<PAGE>   1
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 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 DECEMBER 31, 1997
                                       OR
[  ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                     FOR THE TRANSITION PERIOD FROM      TO

                         COMMISSION FILE NO. 2-84452-01

                      STERLING DRILLING FUND 1983-2, L.P.
             (Exact name of Registrant as specified in its charter)

                NEW YORK                                      13-3167551
     (State or other jurisdiction of                       (I.R.S. Employer
     incorporation or organization)                       Identification No.)

         ONE LANDMARK SQUARE
        STAMFORD, CONNECTICUT                                    06901
(Address of principal executive offices)                       (Zip Code)

       Registrant's telephone number, including area code: (203) 358-5700

          Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

          Securities registered pursuant to Section 12(g) of the Act:
                          UNITS OF LIMITED PARTNERSHIP
                                (Title of Class)

         Indicate by check mark whether 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.  [ ]

         The Registrant has no voting stock. There is no market for the Units
and therefore no market value of the Units is reported.

         The number of Units of the Registrant outstanding as of March 16,
1998, was: 15,697.

                      DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE



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



<PAGE>   2
                      STERLING DRILLING FUND 1983-2, L.P.

                            FORM 10-K ANNUAL REPORT
                           FOR THE FISCAL YEAR ENDED
                               DECEMBER 31, 1997

                                     PART I

ITEM 1.  BUSINESS

         Sterling Drilling Fund 1983-2, L.P., formerly Sterling-Fuel Resources
Drilling Fund 1983-2 (the "Registrant" or the "Partnership") is a limited
partnership formed under the laws of the State of New York on May 26, 1983.
The sole business of the Partnership was the drilling of formation extension
wells principally for natural gas in various locations in the State of West
Virginia.  No exploratory drilling was undertaken.

         The principal place of business of the Partnership is at One Landmark
Square, Stamford, Connecticut 06901, telephone (203) 358-5700.  The Managing
General Partner of the Partnership is PrimeEnergy Management Corporation, a New
York corporation, which is a wholly-owned subsidiary of PrimeEnergy
Corporation, a publicly held Delaware corporation.  Messrs. Charles E. Drimal,
Jr., Oliver J. Sterling and Samuel R. Campbell also are General Partners.  Mr.
Drimal is a Director, President and Chief Executive Officer of PrimeEnergy
Management Corporation and PrimeEnergy Corporation, and Mr. Campbell is a
Director of PrimeEnergy Corporation.

         The aggregate contributions to the Partnership were $15,697,000, all
of which, net of the organization expenses of the Partnership, was expended in
the drilling of such formation extension wells.  Such properties are located in
Clay, Roane, Calhoun, Wirt, Kanawha, Lincoln and Putnam Counties, West
Virginia.  The Partnership does not operate any of the properties in which it
has an interest, but generally such properties are operated and serviced by
Prime Operating Company, a Texas corporation, and Eastern Oil Well Service
Company, a West Virginia corporation, both wholly- owned subsidiaries of
PrimeEnergy Corporation.

         During 1997, the Partnership did not engage in any other development
drilling activities or the acquisition of any significant additional
properties, but engaged in the production of oil and gas from its producing
properties in the usual and customary course.  Since January 1, 1998, and to
the date of this Report, the Partnership has not engaged in any drilling
activities nor participated in the acquisition of any material producing oil
and gas properties.





                                      -1-
<PAGE>   3
COMPETITION AND MARKETS

         Competitors of the Partnership in the marketing of its oil and gas
production include oil and gas companies, independent concerns, and individual
producers and operators, many of which have financial resources, staffs and
facilities substantially greater than those available to the Partnership.
Furthermore, domestic producers of oil and gas must not only compete with each
other in marketing their output, but must also compete with producers of
imported oil and gas and alternative energy sources such as coal, nuclear power
and hydro-electric power.

         The availability of a ready market for any oil and gas produced by the
Partnership at acceptable prices per unit of production will depend upon
numerous factors beyond the control of the Partnership, including the extent of
domestic production and importation of oil and gas, the proximity of the
Partnership's producing properties to gas pipelines and the availability and
capacity of such pipelines, the marketing of other competitive fuels,
fluctuation in demand, governmental regulation of production, refining,
transportation and sales, general national and worldwide economic conditions,
and pricing, use and allocation of oil and gas and their substitute fuels.

         The Partnership does not currently own or lease any bulk storage
facilities or pipelines, other than adjacent to and used in connection with
producing wells.   The Partnership deals with a number of major and independent
companies for the purchase of its oil and gas production, in the areas of
production. In 1997, approximately $298,900, or 81.65%, and $62,300, or 17.02%,
of the Partnership's gas production was sold to Phoenix Diversified and Cabot
Oil & Marketing Corporation, respectively, and about $41,250, or 100%, of the
Partnership's oil production was sold to American Rivers Terminal. None of the
purchasers has any relationship or is otherwise affiliated with the
Partnership. The Partnership believes that its current purchasers will continue
to purchase oil and gas products and, if not, could be replaced by other
purchasers.  Beginning in January, 1998, American Rivers Terminal sold its
business to Ohio River Gathering.  Ohio River Gathering has assured the
operating company that it will continue to purchase the Partnership's oil
production.

ENVIRONMENTAL MATTERS

         The petroleum industry is subject to numerous federal and state
environmental statutes, regulations and other pollution controls.  In general,
the Partnership is, and will be subject to, present and future environmental
statutes and regulations, and in the future the cost of its activities may
materially increase as a result thereof.  The Partnership's expenses relating
to preserving the environment during 1997 as they relate to its oil and gas
operations were not significant in relation to operating costs and the
Partnership expects no material change in the near future.  The Partnership
believes that environmental regulations should not, in the future, result in a
curtailment of production or otherwise have a materially adverse effect on the
Partnership's operations or financial condition.





                                      -2-
<PAGE>   4
REGULATION

         The Partnership's oil and gas operations are subject to a wide variety
of federal, state and local regulations.  Administrative agencies in such
jurisdictions may promulgate and enforce rules and regulations relating to,
among other things, drilling and spacing of oil and gas wells, production
rates, prevention of waste, conservation of natural gas and oil, pollution
control, and various other matters, all of which may affect the Partnership's
future operations and production of oil and gas.  The Partnership's natural gas
production and prices received for natural gas are regulated by the Federal
Energy Regulatory Commission ("FERC") and the Natural Gas Policy Act of 1978
and various state regulations.  The Partnership was subject to the Crude Oil
Windfall Profit Tax Act of 1980, which imposed an excise tax on producers of
crude oil at various rates for prices received in excess of certain historical
base prices.  That Act was repealed in August, 1988.  The Partnership is also
subject to state drilling and proration regulations affecting its drilling
operations and production rates.

