<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

                       STERLING DRILLING FUND 1983-1, L.P.
             (Exact name of registrant as specified in its charter)

                   NEW YORK                                 13-3167549
        (State or other jurisdiction of                 (I.R.S. Employer
        incorporation or organization)                  Identification No.)

              ONE LANDMARK SQUARE
             STAMFORD, CONNECTICUT                             006901
   (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: 11,077.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE

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



<PAGE>   2



                       STERLING DRILLING FUND 1983-1, L.P.

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

                                     PART I

ITEM 1.  BUSINESS

         Sterling Drilling Fund 1983-1, L.P., formerly Sterling-Fuel Resources
Drilling Fund 1983-1 (the "Registrant" or the "Partnership") is a limited
partnership formed under the laws of the State of New York on March 18, 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 $11,077,000, 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, Gilmer, 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 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.

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 hydroelectric power.


                                       -1-

<PAGE>   3




         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 $323,500, or 96.85%, of the Partnership's gas
production was sold to one unaffiliated purchaser, Phoenix Diversified. This
purchaser has no relationship or is otherwise affiliated with the Partnership.
Sales are made under short-term contractual arrangements. 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 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.

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


                                       -2-

<PAGE>   4



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.

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 November, 1983,
contracted for the drilling of 38 development wells, which resulted in 37
producing wells and one dry hole.



                                       -3-

<PAGE>   5



         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.......................................                 0                    0
                   Gas Wells.......................................                39                 31.3


         Producing acres...........................................             1,833                1,771
</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)............................       1,302      1,524       1,508      1,521       1,897
    Gas (Mcf)...........................................     111,382    113,227     116,201    104,386     135,378
   Average Price of Sales:
    Oil and Condensate ($ per bbl)......................   $   19.64      16.37       17.82      12.89       16.31
    Gas ($ per Mcf).....................................   $    3.15       2.31        2.17       3.12        2.61
   Production Expense per Dollar
    of Operating Revenue................................   $    0.44       0.47        0.46       0.53        0.41
</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):

<TABLE>
<CAPTION>
                                  Proved Developed
As of                             ----------------
12-31                 Oil (bbls)                           Gas (Mcf)
-----                 ----------                           ---------
<C>                     <C>                                <C>      
1993                    16,000                             2,493,000
1994                    11,000                             1,837,000
1995                    15,500                             2,210,000
1996                    13,850                             2,233,000
1997                    14,000                             2,034,300
</TABLE>




                                       -4-

<PAGE>   6



         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                      $4,322,000                    $1,863,000
                       1994                       1,735,000                       782,000
                       1995                       2,272,900                       893,700
                       1996                       3,414,800                     1,313,750
                       1997                       2,940,800                     1,200,900
</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 741 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 $41,528. Aggregate cash distributions
to the holders of the Units as of December 31, 1997, is $2,298,478.

         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, 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


                                       -7-

<PAGE>   9



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.

         Lynne 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 and 1996, the allocation of general and
administrative expenses to the Partnership was $100,000 for each year.



                                       -8-

<PAGE>   10




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 by the Partnership to own more than five 
percent 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..............................................        1,152           10.40
         PrimeEnergy Corporation
           One Landmark Square
           Stamford, Connecticut 06901.....................................          700            6.32
</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 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 $116,779 and
$98,437, respectively, in such fees and expenses.



                                       -9-

<PAGE>   11


                                     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 1983-1, now Sterling Drilling
                       Fund 1983-1, L.P. (Incorporated by reference to Exhibit
                       (3) of Sterling Drilling Fund 1983-1, 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.



                                      -10-

<PAGE>   12



                                   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 1983-1, 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.                 



                                      -11-

<PAGE>   13





                       STERLING DRILLING FUND 1983-1, L.P.
                        (a New York limited partnership)

                  Index to Financial Information 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-5

Financial Statements:

     Balance Sheets, December 31, 1997 and 1996                                                       F-6

     Statements of Operations for the Years Ended December 31,
          1997, 1996 and 1995                                                                         F-7

     Statements of Changes in Partners' Equity for the Years
          Ended December 31, 1997, 1996 and 1995                                                      F-8

     Statements of Cash Flows for the Years
          Ended December 31, 1997, 1996 and 1995                                                      F-9

     Notes to Financial Statements                                                                    F-10

Schedules:

     V  -      Property and Equipment - Oil and Gas Properties for
               the Years Ended December 31, 1997, 1996, and 1995                                      F-18

