account of principal, interest, reimbursement obligations, fees,
indemnitees, costs and expenses or otherwise, in each case, whether now owing or
hereafter existing, and whether or not currently contemplated, due or to become
due, direct or contingent, joint, several or independent, secured or unsecured
and whether matured or unmatured, (d) the principal of and premium, if any, and
interest on the Senior Notes, the New Notes and debt outstanding under the
Parity Debt Agreements, (e) all other obligations (monetary or otherwise) of the
Company or any other Loan Party under the Note Exchange Agreements, the New Note
Agreements, the Parity Debt Agreements, the Senior Notes, the New Notes, debt
outstanding under the Parity Debt Agreements and the Security Documents whether
now owing or hereafter existing, and whether or not currently contemplated, due
or to become due, direct or contingent, joint, several or independent, secured
or unsecured and whether matured or unmatured and (f) all indebtedness of the
Company and its Subsidiaries (i) permitted to be incurred under Section
8.2.2(a)(iv) of the Credit Agreement, Section 10.1.2(a)(i), (iii) or (v) of the
Note Exchange Agreements, Section 10.1.2(a)(i), (iii) or (v) of the New Note
Agreements and the corresponding provisions of the Parity Debt Agreements and
(ii) permitted to be secured in accordance with Section 5.10 of the Credit
Agreement, Section 10.1.3(l) of the Note Exchange Agreements, Section 10.1.3(l)
of the New Note Agreements and the corresponding provisions of the Parity Debt
Agreements.

Section 4.09 of Holdings Security Agreement:

Section 4.09. Limitation on Liens on Collateral. The Grantor will not create,
permit or suffer to exist, but will defend the Collateral and the Grantor's
rights with respect thereto against and take such other action as is necessary
to remove, any security interest, encumbrance, claim or other Lien in respect of
the Collateral other than the security interests created hereunder and the Liens
permitted under Section 8.2.3 of the Credit Agreement, Section 10.1.3 of the
Note Exchange Agreements, Section 10.1.3 of the New Note Agreements and the
corresponding provisions of the Parity Debt Agreements.

Section 4.12 of Holdings Security Agreement:

Section 4.12. Limitations on Dispositions of Collateral. Unless an Event of
Default shall have occurred and be continuing, the Grantor may sell, transfer or
otherwise dispose of any of the Collateral, or attempt, offer or contract to do
so to the extent not expressly prohibited by Sections 8.2.7 and 8.2.8 of the
Credit Agreement, Sections 10.1.6 and 10.1.7 of the Note

E-1(e)-6

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Exchange Agreements, Sections 10.1.6 and 10.1.7 of the New Note Agreements and
the corresponding provisions of the Parity Debt Agreements upon which
occurrence, the Trustee shall grant a release thereof from the Lien of this
Agreement in accordance with Section 2.06 hereof; provided that nothing
contained herein shall limit the security interests granted in the Proceeds
thereof and provided further that, if at the time of such sale, transfer or
other disposition, the Grantor would not have been permitted to sell, transfer
or otherwise dispose of such Collateral pursuant to Section 8.2.7 of the Credit
Agreement, Section 10.1.6 of the Note Exchange Agreements, Section 10.1.6 of the
New Note Agreements or the corresponding provisions of the Parity Debt
Agreements without a subsequent application of the proceeds of such sale to
acquisition of substantially similar assets or the prepayment of outstanding
indebtedness in accordance with Section 8.2.8(b)(2) of the Credit Agreement, the
last paragraph of Section 10.1.6 of the Note Exchange Agreements, the last
paragraph of Section 10.1.6 of the New Note Agreements or the corresponding
provisions of the Parity Debt Agreements, then concurrently with such sale,
transfer or other disposition, the Grantor shall have deposited such Proceeds
with the Trustee. The inclusion of Proceeds of the Collateral under the security
interests granted hereby shall not be deemed a consent by the Trustee to any
sale or disposition of any Collateral other than as permitted by this Section
4.12.

Sections 5.01(a)(i) and (ii) of Holdings Security Agreement:

Section 5.01. Right To Receive Distributions on Pledged Collateral and
Investment Property; Voting. (a) So long as no Event of Default shall have
occurred and be continuing:

(i)  The Grantor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Securities and Investment
Property or any part thereof for any purpose permitted by the terms of this
Agreement, the Credit Agreement, the Note Exchange Agreements, the New Note
Agreements and the corresponding provisions of the Parity Debt Agreements.

(ii) The Grantor shall be entitled to receive and retain any and all
dividends, interest and principal paid in cash on the Pledged Securities
and Investment Property to the extent and only to the extent that such cash
dividends, interest and principal are permitted by, and otherwise paid in
accordance with, the terms and conditions of the Credit Agreement, the Note
Exchange Agreements, the New Note Agreements, the Parity Debt Agreements
and applicable laws. Other than pursuant to the first sentence of this
paragraph (a)(ii), all principal, all noncash dividends, interest and
principal, and all dividends, interest and principal paid or payable in
cash or otherwise in connection with a partial or total liquidation or
dissolution, return of capital, capital surplus or paid-in surplus, and all
other distributions made on or in respect of Pledged Securities or
Investment Property, whether paid or payable in cash or otherwise, whether
resulting from a subdivision, combination or reclassification of the
outstanding Capital Stock of the issuer of any Pledged Securities or
Investment Property or received in exchange for Pledged Securities or
Investment Property or any part thereof, or in redemption thereof, or

E-1(e)-7

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

as a result of any merger, consolidation, acquisition or other
exchange of assets to which such issuer may be a party or otherwise,
shall be and become part of the Collateral, and, if received by the
Grantor, shall not be commingled by the Grantor with any of its other
funds or property but shall be held separate and apart therefrom,
shall be held in trust for the benefit of the Trustee and shall be
forthwith delivered to the Trustee in the form in which received (with
any necessary endorsement).

Irrevocable Proxy (Form Attached as Exhibit B to Holdings Security Agreement).

The form of proxy attached as Exhibit B to the Holdings Security Agreement will
be amended by adding a reference to the Parity Debt Agreements and the debt
outstanding thereunder to the enumeration of the instruments that must be
satisfied before the proxy can be revoked, and the outstanding proxies will be
replaced with new proxies in that form.

E-1(e)-8

Form of Opinion of Special Counsel
to the Company

The closing opinion of Phillips Nizer Benjamin Krim & Ballon LLP, counsel
for the Company, which is called for by Section 4.6 of the Note Agreements,
shall be dated the Closing Date and addressed to the Purchasers, shall be
satisfactory in scope and form to the Purchasers and shall be to the effect
that:

We have acted as counsel to Star Gas Partners, L.P., a Delaware limited
partnership ("Star Partners"), Petro Holdings, Inc., a Minnesota corporation
("Petro Holdings"), Petroleum Heat and Power Co., Inc., a Minnesota corporation
(the "Company," and together with Star Partners and Petro Holdings, the
"Constituent Companies"), in connection with the execution and delivery of the
Note Agreements and the Notes. This opinion letter is delivered pursuant to
Section 4.6 of the Note Agreements. Unless otherwise defined herein, or the
context otherwise requires, capitalized terms used in this opinion letter shall
have the meanings assigned to them in the Note Agreements.

We have examined (i) the Basic Documents including without limitation, the
Intercreditor Agreement Joinder dated as of August 13, 2001 among the
Constituent Companies, Petro, Inc., a Delaware corporation, Ortep of
Connecticut, Inc., a Connecticut corporation, Maxwhale Corp., a Minnesota
corporation, Petro/Crystal Corp., a New York corporation, Ortep of New Jersey,
Inc., a New Jersey corporation, Ortep of Pennsylvania, Inc., a Pennsylvania
corporation, Marex corporation, a Maryland corporation, A.P. Woodson Company, a
District of Columbia corporation, Star Gas Corporation, a Delaware corporation,
Sy Luba Inc., a New York corporation, the Purchasers and HSBC Bank USA, a New
York banking corporation and trust company ("Trustee") (the "Intercreditor
Agreement Joinder"), (ii) the Equity Purchase Agreement dated as of July 31,
2001 by and among Petro, Inc., and Meenan Oil Co., Inc., a Delaware corporation,
Meenan Oil Co., L.P., a Delaware limited partnership, Blueray Systems, Inc., a
Delaware corporation, and Region Oil Plumbing, Heating and Cooling, Inc., a New
Jersey corporation (the "Equity Purchase Agreement") and related documents
entered into in connection with the Acquisition (as defined in the Equity
Purchase Agreement ), (iii) the cross receipt dated the date hereof (as defined
in and issued pursuant to the Underwriting Agreement dated as of August 9, 2001
among Star Gas Partners, L.P., Star Gas Propane L.P., Star Gas LLC, Star/Petro,
Inc. and UBS Warburg, A.G. Edwards & Sons, Inc., Lehman Brothers, Dain Rauscher
Wessels, First Union Securities, Inc. and CIBC World Markets), (iv) the cross
receipt and affirmation dated as of August 13, 2001 among Petro, Inc. and Meenan
Oil Co., Inc., Meenan Oil Co., L.P., Blueray Systems, Inc. and Region Oil
Plumbing, Heating and Cooling, Inc. and (v) originals or copies, certified or
otherwise identified to our satisfaction, of such other documents, corporate
records, certificates of public officials and other instruments as we have
deemed necessary or advisable for purposes of this opinion.

As used herein:

(a)  "UCC" means Articles 1, 8 and 9 of the Uniform Commercial Code in New
York as in effect on the date hereof and where such Articles refer to
jurisdictions other than the State of

Exhibit 4.6(a)
(to Note Purchase Agreement)

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

New York, "UCC" shall mean the Uniform Commercial Code as in effect in the
applicable jurisdiction.

(b) the term "security interest" shall have the meaning ascribed thereto in
the UCC.

As to various questions of fact relevant to such opinions, we have relied,
without independent verification, upon certificates of public officials,
certificates of officers of the Constituent Companies (including the
certificates delivered to you pursuant to Section 4.5 of the Note Agreements),
the representations and warranties of the Constituent Companies in the Note
Agreements, the Perfection Certificates dated March 29, 1999 (the "Perfection
Certificate") as supplemented by an Officer's Certificate dated as of October
25, 2000 and an Officer's Certificate dated as of the date hereof and attached
hereto (together, the "Officer's Certificates") and other information supplied
to us by the Constituent Companies, including a compliance certificate from the
officer of the Company, attached hereto, pursuant to Sections 7.1 and 7.2 of the
Note Agreements, which, among other things, certifies facts related to the
indebtedness incurred in connection with the issuance of the Notes ("Compliance
Certificate"). With respect to our opinion in paragraph 18, we have relied upon
a search report prepared by Nationwide Information Services, Inc. during
May-June, 2001.

For purposes of the opinions expressed below, we have assumed (i) the
authenticity of all documents submitted to us as originals, (ii) the conformity
to the originals of all documents submitted as certified or photostatic copies
and the authenticity of the originals, (iii) the due authorization, execution
and delivery of all documents, including without limitation, the Intercreditor
Agreement Joinder, by all parties other than the Constituent Companies and the
Subsidiaries and the validity and binding effect thereof on all parties other
than the Constituent Companies and the Subsidiaries, (iv) that all the
Purchasers have executed the Intercreditor Joinder Agreement, and (iv) each of
the Purchasers and the Trustee is qualified to do business in the State of New
York to the extent necessary to avail itself of the courts in the State of New
York.

Based upon the foregoing, we are of the opinion that:

1.  The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota and has the corporate
power and the corporate authority to execute and deliver the Basic Documents to
which it is a party and to issue the Notes.

2.  Star Partners is a limited partnership duly formed, validly existing
and in good standing under the laws of the State of Delaware and has the power
and authority to execute and deliver the Basic Documents to which it is a party.

3.  Petro Holdings is a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota and has the corporate
power and the corporate authority to execute and deliver the Basic Documents to
which it is a party.

E-4.6(a)-2

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

4.  Each Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and has
the corporate power and the corporate authority to execute and deliver the Basic
Documents to which it is a party.