         The FERC continues to regulate interstate natural gas pipeline
transportation rates and service conditions pursuant to the NGA and NGPA.
Federal regulation of interstate transporters affects the marketing of natural
gas produced by the Partnership as well as the revenues received by the
Partnership for sales of such natural gas. Since the latter part of 1985,
through its Order Nos. 436, 500 and 636 rulemakings, the FERC has endeavored to
make natural gas transportation accessible to gas buyers and sellers on an open
and non-discriminatory basis. The FERC's efforts have significantly altered the
marketing and pricing of natural gas. No prediction can be made as to what
additional legislation may be proposed, if any, affecting the competitive
status of a gas producer, restricting the prices at which a producer may sell
its gas, or the market demand for gas, nor can it be predicted which proposals,
including those presently under consideration, if enacted, might be effective.

         A number of legislative proposals have been introduced in Congress and
the state legislatures of various states, that, if enacted, would significantly
affect the petroleum industry.  Such proposals involve, among other things, the
imposition of land and use controls and certain measures designed to prevent
petroleum companies from acquiring assets in other energy areas.  In addition,
there is always the possibility that if market conditions change dramatically
in favor of oil and gas producers that some new form of "windfall profit" or
severance tax may be proposed for and imposed upon either oil or gas.  At the
present time it is impossible to predict which proposals, if any, will actually
be enacted by Congress or the various state legislatures.  The Partnership
believes that it will comply with all orders and regulations applicable to its
operations.  However, in view of the many uncertainties with respect to the
current controls, including their duration and possible modification together
with any new proposals that may be enacted, the Partnership cannot predict the
overall effect, if any, of such controls on its operations.

TAXATION

         The Partnership received an opinion of its counsel that the
Partnership would be classified as a partnership and the holders of Partnership
Units would be treated as limited partners for federal income tax purposes.
The Partnership itself, to the extent that it is treated for federal income tax
purposes as a partnership, is not subject to any federal income taxation,





                                      -3-
<PAGE>   5
but it is required to file annual partnership returns.  Each holder of
Partnership Units will be allocated his distributive shares of the
Partnership's income, gain, profit, loss, deductions, credits, tax preference
items and distributions for any taxable year of the Partnership ending within
or with his taxable year without regard as to whether such holder has received
or will receive any cash distributions from the Partnership.

ITEM 2.  PROPERTIES

         The Partnership has no interest in any properties other than its oil
and gas properties.  The information set forth below summarizes the
Partnership's oil and gas wells, production and reserves, for the periods
indicated.

PRODUCING WELLS AND OPERATING INFORMATION

         The Partnership, following its formation, and in December, 1983,
contracted for the drilling of 52 development wells, which resulted in 51
producing wells and one dry hole.

         As of December 31, 1997, the Partnership had ownership interests in
the following gross and net producing oil and gas wells and gross and net
producing acres.(1)  The Partnership has no material undeveloped leasehold,
mineral or royalty acreage.

         Producing wells:

<TABLE>
<CAPTION>
                                                    Gross            Net
                                                    -----            ---
                 <S>                               <C>             <C>
                 Oil Wells  . . . . . . . . . . . . .   1               1
                 Gas Wells  . . . . . . . . . . . . .  60            48.3

                 Producing acres  . . . . . . . .   6,086           4,898
</TABLE>

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

         (1)     A gross well is a well in which an interest is owned; a net
                 well is the sum of the interests owned in gross wells.  Wells
                 are classified by their primary product.  Some wells produce
                 both oil and gas.

         The following table sets forth the Partnership's oil and gas
production, average sales prices and average production costs as of and for the
periods indicated:

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                                        -----------------------
                                                      1997           1996         1995        1994          1993
                                                      ----           ----         ----        ----          ----
       <S>                                         <C>             <C>          <C>         <C>           <C>
       Production:
               Oil and Condensate (bbl)  . . . .        2,158         1,598        2,766       1,865         2,766
               Gas (Mcf)   . . . . . . . . . . .      121,542       129,675      134,028     104,110       144,397
       Average Price of Sales:
               Oil and Condensate ($ per bbl)  .    $   18.50         19.45        15.83       14.57         14.37
               Gas ($ per Mcf)   . . . . . . . .    $    3.11          2.43         2.10        3.30          2.59

       Production Expense per Dollar
               of Operating Revenue  . . . . . .    $    0.46          0.44         0.46        0.55          0.46
</TABLE>





                                      -4-
<PAGE>   6
OIL AND GAS RESERVES

         The Partnership's interests in proved developed oil and gas properties
have been evaluated by Ryder Scott Company for the periods indicated below.
All of the Partnership's reserves are located in the continental United States.
The following table summarizes the Partnership's oil and gas reserves at the
dates shown (figures rounded):

<TABLE>
<CAPTION>
                                                                  Proved Developed
                As of                                             ----------------
                12-31                             Oil (bbls)                            Gas (Mcf)
                -----                             ----------                            ---------
                <S>                                 <C>                                 <C>
                1993                                24,000                              2,662,000
                1994                                12,000                              1,809,000
                1995                                17,400                              2,554,600
                1996                                19,500                              2,535,000
                1997                                21,000                              2,384,000
</TABLE>

         The estimated future net revenue (using current prices and costs as of
the dates indicated, exclusive of income taxes (at a 10% discount for estimated
timing of cash flow) for the Partnership's proved developed oil and gas
reserves for the periods indicated are summarized as follows (figures rounded):

<TABLE>
<CAPTION>
                                                                               Proved Developed
                                                                               ----------------
                  As of                                                 Future Net       Present Value of
                  12-31                                                   Revenue       Future Net Revenue
                  -----                                                 ----------      ------------------
                   <S>                                                <C>                     <C>
                   1993                                               $  4,199,000            $  1,863,000
                   1994                                                  1,413,000                 678,000
                   1995                                                  2,410,900                 947,600
                   1996                                                  3,967,000               1,578,300
                   1997                                                  3,351,400               1,288,800
</TABLE>

         Since January 1, 1997, the Partnership has not filed any estimates of
its oil and gas reserves with, nor were any such estimates included in any
reports, to any federal authority or agency, other than the Securities and
Exchange Commission.

ITEM 3.  LEGAL PROCEEDINGS

         The Partnership is not a party to, nor is any of its property the
subject of, any legal proceedings actual or threatened, which would have a
material adverse effect on the business and affairs of the Partnership.

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

         There were no matters submitted during 1997 for vote by the holders of
Partnership Units.





                                      -5-
<PAGE>   7
                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
         RELATED STOCKHOLDER MATTERS

         There is no  market for the Limited Partnership Units (the "Units) of
the Partnership.  As of March 16, 1998, there were 1,151 holders of record of
the Units.

         The Units are not regarded as stock and payments or distributions to
holders of Units are not made in the form of dividends.  Cash distributions to
the holders of Units for 1997 aggregated $39,243. Aggregate cash distributions
to the holders of the Units as of December 31, 1997, is $1,710,973.

         The Managing General Partner may purchase Units directly from the unit
holders if presented to the Managing General Partner, subject to conditions,
including limitations on numbers of Units, and at a price to be fixed by the
Managing General Partner in accordance with certain procedures, all as provided
for in the Limited Partnership Agreement of the Partnership.

