<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

                      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                                06901
(Address of principal executive offices)                    (Zip Code)

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

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

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

     Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                                                                   YES x  NO
                                                                      ---   ---

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

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

     The number of Units of the Registrant outstanding as of March 14, 1997,
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, 1996

                                     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 1996, 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, 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.

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 1996, approximately $251,000, or 96.66%, 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 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 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, 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 ..................................       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,
                                     ------------------------------------------------
                                       1996      1995      1994      1993      1992
                                     --------  --------  --------  --------  --------
<S>                                  <C>       <C>       <C>       <C>       <C>
Production:
 Oil and Condensate (bbl) .........     1,524     1,508     1,521     1,897     2,345
 Gas (Mcf) ........................   113,227   116,201   104,386   135,378   137,437
Average Price of Sales:
 Oil and Condensate ($ per bbl) ...  $  16.37     17.82     12.89     16.31     18.47
 Gas ($ per Mcf) ..................  $   2.31      2.17      3.12      2.61      2.34
Production Expense per Dollar
 of Operating Revenue .............  $   0.47      0.46      0.53      0.41      0.46
</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>
As of                            Proved Developed
                                  ----------------
12-31                 Oil (bbls)                           Gas (Mcf)
-----                 ----------                           ---------
<C>                     <C>                                <C>
1992                    15,000                             2,353,000
1993                    16,000                             2,493,000
1994                    11,000                             1,837,000
1995                    15,500                             2,210,000
1996                    13,850                             2,233,000
</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
                      -----                        -------                 ------------------
                       <C>                        <C>                           <C>
                       1992                       $2,829,000                    $1,306,000
                       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
</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.



                                      -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 14, 1997, there were 801 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 1996 aggregated $41,528. Aggregate cash distributions
to the holders of the Units as of December 31, 1996, is $2,256,928.

     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 14, 1997, Management acts as the Managing General Partner 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, 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



                                      -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 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.

     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.



                                      -8-
<PAGE>   10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The Partnership does not know of any person, entity or group other than
the Managing General Partners and 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
such beneficial owners, 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 .............................     1,152     10.40
     General Partners as a Group
       One Landmark Square
       Stamford, Connecticut 06901 ....................     1,448     13.08
</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 $399 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 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
$98,437 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 20th day of
March, 1997.


                                        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 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.



                                      -11-
<PAGE>   13
                      STERLING DRILLING FUND 1983-1, L.P.

                              FINANCIAL STATEMENTS

                        AS OF DECEMBER 31, 1996 AND 1995

                            TOGETHER WITH REPORT OF
                         INDEPENDENT PUBLIC ACCOUNTANTS


<PAGE>   14
                      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, 1996 and 1995 ............................  F-6

   Statements of Operations for the Years Ended December 31,
      1996, 1995 and 1994 ................................................  F-7

   Statements of Changes in Partners' Equity for the Years
      Ended December 31, 1996, 1995 and 1994 .............................  F-8

   Statements of Cash Flows for the Years
      Ended December 31, 1996, 1995 and 1994 .............................  F-9

   Notes to Financial Statements .........................................  F-10

Schedules:

     V  - Property and Equipment - Oil and Gas Properties for
          the Years Ended December 31, 1996, 1995, and 1994 ..............  F-18

     VI - Accumulated Depreciation, Depletion and Amortization -
          Oil and Gas Properties for the Years Ended December 31,
          1996, 1995 and 1994 ............................................  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>   15
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 .....................  $  297       361       350       391       367
Net income (loss):
  Limited Partners ...........     (42)       (3)     (557)     (102)     (136)
  General Partners ...........       2        23       (54)       (7)      (14)
  Per equity unit ............   (3.79)    (0.26)   (50.25)    (9.24)   (12.28)
Total assets .................   1,729     1,823     1,878     2,494     2,628
Cash distributions:
  Limited Partners ...........      42        28        28        28        28
  General Partners ...........      12         7         7         7         7
  Limited partners as
  a % of original
  contribution ...............   0.375%     0.25%     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, 1996, the General Partners have
distributed to the Limited Partners $2,256,928 or 20.375% of the total Limited
Partner capital contributions to the Limited Partnership.

     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, 1996, was approximately
$1,313,750 as compared to the discounted reserves as of December 31, 1995,
which were approximately $893,700. The increase in total estimated discounted



                                      F-2
<PAGE>   16
future net revenue was due primarily to a higher year end gas price as of
December 31, 1996, when compared to the gas price in effect as of December 31,
1995.