5.  The Basic Documents to which it is a party have been duly
authorized by all necessary corporate or partnership action on the part of each
Constituent Company, have been duly executed and delivered by each Constituent
Company and constitute the legal, valid and binding contracts of each
Constituent Company enforceable in accordance with their terms.

6.  The Notes have been duly authorized by all necessary corporate
action on the part of the Company, and the Notes being delivered on the date
hereof have been duly executed and delivered by the Company and constitute the
legal, valid and binding obligations of the Company enforceable in accordance
with their terms.

7.  The Basic Documents to which each Subsidiary is a party have been
duly authorized by all necessary corporate or partnership action on the part of
such Subsidiary, have been duly executed and delivered by such Subsidiary and
constitute the legal, valid and binding contracts of such Subsidiary enforceable
in accordance with their terms.

8.  The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Note Agreements do not, under existing law,
require the registration of the Notes under the Securities Act of 1933, as
amended, or the qualification of an indenture under the Trust Indenture Act of
1939, as amended.

9.  Each Constituent Company has full power and authority and is duly
authorized to conduct the activities in which it is now engaged and (in the case
of Petro Holdings and the Company) is duly licensed or qualified and is in good
standing as a foreign corporation in each jurisdiction in which the character of
the properties owned or leased by it or the nature of the business transacted by
it makes such licensing or qualification necessary, except where the failure to
be so licensed or qualified could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

10.  Star Gas LLC is a limited liability company duly formed, validly
existing and in good standing under the laws of the State of Delaware and has
the power and authority to perform its obligations as general partner of Star
Partners and Star Propane.

11.  Each Subsidiary of Star Partners is a corporation or partnership
legally existing and in good standing under the laws of its jurisdiction of
incorporation or formation and (in the case of each Subsidiary that is a
corporation) is duly licensed or qualified and is in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
the nature of the business transacted by it makes such licensing or
qualification necessary, except where the failure to be so qualified could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. As set forth in the stock book of each Subsidiary, all of the

E-4.6(a)-3

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

issued and outstanding shares of capital stock or partnership interests of each
such Subsidiary have been duly issued, are fully paid and non-assessable and are
owned as indicated in Schedule 5.4 to the Note Agreements.

12.  The issuance and sale of the Notes and the execution, delivery and
performance by the Company of the Basic Documents to which it is a party do not
conflict with or result in any breach of any of the provisions of or constitute
a default under or result in the creation or imposition of any lien or
encumbrance other than the lien of the Security Documents upon any of the
property of the Company pursuant to the provisions of the Certificate of
Incorporation or By-laws of the Company or any agreement or other instrument
known to us to which the Company is a party or by which the Company may be
bound.

13.  The execution, delivery and performance by each of the Parent
Guarantors of the Basic Documents to which it is a party do not conflict with or
result in any breach of any of the provisions of or constitute a default under
or result in the creation or imposition of any lien or encumbrance other than
the lien of the Security Documents upon any of the property of either Parent
Guarantor pursuant to its governing documents (in the case of Star Partners) or
pursuant to the provisions of its Certificate of Incorporation or By-laws (in
the case of Petro Holdings) or (in the case of either Parent Guarantor) any
agreement or other instrument known to us to which such Parent Guarantor is a
party or by which such Parent Guarantor may be bound.

14.  The execution, delivery and performance by each Subsidiary of the
Basic Documents to which it is a party do not conflict with or result in any
breach of any of the provisions of or constitute a default under or result in
the creation or imposition of any lien or encumbrance (other than the lien of
the Security Documents) upon any of the property of any Subsidiary pursuant to
its governing documents or any agreement or other instrument known to us to
which such Subsidiary is a party or by which such Subsidiary may be bound.

15.  No approval, consent or withholding of objection on the part of,
or filing, registration or qualification with, any governmental body, federal,
state or local, is necessary in connection with the execution and delivery by
any Constituent Company of the Basic Documents to which it is a party.

16.  No approval, consent or withholding of objection on the part of,
or filing, registration or qualification with, any governmental body, Federal,
state or local, is necessary in connection with the execution and delivery by
any Subsidiary of the Basic Documents to which it is a party.

17.  No mortgage, documentary, excise, stamp, or similar taxes are
payable in connection with the execution, delivery, or recording of the Note
Agreements or the other Basic Documents or the issuance and sale of the Notes,
or the granting of the pledges, liens and security interests contemplated
thereby. We assume that the statutory recording and filing fees

E-4.6(a)-4

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

and taxes required to be paid upon the recording and filing of the Security
Documents and the UCC-1 financing statements contemplated thereby have been
paid.

18.  Subject to the assumptions and exceptions set forth in this
opinion letter, the Pledge and Security Agreement dated as of March 25, 1999
among the Company, the Subsidiaries party thereto and the Trustee and the Pledge
and Security Agreement dated as of March 25, 1999 between Petro Holdings and the
Trustee (the "Security Agreements") create a continuing enforceable security
interest in the Collateral (as defined in the Security Agreements) in favor of
the Secured Parties (as defined in the Security Agreements). The Secured Parties
have a perfected security interest in such of the Collateral as to which a
security interest may be perfected by filing under Article 9 of the UCC.

19.  Subject to Section 8-511 of the UCC, the security interest created
by the Security Agreements in rights of each Grantor in such of the Collateral
(as defined in the Security Agreements) as consists of a security entitlement
will be perfected (a) upon the Article 8 Intermediary's indicating by book entry
that such security entitlement has been credited to the Trustee's securities
account in the State of New York so that the Trustee becomes the entitlement
holder or (b) upon the execution of a Securities Control Agreement (as defined
in the Security Agreements), which agreement is subject to New York law among
such Grantor, the Trustee and such intermediary. Assuming that the Trustee at
the time of such perfection has no notice of any adverse claim with respect to
such Collateral, or any offset against such Collateral, and that each Grantor
has neither entered into any other Securities Control Agreement with any other
party, with respect to, or granted such Intermediary a security interest in,
such Collateral, then, at the time of such perfection, such security interest
will be of first priority.

20.  The security interest created by the Security Agreements in each
Grantor's rights in such of the Collateral as consists of instruments or money
will be perfected upon delivery of such instruments or money to the Trustee in
the State of New York. Assuming that at the time of such delivery (a) such
instruments or money do not constitute identifiable cash proceeds against which
a third party has a claim, (b) the Trustee has no knowledge of any adverse claim
against such Collateral, (c) the Trustee has no right of offset against such
money or instruments, (d) such instruments are properly indorsed to the Trustee
and (e) the Trustee maintains continuous possession of such money or instruments
in New York, then, at the time of such perfection, such security interest will
be of first priority.

21.  The security interest created by the Security Agreements in each
Grantor's rights in such of the Collateral as consists of certificated
securities in bearer form will be perfected upon delivery (as defined in Section
8-301(a)(1)) of the UCC) of such certificated securities to the Trustee in the
State of New York. Assuming the Trustee at the time of such delivery has no
right of offset against the Collateral or notice of any adverse claim, and
maintains continuous possession and control (as defined in Section 8-106(a) of
the UCC) of such Collateral in New York, then, at the time of such perfection,
such security interest will be of first priority.

E-4.6(a)-5

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

22.  The security interest created by the Security Agreements in each
Grantor's rights in such of the Collateral as consists of certificated
securities in registered form will be perfected upon either (a) delivery of such
certificated securities to the Trustee in the State of New York, endorsed to the
Trustee or in blank by an effective endorsement, or registered in the name of
the Trustee, upon original issue or registration of transfer by the issuer, or
(b) delivery of such certificated securities in the State of New York specially
endorsed to the Trustee by an effective endorsement. Assuming that the Trustee,
at the time of such delivery, has no right of offset against such Collateral or
notice of any adverse claim and maintains continuous possession of such
Collateral in New York, then, at the time of such perfection, such security
interest will be of first priority.

23.  The security interest created by the Security Agreements in each
Grantor's rights in such of the Collateral as consists of Deposit Accounts (as
defined in Section 9-102(a)(29) of the UCC will be perfected upon the due
execution of a Blocked Account Agreement by the bank with which the relevant
Deposit Account is maintained, the Trustee and applicable Grantor, granting the
Trustee "control" pursuant to Section 9-104 of the UCC over the Blocked Account
(as defined in the Blocked Account Agreement) and will remain perfected by
control so long as the Trustee maintains "control" over the Blocked Accounts as
provided in the Blocked Account Agreement, provided that either the Blocked
Accounts are maintained in New York or remain subject to New York law. All terms
used but not defined in this paragraph 23 shall have the meanings ascribed to
them in the Intercreditor Agreement.

24.  To the best of our knowledge, there are no actions, suits or
proceedings pending or, without independent inquiry, threatened against any of
the Constituent Companies or the Subsidiaries or involving the assets of any of
the Constituent Companies or the Subsidiaries, which could, individually or in
the aggregate, be reasonably expected to have a Material Adverse Effect.

25.  None of the Constituent Companies is an "investment company" or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.

26.  None of the Constituent Companies is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," within the meaning
of the Public Utility Holding Company Act of 1935, as amended. None of the
Constituent Companies is subject to any law or regulation that limits its
ability to incur the Indebtedness.

27.  The Company is not engaged in the business of extending credit for
the purpose of buying or carrying margin stock, and no proceeds of any Notes
will be used for a purpose which violates, or would be inconsistent with, F.R.S.
Board of Regulations U, T or X.

E-4.6(a)-6

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

28. The Notes will be Parity Debt (as defined in the Intercreditor
Agreement and pursuant to the Intercreditor Joinder Agreement) entitled to the
benefits of the Security Documents and the Intercreditor Agreement. In rendering
the opinion set forth in this paragraph 28, we have relied on a Compliance
Certificate from the officer of the Company, attached hereto, which certifies
that the indebtedness incurred in connection with the issuance of the Notes will
be incurred in accordance with Section 10.1.2(a)(v) of the Note Exchange
Agreements, Section 10.1.2(a)(v) of the Note Agreements and Section 8.2.2(a)(iv)
of the Credit Agreement.

29. The closings under the Underwriting Agreement, the Note Agreements and
the Equity Purchase Agreement have all occurred.

With respect to the opinion set forth in paragraph 19 above, we note that
the applicability of certain provisions of the United States Regulations turns
on whether the applicable state has adopted Article 8 as defined therein. Other
than with respect to 31 C.F.R. Part 357 and 12 C.F.R. Part 912, the United
States Regulations do not provide a mechanism for determining whether a
particular state has adopted Article 8. The Department of the Treasury, however,
has published a notice, 62 Fed. Reg. 61912 (1997), that it has determined that
the State of New York has adopted Article 8 for purposes of 31 C.F.R. Part 357,
and the other United States Regulations are based on, and are to be interpreted
harmoniously with, 31 C.F.R. Part 357. In addition, pursuant to 12 C.F.R.
ss.912.9(b), the determination of the Department of Treasury applied to 12
C.F.R. Part 912. We also note that specified government officials may have the
power to waive the provisions of the United States Regulations. For purposes of
this opinion, we have assumed that there is no such waiver.

The opinions herein expressed are limited in all respects solely to the
matters governed by the internal laws of the State of New York, the federal laws
of the United States of America, the Delaware Revised Uniform Limited
Partnership Act, the Minnesota Business Corporation Act and the corporate laws
of the states of organization of the Subsidiaries. Our opinion as to the
existence and good standing of Star Gas LLC is based solely upon a good standing
certificate dated July 23, 2001 certified by the Secretary of State of the State
of Delaware. Our opinion as to the existence and good standing of Star Partners
is based solely upon a good standing certificate dated July 25, 2001 certified
by the Secretary of State of the State of Delaware. Our opinion as to the
existence and good standing of each of the Company and Petro Holdings is based
solely upon good standing certificates dated July 26, 2001 certified by the
Secretary of State of the State of Minnesota. Our opinion as to the existence
and good standing of each of the Subsidiaries is based solely upon good standing
certificates certified by the relevant states.