ITEM 6.  SELECTED FINANCIAL DATA

         The information required hereunder is set forth under "Selected
Financial Data" in the Financial Information section included in this Report.
The index to the Financial Information section is at page F-1.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         The information required hereunder is set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the Financial Information section included in this Report.  The index to the
Financial Information section is at page F-1.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The information required hereunder is set forth under "Report of
Independent Public Accountants," "Balance Sheets," "Statements of Operations,"
"Statements of Changes in Partners' Equity," "Statements of Cash Flows" and
"Notes to Financial Statements" in the Financial Information section included
in this Report.  The index to the Financial Information section is at page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
        
         There was no disagreement between the Partnership and its certified
public accountants on any matter of accounting principles or practices or
financial statement disclosure.





                                      -6-
<PAGE>   8
                                    PART III

ITEM 10.         DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The Managing General Partner of the Partnership is PrimeEnergy
Management Corporation, a New York corporation ("Management").  The principal
business of Management is the management of the Partnership and other publicly
and privately held exploration and development limited partnerships and joint
ventures and publicly held asset and income fund limited partnerships.  As of
March 16, 1998, Management acts as the Managing General Partner in a total of
51 limited partnerships and joint ventures, of which 5 are publicly held, and
is the Managing Trustee of 2 Delaware Business Trusts.  The primary activity of
such Partnerships, joint ventures and trusts is the production of oil and gas
and Management, as the Managing General Partner of the Partnership, will devote
such of its time as it believes necessary in the conduct and management of the
business and affairs of the Partnership.  Management, and other of the General
Partners of the Partnership, are engaged in and intend to continue to engage in
the oil and gas business for their own accounts and for the accounts of others.

         Management, which provides all of the executive, management and
administrative functions of the Partnership, is a wholly-owned subsidiary of
PrimeEnergy Corporation ("PrimeEnergy"), a publicly held Delaware corporation.
The principal offices of PrimeEnergy and Management are in Stamford,
Connecticut.  The operating subsidiaries of PrimeEnergy, Prime Operating
Company and Eastern Oil Well Service Company, maintain their principal offices
in Houston, Texas, with district offices in Midland, Texas, Oklahoma City,
Oklahoma, and Charleston, West Virginia.  PrimeEnergy and its subsidiaries have
about 164 employees, including their principal officers, providing management
and administrative services, accounting, engineers, geologists, production
engineers, land department personnel and field employees.

         Set forth below is information concerning the directors and executive
officers of Management and PrimeEnergy who are involved with the conduct of the
business and operations of the Partnership.

         Charles E. Drimal, Jr., age 49, is a Director and President of
Management and has held those positions since May, 1983.  He is also a Director
and President of Prime Energy and the operating subsidiaries.  He graduated
from the University of Maryland in 1970 and from Stamford University School of
Law in 1973 and is a member of the New York State Bar.

         Beverly A. Cummings, age 44, has been a Director and Vice President,
Finance, of Management since August, 1985.  She is also a Director and Vice
President, Finance, and Treasurer of PrimeEnergy and the operating
subsidiaries.  Ms.  Cummings is a Certified Public Accountant and holds a
Bachelor of Science degree from the State University of New York and a Master
in Business Administration from Rutgers University.

         Bennie H. Wallace, Jr., age 45, is a Director and Vice President of
Management and has held such positions since May, 1989.  He is also
Acquisitions Manager for Management, a Vice President of PrimeEnergy, a
Director of PrimeEnergy since June, 1993, and is a Vice President and Director
of the operating subsidiaries. He graduated from Louisiana State University in
1975 with a Bachelor of Science degree in petroleum engineering and is a
registered professional





                                      -7-
<PAGE>   9
engineer in the States of Texas and Louisiana and was an independent petroleum
engineer engaged in the evaluation and operation of oil and gas properties from
1983 to 1987.

         Lyne G. Pizor, age 38, has been Controller of Prime Operating Company
since January, 1992, and Eastern Oil Well Service Company since September,
1990. She also held that position with Management from January, 1986, through
August, 1994, and PrimeEnergy from May, 1990, through August, 1994. She joined
Management in October, 1984, as Manager of Partnership Accounting. She is a
graduate of Wagner College with a Bachelor of Science degree in Economics and
Business Administration and is a Certified Public Accountant.

         James F. Gilbert, age 65, has been Secretary of Management since June,
1990, and has been Secretary of PrimeEnergy since March, 1973, and was a
Director of PrimeEnergy from that date to October, 1987.  He also serves as
Secretary of the operating subsidiaries.  He is an attorney in Dallas, Texas.

ITEM 11.         EXECUTIVE COMPENSATION

         The Partnership has no officers, directors or employees.  The officers
and employees of the Managing General Partner and PrimeEnergy perform all
management and operational functions of the Partnership.  The Partnership does
not pay any direct salaries or other remuneration to the officers, directors or
employees of the Managing General Partner or PrimeEnergy.  The Managing General
Partner is reimbursed for the general and administrative expenses of the
Partnership which are allocated to the Partnership for expenses incurred on
behalf of the Partnership, together with administrative work by third parties
limited annually to 5% of the aggregate capital contribution of the holders of
the Partnership Units.  During 1997, the allocation of general and
administrative expenses to the Partnership was $100,000.

ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table shows as of March 16, 1998, the name and address
and the number and percent of Units beneficially and directly owned by each
person, entity or group, known to the Partnership to own more than 5% of the
Units.

<TABLE>
<CAPTION>
                                                                        NUMBER
            NAME AND ADDRESS OF BENEFICIAL OWNER                       OF UNITS           PERCENT
            ------------------------------------                       --------           -------
            <S>                                                        <C>                  <C>
            PrimeEnergy Management Corporation
                    One Landmark Square
                    Stamford, CT 06901  . . . . . . . . . . . . .      1,171                7.46

            PrimeEnergy Corporation
                    One Landmark Square
                    Stamford, CT 06901  . . . . . . . . . . . . .        814                5.19
</TABLE>





                                      -8-
<PAGE>   10
ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Prime Operating Company acts as the operator for most of the producing
oil and gas wells of the Partnership pursuant to operating agreements with the
Partnership and other working interest owners, including other partnerships
managed by the Managing General Partner, and in 1997 was paid well operating
fees ranging from about $402 to $557 per month per well. Well operating
supplies and equipment and related servicing operations are generally provided
by Eastern Oil Well Service Company.  The Partnership pays its proportionate
part of such operating fees and expenses.  Such fees and expenses vary
depending on such matters as the location of the well, the complexity of the
producing equipment, whether wells produce oil or gas or both and similar
factors.  The Partnership believes that such services are as favorable to the
Partnership as they would be if the Partnership entered into such transactions
with unaffiliated third parties.  In 1997 and 1996, the Partnership paid an
aggregate of $125,630 and $106,047, respectively, in such fees and expenses.


                                    PART IV

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

         (a)     The following documents are filed as a part of this Report:

                 1.       Financial Statements (Index to the Financial
                          Information at page F-1)

                 2.       Exhibits:

                           (3)    Form of Agreement of Limited Partnership of
                                  Sterling-Fuel Resources Drilling Fund 1983-2,
                                  now Sterling Drilling Fund 1983-2, L.P.
                                  (Incorporated by reference to Exhibit (3) of
                                  Sterling Drilling Fund 1983-2, L.P. Form 10-K
                                  for the year ended December 31, 1994.)

