<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, 1996
                                       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 Act:
                                      NONE

            Securities registered pursuant to Section 12(g) of 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 14, 1997,
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, 1996

                                     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 1996, 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, 1997, 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 1996, approximately $69,700, or 22.62%, and $232,000, or 75.35%,
of the Partnership's gas production was sold to Cabot Oil & Marketing
Corporation and Phoenix Diversified, respectively, and about $30,000, 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.

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 1996 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.

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



                                      -2-
<PAGE>   4
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, 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.



                                      -3-
<PAGE>   5
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, 1996, 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,
                                          ----------------------------------------------------
                                            1996       1995       1994       1993       1992
                                          --------   --------   --------   --------   --------
<S>                                       <C>        <C>        <C>        <C>        <C>
Production:
     Oil and Condensate (bbl) .........      1,598      2,766      1,865      2,766      3,413
     Gas (Mcf) ........................    129,675    134,028    104,110    144,397    150,277
Average Price of Sales:
     Oil and Condensate ($ per bbl) ...   $  19.45      15.83      14.57      14.37      19.99
     Gas ($ per Mcf) ..................   $   2.43       2.10       3.30       2.59       2.18

Production Expense per Dollar
     of Operating Revenue .............   $   0.44       0.46       0.55       0.46       0.42
</TABLE>


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):



                                      -4-
<PAGE>   6
<TABLE>
<CAPTION>
                                            Proved Developed
          As of                    ------------------------------------
          12-31                    Oil (bbls)                 Gas (Mcf)
          -----                    ----------                 ---------
           <C>                       <C>                      <C>
           1992                      22,000                   2,287,000
           1993                      24,000                   2,662,000
           1994                      12,000                   1,809,000
           1995                      17,400                   2,554,600
           1996                      19,500                   2,535,000
</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
          -----                     -----------               ------------------
           <C>                      <C>                           <C>
           1992                     $ 2,400,000                   $ 1,142,000
           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
</TABLE>


     Since January 1, 1996, 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 1996 for vote by the holders of
Partnership Units.

                                    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 14, 1997, there were 1,206 holders of record of the
Units.



                                      -5-
<PAGE>   7
     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 1996 aggregated $39,243. Aggregate cash distributions
to the holders of the Units as of December 31, 1996, is $1,671,731.

     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.

                                    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 14, 1997, Management acts as the Managing General Partner



                                      -6-
<PAGE>   8
in a total of 51 limited partnerships and joint ventures, of which 6 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 155 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 48, 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 43, 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 44, 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 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 37, 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.



                                      -7-
<PAGE>   9
     James F. Gilbert, age 64, 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 1996, the allocation of general and
administrative expenses to the Partnership was $100,000.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The Partnership does not know of any person, entity or group, other than
the General Partners as a group (including affiliates) that beneficially owns
more than five percent of the Partnership Units. The following table shows as
of March 14, 1997, the name and address of the Managing General Partner and of
such Group and the number and percent of Partnership Units beneficially owned
by them, all of which are owned directly.

<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

     General Partners as a Group
         One Landmark Square
         Stamford, CT 06901 .........................      1,554       9.90
</TABLE>


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 1996 was paid well operating
fees ranging from about $395 to $546 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



                                      -8-
<PAGE>   10
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 1996, the
Partnership paid an aggregate of $106,047 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 20th day of
March, 1997.


                                        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 20th day of March, 1997.


/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.