To the extent that we render any opinion concerning the law of any state
other than New York or to the specific state statutes referenced above, we have
relied on a loose leaf compilation of the UCC laws of the several states
entitled "Secured Transactions Guide" published by Commerce Clearing House, Inc.
(5 Volumes), supplemented in July 2001 and a loose leaf compilation entitled
"Corporation Statutes" published by Prentice Hall (8 Volumes), supplemented in
July 2001.

E-4.6(a)-7

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Our opinion does not take account of, and we express no opinion with
respect to, (i) any requirement of law which may be applicable to the
transactions contemplated by the Note Agreements to which you are a party by
reason of your legal or regulatory status or by reason of other facts
particularly pertaining to you, or (ii) any approval or consent which you may be
required to obtain from any third party.

The opinions expressed above are subject to the following qualifications:

(a) limitations imposed by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights
generally, including, without limitation, laws relating to fraudulent
transfers or conveyances, preferences and equitable subordination
including, without limitation, the effect of the Federal Bankruptcy Code,
as amended, or any other federal or state insolvency or similar law on the
Basic Documents or the transactions contemplated thereby;

(b) general principles of equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing
(regardless of whether such enforceability is considered in a proceeding in
equity or at law), as well as the possible award by courts of monetary
relief in lieu of specific performance of contractual provisions;

(c) the qualification that certain provisions of any such Basic
Document might be unenforceable in whole or in part if such enforcement
would be against public policy under the circumstances or would otherwise
be limited by applicable state law, but in our opinion, such laws will not
materially interfere with the practical realization of the benefits or
security intended to be provided by the Basic Documents;

(d) the possible requirement that actions taken, or not taken, by
parties to any document be taken or not taken in good faith;

(e) any overriding duty of the Secured Parties to act as to every
aspect of the disposition of Collateral, or realization thereon, in a
commercially reasonable matter;

(f) the unenforceability under certain circumstances of provisions
imposing forfeitures;

(g) the possible unenforceability under certain circumstances of
provisions purporting to release or exculpate any party from liability for
its acts or omissions, or purporting to impose a duty upon any party to
indemnify any other party when the claimed damages result from the gross
negligence or willful misconduct of the party seeking such indemnity;

E-4.6(a)-8

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(h)  the enforceability of certain indemnification provisions in the
Basic Documents may be limited by public policy considerations;

(i)  limitations imposed by the UCC, as adopted in any applicable
jurisdiction, relating to or affecting remedies provided under the Basic
Documents;

(j)  the effect of general rules of contract law, including, without
limitation, the rule that a choice of one remedy may be a bar to another
remedy if the remedies are inconsistent and the other party has materially
changed its position in reliance on the choice;

(k)  the effect of general rules of tort law and of Section 9-609 of
the UCC which limit the right of a creditor to use force or to cause a
breach of the peace in the enforcement of the creditor's rights; and

(l)  our opinion concerning the validity and enforceability of any
security interest assumes that the Grantors of the security interest
receive value from the Secured Parties, that the Trustee and the Secured
Parties acquire their interest in the Collateral in good faith and without
notice of any adverse claim, that the Grantors have good title to the
Collateral, and is subject to the following qualifications:

(i)   continuation statements must be filed pursuant to the
provisions of Section 9-515 and the transition rules set forth in
Article 9, Part 7 of the UCC ("Transition Rules"), to maintain the
perfection of the security interests evidenced by the UCC-1
financing statements, referred to in paragraph 18 hereof.

(ii)  in the case of proceeds, continuation of perfection and
priority of the Secured Parties' liens and security interests
therein are limited to the extent set forth in Section 9-315 of the
UCC; and

(iii) in the case of property which becomes Collateral after
the date hereof, Section 552 of the Federal Bankruptcy Code limits
the extent to which property acquired by a debtor after the
commencement of a case under the Federal Bankruptcy Code may be
subject to a security interest arising from a security agreement
entered into by the debtor before the commencement of such case.

We express no opinion as to (a) the priority of any security interest
purported to be created by any agreement, filing or otherwise, except as
provided in paragraphs 19, 20, 21, 22 and 23 (b) any Grantor's rights in or
title to any Collateral, or (c) perfection of any lien on nominal amounts of
securities of publicly-traded companies held for the purpose of obtaining
financial information.

We call to your attention the following:

E-4.6(a)-9

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

(a) A court may on its own motion dismiss an action on the ground of
forum non conveniens;
----- --- ----------

(b) The right to proceeds of the Collateral is subject to limitations
set forth in the UCC;

(c) Buyers and pledgees of the Collateral may, in certain
circumstances specified in the UCC, acquire the Collateral free of the
Secured Parties' security interest, and, under certain circumstances set
forth in the Federal Bankruptcy Code, buyers and pledgees may acquire
interests in the Collateral free and clear of and/or superior in right to
the Secured Parties' security interest;

(d) To the extent that the Collateral includes Deposit Accounts (as
defined in the Security Agreements), we express no opinion as to the
perfection of a security interest in such Deposit Accounts except as
provided in paragraphs 19, 20, 21, 22 and 23;

(e) To the extent that the Collateral includes proceeds of any
pledged property governed by Article 8 of the UCC, we express no opinion
with regard to the perfection of a security interest in such proceeds by
filing or otherwise;

(f) For purposes of this opinion with respect to perfection in
paragraphs 18, 19, 20, 21, 22 and 23, the definition of Collateral does
not include any Assets or Equity Interests(as such terms are defined in
the Equity Purchase Agreement ). For purposes of this opinion all
references to "Grantors," "Subsidiaries" or "Constituent Companies" herein
shall not include any Companies (as defined in the Equity Purchase
Agreement).

(g) To the extent that any of the Collateral includes one or more
copyrights, we express no opinion with regard to the perfection of any
pledge of any copyright that is not recorded in the U.S. Copyright Office;

(h) To the extent that any of the Collateral consists of a license or
contract, we express no opinion as to whether it may be pledged or
assigned without the consent of the other party; and

(i) Our opinions as to the perfection of a security interest in a
Trademark is subject to the condition that the security interest be
recorded in the U.S. Patent and Trademark Office within three (3) months
after the date of the grant of the security interest and the perfection
thereof will not be complete until such recordation in accordance with
Title 15, U.S Code, Section 1060.

(j) Our opinion with respect to paragraph 29 is being delivered
contemporaneously with the closing for the Acquisition (as defined in the
Equity Purchase Agreement), the closing for the public offering of
3,250,000 common units of

E-4.6(a)-10

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

limited partnership interests of Star Partners to be purchased by the
Underwriters named in and pursuant to the terms of an Underwriting
Agreement dated the date hereof and the closing for the purchase of
the Notes, as provided in Section 3 of the Note Agreements. For
purposes of this paragraph, and paragraph 29, "closing" means the
contemporaneous (1) affirmation by counsel to each of the parties to
the Cross Receipt executed by the Underwriters and Star Partners that
each has delivered the items specified therein, (2) affirmation by
counsel to the Purchasers listed on Schedule I hereto that the Notes
have been delivered and the Purchasers are simultaneously wiring the
purchase price therefor in accordance with Section 3 of the Note
Agreements and (3) affirmation by (i) the Buyer (as defined in the
Equity Purchase Agreement) that upon receipt of the funds required to
be paid to Star Partners pursuant to the Underwriting Agreement and
the funds required to be paid to Petroleum Heat and Power Co., Inc. by
the Purchasers of the Notes it will promptly pay to the Sellers (as
defined in the Equity Purchase Agreement) all amounts ("Closing
Payments") required to be paid by the Buyer at the Closing (as defined
in the Equity Purchase Agreement) and (ii) by the Sellers that upon
receipt of the Closing Payments they will deliver the Equity Interests
(as defined in the Equity Purchase Agreement) to the Buyer.

Without limiting the generality of the foregoing, we express no
opinion as to the validity or enforceability of any provisions of the Basic
Documents relating to waivers, subrogation rights, rights of subordination,
penalties, charges, powers of attorney, self-help remedies, the establishment of
evidentiary standards, discharge of defenses, liquidated damages, disclosures,
delay or omission of enforcement of rights or remedies, severability, or
marshalling of assets.

This opinion letter is predicated solely upon laws and regulations in
existence as of the present date and as they presently apply, and to the facts
as they presently exist. We assume no obligation to revise or supplement this
opinion letter should the present laws be changed by legislative action,
judicial decision or otherwise.

The qualification of any opinion herein by use of the words "to our
knowledge," "known to us" or similar words means the actual knowledge of those
attorneys of the undersigned who have represented the Constituent Companies
generally or in connection with the transactions contemplated by the Note
Agreements. We have relied solely upon the examination and inquiries recited
herein and have not undertaken any investigation to determine the existence or
absence of such matters, documents or facts and no inference as to our actual
knowledge should be drawn from the fact of our representation of the Constituent
Companies or otherwise.

This opinion letter is limited to the matters set forth herein and no
opinion is intended to be implied or inferred beyond those expressly stated
herein. We have not been asked, and we do not undertake to render any opinion
with respect to any matters except as expressly set forth herein or to advise
you in any matters that may hereafter be brought to our attention.

E-4.6(a)-11

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Alan Shapiro, a member of this firm, is the Assistant Secretary of each
of the Constituent Companies. Knowledge obtained by him in his corporate
capacity (other than actual knowledge) may not be imputed to the firm.

This opinion letter is for your benefit only and may not be relied upon
by any other person other than HSBC Bank USA (formerly Marine Midland Bank), as
Trustee under the Security Agreements, your special counsel or your successors
and assigns (including successive holders of the Notes) or quoted by any person
intended to rely on it (except that the opinion may be furnished to auditors,
governmental regulators and administrative agencies as is necessary in the
ordinary course of business of such addressee). This opinion letter is as of the
date hereof and we disclaim any obligation to advise you of any change which
hereafter may be brought to our attention.

Very truly yours,

PHILLIPS NIZER BENJAMIN
KRIM & BALLON LLP

By:__________________________

E-4.6(a)-12

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

SCHEDULE I
----------

Purchasers
----------

THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA

THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.

FORT DEARBORN LIFE INSURANCE COMPANY

TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA

MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY

C.M. LIFE INSURANCE COMPANY

MASSMUTUAL ASIA LIMITED

JOHN HANCOCK LIFE INSURANCE COMPANY

JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY

THE OHIO NATIONAL LIFE INSURANCE COMPANY

UNITED OF OMAHA LIFE INSURANCE COMPANY

COMPANION LIFE INSURANCE COMPANY

PHOENIX LIFE INSURANCE COMPANY

PHL VARIABLE INSURANCE COMPANY

FIRST UNUM LIFE INSURANCE COMPANY

THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES

FEDERAL KEMPER LIFE ASSURANCE COMPANY-FA

DELTA LIFE & ANNUITY COMPANY

THE OHIO CASUALTY INSURANCE COMPANY

SECURITY FINANCIAL LIFE INSURANCE CO.