                          (24)    Consent of Ryder Scott Company (filed
                                  herewith)

                          (27)    Financial Data Schedule. (filed herewith)


         (b)     Reports on Form 8-K:

                 No reports on Form 8-K have been filed during the last quarter
                 of the year covered by this Report.





                                      -9-
<PAGE>   11
                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 23rd day of
March, 1998.

                                    Sterling Drilling Fund 1983-2, L.P.
                                    By:      PrimeEnergy Management Corporation
                                             Managing General Partner



                                    By:      /s/ CHARLES E. DRIMAL, JR.       
                                             ----------------------------------
                                             Charles E. Drimal, Jr.
                                             President

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the 23rd day of March, 1998.


/s/ CHARLES E. DRIMAL, JR.       Director and President,
----------------------------     PrimeEnergy Management Corporation;
Charles E. Drimal, Jr.           The Principal Executive Officer




/s/ BEVERLY A. CUMMINGS          Director and Vice President and Treasurer,
----------------------------     PrimeEnergy Management Corporation;
Beverly A. Cummings              The Principal Financial and Accounting Officer




/s/ BENNIE H. WALLACE, JR.       Director, PrimeEnergy Management
----------------------------     Corporation
Bennie H. Wallace, Jr.           





                                      -10-
<PAGE>   12
                      STERLING DRILLING FUND 1983-2, L.P.

                        (A NEW YORK LIMITED PARTNERSHIP)

                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

<TABLE>
<CAPTION>
                                                                                                     Page No.
                                                                                                     --------
<S>                                                                                                    <C>
Selected Financial Data                                                                                F-2

Management's Discussion and Analysis of Financial Condition
and Results of Operations                                                                              F-2

Report of Independent Public Accountants                                                               F-6

Financial Statements:

      Balance Sheets, December 31, 1997 and 1996                                                       F-7

      Statements of Operations for the Years Ended December 31,
      1997, 1996 and 1995                                                                              F-8

      Statements of Changes in Partners' Equity for the Years
      Ended December 31, 1997, 1996 and 1995                                                           F-9

      Statements of Cash Flow for the Years Ended December 31,
      1997, 1996 and 1995                                                                              F-10

      Notes to Financial Statements                                                                    F-11

Schedules:

      V  -   Property and Equipment - Oil and Gas Properties for
             the Years Ended December 31, 1997, 1996 and 1995                                          F-19

      VI -   Accumulated Depreciation, Depletion, and Amortization -
             Oil and Gas Properties for the Years Ended December 31,
             1997, 1996 and 1995                                                                       F-20
</TABLE>

All other schedules have been omitted as the information required is either
included in the financial statements, related notes, or is not applicable.





                                      F-1
<PAGE>   13
ITEM 6.  SELECTED FINANCIAL DATA

         The following table summarizes certain selected financial data to
highlight significant trends in the Registrant's financial condition and
results of operations for the periods indicated. The selected financial data
should be read in conjunction with the financial statements and related notes
included elsewhere in this report.

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31, (000'S OMITTED)
                                                   ---------------------------------------
                                              1997         1996        1995       1994         1993
                                              ----         ----        ----       ----         ----
        <S>                                <C>             <C>         <C>       <C>           <C>
        Revenues  . . . . . . . . . . .    $     431         350         387        371          420
        Net income (loss):
           Limited Partners . . . . . .    $      33          (4)         26       (455)         (16)
           General Partners . . . . . .    $      22          12          29        (36)          15
           Per equity unit  . . . . . .    $    2.10       (0.23)       1.69     (29.02)       (1.04)
        Total assets  . . . . . . . . .    $   1,331       1,327       1,371      1,412        1,934
        Cash distributions:
           Limited Partners . . . . . .    $      39          39          39         39           39
           General Partners . . . . . .    $      12          12          12         12           12
           Limited partners as
           a % of original
           contribution . . . . . . . .         0.25%       0.25%       0.25%      0.25%        0.25%
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
         CONDITION & RESULTS OF OPERATIONS

         1. Liquidity: The oil and gas industry is intensely competitive in all
its phases. There is also competition between this industry and other
industries in supplying energy and fuel requirements of industrial and
residential consumers. It is not possible for the Registrant to calculate its
position in the industry as the Registrant competes with many other companies
having substantially greater financial and other resources. In accordance with
the terms of the Agreement of Limited Partnership of the Partnership, the
General Partners of the Registrant will make cash distributions of as much of
the Partnership cash credited to the capital accounts of the partners as the
General Partners have determined is not necessary or desirable for the payment
of any contingent debts, liabilities or expenses for the conduct of the
Partnership business. As of December 31, 1997, the General partners have
distributed $1,710,973, or 10.90%, of original Limited Partner capital
contributions, to the Limited Partners.

         All aspects of the Partnership's operations and administration are
handled through the use of the operating and Managing General Partner's
computer systems.  Both the operations company and the Managing General Partner
are taking steps to minimize any potential computer issues with regard to any
necessary changes for the year 2000.  A complete systems upgrade, which
includes but is not limited to, the year 2000 issue will be implemented within
the next year by both the operating company and the Managing General Partner.
Both companies' upgrades and year 2000 changes are part of their normal course
of business and no material costs should be allocated to the Partnership for
the implementation necessary by either company.

         The net proved oil and gas reserves of the Partnership are considered
to be a primary indicator of financial strength and future liquidity. The
present value of unescalated future net





                                      F-2
<PAGE>   14
revenues (S.E.C. case) associated with such reserves, discounted at 10% as of
December 31, 1997, was approximately $1,288,800 as compared to the discounted
reserves as of December 31, 1996, which were approximately $1,578,300.  Overall
reservoir engineering is a subjective process of estimating underground
accumulations of gas and oil that can not be measured in an exact manner.  The
accuracy of any reserve estimate is a function of the quality of available data
and of the engineering and geological interpretation and judgment. Accordingly,
reserve estimates are generally different from the quantities of gas and oil
that are ultimately recovered and such differences may have a material impact
on the Partnership's financial results and future liquidity.

         2. Capital Resources: The Partnership was formed for the sole
intention of drilling oil and gas wells. The Partnership entered into a
drilling contract with an independent contractor in December, 1993, for
$13,400,000.  Pursuant to the terms of this contract fifty-two wells were
drilled resulting in fifty-one producing wells and one dry hole.

         3. Results of operations:

         1997 compared to 1996

         Overall operating revenue increased from $348,834 in 1996 to $431,111
in 1997.  The Partnership experienced a gas production decline from 129,675 mcf
in 1996 to 121,542 mcf in 1997.  Oil production increased from 1,598 barrels in
1996 to 2,158 barrels in 1997.  The Partnership generally renews its gas
contracts as they come due for twelve month periods.  The Partnership was in a
fixed price contract for all of 1997 and has renewed its fixed price contract
through November 30, 1998.  The average price per mcf increased substantially,
from $2.43 in 1996 to $3.11 in 1997.  The average price per barrel declined
slightly from $19.45 in 1996 to $18.50 in 1997.  All four factors, especially
the average price per mcf, contributed to increased oil and gas sales.  Also
included in overall operating revenues are the sale of some equipment.
Occasionally the well operator will determine that some equipment at the well
or well site is no longer necessary for a particular well.  During 1997, the
operator sold tubing, pipes and rods no longer needed by the Partnership's
wells.