     VI -      Accumulated Depreciation, Depletion and Amortization -
               Oil and Gas Properties for the Years Ended December 31,
               1997, 1996 and 1995                                                                    F-19
</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)
                                  ---------------------------------------
                           1997         1996        1995         1994          1993
                          ------       ------      ------       ------        ------
<S>                       <C>          <C>          <C>          <C>          <C>  
Revenues ...............  $  386         297          361          350          391
Net income (loss):
  Limited Partners .....  $    1         (42)          (3)        (557)        (102)
  General Partners .....  $   15           2           23          (54)          (7)
  Per equity unit ......  $ 0.11       (3.79)       (0.26)      (50.25)       (9.24)
Total assets ...........  $1,693       1,729        1,823        1,878        2,494
Cash distributions:
  Limited Partners .....  $   42          42           28           28           28
  General Partners .....  $   11          12            7            7            7
  Limited partners as
  a % of original
  contribution .........   0.375%      0.375%        0.25%        0.25%        0.25%
</TABLE>

ITEM 7.  MANAGEMENTS 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 Partnership to calculate its position in
the industry as the Partnership 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 Partnership 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 to the
Limited Partners $2,298,478 or 20.75% of the total Limited Partner capital
contributions to the Limited Partnership.

         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


                                       F-2

<PAGE>   15



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 revenue (S.E.C. case) associated with
such reserves, discounted at 10% as of December 31, 1997, was approximately
$1,200,900 as compared to the discounted reserves as of December 31, 1996, which
were approximately $1,313,750.

         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 drilling contractor in November, 1983, for $9,400,000.
Pursuant to the terms of this contract, thirty-eight wells were drilled
resulting in thirty-seven producing wells and one dry-hole.

         3.  Results of Operations:

         1997 compared to 1996

         Operating revenue increased from $290,733 in 1996 to $379,079 in 1997.
This increase can be attributed to a variety of factors, including only minor
fluctuations in gas and oil production, from 113,227 mcf and 1,524 barrels in
1996 to 111,382 mcf and 1,302 barrels in 1997. Both gas and oil revenues were
helped substantially by the increased average price per mcf and barrel in 1997
when compared to 1996. On average, the Partnership was paid $2.31 per mcf and
$16.37 per barrel in 1996 and $3.15 per mcf and $19.64 per barrel in 1997. The
Partnership has locked into a favorable gas contract price that will be in place
until November of 1998.

         Production expenses increased from $135,780 in 1996 to $165,863 in
1997. The Partnership did expend funds on additional capitalized well equipment
and other repairs performed on a few wells. The operator will determine if
additional equipment, for example lift equipment, will have a beneficial effect
on production. The operator will also perform various repairs including but not
limited to location work, road repairs, pipeline repairs and additional labor
cost as deemed appropriate. In most cases large repairs are made to help
maintain overall production. Also the Partnership in both years expended the
necessary funds on the routine, general upkeep and maintenance of the well and
well site. General and administrative costs remained relatively unchanged
between 1996 and 1997, from $121,632 to $121,848, respectively. 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


                                       F-3

<PAGE>   16



both years are substantially less than the $553,850 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 revisions
to the basis of the Partnership properties was needed in 1997 or 1996. The
overall depreciation for both years was consistent with the rates used and the
remaining property basis.

         1996 compared to 1995

         Operating revenue increased from $279,580 in 1995 to $290,733 in 1996.
The Partnership's oil production remained consistent with the prior years, 1,524
barrels of oil in 1996 compared with 1,508 barrels of oil in 1995 while the gas
production declined slightly from 116,201 mcf in 1995 to 113,277 mcf in 1996.
Gas revenue increased even with the drop in production due to an increase in the
average gas price per mcf from $2.17 in 1995 to $2.31 in 1996. The Partnership
generally renews contracts 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 successfully renewed its
contracts for 1997.

         Production expenses decreased from $147,306 in 1995 to $135,780 in
1996. Most of the production expenses incurred in 1995 and 1996 were 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 from $106,973 in 1995 to $121,632 in 1996. 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 $553,850 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 revisions
to the basis of the Partnership properties was needed in 1996 or 1995. The
overall depreciation was consistent with the rates used and the remaining
property basis and showed minor decline from 1995.