                              FINANCIAL STATEMENTS

                        AS OF DECEMBER 31, 1996 AND 1995

                            TOGETHER WITH REPORT OF
                         INDEPENDENT PUBLIC ACCOUNTANTS


<PAGE>   13

                      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, 1996 and 1995 .........................   F-7

     Statements of Operations for the Years Ended December 31,
     1996, 1995 and 1994 ................................................   F-8

     Statements of Changes in Partners' Equity for the Years
     Ended December 31, 1996, 1995 and 1994 .............................   F-9

     Statements of Cash Flow for the Years Ended December 31,
     1996, 1995 and 1994 ................................................   F-10

     Notes to Financial Statements ......................................   F-11

Schedules:

     V  - Property and Equipment - Oil and Gas Properties for
          the Years Ended December 31, 1996, 1995 and 1994 ..............   F-19

     VI - Accumulated Depreciation, Depletion, and Amortization -
          Oil and Gas Properties for the Years Ended December 31,
          1996, 1995 and 1994 ...........................................   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>   14
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)
                             -------------------------------------------------
                              1996       1995      1994       1993       1992
                             ------     ------    ------     ------     ------
<S>                          <C>        <C>       <C>        <C>        <C>
Revenues .................   $  350        387       371        420        396
Net income (loss):
   Limited Partners ......       (4)        26      (455)       (16)       (77)
   General Partners ......       12         29       (36)        15          2
   Per equity unit .......    (0.23)      1.69    (29.02)     (1.04)     (4.93)
Total assets .............    1,327      1,371     1,412      1,934      2,030
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, 1996, the General partners have distributed $1,671,731, or
10.65%, of original Limited Partner capital contributions, to the Limited
Partners.

     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 revenues (S.E.C. case) associated with such
reserves, discounted at 10% as of December 31, 1996, was approximately
$1,578,300 as compared to the discounted reserves as of December 31, 1995,
which were approximately $947,600. The increase in total estimated discounted
future net revenue was partially due to higher year end gas prices as of
December 31, 1996, compared to the gas prices in effect as of December 31,
1995. 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



                                      F-2
<PAGE>   15
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:

     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-3
<PAGE>   16
     1995 compared to 1994

     Operating revenue declined form $371,060 in 1994 to $326,196 in 1995. The
Partnership experienced higher gas production, from 104,110 mcf in 1994 to
134,028 mcf in 1995. This production was offset by lower average mcf prices
from $3.30 per mcf in 1994 to $2.10 per mcf in 1995. Oil production and average
oil price per barrel both increased during 1995, from $14.57 per barrel and
production of 1,865 barrels in 1994, to $15.83 per barrel and production of
2,766 in 1995. The fluctuations in the average price per mcf of gas resulted in
the Partnership's overall revenue declining.

     The Partnership generally renews contracts as they come due for twelve
month periods. The Partnership was in a fixed contract price for nine months of
1994. The negotiated renewal price offered late in 1994 for the 1994-1995
contracts was lower than was deemed favorable to the Partnership. Therefore,
the price remained at spot prices during the last quarter of 1994 and all of
1995. The spot price fluctuated significantly during peak and off peak usage
periods. During the fourth quarter of 1995, the Partnership locked into a
twelve month fixed price contract.

     Columbia Gas Transmission Corp., a gas purchaser of the Partnership's gas,
filed a Chapter 11 petition in the U.S. Bankruptcy Court in Wilmington,
Delaware, on July 31, 1991. At that time, the Bankruptcy Court released
Columbia from any active contracts. The Partnership filed a claim with the
Bankruptcy Court to recover revenues suspended at the time the bankruptcy
occurred. Such amounts were not recorded during the applicable period since the
claim amount was undetermined and open-ended. The Court's settlement of the
Columbia bankruptcy proceedings were finalized in November of 1995. The
Partnership received $60,910, which was reported as other income for 1995.

     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 decreased from $205,041 in 1994 to $152,498 in 1995.
This decrease in production costs can be attributed to higher labor, repairs
and location costs associated with the inclement weather conditions throughout
1994. The weather caused line damages, floods and other situations that
increased normal maintenance costs. Most of the production expenses incurred in
1995 were to maintain the general upkeep of the wells and well sites. General
and administrative costs showed only a very minor decrease from $125,973 in
1994 to $110,101 in 1995. 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.