         Interest income fluctuates with changes in the interest rates received
as well as the amount of cash in the bank at any given time.

         Production expenses increased from $151,293 in 1996 to $192,587 in
1997.  Some production expenses may be variable in nature, vary with production
volumes or others are direct correlation with additional repairs and labor
performed on particular wells.  The Partnership may expend funds on additional
equipment, for example lift equipment, if the operator has determined that the
equipment and related expenses will have a beneficial effect on production.
The effect looked for by the operator is to increase production, halt any
further significant declines or to maintain overall production on a particular
well.  Additional repairs may include, but are not limited to, additional
maintenance, labor, location, access road work and other miscellaneous supplies
needed by the individual wells or the well sites.  The Partnership also
expended the necessary funds, in both years, for general upkeep and maintenance
at all the Partnership's well and well sites.





                                      F-3
<PAGE>   15
General and administrative costs remained relatively unchanged from $124,723 in
1996 to $123,440 in 1997.  The stable amounts reflect management's efforts to
limit costs, both incurred and allocated to the Partnership.  Management
continues to monitor any third party costs and use in-house resources if it
will provide efficient and timely services to the Partnership.  Amounts in both
years are substantially less than the $784,850 allocable to the Partnership
under the Partnership Agreement.


         The Partnership records additional depreciation, depletion and
amortization to the extent that the net capitalized costs exceeds the
undiscounted future net cash flows attributable to the Partnership.  No
additional depletion was needed in 1996 or 1997.  The overall Partnership
depreciation was consistent with the current basis in the partnership
properties and the rates applied.

         1996 compared to 1995

         Operating revenue increased from $326,196 in 1995 to $348,884 in 1996.
The Partnership experienced a minor gas production decline from 134,028 mcf in
1995 to 129,675 mcf in 1996. The production decline was offset by a higher
average price per mcf from $2.10 per mcf in 1995 to $2.43 per mcf in 1996. Oil
production  declined from 2,766 barrels in 1995 to 1,598 barrels in 1996.
Although oil production declined the higher oil prices, $15.83 average price
per barrel in 1995 and $19.45 average price per barrel in 1996, received did
contribute to the overall increase in operating revenue. The Partnership
generally renews its contracts with gas purchasers as they come due for an
additional twelve month period. The Partnership was able to obtain fixed price
contracts on a majority of its gas production for 1996. The Partnership, also,
successfully renewed its contracts for 1997.

         Interest income fluctuates with changes in the interest rates received
as well as the amount of cash in the bank at any given time.

          Production expenses remained relatively unchanged from $152,498 in
1995 to $151,293 in 1996. Most of the production expenses incurred in 1995 and
1996 were of normal recurring nature to maintain the general upkeep of the
wells and well sites. The Partnership did expend funds on additional
capitalized well equipment. The operator will determine if additional
equipment, for example lift equipment, will have a favorable effect on
production. The beneficial effect looked for by the operator is to increase,
improve or sustain production on a particular well. General and administrative
costs increased form $110,101 in 1995 to $124,723 in 1996. Amounts in both
years are substantially less than the $784,850 allocable to the Partnership
under the Partnership Agreement. The lower amounts reflect management's efforts
to limit costs, both incurred and allocated to the Partnership. Management
continues to monitor any third party costs and use in-house resources if it
will provide efficient and timely services to the Partnership.

         The Partnership records additional depreciation, depletion and
amortization to the extent that the net capitalized costs exceeds the
undiscounted future net cash flows attributable to the Partnership. No
additional depletion was needed in 1995 or 1996. The overall Partnership
depreciation was consistent with the current basis in the Partnership
properties and the rates applied.





                                      F-4
<PAGE>   16
                       STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Partners of
Sterling Drilling Fund 1983-2, L.P.:


We have audited the accompanying balance sheets of Sterling Drilling Fund
1983-2, L.P. (a New York limited partnership) as of December 31, 1997 and 1996,
and the related statements of operations, changes in partners' equity, and cash
flows for the years ended December 31, 1997, 1996 and 1995. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Sterling Drilling Fund 1983-2,
L.P. as of December 31, 1997 and 1996, and the results of its operations and
cash flows for the years ended December 31, 1997, 1996 and 1995 in conformity
with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial statements and schedules are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the examination of the basic financial statements and, in
our opinion, fairly state in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken as a
whole.



PUSTORINO, PUGLISI & CO., LLP
New York, New York
February 5, 1998



                                      F-5
<PAGE>   17

                       STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                                 BALANCE SHEETS

                           DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                     Assets

                                                                                     1997              1996
                                                                                 ------------      ------------
<S>                                                                              <C>               <C>         
Current Assets:
  Cash and cash equivalents (Note 2)                                             $     57,413      $     22,018
  Due from affiliate (Note 6)                                                          48,737            22,836
                                                                                 ------------      ------------
     Total Current Assets                                                             106,150            44,854
                                                                                 ------------      ------------

Oil and Gas Properties - successful efforts
 method (Note 3) - (Schedules V and VI):
  Leasehold costs                                                                     497,639           497,639
  Wells and related facilities                                                     12,934,194        12,929,171
                                                                                 ------------      ------------
      Total                                                                        13,431,833        13,426,810
  Less - Accumulated depreciation, depletion                                      (12,206,629)      (12,144,168)
                                                                                 ------------      ------------
          and amortization
                                                                                    1,225,204         1,282,642
                                                                                 ------------      ------------

     Total Assets                                                                $  1,331,354      $  1,327,496
                                                                                 ============      ============



                        Liabilities and Partners' Equity

     Total Current Liabilities                                                   $         --      $         --
                                                                                 ------------      ------------

Partners' Equity:
  Limited partners                                                                  1,318,829         1,325,155
  General partners                                                                     12,525             2,341
                                                                                 ------------      ------------
     Total Partners' Equity                                                         1,331,354         1,327,496
                                                                                 ------------      ------------

     Total Liabilities and Partners' Equity                                      $  1,331,354      $  1,327,496
                                                                                 ============      ============
</TABLE>



   The Notes to Financial Statements are an integral part of these statements.