                                       F-4

<PAGE>   17


                       STERLING DRILLING FUND 1983-1, L.P.
                        (a New York limited partnership)





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Partners of
Sterling Drilling Fund 1983-1, L.P.:


We have audited the accompanying balance sheets of Sterling Drilling Fund
1983-1, 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 1983-1,
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>   18
                       STERLING DRILLING FUND 1983-1, 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)                                             $   145,635      $   141,617
  Due from affiliates (Note 6)                                                        45,126            9,595
                                                                                 -----------      -----------
     Total Current Assets                                                            190,761          151,212
                                                                                 -----------      -----------

Oil and Gas Properties - successful efforts
 methods (Note 3) - (Schedules V and VI):
  Leasehold costs                                                                    321,314          321,314
  Wells and related facilities                                                     9,151,700        9,145,511
                                                                                 -----------      -----------
      Total                                                                        9,473,014        9,466,825
  Less - Accumulated depreciation, depletion                                                                  
          and amortization                                                        (7,970,786)      (7,888,531)
                                                                                 -----------      ----------- 

                                                                                   1,502,228        1,578,294
                                                                                 -----------      -----------

     Total Assets                                                                $ 1,692,989      $ 1,729,506
                                                                                 ===========      ===========



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

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

Partners' Equity:
  Limited partners                                                                 1,635,538        1,675,879
  General partners                                                                    57,451           53,627
                                                                                 -----------      -----------
     Total Partners' Equity                                                        1,692,989        1,729,506
                                                                                 -----------      -----------

     Total Liabilities and Partners' Equity                                      $ 1,692,989      $ 1,729,506
                                                                                 ===========      ===========
</TABLE>









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






                                      F-6
<PAGE>   19




                       STERLING DRILLING FUND 1983-1, L.P.
                        (a New York limited partnership)

                            STATEMENTS OF OPERATIONS

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



<TABLE>
<CAPTION>
                                            1997                                       1996                 
                            -------------------------------------     --------------------------------------
                            Limited       General                     Limited        General                
                            Partners      Partners        Total       Partners       Partners        Total  
                            --------      --------      ---------     --------       --------      ---------
<S>                         <C>           <C>           <C>           <C>            <C>           <C>      
Revenues:
  Operating revenues        $ 289,995     $  89,084     $ 379,079     $ 222,411      $  68,322     $ 290,733
  Interest                      6,565           610         7,175         5,856            544         6,400
  Other revenue
  (Note 10)                      --            --            --            --             --            --   
                            ---------     ---------     ---------     ---------      ---------     ---------

     Total Revenues           296,560        89,694       386,254       228,267         68,866       297,133
                            ---------     ---------     ---------     ---------      ---------     ---------

Costs and Expenses:
  Production expenses         126,885        38,978       165,863       103,872         31,908       135,780
  Depreciation,                75,263         6,992        82,255        73,291          6,809        80,100
   depletion and
   amortization
  General and
   Administrative
   expenses (Note 7)           93,214        28,634       121,848        93,048         28,584       121,632
                            ---------     ---------     ---------     ---------      ---------     ---------

    Total Expenses            295,362        74,604       369,966       270,211         67,301       337,512
                            ---------     ---------     ---------     ---------      ---------     ---------

     Net Income (Loss)      $   1,198     $  15,090     $  16,288     $ (41,944)     $   1,565     $ (40,379)
                            =========     =========     =========     =========      =========     =========
  Net income (Loss) Per
   Equity Unit (Note 2)     $    0.11                                 $   (3.79)                             

<CAPTION>
                                             1995                    
                            --------------------------------------
                            Limited        General                  
                            Partners       Partners        Total    
                            --------       --------      ---------
<S>                         <C>            <C>           <C>      
Revenues:
  Operating revenues        $ 213,879      $  65,701     $ 279,580
  Interest                      5,580            620         6,200
  Other revenue
  (Note 10)                    57,662         17,713        75,375
                            ---------      ---------     ---------

     Total Revenues           277,121        84,034`       361,155
                            ---------      ---------     ---------

Costs and Expenses:
  Production expenses         112,689         34,617       147,306
  Depreciation,                85,494            864        86,358
   depletion and
   amortization
  General and
   Administrative
   expenses (Note 7)           81,834         25,139       106,973
                            ---------      ---------     ---------

    Total Expenses            280,017         60,620       340,637
                            ---------      ---------     ---------

     Net Income (Loss)      $  (2,896)     $  23,414     $  20,518
                            =========      =========     =========
  Net income (Loss) Per
   Equity Unit (Note 2)     $    (.26)  
                           ==========   
</TABLE>