E-4.6(a)-13

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

To the Purchasers named in Schedule
A of the Note Purchase Agreements
dated as of July 30, 2001

Officer's Certificate
---------------------

I, George Leibowitz, the undersigned, do hereby certify that I am the
Treasurer of Petroleum Heat and Power Co., Inc., Petro Holdings, Inc., Petro,
Inc., Ortep of Connecticut, Inc., Maxwhale Corp., Petro/Crystal Corp., Ortep of
New Jersey, Inc., Ortep of Pennsylvania, Inc., Marex Corporation, A.P. Woodson
Company, Star Gas Corporation and Sy Luba Inc. (collectively, the "Companies")
and hereby further certify that the facts set forth in the Perfection
Certificates of the Companies dated March 26, 1999 (the "Perfection
Certificates") as supplemented by the Officer's Certificate of the Company dated
October 25, 2000 are true and correct as of the date hereof, except as follows:

SECTION 1.                 LOCATIONS:  JURISDICTIONS OF FORMATION

Section 1 is amended to provide for the domestic jurisdiction of each
Grantor, the corporate file number, if any, in such jurisdiction and the Federal
Employee Identification Number ("FEIN") of each Grantor as follows:

GRANTOR                                  JURISDICTION                 FILE NUMBER            FEIN

Petro Holdings, Inc.                     Minnesota                    10J-870                06-1538741

Petroleum Heat and Power Co., Inc.       Minnesota                    5I-939                 06-1183025

Maxwhale Corp.                           Minnesota                    5P-883                 06-1207261

Ortep of Connecticut, Inc.               Connecticut                  0043584                06-0857666

Ortep of New Jersey, Inc.                New Jersey                   0100241156             06-1127597

Ortep of Pennsylvania, Inc.              Pennsylvania                 830187                 23-2319071

Petro/Crystal Corp.                      New York                     N/A                    14-1546762

Star Gas Corporation                     Delaware                     2129737                21-0691788

Petro, Inc.                              Delaware                     0808113                74-1810078

A.P. Woodson Company                     District of Columbia         820555                 06-1059668

Marex Corporation                        Maryland                     D01242627              52-1224796

Sy Luba Inc.                             New York                     N/A                    11-2039315

A Certificate of Dissolution dissolving CBW Realty Corp. of Connecticut was
filed with the Secretary of State of Connecticut on December 15, 2000.

E-4.6(a)-14

Star Gas Partners, L.P.                                Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

SECTION 2.       LOCATIONS: COLLATERAL

Schedule 2(b) is further supplemented by the addition of the following
locations:

Legal Entity                             Name/Address                              Name/Address

Petro, Inc.                              Bayside
1820 Cropsey Avenue
Brooklyn, NY  11214

Sy Luba Inc.                             251 Northern Blvd.
Great Neck, NY  11021

Petroleum Heat and Power Co., Inc.       Inland Fuel Terminals                     Stuyvesant
(sites where Collateral is stored)       154 Admiral Street                        642 Southern Blvd.
P. O. box 1141                            Bronx, NY  10455
Bridgeport, CT  06661

Global Oil Co.                            Commander Oil Corp.
800 South Street                          One Commander Square
P. O. Box 9161                            Oyster Bay, NY  11771
Waltham, MA  02454-9161

Sprague Energy Corp.                      Carbo Industries
Two International Drive                   1 Bay Boulevard
Suite 200                                 Lawrence, NY  11559
Portsmouth, NH  03801

Castle Port Morris Terminal Inc.
939 East 138/th/ Street
Bronx, NY  10454

SECTION 3.       SEARCH REPORTS.

Schedule 3 is supplemented by the addition of the attached summary of
search reports prepared by Phillips Nizer Benjamin Krim & Ballon LLP with
respect to the collateral of Sy Luba Inc. based on search reports provided by
Nationwide Information Services as supplemented by Lexis Document Services.

SECTION 4.       UCC FILINGS

In accordance with the provisions of Section 4, a financing statement on
Form UCC-1 with respect to Sy Luba Inc. as debtor in substantially the form of
Schedule 4 hereto has been

E-4.6(a)-15

Star Gas Partners, L.P.                                Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

delivered to the Secured Parties for filing in the Uniform Commercial Code
filing office of the State of New York.

SECTION 5.       SCHEDULE OF FILINGS.

Schedule 5 is supplemented by the addition of the filing of a financing
statement with respect to Sy Luba Inc. as follows:

Debtor            Filing Office                    Filing Date      File Number

Sy Luba Inc.      New York Secretary of State      07/16/2001       132887

Capitalized terms used in this Certificate which are not defined herein
shall have the respective meanings set forth in the Pledge and Security
Agreement dated as of March 25, 1999 between Petro Holdings, Inc. and Marine
Midland Bank, as Trustee and the Pledge and Security Agreement Dated as of March
25, 1999 among the Grantors named therein and Marine Midland Bank, as Trustee.

[SIGNATURE PAGE FOLLOWS]

E-4.6(a)-16

Star Gas Partners, L.P.                                Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

IN WITNESS WHEREOF, the undersigned has caused this certificate to be duly
executed and delivered this ___ day of ________________, 2001.

PETRO HOLDINGS, INC.
PETROLEUM HEAT AND POWER CO., INC.
PETRO, INC.
ORTEP OF CONNECTICUT, INC.,
MAXWHALE CORP.
PETRO/CRYSTAL CORP.
ORTEP OF NEW JERSEY, INC.
ORTEP OF PENNSYLVANIA, INC.
MAREX CORPORATION
A.P. WOODSON COMPANY
STAR GAS CORPORATION
SY LUBA INC.

___________________________________
George Leibowitz
Treasurer

E-4.6(a)-17

Star Gas Partners, L.P.                                Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

SCHEDULE 3

------------------------------------------------------------------------------------------------------------------------------------
Debtor          Jurisdiction     Filing Date    Filing No.         Secured Party                      Comments
------------------------------------------------------------------------------------------------------------------------------------

Sy Luba Inc.       New York Secretary  06/02/95      112155        Transamerica Commercial    .       Collateral:  inventory
of State                                        Finance Corporation        .       Amendment filed 02/18/97
[Awaiting termination              (033650) - amends collateral
confirmation information]  .       Amendment filed 02/18/97
(033672) - amends collateral
.       Amendment filed 04/03/00
(066453) - amends
Secured Party address
.       Continuation filed 04/03/00
(66454)
------------------------------------------------------------------------------------------------------------------------------------
Sy Luba Inc.       New York Secretary  07/16/2001    132887        HSBC Bank USA, as Trustee  .       Blanket lien
of State
------------------------------------------------------------------------------------------------------------------------------------
Sy Luba Inc.       Nassau County, NY   10/26/92      92-14555      General Electric Capital   .       Collateral:  inventory
Corporation                .       Continuation filed 10/07/96
[Lien still on file, but
paid off and lien is not
perfected.  Terminated at
state level, but not in
Nassau County]
------------------------------------------------------------------------------------------------------------------------------------
Sy Luba Inc.       Nassau County, NY   04/17/00      UC00007026    Transamerica Commercial    Collateral: inventory
Finance Corp.
[Awaiting termination
confirmation information]
------------------------------------------------------------------------------------------------------------------------------------
Sy Luba Heating    New York Secretary                                                         NO RECORD
and Air            of State
Conditioning Inc.

------------------------------------------------------------------------------------------------------------------------------------
Sy Luba Heating    Nassau County, NY                                                          NO RECORD
and Air
Conditioning Inc.
------------------------------------------------------------------------------------------------------------------------------------

E-4.6(a)-18

Star Gas Partners, L.P.                                Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

COMPLIANCE CERTIFICATE

Financial Statement Date: June 30, 2001
-------------

Reference is made to the certain Intercreditor and Trust Agreement dated as
of March 25, 1999, among Star Gas Partners, L.P. ("Star Partners"), Petro
Holdings, Inc. ("Petro Holdings"), Petroleum Heat and Power Co., Inc. (the
"Company" or "Borrower") and its Subsidiaries, Marine Midland Bank ("Trustee"),
certain Purchasers and Banks, Bank of America National Trust and Savings
Association (as "Agent" and "Issuer"), and Chase Manhattan Bank ("Chase"), as
amended by a First Supplement dated as of October 1, 2000 among Star Partners,
Petro Holdings, the Company and its Subsidiaries and various parties, and a
Second Supplement dated as of June 1, 2001 among Star Partners, Petro Holdings,
the Company, and its Subsidiaries (as supplemented, the "Intercreditor
Agreement"), and pursuant to a Second Amended and Restated Credit Agreement
dated as of June 15, 2001, among the Company and various financial institutions
and Bank of America, N.A. (as "Agent"), and other parties, as amended by a First
Amendment dated as of June 30, 2001 among the Company and various financial
institutions, Bank of America, N.A., ("Credit Agreement"), in connection with
the issuance of Notes under the Note Purchase Agreements, including that certain
Note Purchase Agreement, dated as of July 30, 2001, among the Company, Star
Partners, Petro Holdings and several financial institutions (the "Lenders"). All
Capitalized terms not defined herein shall be those referenced in the
Intercreditor Agreement.

Intending that Phillips Nizer Benjamin Krim & Ballon LLP will rely upon
this Compliance Certificate in rendering a legal opinion to the purchasers of
the Notes (as identified in Schedule A to the Note Purchase Agreement) and
pursuant to Section 7.1 and 7.2 of the Note Purchase Agreement, the undersigned
hereby certifies to Phillips Nizer Benjamin Krim & Ballon LLP and to the
purchasers of the Notes under the Note Purchase Agreement, that as of the date
hereof that he is the Responsible Officer (as defined in the Note Purchase
Agreement) of the Borrower and Star Partners, and that, as such, he is
authorized to execute and deliver this Certificate to the Lenders, the Issuer,
Chase and the Agent on the behalf of the Borrower and Star Partners, and that:

1. The incurrence of any indebtedness incurred in connection with the
issuance of the Notes under the Note Purchase Agreement complies with the
requirements of Section 10.1.2(a)(v) of the Note Exchange Agreements, Section
10.1.2(a)(v) of the New Note Agreements and Section 8.2.2(a)(iv) of the Credit
Agreement, all as more fully explained in the attached Schedule 2.

2. Attached as Schedule 1 hereto are (a) a true and correct copy of the
unaudited consolidated (and in the case of Petro Holdings, consolidating)
balance sheets of the Petro Holdings, the Borrower and the Subsidiaries as at
the end of the Fiscal Quarter ended June 30, 2001 and (b) the related
consolidated (and, as to statements of income and cash flows, if applicable and
to the extent that such are being prepared appropriate, consolidating)
statements

E-4.6(a)-19

Star Gas Partners, L.P.                                Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

of income, surplus, cash flows and stockholders' equity of the Petro Holdings,
the Borrower and the Subsidiaries for such period and for the period from the
beginning of the current Fiscal Year to the end of such fiscal period, setting
forth in each case in comparative form the consolidated and, where applicable
and as appropriate, consolidating figures for the corresponding periods of the
previous Fiscal Year, all in reasonable detail and such financial statements,
present in all material respects, the information contained therein (subject to
changes resulting from normal year-end adjustments), in accordance with GAAP
applied on a basis consistent with prior fiscal periods.

3. As of the date hereof, no Default or Event of Default has occurred and
is continuing.

4. The following financial covenant analyses and other information set
forth on Schedule 2 attached hereto are true and accurate on and as of the date
of this Certificate.

IN WITNESS WHEREOF, the undersigned has executed this certificate as of
June 30, 2001.

PETROLEUM HEAT AND POWER CO., INC.