                                      F-6
<PAGE>   18

                       STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                            STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                       1997                                  1996                               1995
                         --------------------------------   ----------------------------------    -------------------------------
                         Limited     General                Limited        General                Limited     General
                         Partners    Partners     Total     Partners       Partners    Total      Partners    Partners     Total
                         --------    --------   ---------   --------       --------  ---------    --------    --------    -------
<S>                     <C>         <C>         <C>         <C>          <C>         <C>         <C>         <C>         <C>      
Revenues:
  Operating revenues    $ 329,800   $ 101,311   $ 431,111   $ 266,896    $  81,988   $ 348,884   $ 249,540   $  76,656   $ 326,196
  Interest and other        2,030         189       2,219         775           72         847         457          42         499
  Other revenue                --          --          --          --           --          --      46,596      14,314      60,910
                        ---------   ---------   ---------   ---------    ---------   ---------   ---------   ---------   ---------
   (Note 10)

     Total Revenues       331,830     101,500     433,330     267,671       82,060     349,731     296,593      91,012     387,605
                        ---------   ---------   ---------   ---------    ---------   ---------   ---------   ---------   ---------

Costs and Expenses:
  Production expenses     147,329      45,258     192,587     115,739       35,554     151,293     116,661      35,837     152,498
  Depreciation,            57,152       5,309      62,461      60,081        5,581      65,662      69,224         699      69,923
   depletion and
   amortization
  General and              94,432      29,008     123,440      95,413       29,310     124,723      84,227      25,874     110,101
                        ---------   ---------   ---------   ---------    ---------   ---------   ---------   ---------   ---------
   administrative
   expenses (Note 7)

    Total Expenses        298,913      79,575     378,488     271,233       70,445     341,678     270,112      62,410     332,522
                        ---------   ---------   ---------   ---------    ---------   ---------   ---------   ---------   ---------

     Net Income (Loss)  $  32,917   $  21,925   $  54,842   $  (3,562)   $  11,615   $   8,053   $  26,481   $  28,602   $  55,083
                        =========   =========   =========   =========    =========   =========   =========   =========   =========

  Net Income (Loss) Per
   Equity Unit (Note 2) $    2.10                           $    (.27)                           $    1.69
                        =========                           =========                            =========
</TABLE>



   The Notes to Financial Statements are an integral part of these statements.




                                      F-7
<PAGE>   19

                       STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                    STATEMENTS OF CHANGES IN PARTNERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                  Limited           General
                                  Partners          Partners           Total
                                 -----------      -----------      -----------
<S>                              <C>              <C>              <C>        
Balance at December 31, 1994     $ 1,380,721      $   (14,573)     $ 1,366,148

Partners' contributions                   --              499              499

Distributions to partners            (39,243)         (11,967)         (51,210)

Net Income (Loss)                     26,481           28,602           55,083
                                 -----------      -----------      -----------

Balance at December 31, 1995       1,367,959            2,561        1,370,520

Partners' Contributions                   --              114              114

Distributions to partners            (39,242)         (11,949)         (51,191)

Net Income (Loss)                     (3,562)          11,615            8,053
                                 -----------      -----------      -----------

Balance at December 31, 1996       1,325,155            2,341        1,327,496

Partners' contributions                   --              114              114

Distributions to partners            (39,243)         (11,855)         (51,098)

Net Income (Loss)                     32,917           21,925           54,842
                                 -----------      -----------      -----------

Balance at December 31, 1997     $ 1,318,829      $    12,525      $ 1,331,354
                                 ===========      ===========      ===========
</TABLE>




   The Notes to Financial Statements are an integral part of these statements.





                                      F-8
<PAGE>   20

                       STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                      1997          1996          1995
                                                    --------      --------      --------
<S>                                                 <C>           <C>           <C>     
Cash Flows From Operating Activities:
 Net income (loss)                                  $ 54,842      $  8,053      $ 55,083
 Adjustments to reconcile net (loss) to
  net cash provided by operating activities:
   Depreciation, depletion and amortization           62,461        65,662        69,923
   Changes in Assets and Liabilities:
   (Increase) decrease due from affiliates           (48,737)      (22,836)      (26,555)
    Increase (decrease) in due to affiliates          22,836        26,555       (46,223)
                                                    --------      --------      --------

      Net Cash Provided by Operating Activities       91,402        77,434        52,228
                                                    --------      --------      --------

Cash Flows From Investing Activities:
  Equipment purchases                                 (5,023)      (12,749)       (1,394)
                                                    --------      --------      --------

Cash Flows From Financing Activities:
  Partners' contributions                                114           114           499
  Distributions to partners                          (51,098)      (51,191)      (51,210)
                                                    --------      --------      --------
     Net Cash Used in Financing Activities           (50,984)      (51,077)      (50,711)
                                                    --------      --------      --------

Net increase (decrease) in cash and cash              35,395        13,608           123
 equivalents

Cash and cash equivalents at beginning of year        22,018         8,410         8,287
                                                    --------      --------      --------

Cash and cash equivalents at end of year            $ 57,413      $ 22,018      $  8,410
                                                    ========      ========      ========
</TABLE>




   The Notes to Financial Statements are an integral part of these statements.



                                      F-9
<PAGE>   21

                       STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                          NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997, 1996 AND 1995


(1)      Organization and Capital Contributions:

         Sterling Drilling Fund 1983-2, L.P., a New York limited partnership
         (the "Partnership"), was formed on May 26, 1983 for the primary purpose
         of acquiring, developing and producing oil and gas in the state of West
         Virginia. The general partners are: PrimeEnergy Management Corporation
         (PEMC), a wholly owned subsidiary of PrimeEnergy Corporation (PEC),
         Charles E. Drimal, Jr., Oliver J. Sterling and Samuel R. Campbell.
         Fifteen thousand six hundred ninety-seven limited partnership units,
         (15,697), were sold at $1,000 per unit aggregating total limited
         partner contributions of $15,697,000. The general partners'
         contributions amounted to $1,284,839. Partnership operations commenced
         on December 22, 1983.


(2)      Summary of Significant Accounting Policies:

         Revenue Recognition:

         The Partnership recognizes operating revenues, consisting of sales of
         oil and gas production, in the month of sale. Uncollected revenue is
         accrued based on known facts and trends of the relevant oil and gas
         properties on a monthly basis.

         Basis of Accounting:

         The accounts of the Partnership are maintained in accordance with
         accounting practices permitted for federal income tax reporting
         purposes. Under this method of accounting, (a) substantially all
         exploration and development costs except leasehold and equipment costs
         are expensed as paid, (b) costs of abandoned leases and equipment are
         expensed when abandoned, and (c) depreciation (for equipment placed in
         service) is provided on an accelerated basis. In order to present the
         accompanying financial statements in accordance with generally accepted
         accounting principles, memorandum adjustments have been made to account
         for oil and gas properties, as discussed below.

         Oil and Gas Producing Activities:

         The Partnership accounts for its oil and gas operations using the
         successful efforts method of accounting on a property by property
         basis. The Partnership only participates in developmental drilling and,
         accordingly, all costs of drilling and equipping these wells, together
         with leasehold acquisition costs, are capitalized. These




                                      F-10
<PAGE>   22

                       STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                          NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997, 1996 AND 1995


(2)      Summary of Significant Accounting Policies - (Cont'd):

         capitalized costs are amortized on a property by property basis by the
         unit-of-production method based upon the ratio of production to proved
         oil and gas reserves. Additional depreciation, depletion and
         amortization is recorded to the extent that net capitalized costs
         exceed the undiscounted future net cash flows attributable to
         Partnership properties. (See Note 4)

         Federal Income Taxes:

         As federal income taxes are the liability of the individual partners,
         the accompanying financial statements do not include any provision for
         federal income taxes. (See Note 8)

         Limited Partners' Loss Per Equity Unit:

         The limited partners' loss per equity unit is computed on the 15,697
         limited partner equity units.