     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:

     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.



                                      F-3
<PAGE>   17
     1995 compared to 1994

     Operating revenue declined from $345,484 in 1994 to $279,580 in 1995. The
Partnership's oil production remained consistent with prior years, 1,521
barrels of oil in 1994, compared with 1,508 barrels of oil 1995, while the gas
production increased slightly from 104,386 mcf in 1994 to 116,201 mcf in 1995.
Oil revenue was up due to consistent production and higher average oil price
from $12.89 in 1994 to $17.82 in 1995. Gas revenue was lower even with
increased production due to the average gas price per mcf of $2.17 in 1995 as
compared to the higher average mcf price of $3.12 for 1994.

     The Partnership was paid spot prices throughout all of 1995 for its gas
produced. Spot prices fluctuate and were low during off peak usage times of the
year. The Partnership generally renews contracts as they come due for an
additional twelve month period. The Partnership was under a fixed contract
price for the first nine months of 1994. The price offered in 1994, at the
renewal date for the 1994-1995 contracts, was lower than was deemed favorable.
Therefore, the price remained at spot prices during 1994 and 1995. 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 $75,375, which was reported as other income for 1995.

     Production expenses decreased from $181,570 in 1994 to $147,306 in 1995.
The higher production costs experienced in 1994 can be attributed to higher
general 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 declined from $181,739 in 1994 to
$106,973 in 1995. Amounts in both years are substantially less then the
$553,850 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.

     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. Additional
depletion was needed of $450,000 in 1994 and no revision was needed in 1995.
Depreciation, depletion and amortization rates were significantly higher in
1994 compared to 1995, resulting in a higher depletion expense, $148,120 for
1994, as compared to $86,358 for 1995.



                                      F-4
<PAGE>   18
                      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, 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 1983-1,
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-5
<PAGE>   19
                      STERLING DRILLING FUND 1983-1, 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) .............  $    141,617   $     87,201
  Due from affiliates (Note 6) ...................         9,595         94,874
                                                    ------------   ------------
    Total Current Assets .........................       151,212        182,075
                                                    ------------   ------------
Oil and Gas Properties - successful efforts
 methods (Note 3) - (Schedules V and VI):
  Leasehold costs ................................       321,314        321,314
  Wells and related facilities ...................     9,145,511      9,127,910
                                                    ------------   ------------
    Total ........................................     9,466,825      9,449,224
  Less - Accumulated depreciation,
   depletion and amortization ....................    (7,888,531)    (7,808,432)
                                                    ------------   ------------
                                                       1,578,294      1,640,792
                                                    ------------   ------------
    Total Assets .................................  $  1,729,506   $  1,822,867
                                                    ============   ============

Liabilities and Partners' Equity

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

Partners' Equity:
  Limited partners ...............................     1,675,879      1,759,361
  General partners ...............................        53,627         63,506
                                                    ------------   ------------
    Total Partners' Equity .......................     1,729,506      1,822,867
                                                    ------------   ------------
    Total Liabilities and Partners' Equity .......  $  1,729,506   $  1,822,867
                                                    ============   ============
</TABLE>


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



                                      F-6
<PAGE>   20
                      STERLING DRILLING FUND 1983-1, 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 ....  $222,411   $ 68,322   $290,733   $213,879   $ 65,701  $279,580  $ 264,295   $ 81,189   $ 345,484
  Interest ..............     5,856        544      6,400      5,580        620     6,200      4,332        402       4,734
  Other revenue
  (Note 10) .............      --         --         --       57,662     17,713    75,375       --         --          --
                           --------   --------   --------   --------   --------  --------  ---------   --------   ---------
    Total Revenues ......   228,267     68,866    297,133    277,121    84,034`   361,155    268,627     81,591     350,218
                           --------   --------   --------   --------   --------  --------  ---------   --------   ---------
Costs and Expenses:
  Production expenses ...   103,872     31,908    135,780    112,689     34,617   147,306    138,901     42,669     181,570
  Depreciation,
   depletion and
   amortization .........    73,291      6,809     80,100     85,494        864    86,358    547,280     50,840     598,120
  General and
   administrative
   expenses (Note 7) ....    93,048     28,584    121,632     81,834     25,139   106,973    139,030     42,709     181,739
                           --------   --------   --------   --------   --------  --------  ---------   --------   ---------
    Total Expenses ......   270,211     67,301    337,512    280,017     60,620   340,637    825,211    136,218     961,429
                           --------   --------   --------   --------   --------  --------  ---------   --------   ---------
    Net Income (Loss) ...  $(41,944)  $  1,565   $(40,379)  $ (2,896)  $ 23,414  $ 20,518  $(556,584)  $(54,627)  $(611,211)
                           ========   ========   ========   ========   ========  ========  =========   ========   =========
Net (Loss) Per
 Equity Unit (Note 2) ...  $  (3.79)                        $   (.26)                      $  (50.25)
                           ========                         ========                       =========
</TABLE>