By:________________________________________
Name:     James J. Bottiglieri
Title:    Vice President

STAR GAS PARTNERS, L.P.
By: Star Gas LLC, its managing general
partner

By:________________________________________
Name:     George Leibowitz
Title:    Chief Financial Officer

E-4.6(a)-20

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

SCHEDULE 1
----------

PETRO HOLDINGS, INC. AND SUBSIDIARIES

Consolidating Balance Sheets

(In thousands)                                                                   June 30, 2001
---------------------------------------------------------------
Material   Petroleum Heat &   Petro                                September 30,
Assets                                            Subsidiaries  Power Co., Inc.  Holdings  Eliminations  Consolidated      2000
------                                            ------------  ---------------  --------  ------------  ------------  -------------

Current assets:
Cash                                               $     140      $      --     $     922   $           $      1,062    $   6,288
Investments                                               --            862            --                        862          862
Accounts receivable                                   65,671             --        16,066                     81,737       51,475
Inventories                                            9,714             --         3,278                     12,992       21,637
Prepaid expenses                                      13,998          1,269           957                     16,224       11,146
Notes receivable and other current assets                629             --            37                        666        1,994
---------      ---------     ---------                  ---------    ---------
Total current assets                                 90,152          2,131        21,260                    113,543       93,402
---------      ---------     ---------                  ---------    ---------

Property, plant and equipment - net                    38,247             --         7,335                     45,582       39,026

Long-term portion of accounts receivable                5,638             --         1,312                      6,950        7,282

Intangible assets
Customer lists                                       72,167             --        25,632                     97,799       88,042
Deferred charges                                    109,153          2,301        43,877                    155,331      147,708
---------      ---------     ---------                  ---------    ---------
181,320          2,301        69,509                    253,130      235,750
---------      ---------     ---------                  ---------    ---------

Investment in subsidiary                                   --         (5,157)      (30,118)     35,275             --
Other assets                                              307             --            --                        307          319
---------      ---------     ---------   ---------      ---------    ---------
$ 315,664      $    (725)    $  69,298   $  35,275   $    419,512    $ 375,779
=========      =========     =========   =========      =========    =========

Liabilities and Stockholders' Equity (Deficiency)
-------------------------------------------------
Current liabilities:
Current debt                                       $      --      $  13,181     $      --   $           $     13,181    $   7,669
Working capital borrowings                                --          8,000            --                      8,000       17,000
Accounts payable                                      11,041             --         1,486                     12,527       12,272
Customer credit balances                               8,407             --         1,428                      9,835       26,101
Unearned service contract revenue                     12,406             --         3,897                     16,303       15,654
Due to / (from) affiliates                           260,102       (213,411)      (46,691)                        --           --
Accrued expenses                                      28,865          4,285         2,011                     35,161       36,882
---------      ---------     ---------                  ---------    ---------
Total current liabilities                           320,821       (187,945)      (37,869)                    95,007      115,578
---------      ---------     ---------                  ---------    ---------

Supplemental benefits and other long-term
liabilities                                               --            118            --                        118          399
Pension plan obligation                                    --          4,096            --                      4,096        4,096
Long-term debt                                             --        213,124            --                    213,124      186,397

Stockholders' equity (deficiency):
Common stock                                              --             --             2                          2            2
Additional paid-in capital                                --             --       140,274                    140,274      127,074
Retained earnings (deficit)                           (5,076)       (30,118)      (33,028)     35,194        (33,028)     (57,767)
Accumulated other comprehensive income (loss)            (81)             -           (81)         81            (81)           -
---------     ---------       --------  ---------    ------------  ----------
Total stockholders' equity (deficiency)           (5,157)       (30,118)      107,167      35,275        107,167       69,309
---------     ---------      --------   ---------    -----------   ----------
$ 315,664     $    (725)     $ 69,298   $  35,275    $   419,512   $  375,779
=========     =========      ========   =========    ===========   ==========

E-4.6(a)-21

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

PETRO HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Nine Months              Nine Months
(In thousands)                             Ended                    Ended
June 30, 2000            June 30, 2001
-------------            -------------

Net sales                                                    $ 503,270            $     681,872

Costs and expenses

Cost of sales                                                345,201                  489,064
Selling, general and administrative expenses                  70,535                   84,432
Direct delivery expense                                       24,940                   31,790
Amortization of customer lists                                 7,355                    8,798
Depreciation of plant and equipment                            4,396                    5,858
Amortization of deferred charges                               4,567                    5,438
Provision for supplemental benefits                               51                       34
---------            -------------
Operating income                                             46,225                   56,458

Other income (expense):
Interest expense                                             (14,679)                 (17,804)
Amortization of debt issuance cost                              (258)                    (290)
Interest income                                                1,697                    2,353
Other                                                              8                      (21)
---------            --------------
Income before income taxes                                   32,993                   40,696

Income taxes                                                       300                    1,550
Cumulative change for adoption of SFAS #133                          -                   (2,093)
---------            -------------
Net income                                                $  32,693            $      41,239
=========            =============

E-4.6(a)-22

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

PETRO HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Three Months      Three Months
(In thousands)                                Ended              Ended
June 30, 2000      June 30, 2001
-------------      -------------

Net sales                                                      $   95,302         $  117,197

Costs and expenses:
Cost of sales                                                    73,248             90,782
Selling, general and administrative expenses                     22,433             26,841
Direct delivery expense                                           5,044              6,370
Amortization of customer lists                                    2,528              3,003

Depreciation of plant and equipment                               1,553              2,147
Amortization of deferred charges                                  1,605              1,856
Provision for supplemental benefits                                  18                 11
----------         ----------
Operating loss                                                 (11,127)           (13,813)

Other income (expense):
Interest expense                                                 (4,855)            (5,605)
Amortization of debt issuance cost                                  (91)               (98)
Interest income                                                     783              1,065
Other                                                                (6)               (13)
----------         -----------
Loss before income taxes                                       (15,296)           (18,464)

Income taxes                                                           25                 25
----------         ----------

Net loss                                                    $  (15,321)        $  (18,489)
==========         ==========

E-4.6(a)-23

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

E-4.6(a)-24

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

PETRO HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity

Nine Months Ended June 30, 2001

(In thousands)

Common Stock        Class B Common Stock   Additional  Retained      Other
------------------------ --------------------
No. of                 No. of                   Paid-In   Earnings/ Comprehensive
Shares      Amount     Shares         Amount    Capital   (Deficit)     Loss         Total
------      ------     ------         ------    -------   ---------     ----         -----

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

Balance at 9/30/00                      1         $ 1        11             $ 1     $127,074    $(57,767)    $     -     $ 69,309

Net income                                                                                        41,239                   41,239

SFAS #133 Accounting Principle change                                                                            (81)         (81)

Equity contribution from Star Gas

Propane, L.P.                                                                        13,200                               13,200

Distributions to Star Gas Partners                                                               (16,500)                 (16,500)

-----------------------------------------------------------------------------------------------
Balance at 6/30/01                      1         $ 1        11             $ 1     $140,274    $(33,028)    $   (81)    $107,167
===============================================================================================

E-4.6(a)-25

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

PETRO HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Nine Months Ended
(In thousands)                                                                                         June 30,
-----------------------------

Cash flows from (used in) operating activities:
----------------------------------------------
Net income                                                                                       $  32,693           $  41,239
Adjustments to reconcile net income to net cash used in operating activities:
Other comprehensive loss                                                                               -                 (81)
Amortization of customer lists                                                                     7,355               8,798
Depreciation of plant and equipment                                                                4,396               5,858
Amortization of deferred charges                                                                   4,567               5,438
Amortization of debt issuance costs                                                                  258                 290
Provision for losses on accounts receivable                                                        1,101               2,672
Provision for supplemental benefits                                                                   51                  33
Other                                                                                                (20)                 21

Change in Operating Assets and Liabilities, net of effects of acquisitions:
Increase in accounts receivable                                                                (30,486)            (32,602)
Decrease in inventory                                                                            4,450               8,645
Decrease (increase) in other current assets                                                        945              (5,203)
Decrease in other assets                                                                            76                  12
Decrease in receivable from Star Gas Partners                                                        -               1,453
Increase in accounts payable                                                                     1,184                 255
Decrease in customer credit balances                                                           (17,235)            (16,266)
Increase in unearned service contract revenue                                                      326                 649
Decrease in accrued expenses                                                                    (7,761)             (1,721)
---------           ---------
Net cash used in operating activities                                                            1,900              19,490
---------           ---------

Cash flows from (used in) investing activities:
----------------------------------------------
Acquisitions                                                                                     (15,334)            (35,294)
Capital expenditures                                                                              (1,752)             (8,059)
Net proceeds from sales of fixed assets                                                               55                  47
---------            --------
Cash flows from (used in) financing activities:
----------------------------------------------
Debt borrowings                                                                                   19,529              42,985
Acquisition facility repayments                                                                        -              (4,000)
Debt repayment                                                                                    (1,239)             (6,746)
Credit facility borrowings                                                                        55,000              86,000
Equity contribution from Star Gas Propane, L.P.                                                    2,994              13,200
Credit facility repayments                                                                       (48,000)            (95,000)
Dividend distributions to Star Gas                                                               (15,178)            (16,500)
Other                                                                                               (951)             (1,349)
---------           ---------
Net cash provided by financing activities                                                        12,155              18,590
---------           ---------

Net decrease in cash                                                                             (2,976)             (5,226)
Cash at beginning of period                                                                       4,270               6,288
---------           ---------
Cash at end of period                                                                         $   1,294            $  1,062
=========           =========

E-4.6(a)-26

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

E-4.6(a)-27

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Schedule 2

Section 10.1.2   Incurrence of Debt.

(a)      Neither Petro Holdings nor the Company will, directly or
indirectly, create, incur, assume, guarantee, or otherwise become
directly or indirectly liable with respect to, any debt other
than:

(v)      Debt of the Company or Petro Holdings in addition to that
permitted under clauses (i) through (iv) above, provided that on
the date the Company or Petro Holdings becomes liable with respect
to any such Debt and immediately after giving effect thereto and
the concurrent retirement of any other Debt,

(x) the ratio of Consolidated Pro Forma Total Debt to
Consolidated Pro Forma Operating Cash Flow for the Four-Quarter Period
then most recently ended at least 30 days prior to the date of
determination would not exceed 4.5 to 1.0,

(y)  the ratio of Consolidated Pro Forma Operating Cash Flow
to Consolidated Pro Forma Interest Expense is at least 2.25 to 1.0 for
the Four-Quarter Period then most recently ended at least 30 days
prior to the date of determination, and

Ratio of Consolidated Pro Forma Total Debt to

Consolidated Pro Forma Operating Cash Flow
------------------------------------------

(000's)

Consolidated Pro Forma Operating Cash Flow:
------------------------------------------

LTM 6/30/01                               $  65,953

Armstrong acquisition                           560

LTM 3/31/01 Meenan                           19,637
---------

Total                           $  86,150
=========

E-4.6(a)-28

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Consolidated Pro Forma Total Debt:
---------------------------------

June 30, 2001                          $  226,305

Armstrong acquisition                       2,000

Senior note issuance                      103,000

Meenan standby letters of credit            7,000
----------

Subtotal                        338,305

Less: Bank acquisition facility repaid with

Proceeds of debt offering                        (32,000)
----------

Total                        $  306,305
==========

Ratio                              3.55x
==========

Requirement                        4.50x
==========

E-4.6(a)-29

Star Gas Partners, L.P.                                 Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Page 2

Ratio of Consolidated Pro Forma Operating Cash Flow

to Consolidated Pro Forma Interest Expense
------------------------------------------

Consolidated pro forma operating cash flow from above                          $  86,150
-----------------------------------------------------                          =========

Consolidated pro forma interest expense:
----------------------------------------

LTM 6/30/01                                                 $  20,509

Armstrong acquisition                                             160

Senior note issuance                                            8,496

Meenan working capital interest                                 1,300
---------

Subtotal                                             30,465

Less:  Interest on bank acquisition facility repaid with proceeds                 (2,560)

Interest income at 5%on $11 million of unapplied borrowings               (550)
---------

Total                                             $  27,355
=========

Ratio                                                  3.15x
=========

Required                                               2.25x
=========

E-4.6(a)-30

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Schedule 2

Section 8.2.2     Indebtedness.

(a) Holdings and the Borrower will not, nor will they permit any of the
Material Subsidiaries to, create, incur, assume or suffer to exist or otherwise
become or be liable in respect of any Indebtedness, other than, without
duplication, the following:

(iv) additional secured Indebtedness of Holdings, the Borrower
and the Material Subsidiaries in excess of Indebtedness permitted by
clauses (i) and (ii) above, if (A) Holdings, the Borrower and the
--------------------
Material Subsidiaries are in compliance with the covenant on pro forma
Consolidated Cash Flow to Interest Expense Ratio set forth in Section
-------
8.2.4(b) (including the Indebtedness to be incurred and the repayment
--------
of any Indebtedness being refinanced), (B) Holdings, the Borrower and
the Material Subsidiaries are in compliance with the pro forma Leverage
Ratio covenant set forth in Section 8.2.4(a), (C) in the case of
---------------
Indebtedness (other than Borrower notes) incurred in connection with
Capitalized Lease Liabilities, the obligations incurred do not exceed
the fair market value of such property or assets (as determined in good
faith by the Board of Directors of the Borrower), (D) to the extent
such Indebtedness is pari passu with the other Senior Debt, the
creditors in respect of such additional Indebtedness shall have become
parties to the Increditor Agreement and the Increditor Agreement shall
have been amended, if necessary, to reflect such additional
Indebtedness and otherwise shall be in form and substance satisfactory
to the Agent and the Lenders, (E) to the extent such Indebtedness is
subordinate to the Senior Debt, such Indebtedness constitutes Permitted
Subordinated Debt, and (F) no Default or Event of Default would exist
after incurring such Indebtedness.