                                      F-4
<PAGE>   17
     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.The
Partnership recorded a downward revision of $400,000 in 1994. No additional
depletion was needed in 1995. Depreciation, depletion and amortization rates
were significantly higher in 1994 compared to 1995 resulting in a higher normal
depletion expense, $131,658 for 1994 as compared to $69,923 in 1995. The
Partnership's basis in the properties was lower in 1995 due to the downward
revision from 1994.



                                      F-5
<PAGE>   18
                      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, 1996 and 1995,
and the related statements of operations, changes in partners' equity, and cash
flows for the years ended December 31, 1996, 1995 and 1994. 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, 1996 and 1995, and the results of its operations and
cash flows for the years ended December 31, 1996, 1995 and 1994 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
January 31, 1997



                                      F-6
<PAGE>   19
                      STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                                 BALANCE SHEETS

                           DECEMBER 31, 1996 AND 1995


                                     Assets
                                     ------


<TABLE>
<CAPTION>
                                                       1996            1995
                                                   ------------    ------------
<S>                                                <C>             <C>
Current Assets:
  Cash and cash equivalents (Note 2) ...........   $     22,018    $      8,410
  Due from affiliate (Note 6) ..................         22,836          26,555
                                                   ------------    ------------
    Total Current Assets .......................         44,854          34,965
                                                   ------------    ------------
Oil and Gas Properties - successful efforts
 method (Note 3) - (Schedules V and VI):
  Leasehold costs ..............................        497,639         497,639
  Wells and related facilities .................     12,929,171      12,916,422
                                                   ------------    ------------
    Total ......................................     13,426,810      13,414,061
Less - Accumulated depreciation, depletion
  and amortization .............................    (12,144,168)    (12,078,506)
                                                   ------------    ------------
                                                      1,282,642       1,335,555
                                                   ------------    ------------
    Total Assets ...............................   $  1,327,496    $  1,370,520
                                                   ============    ============

                       Liabilities and Partners' Equity
                       --------------------------------

    Total Current Liabilities ..................   $       --      $       --
Partners' Equity:
  Limited partners .............................      1,325,155       1,367,959
  General partners .............................          2,341           2,561
                                                   ------------    ------------
    Total Partners' Equity .....................      1,327,496       1,370,520
                                                   ------------    ------------
    Total Liabilities and Partners' Equity .....   $  1,327,496    $  1,370,520
                                                   ============    ============
</TABLE>


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



                                      F-7
<PAGE>   20
                      STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                            STATEMENTS OF OPERATIONS

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


<TABLE>
<CAPTION>
                                          1996                              1995                              1994
                            -------------------------------   ------------------------------  -----------------------------------
                            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 ....   $266,896    $ 81,988   $348,884   $249,540   $ 76,656   $326,196   $ 283,861    $ 87,199    $ 371,060
  Interest and other ....        775          72        847        457         42        499         346          32          378
  Other revenue
   (Note 10) ............       --          --         --       46,596     14,314     60,910        --          --           --
                            --------    --------   --------   --------   --------   --------   ---------    --------    ---------
    Total Revenues ......    267,671      82,060    349,731    296,593     91,012    387,605     284,207      87,231      371,438
                            --------    --------   --------   --------   --------   --------   ---------    --------    ---------
Costs and Expenses:
  Production expenses ...    115,739      35,554    151,293    116,661     35,837    152,498     156,856      48,185      205,041
  Depreciation,
   depletion and
   amortization .........     60,081       5,581     65,662     69,224        699     69,923     486,467      45,191      531,658
  General and
   administrative
   expenses (Note 7) ....     95,413      29,310    124,723     84,227     25,874    110,101      96,369      29,604      125,973
                            --------    --------   --------   --------   --------   --------   ---------    --------    ---------
    Total Expenses ......    271,233      70,445    341,678    270,112     62,410    332,522     739,692     122,980      862,672
                            --------    --------   --------   --------   --------   --------   ---------    --------    ---------
    Net Income (Loss) ...   $ (3,562)   $ 11,615   $  8,053   $ 26,481   $ 28,602   $ 55,083   $(455,485)   $(35,749)   $(491,234)
                            ========    ========   ========   ========   ========   ========   =========    ========    =========
Net Income (Loss) Per
Equity Unit (Note 2) ....   $   (.23)                         $   1.69                         $  (29.02)
                            ========                          ========                         =========
</TABLE>