         Cash and Cash Equivalents:

         For purposes of the statements of cash flows the Partnership considers
         all highly liquid debt instruments with a maturity of three months or
         less to be cash equivalents.

         Use of Estimates:

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

         Recently Issued Accounting Standards:

         The Partnership has implemented the provisions of FAS Statement No. 121
         "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
         Assets to be Disposed of." The implementation of this standard has had
         no material effect on the financial statements.




                                      F-11
<PAGE>   23

                       STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                          NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997, 1996 AND 1995


(3)      Oil and Gas Properties:

         The Partnership acquired leases or farmouts from PEMC at its cost. Cost
         is defined as any amount paid for delay rentals, lease bonuses, if any,
         surveys and other expenses including such portion of any of the general
         partners', or their affiliates' reasonable, necessary and actual
         expenses for geological, geophysical, seismic, land, engineering,
         drafting, accounting, legal and other services. The Partnership
         currently pays royalties of approximately 12.50% to 18.75% of the
         selling price of the oil and gas extracted.

         The following table sets forth certain revenue and expense data
         concerning the Partnership's oil and gas activities for the years ended
         December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                    1997            1996          1995
                                                                   ------          ------        -----
<S>                                                                <C>             <C>           <C>   
              Average sales price per MCF of gas                   $ 3.11          $ 2.43        $ 2.10
              Average sales price per BBL of oil                     
               and other liquids                                    18.50           19.45         15.83
              Production expense per dollar of                       
               operating revenue                                     0.46            0.44          0.46
</TABLE>


(4)      Quantities of Oil and Gas Reserves:

         The amount of proved reserves (all of which are developed) presented
         below has been estimated by an independent firm of petroleum engineers
         as of January 1, 1997. Petroleum engineers on the staff of PEC have
         also reviewed the data presented below, as of December 31, 1997, for
         consistency with current year production and operating history. All of
         the Partnership's oil and gas reserves are located within the United
         States.

<TABLE>
<CAPTION>
                                                     (Unaudited)
                                          -------------------------------
                                           GAS (MCF)            OIL (BBL)
                                          ----------           ----------
<S>                                        <C>                     <C>   
Reserves as of December 31, 1994           1,809,316               12,043
Revisions of previous estimates              879,398                8,138
Production                                  (134,028)              (2,766)
                                          ----------           ----------

Reserves as of December 31, 1995           2,554,686               17,415
Revisions of previous estimates              109,723                3,684
Production                                  (129,675)              (1,598)
                                          ----------           ----------

Reserves as of December 31, 1996           2,534,734               19,501
Revisions of previous estimates              (29,081)               3,666
Production                                  (121,542)              (2,158)
                                          ----------           ----------

Reserves as of December 31, 1997           2,384,111               21,009
                                          ==========           ==========
</TABLE>




                                      F-12

<PAGE>   24

                       STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                          NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997, 1996 AND 1995



(4)      Quantities of Oil and Gas Reserves - (Cont'd):

         Should current prices continue into the future, operation of certain
         wells would become uneconomic, on a pretax basis, as production levels
         decline with age. In accordance with the rules and regulations of the
         Securities and Exchange Commission, proved reserves exclude production
         which would be uneconomic. The partners are entitled to certain tax
         benefits and credits which, if available in the future, may result in
         production continuing beyond the level included in the above table.

         Revisions arise from changes in current prices, as well as engineering
         and geological data which would alter the useful life and therefore the
         overall predicted production of each well. Future changes in these
         estimates are common and would impact the reserve quantities used to
         calculate depreciation, depletion and amortization.

         As discussed in Note 2, the Partnership records additional
         depreciation, depletion and amortization to the extent that net
         capitalized costs exceed the undiscounted future net cash flows
         attributable to Partnership properties. Significant price declines
         affect estimated future net revenues both directly and as a consequence
         of their impact on estimates of future production. The Partnership has
         recorded no additional provision for 1997, 1996 or 1995. If the
         additional provision had been computed based on the limited partners'
         interest in capitalized costs and estimated future net revenues, rather
         than on the basis of total Partnership interests, the limited partners
         income would not have been reduced.



                                      F-13
<PAGE>   25

                       STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                          NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997, 1996 AND 1995


(5)      Allocation of Partnership Revenues, Costs and Expenses:

         Under the terms of the Limited Partnership Agreement, all Partnership
         revenues and expenses, including deductions attributable thereto, are
         to be allocated as follows:

<TABLE>
<CAPTION>
                                                               Limited         General
                                                               Partners        Partners
                                                               --------        --------
<S>                                                             <C>            <C>
         Participation in Costs:
           Sales commissions and dealer manager fees            100.0%          --  %
            in excess of the $50,000 paid by PEMC
           Offering costs other than $75,000
            paid by the Partnership and the
            Sterling Drilling Fund 1983-1, L.P.                  --  %         100.0%
           Management fee                                       100.0%          --  %
           Lease acquisition costs                               91.5%           8.5%
           Drilling and completion costs                         91.5%           8.5%
           General and administrative expenses                   76.5%          23.5%
           Production operator's fee                             76.5%          23.5%
           Operating expenses                                    76.5%          23.5%
           All other costs                                       91.5%           8.5%

         Participation in Revenues:
           Sale of production                                    76.5%          23.5%
           Sale of properties                                    91.5%           8.5%
           Sale of equipment                                     91.5%           8.5%
           All other revenues                                    91.5%           8.5%
</TABLE>


(6)      Transactions With Affiliates:

         (a)    The receivable from affiliates at December 1997 and 1996
                represents general and administrative and certain other expenses
                incurred on behalf of the Partnership by PEC and its
                subsidiaries, and amounts due for production operator's fees
                (Note 6(b)), net of production revenues collected on behalf of
                the Partnership.

         (b)    As operator of the Partnership's properties, Prime Operating
                Company (POC), a subsidiary of PEC, receives, as compensation
                from the Partnership, a monthly production operator's fee of
                $402 for each producing gas well and $557 for each producing oil
                or combination gas and oil well, based on the Partnership's




                                      F-14
<PAGE>   26

                       STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                          NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997, 1996 AND 1995


(6)      Transactions With Affiliates - (Cont'd):

                percentage of working interest in the well. Such fee is subject
                to annual adjustment by the percentage increase in the Cost of
                Living Index published by the U.S. Department of Labor over the
                year in which production began. During 1997, 1996 and 1995,
                $117,831, $90,807 and $81,644 of production operator's fees were
                incurred, respectively.

         (c)    In accordance with the terms of the Partnership Agreement, the
                general partners are required to pay 8.5% of drilling and
                completion costs, lease acquisition costs and certain other
                costs, of which 1% will be paid for by the general partners out
                of revenues received by them from the Partnership. At December
                31, 1997, $26,040 was due from certain general partners for such
                costs.

         (d)    Eastern Oil Well Services Company (EOWSC), a subsidiary of PEC,
                provided field services to the Partnership during the year
                ending December 31, 1997 for which it was billed $7,799.