Leverage Ratio
--------------

(000's)

Consolidated Cash Flow:
----------------------

LTM 6/30/01                           $65,953
Armstrong acquisition                     560
LTM 3/31/01 Meenan                     19,637
-------
Total                             $86,150
=======

Funded Debt:
-----------

June 30, 2001                        $226,305
Armstrong acquisition                   2,000
Senior note issuance                  103,000
--------
Subtotal                          331,305

E-4.6(a)-31

Star Gas Partners, L.P.                                  Note Purchase Agreement
Petro Holdings, Inc.
Petroleum Heat and Power Co., Inc.

Less: Bank acquisition facility repaid with proceeds
of debt offering                                                  (32,000)
--------

Total                                            $299,305
========

Ratio                                                3.47x
========

Requirement                                          4.00x
========

Ratio of Consolidated Cash Flow to Interest Expense
---------------------------------------------------

Consolidated Cash Flow from above:                           $86,150
---------------------------------                           --------

LTM 6/30/01                                             $20,509
Armstrong acquisition                                       160
Senior note issuance                                      8,496
Meenan working capital interest                           1,300
--------
Subtotal                                             30,465

Less:    Interest on bank acquisition facility
repaid with proceeds                                               (2,560)
Interest income at 5% on 411 million of
unapplied borrowings                                                 (550)
--------

Total                                               $27,355
========

Ratio                                                  3.15x
========

Requirement                                            2.50x
========

E-4.6(a)-32

Form of Opinion of Special Counsel
to the Purchasers

The closing opinion of Chapman and Cutler, special counsel to the
Purchasers, called for by Section 4.6 of the Note Agreements on the Closing
Date, shall be dated the Closing Date and addressed to the Purchasers, shall be
satisfactory in form and substance to the Purchasers and shall cover the matters
referred to in paragraphs 1, 2, 3, 5, 6 and 8 of Exhibit 4.6(a).

The opinion of Chapman and Cutler shall also state that the opinion of
Phillips Nizer Benjamin Krim & Ballon LLP is satisfactory in scope and form to
Chapman and Cutler and that, in their opinion, the Purchasers are justified in
relying thereon and shall cover such other matters relating to the sale of the
Notes as the Purchasers may reasonably request. With respect to matters of fact
upon which such opinion is based, Chapman and Cutler may rely on appropriate
certificates of public officials and officers of the Company.

Exhibit 4.6(b)
(to Note Purchase Agreement)

Intercreditor Agreement Joinder

Dated:  August ___, 2001

To:      HSBC Bank USA (formerly known as Marine
Midland Bank), as Trustee

Whereas, the Intercreditor and Trust Agreement, dated as of March 25,
1999 (as it may be amended, supplemented, restated or otherwise modified from
time to time the "Intercreditor Agreement"), was entered into among Star Gas
Partners, L.P. ("Star Partners"), a Delaware limited partnership, Petro
Holdings, Inc. ("Petro Holdings"), a Minnesota corporation, Petroleum Heat and
Power Co., Inc. (the "Company"), a Minnesota corporation, certain Subsidiaries
(as such term is defined in the Note Exchange Agreements, the New Note
Agreements and the Credit Agreement referred to below) party thereto and such
other Subsidiaries as shall become parties thereto from time to time in
accordance with Section 22 thereof, the Exchanged Senior Note Purchasers listed
on Schedule I attached thereto (the "Exchanged Senior Note Holders"), the New
Note Purchasers listed on Schedule II attached thereto (the "New Note Holders"),
the Banks listed on Schedule III attached thereto (the "Bank Lenders"), Bank of
America National Trust and Savings Association, a national banking association,
in its capacity as administrative agent under the Credit Agreement (the "Agent")
and as Issuer of certain Letters of Credit, the Chase Manhattan Bank, as issuer
of Existing Letters of Credit (in such capacity "Chase") and HSBC Bank Usa
(Formerly Known as Marine Midland Bank), a New York banking corporation and
trust company, as trustee for the benefit of the Exchanged Senior Note Holders,
the New Note Holders, the Bank Lenders, the Agent, the Issuer, Chase and the
Parity Lenders (the "Trustee"). Terms used and not otherwise defined herein
shall have the respective meanings set forth in the Intercreditor Agreement.

Whereas, the Intercreditor Agreement was entered into for the purpose
of setting forth the duties and powers of the Trustee with respect to the
Security referred to in Section 2 thereof and the respective rights of the
Secured Parties with respect to such Security, and was made for the benefit of
the Secured Parties to secure (i) the payment of the principal of and premium,
if any, and interest on the Exchanged Senior Notes, the New Notes, the Credit
Agreement Loan Exposure, all amounts drawn under the Letters of Credit and the
Parity Debt, (ii) the payment of all other obligations of Star Partners, Petro
Holdings, the Company and the Subsidiaries (collectively, the "Obligors") to or
for the benefit of the Secured Parties under the Note Exchange Agreements, the
New Note Agreements, the Exchanged Senior Notes, the New Notes, the Credit
Agreement, the Parity Debt Agreements and the Security Documents, and (iii) the
due performance of and compliance with all of the terms of and other obligations
to or for the benefit of the Secured Parties under the Note Exchange Agreements,
the New Note Agreements, the Notes, the Credit Agreement, the Parity Debt
Agreements, the Security Documents and the Intercreditor Agreement
(collectively, the "Secured Obligations").

Exhibit 20.1
(to Note Purchase Agreement)

WHEREAS, the Secured Obligations are jointly and severally guaranteed
by (i) the Guarantee Agreement dated as of March 25, 1999 from Star Partners and
Petro Holdings in favor of the Trustee, and (ii) the Guarantee Agreement dated
as of March 25, 1999 from each of the Subsidiaries in favor of the Trustee
(collectively the "Guarantee Agreements").

WHEREAS, the Secured Obligations are secured by (i) the Pledge and
Security Agreement dated as of March 25, 1999, among the Company, the
Subsidiaries referred to therein and the Trustee, granting in favor of the
Trustee a first priority security interest in the personal property described
therein, and (ii) the Pledge and Security Agreement dated as of March 25, 1999,
between Petro Holdings and the Trustee, granting in favor of the Trustee a first
priority security interest in the personal property described therein
(collectively the "Security Agreements" and, together with the Guarantee
Agreements, the "Security Documents").

WHEREAS, the Company, Star Partners and Petro Holdings are entering
into the separate and several Note Purchase Agreements, each dated as of July
30, 2001, with certain institutional investors named on Schedule A thereto
(collectively, the "Purchasers"), pursuant to which Purchasers will purchase the
Company's $73,000,000 8.05% Series A Senior Secured Notes due August 1, 2006,
and $30,000,000 8.73% Series B Senior Secured Notes due August 1, 2013
(collectively, the "Series 2001 Notes") and the parties are desirous that such
Series 2001 Notes qualify as Parity Debt under the Intercreditor Agreement and
the Security Documents.

NOW, THEREFORE, the parties, in consideration of good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, do
hereby agree as follows:

Each Obligor represents, warrants, agrees and confirms that the Series
2001 Notes shall be considered Parity Debt and that each holder of such Series
2001 Notes shall be entitled to all rights and benefits of a Secured Party under
the Intercreditor Agreement and the Security Documents.

Each Purchaser hereby executes and delivers a counterpart to this
Intercreditor Agreement Joinder in accordance with Section 21(a) thereof, and
agrees to be bound by the terms and provisions of the Intercreditor Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Intercreditor
Agreement Joinder to be executed and delivered by their respective
representatives thereunto duly authorized as of the date first above written.

STAR GAS PARTNERS, L.P.

By:   Star Gas LLC, its General Partner

By

Name:  George Leibowitz
Title:    Chief Financial Officer

PETRO HOLDINGS, INC.
PETROLEUM HEAT AND POWER CO., INC.
PETRO, INC.
ORTEP OF CONNECTICUT, INC.
MAXWHALE CORP.
PETRO/CRYSTAL CORP.
ORTEP OF NEW JERSEY, INC.
ORTEP OF PENNSYLVANIA, INC.
MAREX CORPORATION
A.P. WOODSON COMPANY
STAR GAS CORPORATION
SY LUBA, INC.

By

Name:  George Leibowitz
Title:    Treasurer

Accepted and agreed to as of the first date written above.

HSBC BANK USA (FORMERLY KNOWN AS MARINE MIDLAND BANK), AS TRUSTEE

By
Name:
Title:

[PURCHASERS]

By
Name:
Title:

--------
1  8.05% in the Series A Notes and 8.73% in the Series B Notes.
2  2006 in the Series A Notes and 2013 in the Series B Notes.
3  716600 L@ 8 in the Series A Notes and 716600 L# 6 in the Series B Notes.
4  10.05% in the Series A Notes and 10.73% in the Series B Notes.
1  Included only in Series of Notes subject to mandatory prepayments.

EXHIBIT 10.27

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT dated as of September 30, 2001 between
STAR GAS LLC, a limited liability company organized under the laws of the State
of Delaware and doing business at 2187 Atlantic Street, Stamford, Ct. 06902
(the"Company"), and IRIK P. SEVIN, an individual residing at 4 East 72nd
Street, New York, NY 10021 ("Executive").

W I T N E S S E T H :

WHEREAS, the Company is the general partner of Star Gas
Partners, L.P. ("Partnership"), which through its direct and indirect wholly
owned subsidiaries is the largest retail home heating oil supplier and the
eighth largest retail propane supplier in the United States;

WHEREAS, the Executive has served variously as President and
Chief Executive Officer of the Company and its subsidiaries for more than 20
years;

WHEREAS, the Company wishes to continue to employ Executive
as the Chief Executive Officer of the Company and its subsidiaries pursuant to
the terms of this Agreement and Executive wishes to continue in such
employment;

NOW, THEREFORE, IT IS AGREED AS FOLLOWS:

1.  Employment; Position and Responsibilities. During the
-----------------------------------------
"Term" of this Agreement (as defined in Section 4(a) hereof), the Company
agrees to continue to employ Executive, and the Executive agrees to continue
to serve, as Chief Executive Officer of the Company and its subsidiaries of
the Company subject to the general supervision and pursuant to the orders,
advice and direction of the Board of Directors of the Company. In such
capacity, Executive shall have authority and responsibility to administer
and manage the business of the Company and the subsidiaries of the Company.
Executive will be located at the Stamford, CT office of the Company or at such
other location in the greater New York area as the Board may designate.

2.  Obligations of Executive. During the Term of this
------------------------
Agreement, Executive agrees that he will devote substantially all of his time,
attention and energies to the business of the Company. Executive shall at all
times be subject to, observe and carry out such reasonable rules, regulations,
policies, directions and restrictions as the Board shall from time to time
establish. Notwithstanding the foregoing, during the term of this Agreement, it
shall not be a violation of this Agreement for the Executive to (a) serve on
civic or charitable boards or committees; (b) serve as a non-employee member of
a board of directors of a business entity which is not competitive with the
Company and (c) attend to personal business, so long as such activities do not
interfere with the performance of the Executive's responsibilities as a senior
executive of the Company in accordance with this Agreement.

3.  Compensation.
------------

3.1 Cash Compensation; Targeted Bonus. Executive's base
salary during the Term of this Agreement shall be at the rate of Six Hundred
Thousand Dollars ($600,000) per annum for each fiscal year ended September 30
through September 30, 2002 which shall increase at the rate of Twenty-Five
Thousand Dollars ($25,000) per annum in each succeeding fiscal year during the
Term. Executive shall be entitled to receive a bonus targeted at 80% of his
annual base salary ("Targeted Bonus"). The Compensation Committee of the Board
of Directors of the Company (the "Committee") will review Executive's
performance on an annual basis (normally on or about October 15) to determine
what percentage of this Targeted Bonus he shall actually receive, taking into
account Executive's individual job performance and other factors deemed
appropriate by the Committee. The annual base salary shall be paid over the year
in a manner consistent with the Company's payment of executive salaries. The
bonus shall be paid to Executive each January following the end of each fiscal
year.