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



                                      F-8
<PAGE>   21
                      STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                   STATEMENTS OF CHANGES IN PARTNERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994



<TABLE>
<CAPTION>
                                        Limited        General
                                        Partners       Partners        Total
                                      -----------    -----------    -----------
<S>                                   <C>            <C>            <C>
Balance at December 31, 1993 ......   $ 1,875,449    $    32,675    $ 1,908,124

Partners' contributions ...........          --              499            499

Distributions to partners .........       (39,243)       (11,998)       (51,241)

Net (Loss) ........................      (455,485)       (35,749)      (491,234)
                                      -----------    -----------    -----------
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 ........................        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
                                      ===========    ===========    ===========
</TABLE>


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



                                      F-9
<PAGE>   22
                      STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


<TABLE>
<CAPTION>
                                                         1996          1995          1994
                                                      ----------    ----------    ----------
<S>                                                   <C>           <C>           <C>
Cash Flows From Operating Activities:
  Net income (loss) ...............................   $    8,053    $   55,083    $ (491,234)
  Adjustments to reconcile net (loss) to
   net cash provided by operating activities:
    Depreciation, depletion and amortization ......       65,662        69,923       531,658
    Changes in Assets and Liabilities:
    (Increase) decrease due from affiliates .......      (22,836)      (26,555)         --
    Increase (decrease) in due to affiliates ......       26,555       (46,223)       20,503
                                                      ----------    ----------    ----------
      Net Cash Provided by Operating Activities ...       77,434        52,228        60,927
                                                      ----------    ----------    ----------
Cash Flows From Investing Activities:
  Equipment purchases .............................      (12,749)       (1,394)      (33,167)
                                                      ----------    ----------    ----------
    Net Cash Provided (Used) by Investing
     Activities ...................................      (12,749)       (1,394)      (33,167)
                                                      ----------    ----------    ----------
Cash Flows From Financing Activities:
  Partners' contributions .........................          114           499           499
  Distributions to partners .......................      (51,191)      (51,210)      (51,241)
                                                      ----------    ----------    ----------
    Net Cash (Used) in Financing Activities .......      (51,077)      (50,711)      (50,742)
                                                      ----------    ----------    ----------
Net increase (decrease) in cash and cash
 equivalents ......................................       13,608           123       (22,982)

Cash and cash equivalents at beginning of year ....        8,410         8,287        31,269
                                                      ----------    ----------    ----------
Cash and cash equivalents at end of year ..........   $   22,018    $    8,410    $    8,287
                                                      ==========    ==========    ==========
</TABLE>


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



                                      F-10
<PAGE>   23
                      STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                         NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1996, 1995 AND 1994



(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 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)



                                      F-11
<PAGE>   24
                      STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                         NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1996, 1995 AND 1994


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

     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.

(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.



                                      F-12
<PAGE>   25
                      STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                         NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1996, 1995 AND 1994



(3)  Oil and Gas Properties - (Cont'd)

     The following table sets forth certain revenue and expense data concerning
     the Partnership's oil and gas activities for the years ended December 31,
     1996, 1995 and 1994:

<TABLE>
<CAPTION>
                                                    1996     1995     1994
                                                   ------   ------   ------
<S>                                                <C>      <C>      <C>
     Average sales price per MCF of gas ........   $ 2.43   $ 2.10   $ 3.30
     Average sales price per BBL of oil
      and other liquids ........................    19.45    15.83    14.57
     Production expense per dollar of
      operating revenue ........................     0.44     0.46     0.55
</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, 1996, 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, 1993 .........    2,661,977        24,058
     Revisions of previous estimates ..........     (748,551)      (10,150)
     Production ...............................     (104,110)       (1,865)
                                                  ----------    ----------
     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
                                                  ==========    ==========
</TABLE>



                                      F-13
<PAGE>   26
                      STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                         NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1996, 1995 AND 1994



(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 1996 or 1995, however, there was an additional provision of $400,000
     in 1994. 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-14
<PAGE>   27
                      STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                         NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1996, 1995 AND 1994



(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%         -%
        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 1996 and 1995 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.