(7)      General and Administrative Expenses:

         In accordance with the Management Agreement, the general partners will
         be reimbursed for the portion of their in-house overhead, including
         salaries and related benefits, attributable to the affairs and
         operations of the Partnership.

         This amount, combined with certain direct expenses for geology,
         engineering, legal, accounting, auditing, insurance and other items
         shall not exceed an annual amount equal to 5% of limited partner
         capital contributions. Excess expenses shall be borne by the general
         partners in their individual capacity.

         During 1997, 1996 and 1995, the Partnership recognized general and
         administrative expenses incurred on its behalf by a general partner of
         $100,000, $100,000 and $100,000, respectively.




                                      F-15
<PAGE>   27

                       STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                          NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997, 1996 AND 1995


(8)      Federal Income Taxes:

         The following is a reconciliation between the net income (loss) as
         reported on the Partnership's federal income tax return and the net
         income (loss) reported in the accompanying financial statements:

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                              -------------------------------------------------
                                                 1997                1996                1995
                                              ---------           ---------           ---------
<S>                                           <C>                 <C>                 <C>      
         Net income as reported
          on the Partnership's
          federal income tax
          return                              $ 112,218           $  71,165           $ 123,391

         Gain on sale of property
          reported differently for
          financial reporting
          purposes and for income
          tax reporting purposes                     --                  --               1,394

         Depreciation, depletion and
          amortization for income
          tax purposes in excess
          of (less than) financial
          reporting amount                      (57,376)            (63,112)            (69,702)
                                              ---------           ---------           ---------

         Net income (loss) per
          accompanying financial
          statements                          $  54,842           $   8,053           $  55,083
                                              =========           =========           =========
</TABLE>

         The tax returns of the Partnership, the qualifications of the
         Partnership as such for tax purposes, and the amount of Partnership
         income or loss are subject to examination by federal and state taxing
         authorities. If such examinations result in changes with respect to
         Partnership's qualifications or in changes to its income or loss, the
         tax liability of the partners would be changed accordingly.

         The Tax Reform Act of 1976 provides that no part of any depletion
         deduction with respect to oil and gas wells is to be determined by the
         Partnership but must be computed separately by the partners. Thus, cost
         or percentage depletion, as applicable, must be computed by each
         partner so that a specific depletion computation can be made when each
         partner files his U.S. income tax return. Information is furnished to
         the partners to compute the depletion deduction.




                                      F-16
<PAGE>   28

                       STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                          NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1997, 1996 AND 1995


(9)      Major Customers:

         A schedule of the major purchases of the Partnership's production is as
         follows:

<TABLE>
<CAPTION>
              Purchaser                        1997              1996              1995
              ---------                      --------          --------          --------
<S>                                          <C>               <C>               <C>     
           Phoenix Diversified               $298,961          $232,348          $213,030
           Cabot                             $ 62,310          $ 69,741          $ 42,765
           American River Terminals          $ 41,256          $     --          $ 41,514
</TABLE>

         The Partnership renewed its gas purchase contract with Phoenix
         Diversified in December, 1997 resulting in a fixed price for one year.


(10)     Other Revenue:

         Other revenue represents settled claims against Columbia Gas
         Transmission Corp. (Columbia) arising from amounts due from Columbia
         when they declared bankruptcy. No significant additional claims are
         expected concerning this matter.




                                      F-17
<PAGE>   29

                                   SCHEDULE V


                       STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                 PROPERTY AND EQUIPMENT - OIL AND GAS PROPERTIES

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                    Balance at                                                       Balance
                                    Beginning        Additions                         Other          at End
                                     of Year          at Cost      Retirements        Changes        of Year
                                   -----------     -----------     -----------     -----------     -----------
<S>                                <C>             <C>             <C>             <C>             <C>        
Year Ended December 31, 1997:
  Leasehold costs                  $   497,639     $        --     $        --     $        --     $   497,639
  Wells and related facilities      12,929,171           5,023              --              --      12,934,194
                                   -----------     -----------     -----------     -----------     -----------
                                   $13,426,810     $     5,023     $        --     $        --     $13,431,833
                                   ===========     ===========     ===========     ===========     ===========



Year ended December 31, 1996:
  Leasehold costs                  $   497,639     $        --     $        --     $        --     $   497,639
  Wells and related facilities      12,916,422          12,749              --              --      12,929,171
                                   -----------     -----------     -----------     -----------     -----------
                                   $13,414,061     $    12,749     $        --              --     $13,426,810
                                   ===========     ===========     ===========     ===========     ===========



Year Ended December 31, 1995:
  Leasehold costs                  $   497,639     $        --     $        --     $        --     $   497,639
  Wells and related facilities      12,915,028           1,394              --              --      12,916,422
                                   -----------     -----------     -----------     -----------     -----------
                                   $13,412,667     $     1,394     $        --     $        --     $13,414,061
                                   ===========     ===========     ===========     ===========     ===========
</TABLE>





                                      F-18
<PAGE>   30

                                   SCHEDULE VI


                       STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

  ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION - OIL AND GAS PROPERTIES

              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                     Balance at     Charges to                                      Balance
                                     Beginning      Costs and                         Other          at End
                                     of Year        Expenses       Retirements       Changes         of Year
                                   -----------     -----------     -----------     -----------     -----------
<S>                                <C>             <C>             <C>             <C>             <C>        
Year Ended December 31, 1997:
  Wells and related facilities     $11,656,199     $    61,992     $        --     $        --     $11,718,191
  Leasehold costs                      487,969             469              --              --         488,438
                                   -----------     -----------     -----------     -----------     -----------
                                   $12,144,168     $    62,461     $        --     $        --     $12,206,629
                                   ===========     ===========     ===========     ===========     ===========



Year ended December 31, 1996:
  Wells and related facilities     $11,591,030     $    65,169     $        --     $        --     $11,656,199
  Leasehold costs                      487,476             493              --              --         487,969
                                   -----------     -----------     -----------     -----------     -----------
                                   $12,078,506     $    65,662     $        --     $        --     $12,144,168
                                   ===========     ===========     ===========     ===========     ===========



Year Ended December 31, 1995:
  Wells and related facilities     $11,521,640     $    69,390     $        --     $        --     $11,591,030
  Leasehold costs                      486,943             533              --              --         487,476
                                   -----------     -----------     -----------     -----------     -----------
                                   $12,008,583     $    69,923     $        --     $        --     $12,078,506
                                   ===========     ===========     ===========     ===========     ===========
</TABLE>



                                      F-19
<PAGE>   31
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
                                                                                        Sequentially
Exhibit                                                                                   Numbered
Number                                               Exhibit                                Page
------                                               -------                                ----
<S>             <C>
(3)             Form Agreement of Limited Partnership of Sterling-Fuel Resources 
                Drilling Fund 1983-1 (now Sterling Drilling Fund 1983-2, L.P.) 
                (incorporated by reference to Exhibit (3) of Sterling Gas Drilling Fund
                1983-2,L.P., Form 10-K for the year ended December 31, 1994)

(24)            Consent of Ryder Scott Company (filed herewith)

(27)            Financial Data Schedule. (filed herewith)
</TABLE>