3.2  Benefits. Executive shall be entitled to paid annual
--------
vacation, personal leave and holidays during each calendar year during
Executive's employment in accordance with the policies of the Company. Executive
will participate in health, welfare (including disability) and defined benefit
and defined contribution retirement plans, including but not limited to the
pension plan and 401(k) savings plan, that are maintained by the Company on the
same basis

2

as such benefits are generally available to senior executives of the
Company and subject to the right of the Company to change, reduce or terminate
such plans or benefits in respect of employees generally. In addition to
insurance programs existing on the date of this Agreement, the Company shall
purchase and maintain in effect a $2,000,000 term life insurance policy on the
life of the Executive payable to his named beneficiary.

3.3  Reimbursement. Executive will be reimbursed for
-------------
reasonable business and travel expenses and be provided with automobile
transportation in accordance with the normal policies of the Company including
dues, fees and expenses associated with membership in professional business and
civic organizations in which Executive's participation is in the interest of the
Company. The benefits and payments described in this Section 3.3 shall not
include an income tax gross-up, and Executive will be responsible for any tax
on their value.

3.4  Equity Incentives.
-----------------

(a)  The  Executive  will earn and  Company  will
issue to the  Executive,  or if the  Company  has established a Rabbi Trust to
hold equity incentives earned by the Executive, then to such Rabbi Trust, 3,000
Common Units of the Partnership (up to a maximum of 75,000 Common Units for any
fiscal year) for each $.01 that the Company's annual Distributable Cash Flow
("DCF") exceeds the minimum DCF per limited partner unit ("LP Unit") LP Unit
as set forth below.

Maximum Units
Fiscal Year           Minimum DCF                 Per Fiscal Year
-----------          Per LP Unit                  ---------------
-----------

2002                   $2.44                       75,000 units
2003                    2.52                       75,000 units
2004                    2.66                       75,000 units
2005                    2.81                       75,000 units
2006                    3.00                       75,000 units

For periods beyond the initial 5 year term ending in fiscal
year 2006, the Minimum DCF Per LP Unit will be agreed upon by the Executive and
the Compensation

3

Committee consistent with the above, such that Executive will be able to
earn a maximum of 75,000 units per fiscal year.

Common Units earned and issued pursuant to Section 3.4(a) shall
vest at the rate of 25% per annum on each October 1 following the date of
issuance; provided, however, that all earned and issued Common Units shall
become immediately vested upon (i) termination of the Executive's employment
by the Company without Cause or termination of the Executive's employment by
the Executive for Good Reason (as those terms are defined in Section 4.3), (ii)
termination of the Executive's employment following a Change in Control under
circumstances such that Section 4.5 governs payments to the Executive or (iii)
upon the death or Disability of the Executive (as defined in Section 3.6).

For purposes of this Agreement, the term
Distributable Cash Flow shall be determined by the Company's Board of
Directors, adjusted to eliminate the impact of acquisitions made after December
31 in the year being calculated.

(b)   The Company will issue to the Executive  100,000
Common Units of the  Partnership  at such time as the average daily last sales
price of the Common Units on the exchange on which they are traded is at least
$40 per unit during any 45 day period. These Common Units will be fully vested
on issuance.

(c)   The  obligations of the Company  hereinabove
contained in this Section 3.4 shall be subject to the requirement that if at
any time the Board of Directors of the Company shall determine that the
registration, listing or qualification of the Common Units covered hereby upon
any securities exchange or under any federal or state law, or the consent or
approval of any governmental regulatory body or other person or persons is
necessary or desirable as a condition of, or in connection with, the issuance
of such Common Units, such Common Units may not be issued unless and until such
registration listing, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Board of
Directors. The Company may require that the Executive shall make such
representations and agreements and furnish such information as the Company
deems appropriate to assure compliance with the foregoing or any other
applicable legal requirements. If the

4

Partnership is for any reason prohibited from issuing any Common Units to the
Executive, including requirements of the New York Stock Exchange for unitholder
approval, the Partnership shall use commercially reasonable efforts to remove
such prohibition. If such prohibition is not removed within a period of 120 days
from the date the Common Units were to be issued but for such prohibition, the
Partnership shall either purchase the necessary Common Units or make a cash
payment to the Executive or Rabbi Trust equal in value to the Common Units not
so issued based upon the average daily last sales price of the Common Units on
the exchange on which they are traded during the preceding 45 day period.

3.5  Supplemental Retirement Benefit. The Executive may voluntarily
-------------------------------
retire at any time after he has attained age 65 ("Retirement"). If the
Executive's employment is terminated by reason of his Retirement, the
Executive shall be paid a monthly retirement benefit (the "SERP Benefits")
for life in an amount equal to, when added to all other retirement benefits
paid by the Company to the Executive, 50% of the average annual base and bonus
paid to the Executive during the most recent three full years of employment
divided by 12. The SERP Benefits shall be in addition to any other benefits
provided pursuant to plans, policiesand programs maintained by the Company.

3.6  Disability/Death.  Upon the death or Disability of the
----------------
Executive,  the Executive or in the case of his death, his named beneficiary,
or, if none, his estate, shall receive a monthly payment beginning on his death
or Disability Termination Date and continuing until age 65 (or in the case of
his death until he would have reached age 65) equal to 60% of his then annual
base salary plus the prior years bonus divided by 12; provided, however, that
each monthly payment shall be reduced by the monthly amount paid to the
Executive under other plans maintained by the Company. The terms "Disabled" or
"Disability" shall mean the Executive's physical or mental incapacity which
renders the Executive incapable, even with a reasonable accommodation by the
Company, of performing the essential functions of the duties required of
Executive by this Agreement for one hundred twenty (120) or more consecutive
days ("Disability Period"); the term "Disability Termination Date" shall
mean the date as of which the Executive's employment with the Company is
terminated, either by the Executive or by the Company, following the Disability
Period.

5

4.   Termination.
-----------

4.1  Term. The Term of this Agreement (the "Term") shall
----
commence as of the date hereof and shall continue for a period of five (5)
years, provided, however, that this Agreement automatically shall be renewed
on each October 1 for successive periods of one year each unless cancelled or
terminated by either the Company or the Executive on 90 days advance notice.
Notwithstanding the foregoing, this Agreement may be terminated (i) effective
immediately by the Company for Cause or by Executive for Good Reason as herein
provided (ii) by the Executive or the Company for Disability pursuant to
Section 3.6 in which event the date on which notice of termination is given
shall be the Termination Date and (iii) shall be terminated upon the death of
the Executive.

4.2  (a)  Termination  by  Executive  without Good Reason or by
-----------------------------------------------------
Company for Cause.  If the  Executive terminates his employment under this
-----------------
Agreement (other than upon voluntary retirement in accordance with Section 3.5
or upon death or Disability in accordance with Section 3.6) without Good Reason
as defined in Section 4.2(c) hereof, or if the Company terminates Executive's
employment for Cause, as defined in Section 4.2(b) hereof, the Company shall
have no financial obligation to Executive other than to pay Executive's base
salary through the Termination Date and Executive's participation in employee
benefit plans of the Company shall cease as of such Termination Date. In
addition, all unvested Common Units issued pursuant to Section 3.4 shall be
forfeited. The Company shall give Executive written notice of a termination for
Cause and the termination of the Executive's employment shall be effective on
the date that such notice is given.

(b) For purposes of this Agreement, "Cause" shall mean the
commission by the Executive of any dishonest, illegal or wrongful act involving
fraud, misrepresentation or moral turpitude; any material breach of this
Agreement by the Executive; failure of the Executive in any material respect
to follow directives or orders of the Board of Directors of the Company;
continuing grossly inadequate performance of the Executive's duties; other
significant personal or professional misconduct of Executive, which, in the
reasonable and good faith judgment of the Board of Directors of the Company,
injures or tends to injure the

6

reputation of the Company or otherwise adversely affects the interests of the
Company; or intentional disloyalty; provided, however, in each such instance,
tothe extent the Company reasonably and in good faith determines that such
conductis correctable, that the Executive shall be given at least ten (10)
days'advance notice to correct same or if such correction may not reasonably be
completed within such ten (10) days, then the Executive shall be given
sufficient notice to correct same.

(c)    For purposes of this Agreement, "Good Reason" shall mean,
provided the Executive has not given Cause for termination or become entitled
to receive disability benefits as provided in Section 3.6(i): (i) any material
breach of this Agreement by the Company; (ii) the assignment to the Executive
of any duties materially inconsistent in any material respect with this
position, authority, duties and responsibilities, compensation or benefits
without the prior consent of the Executive, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly of notice thereof given by the
Executive; (iii) the Executive is required to establish a primary work location
outside of the consolidated metropolitan statistical area that includes
New York, as defined by the U.S. Bureau of the Census (or any comparable
successor area). In respect of events described in the preceding sentence the
Executive shall give the Company written notice and 30 days to cure the
default, failure or refusal. If such default, failure or refusal is not cured
within such 30-day cure period, the Executive may give written notice to the
Company of a termination by Executive for Good Reason.

4.3    Termination by Company without Cause or by Executive with
---------------------------------------------------------
Good Reason. Subject to Section 4.4 hereof, if the Company terminates the
-----------
employmentof the Executive without Cause or Executive terminates the
Executive's employment with Good Reason, in either event prior to a Change
in Control, then, the Company shall pay compensation, issue equity incentives
and provide benefits to the Executive as follows:

(i) Within 30 days after the Termination  Date the Company
will pay the Executive  a lump sum equal to the sum of (x) the Executive's
annual base salary through the Termination Date, to the extent not theretofore
paid, plus a prorated portion of that year's

7

Target Bonus through the Termination  Date plus (y) an amount equal to the
Executive's  anticipated annual base salaries plus Targeted Bonuses pursuant
to Section 3.1 for the three years following such Termination Date.

(ii)  The  Company  shall  continue  to provide to  Executive
the group  insurance  benefits to the Executive for a period of 24 months after
the Termination Date to the extent that such benefits are generally available
to senior executives of the Company. Such benefits shall terminate on the date
prior to the expiration of such 24-month period on which the Executive shall
become entitled to receive benefits from another employer. The Executive shall
notify the Company in writing no later than ten (10) days after the date on
which the Executive shall be covered by the benefits of another employer.
The Company shall be under no obligation to continue to make any such benefit
or benefit plan generally available toemployees.

(iii) All SERP  Benefits  payable  pursuant  to Section  3.5
shall be  accelerated  in a lump sum payment. This payment shall be calculated
based upon the average of the Executive's most recent past three years' annual
base salary and bonus and assuming retirement at age 65, death at age 78 and
an 8% per annum present value discount rate.

4.4   Disability or Death. If the Executive's employment is
--------------------
terminated due to Disability, the Company shall have no financial obligation
to the Executive other than as set forth in Section 3.6. If the Executive's
employment is terminated due to his death, the Company shall have no financial
obligation to the Executive other than to pay any death benefits to which his
legal representative or beneficiaries may be entitled under any employee
benefit plan maintained by the Company and the benefits set forth in
Section 3.6.

4.5   Change in Control.  If (A) the Company  terminates
-----------------
the employment of the  Executive without  Cause prior to a Change in Control,
as hereinafter defined, if such termination of employment is a condition of the
agreement pursuant to which the Change in Control occurs, or if the Company
terminates the employment of the Executive without Cause within two years
following a Change in Control, or if the Executive terminates the Executive's
employment with Good Reason within two years following a Change in Control or
(B) the Executive voluntarily terminates his employment for any reason during
the period of 30 days

8

following the first anniversary of a Change in Control, then, the payments
underSection 4.3 hereof shall not apply but rather the Company shall pay
compensation, issue equity incentives and provide benefits to Executive as
follows:

(i)   Within 30 days after the  Termination  Date the Company
will pay Executive  a lump sum equal to the sum of (x) Executive's annual base
salary through the Termination Date, to the extent not theretofore paid, plus
(y) an amount equal to Executive's anticipated annual base salaries plus
Targeted  Bonuses and equity incentives pursuant to Section 3 for the three
years following the Termination Date.