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


                                      F-7
<PAGE>   20




                       STERLING DRILLING FUND 1983-1, 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     $ 1,789,950      $    47,361      $ 1,837,311

Partners' contributions                 --                117              117

Distributions to partners            (27,693)          (7,386)         (35,079)

Net Income (Loss)                     (2,896)          23,414           20,518
                                 -----------      -----------      -----------

Balance at December 31, 1995       1,759,361           63,506        1,822,867

Partners' contributions                 --                177              177

Distributions to partners            (41,538)         (11,621)         (53,159)

Net Income (Loss)                    (41,944)           1,565          (40,379)
                                 -----------      -----------      -----------

Balance at December 31, 1996       1,675,879           53,627        1,729,506

Partners' contributions                 --                177              177

Distributions to partners            (41,539)         (11,443)         (52,982)

Net Income (Loss)                      1,198           15,090           16,288
                                 -----------      -----------      -----------

Balance at December 31, 1997     $ 1,635,538      $    57,451      $ 1,692,989
                                 ===========      ===========      ===========
</TABLE>








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




                                      F-8
<PAGE>   21





                       STERLING DRILLING FUND 1983-1, 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 (loss) income                                 $  16,288      $ (40,379)     $  20,518
 Adjustments to reconcile net income (loss)
  to net cash provided (used) by operating
  activities:
   Depreciation, depletion and amortization           82,255         80,100         86,358
   Changes in Assets and Liabilities -
    Decrease (increase) in due from affiliates       (45,127)        (9,595)       (94,874)
    Increase (decrease) in due to affiliates           9,595         94,873        (40,557)
                                                   ---------      ---------      ---------
      Net Cash Provided (Used) by                     63,011        124,999        (28,555)
                                                   ---------      ---------      ---------
       Operating Activities

Cash Flows From Investing Activities:
  Equipment purchases                                 (6,188)       (17,601)          --
  Credit on uncompleted wells and related               --             --             --
                                                   ---------      ---------      ---------
   Equipment
     Net Cash Provided by Investing Activities        (6,188)       (17,601)          --
                                                   ---------      ---------      ---------

Cash Flows From Financing Activities:
  Partners' contributions                                177            177            117
  Distributions to partners                          (52,982)       (53,159)       (35,079)
                                                   ---------      ---------      ---------
     Net Cash Used in Financing Activities           (52,805)       (52,982)       (34,962)
                                                   ---------      ---------      ---------

Net increase (decrease) in cash and cash               4,018         54,416        (63,517)
 Equivalents

Cash and cash equivalents, beginning of year         141,617         87,201        150,718
                                                   ---------      ---------      ---------

Cash and cash equivalents, end of year             $ 145,635      $ 141,617      $  87,201
                                                   =========      =========      =========
</TABLE>







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



                                      F-9
<PAGE>   22




                       STERLING DRILLING FUND 1983-1, 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 1983-1, L.P., formerly Sterling-Fuel Resources
         Drilling Fund 1983-1, a New York limited partnership (the
         "Partnership"), was formed on March 18, 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.
         Eleven thousand seventy-seven limited partnership units, (11,077), were
         sold at $1,000 per unit aggregating total limited partner contributions
         of $11,077,000. The general partners' contributions amounted to
         $902,847. Partnership operations commenced on November 10, 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.
         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-




                                      F-10
<PAGE>   23





                       STERLING DRILLING FUND 1983-1, 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):

         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 11,077
         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>   24





                       STERLING DRILLING FUND 1983-1, 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 12.5% to 17.9% 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                     $ 3.15          $ 2.31        $ 2.17
              Average sales price per BBL of oil                     
               and other liquids                                      19.64           16.37         17.82
              Production expense per dollar of                       
               operating revenue                                        .44             .47          0.46
</TABLE>

(4)      Quantities of Oil and Gas Reserves:

         The amount of proved developed reserves presented below have been
         estimated by an independent firm of petroleum engineers as of January
         1, 1997. Petroleum engineers on the staff of PEC have 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                                            1,836,728           10,693
         Revisions of previous estimates                                               488,276            6,360
         Production                                                                   (116,201)          (1,508)
                                                                                     ---------          -------

         Reserves as of December 31, 1995                                            2,208,803           15,545
         Revisions of previous estimates                                               137,611             (172)
         Production                                                                   (113,227)          (1,524)
                                                                                     ---------          -------

         Reserves as of December 31, 1996                                            2,233,187           13,849
         Revisions of previous estimates                                               (87,508)           1,490
         Production                                                                   (111,382)          (1,302)
                                                                                     ---------          -------

         Reserves as of December 31, 1997                                            2,034,297           14,037
                                                                                     =========          =======
</TABLE>



                                      F-12
<PAGE>   25





                       STERLING DRILLING FUND 1983-1, 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. 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 for 1997, 1996 or 1995.