                                      F-15
<PAGE>   28
                      STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                         NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1996, 1995 AND 1994



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

     (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 $395 for each
          producing gas well and $546 for each producing oil or combination gas
          and oil well, based on the Partnership's 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
          1996, 1995 and 1994, $90,807, $81,644 and $103,632 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, 1996, $26,154 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, 1996 for which it was billed $15,240.

(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 1996, 1995 and 1994, the Partnership recognized general and
     administrative expenses incurred on its behalf by a general partner of
     $100,000, $85,000 and $100,800, respectively.



                                      F-16
<PAGE>   29
                      STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                         NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1996, 1995 AND 1994




(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,
                                    --------------------------------------
                                       1996          1995          1994
                                    ----------    ----------    ----------
<S>                                 <C>           <C>           <C>
     Net income as reported
      on the Partnership's
      federal income tax
      return ....................   $   71,165    $  123,391    $    6,733

     Gain on sale of property
      reported differently for
      financial reporting
      purposes and for income
      tax reporting purposes ....         --           1,394        33,167

     Depreciation, depletion and
      amortization for income
      tax purposes in excess
      of (less than) financial
      reporting amount ..........      (63,112)      (69,702)     (531,135)
                                    ----------    ----------    ----------
     Net income (loss) per
      accompanying financial
      statements ................   $    8,053    $   55,083    $ (491,235)
                                    ==========    ==========    ==========
</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.



                                      F-17
<PAGE>   30
                      STERLING DRILLING FUND 1983-2, L.P.
                        (a New York limited partnership)

                         NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1996, 1995 AND 1994



(8)  Federal Income Taxes - (Cont'd)

     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.

(9)  Major Customers:

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

<TABLE>
       Purchaser                               1996       1995       1994
       ---------                             --------   --------   --------
<S>                                          <C>        <C>        <C>
      Phoenix Diversified ................   $232,348   $213,030   $263,460
      Cabot ..............................   $ 69,741   $ 42,765   $ 51,950
      American River Terminals ...........   $   --     $ 41,514   $   --
</TABLE>

     The Partnership renewed its gas purchase contract in December, 1996
     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-18
<PAGE>   31
                                                                     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, 1996, 1995 AND 1994



<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, 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

Year Ended December 31, 1994:
-----------------------------
  Leasehold costs ................   $   497,639   $      --     $      --     $      --     $   497,639
  Wells and related facilities ...    12,881,861        33,167          --            --      12,915,028
                                     -----------   -----------   -----------   -----------   -----------
                                     $13,379,500   $    33,167   $      --     $      --     $13,412,667
                                     ===========   ===========   ===========   ===========   ===========
</TABLE>


                                      F-19
<PAGE>   32
                                                                    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, 1996, 1995 AND 1994



<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, 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
                                      ===========   ===========   ===========   ===========   ===========
Year Ended December 31, 1994:
-----------------------------
  Wells and related facilities ....   $10,990,777   $   530,863   $      --     $      --     $11,521,640
  Leasehold costs .................       486,148           795          --            --         486,943
                                      -----------   -----------   -----------   -----------   -----------
                                      $11,476,925   $   531,658   $      --     $      --     $12,008,583
                                      ===========   ===========   ===========   ===========   ===========
</TABLE>



                                      F-20
<PAGE>   33

                               INDEX TO EXHIBITS




<TABLE>
<CAPTION>
                                                                             Sequentially
Exhibit                                                                        Numbered
Number                                 Exhibit                                   Page
------                                 -------                               ------------
<S>            <C>                                                               <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>