(ii)  The Company shall continue to provide to Executive  the
group  insurance benefits to Executive for a period of 24 months after the
Termination Date to the extent that such benefits are generally available to
senior executives of the Company. Such benefits shall terminate on the date
prior to the expiration of such 24-month period on which Executive shall become
entitled to receive benefits from another employer. Executive shall notify the
Company in writing no later than ten (10) days after the date on which
Executiveshall be covered by the benefits of another employer. The Company
shall be under no obligation to continue to make any such benefit or benefit
plan generally available to employees.

(iii) The Executive  shall be deemed to have earned  325,000
Senior  Subordinated  Units and the value of such equity incentives shall be
immediately paid to the Executive in cash. The value of each Senior
Subordinated Unit shall be deemed to be the average daily last sales price of
the Senior Subordinated Units on the exchange on which they are traded for the
60 trading days prior to the date of determination.

(iv)  All SERP  Benefits  payable  pursuant  to  Section  3.5
shall  be  accelerated  in a lump sum payment. This payment shall be calculated
based upon the average of Executive's past three years' annual base salary and
bonus and assuming retirement at age 65, death at age 78 and an 8% per annum
present value discount rate.

For the purposes of this  Agreement,  a "Change of Control"  shall
mean the occurrence of any one or more of the following:

9

(a)  the removal of the Company as the general partner of the
Partnership by a vote of the unit holders of the Partnership under
circumstanceswhere Cause (as defined in the partnership agreement of the
Partnership) doesnot exist, and any successor general partner of the
Partnership is not an Affiliate (as hereinafter defined) of the Company or
controlled by the Executiveand/or any of his Affiliates;

(b)  the Partnership shall sell, lease, exchange or transfer
(in one transaction or a series of related transactions) substantially all of
its assets, except to an entity constituting an Affiliate of the Company or
controlled by the Executive and/or his Affiliates;

(c)  The Partnership shall consolidate or merge with any
other entity as a result of which the continuing or surviving entity is not
controlled by the Company or any Affiliate thereof, or by the Executive and/or
his Affiliates;

(d)  The sale by Star Gas LLC of its general partnership
interests to any person or entity not constituting an Affiliate of the Company
or controlled by the Executive and/or his Affiliates;

and where: (x) "Affiliate" shall mean any person or entity
controlling, controlled by or under common control with the subject referenced;
and (y) the term "control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies
of the subject referenced, whether through the ownership of voting securities
or bycontract or otherwise.

4.6  Gross up Payment. In the event it shall be determined by the
----------------
Company's public accounting firm that any payment or distribution (other than
payments pursuant to Section 3.3 hereof) by the Company or its affiliated
companies to or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any adjustment required under this
Section 4.6 (a "Payment")), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended or any amendment,
replacement or similar provision thereto, or any interest or penalties are
incurred by Executive (other than interest or penalties incurred as a result of
Executive's failure promptly to file appropriate tax returns or amended tax
returns after notification of such determination by the Company's public
accounting

10

firm) with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then Executive shall be entitled to receive within 30 days following
such determination or such occurrence, as the case may be, an additional
payment (a"Gross Up Payment") in an amount such that after payment by
Executive of the Excise Tax imposed upon the Gross-Up Payment, Executive will
retain an amount equal to the amount he would have retained had no Exercise
Tax been imposed.

4.7    The payments to Executive pursuant to Section 4 hereof
shall be paid in lieu of any other amount of severance relating to salary or
bonus continuation to be received by Executive upon termination of employment
of Executive under any severance plan, policy or arrangement of the Company.

5.  Confidentiality. During and after the Term of this Agreement and
---------------
for a period of 36 months thereafter, or, if sooner, the date on
which information becomes generally known in the industry, Executive covenants
and agrees that, other than as required by law, Executive will not disclose to
anyone without the Company's written consent, any confidential materials,
documents, records orother information of any type whatsoever concerning or
relating to the business and affairs of the Company that Executive may have
acquired in the course of Executive's employment hereunder, including but not
limited to: (i) lists of customers of the Company; and (ii) information
relating to methods of doing business (including information concerning
operations, technology and systems) in use or contemplated use by the Company
and not generally known in the industries in which the Company competes or
actually or demonstrably anticipates competing. Notwithstanding the foregoing,
the restrictions contained in this Section shall (i) not, during the Term,
apply to any disclosures which the Executive believes in good faith are in
the best interests of the Company and (ii) lapse if at any time after the Term,
the Company fails to make any payment or provide any benefit due to the
Executive, and should such failure continue for a period of 30 days after
notice specifying such failure.

6.  Nonsolicitation.
---------------

11

6.1 Executive acknowledges that his services and value to
the  Company  are  unique,  special  and extraordinary. Executive covenants and
agrees that during the Term of this Agreement, and for a period of 36 months
after the Termination Date, Executive will not (i) personally solicit, or
encourage others to solicit, employees of the Company to leave the employ of
the Company for the purpose of engaging in any employment competitive with the
Company or otherwise; or (ii) become directly or indirectly involved in the
retail home heating oil or retail propane distribution business in any market
in which the Company and its subsidiaries are operating in on the Termination
Date. Notwithstanding the foregoing, the provisions of Section 6 shall not be
binding upon the Executive, if (i) the payment to the Executive pursuant to
Section 4.5(iii) would be $4,875,000 or less and (ii) the Executive waives
the right to receive such payment.

6.2  It is the desire  and intent of the  parties  that  the
provisions  of this  Section 6  hereof shall  be enforced to the fullest
extent permissible under the laws and public policies of
the State of New York. If any particular provisions or portions of this Section
hereof shall be adjudicated to be invalid or unenforceable, Section 6 shall be
deemed amended to delete therefrom such provision or portion adjudicated to be
invalid or unenforceable, such amendment to apply only in the particular case
and jurisdiction in which such adjudication is made.

7.   Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of New York,
not including its conflict of laws principles. If, under such law, any portion
of this Agreement is at any time deemed to be in conflict with any applicable
statute, rule, judicial interpretation binding on the parties, regulation or
ordinance, such portion shall be deemed to be modified or altered to conform
thereto or, if that is not possible, to be omitted from this Agreement, and
the invalidity of any such portion shall not affect the force, effect or
validity of the remaining portions hereof.

8.  Notices.  All  notices  required to be given  under  this
-------
Agreement shall be in writing and shall be deemed effective when received
and shall be delivered in person; or by facsimile  transmission
(with  confirmation of receipt);  or by mail, postage prepaid, for delivery as

12

registered or certified mail; or by overnight carrier service, addressed, (a)
in the case of Executive, to Executive at Executive's then current business
address with the Company, with a copy to Executive's residential address as
reflected above (or such other residential address as Executive may notify the
Company from time to time) or, (b) in the case of the Company, to the Company's
Vice President - Human Resources or to such other person as the Company may
designate in writing to Executive.

9.     Resolution of Disputes.
----------------------

(a)   Executive recognizes that irreparable injury
would be caused to the Company, not adequately compensable by money damages,
by Executive's violation of any provision of Section 5 or 6 of this Agreement.
Executive further agrees that in the event of any such violation or threatened
violation the Company or any of its direct or indirect subsidiaries or
affiliates, in addition to such other rights and remedies as may exist in its
or their favor, may apply to a court of law or equity to enforce the specific
performance of such provisions and, without notice to Executive, may apply for
an injunction or temporary restraining order against any act which would
violate any such provisions. The state and federal courts of the State of
New York shall have jurisdiction of any dispute arising out of or relating to
this Agreement and each party waives any objection that it may have to laying
the venue of any suit, action or proceeding in any such court.

(b)   The  covenants  of  Executive  contained  in
Sections 5 and 6 of this  Agreement  shall be  construed as independent of
all other provisions contained in this Agreement and shall survive the Term
of this Agreement.

(c)    If  following a change of control  the
Executive  recovers  any  judgment  against the Company for failure to make
payment of any amounts or to provide equity incentives due to Executive
pursuant to this Agreement, the Company shall pay to Executive as additional
compensation an amount equal to 20% of the amount of the judgment and the
Company consents that the amount of such additional compensation shall be added
to the judgment.

10.    Miscellaneous.
-------------

13

10.1   Executive  represents and warrants to the
Company  that Executive has no contracts or agreements of any nature that
Executive has entered into with any other person, firm or corporation that
contain any restraints on Executive's present or future services.

10.2   Executive and the Company each acknowledges
and agrees that this  Agreement constitutes  the entire understanding between
the Company and Executive relating to the employment of Executive by the
Company and any direct or indirect subsidiary or affiliate of the Company,
and supersedes all prior written and oral agreements and understandings with
respect to the subject matter of this Agreement.

10.3   This  Agreement may be amended only by a
subsequent  written agreement  signed by Executive and the Company.

10.4   No waiver by either party of or failure to
assert  any provision  or condition of this Agreement to be performed or right
to be exercised shall be deemed a waiver of such or similar or dissimilar
provisions and conditions or rights at the same time or any prior or
subsequent time.

10.5   This Agreement and all rights and
obligations of Executive are  personal to Executive and shall not be assignable
and any purported assignment in violation hereof shall not be valid or binding
on the Company. No rights or obligations of the Company under this Agreement
may be assigned or transferred by the Company, except that such rights or
obligations may be assigned or transferred pursuant to a merger or
consolidation in which the Company is not the continuing entity, or the sale or
liquidation of all or substantially all of the business or assets of the
Company,  provided that the assignee or transferee is the successor to all or
substantially all of the business or assets of the Company and such assignee or
transferee assumes all of the liabilities, obligations and duties of the
Company, as contained in this Agreement, either contractually or as a matter of
law. The Company will require any such successor to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business or assets as aforesaid, which
executes and delivers the

14

agreement provided for in this Section 10.5 or which otherwise becomes bound by
all the terms and provisions of this Agreement or by operation of law.

10.6   "Undisputed Late Obligations"  shall bear
interest  beginning on the Due Date until paid in full at an annual rate of
one percent (1.0%) plus the prime rate as declared from time to time by The
Chase Manhattan Bank. For purposes hereof, "Undisputed Late Obligations"
shall mean any obligation which remains unpaid 5 days after written notice
thereof is delivered to the other party in accordance with Section 11
(the "Due Date") for money under this Agreement owing from one party to
another, which obligation (i) is not subject to any bona fide dispute or (ii)
has been adjudicated by an arbitration pane l or court of competent
jurisdiction to be due and payable.

10.7   This Agreement may be signed in counterparts.

(The remainder of this page is intentionally left blank)

15

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the year and day first above written.

STAR GAS LLC

By:
------------------------------------------------
Paul Biddelman
Chair of the Compensation Committee

EXECUTIVE:
-----------------------------------------
Irik P. Sevin

16

Exhibit 23.1

Consent of Independent Auditors

The Partners of
Star Gas Partners, L.P.:

We consent to incorporation by reference in the registration statements Nos.
333-75701 and 333-57994 on Form S-3, No. 333-49751 on Form S-4 and Nos.
333-40138, 333-46714 and 333-53716 on Form S-8 of Star Gas Partners, L.P. of our
report dated December 20, 2001, relating to the consolidated balance sheets of
Star Gas Partners, L.P. and Subsidiaries as of September 30, 2000 and 2001 and
the related consolidated statements of operations, comprehensive income,
partners' capital and cash flows for each of the years in the three-year period
ended September 30, 2001 and related schedule, which report appears in the
September 30, 2001 annual report on Form 10-K of Star Gas Partners, L.P.

/s/ KPMG LLP
Stamford, Connecticut
December 20, 2001