                                      F-13
<PAGE>   26





                       STERLING DRILLING FUND 1983-1, 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 1983-2, 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 due 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>   27





                       STERLING DRILLING FUND 1983-1, 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,
                $110,512, $87,747 and $71,148 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, $21,896 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 $6,267.



(7)      General and Administrative Expenses:

         In accordance with the Management Agreement, the general partners are
         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.

         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 $85,000, respectively.



                                      F-15
<PAGE>   28





                       STERLING DRILLING FUND 1983-1, 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 (loss) as                             
          reported on the
          Partnership's federal
          income tax return                               $ 91,673          $ 36,200         $106,566

         Depreciation, depletion and                      
          amortization for income
          tax purposes in excess
          of (less than) financial
          reporting amount                                 (75,385)          (76,579)         (86,048)
                                                          --------          --------         --------

         Net income (loss) per                            
          accompanying financial
          statements                                      $ 16,288          $(40,379)        $ 20,518
                                                          ========          ========         ========
</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>   29





                       STERLING DRILLING FUND 1983-1, 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                    $323,563            $251,463          $219,969
</TABLE>

         The Partnership renewed its gas purchase contract 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>   30




                                   SCHEDULE V


                       STERLING DRILLING FUND 1983-1, 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                             $  321,314         $   --           $   --         $     --           $  321,314
  Wells and related facilities                 9,145,512            6,188             --               --            9,151,700
                                              ----------         --------         --------       ----------         ----------
                                              $9,466,826         $  6,188         $   --         $     --           $9,473,014
                                              ==========         ========         ========       ==========         ==========

Year ended December 31, 1996:
  Leasehold costs                             $  321,314         $   --           $   --         $     --           $  321,314
  Wells and related facilities                 9,127,910           17,601             --               --            9,145,511
                                              ----------         --------         --------       ----------         ----------
                                              $9,449,224         $ 17,601         $   --         $     --           $9,466,825
                                              ==========         ========         ========       ==========         ==========

Year Ended December 31, 1995:
  Leasehold costs                             $  321,314         $   --           $   --         $     --           $  321,314
  Wells and related facilities                 9,127,910             --               --               --            9,127,910
                                              ----------         --------         --------       ----------         ----------
                                              $9,449,224         $   --           $   --         $     --           $9,449,224
                                              ==========         ========         ========       ==========         ==========
</TABLE>



                                      F-18
<PAGE>   31







                                   SCHEDULE VI


                       STERLING DRILLING FUND 1983-1, 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             $7,567,217         $   82,255         $--           $     --           $7,649,472
  Leasehold costs                             321,314               --            --                 --              321,314
                                           ----------         ----------         -----         ----------         ----------
                                           $7,888,531         $   82,255         $--           $     --           $7,970,786
                                           ==========         ==========         =====         ==========         ==========

Year ended December 31, 1996:
  Wells and related facilities             $7,487,117         $   80,100         $--           $     --           $7,567,217
  Leasehold costs                             321,314               --            --                 --              321,314
                                           ----------         ----------         -----         ----------         ----------
                                           $7,808,431         $   80,100         $--           $     --           $7,888,531
                                           ==========         ==========         =====         ==========         ==========

Year Ended December 31, 1995:
  Wells and related facilities             $7,400,760         $   86,357         $--           $     --           $7,487,117
  Leasehold costs                             321,314               --            --                 --              321,314
                                           ----------         ----------         -----         ----------         ----------
                                           $7,722,074         $   86,357         $--           $     --           $7,808,431
                                           ==========         ==========         =====         ==========         ==========
</TABLE>



                                      F-19
<PAGE>   32


                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
                                                                                            SEQUENTIALLY
EXHIBIT                                                                                       NUMBERED
NUMBER                            EXHIBIT                                                       PAGE
------                            -------                                                       ----
<S>              <C>                                                                        <C>
 (3)             Form of Agreement of Limited Partnership of Sterling-Fuel
                 Resources Drilling Fund 1983-1 (now Sterling Drilling Fund
                 1983-1, L.P.) (incorporated by reference to Exhibit (3) of
                 Sterling Gas Drilling Fund 1983-1 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>