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



                                      F-7
<PAGE>   21
                      STERLING DRILLING FUND 1983-1, 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 ............  $2,374,227   $  109,492   $2,483,719

Partners' contributions .................        --            118          118

Distributions to partners ...............     (27,693)      (7,622)     (35,315)

Net (Loss) ..............................    (556,584)     (54,627)    (611,211)
                                           ----------   ----------   ----------
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
                                           ==========   ==========   ==========
</TABLE>


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



                                      F-8
<PAGE>   22
                      STERLING DRILLING FUND 1983-1, 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 (loss) income ................................  $  (40,379)  $   20,518   $ (611,211)
  Adjustments to reconcile net income (loss)
   to net cash provided (used) by operating
   activities:
    Depreciation, depletion and amortization .......      80,100       86,358      598,120
    Changes in Assets and Liabilities -
      Decrease (increase) in due from affiliates ...      (9,595)     (94,874)      41,749
      Increase (decrease) in due to affiliates .....      94,873      (40,557)      40,557
                                                      ----------   ----------   ----------
        Net Cash Provided (Used) by
        Operating Activities .......................     124,999      (28,555)      69,215
                                                      ----------   ----------   ----------
Cash Flows From Investing Activities:
  Equipment purchases ..............................     (17,601)        --           --
  Credit on uncompleted wells and related
   equipment .......................................        --           --         11,748
                                                      ----------   ----------   ----------
    Net Cash Provided (Used) by Investing
     Activities ....................................     (17,601)        --         11,748
                                                      ----------   ----------   ----------
Cash Flows From Financing Activities:
  Partners' contributions ..........................         177          117          118
  Distributions to partners ........................     (53,159)     (35,079)     (35,315)
                                                      ----------   ----------   ----------
    Net Cash (Used) in Financing Activities ........     (52,982)     (34,962)     (35,197)
                                                      ----------   ----------   ----------
Net increase (decrease) in cash and cash
 equivalents .......................................      54,416      (63,517)      45,766

Cash and cash equivalents, beginning of year .......      87,201      150,718      104,952
                                                      ----------   ----------   ----------

Cash and cash equivalents, end of year .............  $  141,617   $   87,201   $  150,718
                                                      ==========   ==========   ==========
</TABLE>


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



                                      F-9
<PAGE>   23
                      STERLING DRILLING FUND 1983-1, 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 1983-1, 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-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-10
<PAGE>   24
                      STERLING DRILLING FUND 1983-1, 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 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.

(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.



                                      F-11
<PAGE>   25
                      STERLING DRILLING FUND 1983-1, 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 ....  $2.31  $2.17  $3.12
          Average sales price per BBL of oil
           and other liquids ....................  16.37  17.82  12.89
          Production expense per dollar of
           operating revenue ....................   0.47   0.46   0.53
</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, 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 ...........   2,493,179       16,435
     Revisions of previous estimates ............    (552,065)      (4,221)
     Production .................................    (104,386)      (1,521)
                                                   ----------   ----------
     Reserves as of December 31, 1994 ...........   1,836,728       10,693
     Revisions of previous estimates ............     489,773        6,360
     Production .................................    (116,201)      (1,508)
                                                   ----------   ----------
     Reserves as of December 31, 1995 ...........   2,210,300       15,545
     Revisions of previous estimates ............     136,114         (172)
     Production .................................    (113,227)      (1,524)
                                                   ----------   ----------
     Reserves as of December 31, 1996 ...........   2,233,187       13,849
                                                   ==========   ==========
</TABLE>



                                      F-12
<PAGE>   26
                      STERLING DRILLING FUND 1983-1, 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. 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
     and 1995, however, an additional provision of $450,000 was recorded 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 for 1996 and 1995 would not have been reduced, however,
     in 1994 it would have been reduced by an additional $225,000.



                                      F-13
<PAGE>   27
                      STERLING DRILLING FUND 1983-1, 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 ......     100.0%        -%
       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 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.

     (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 $399 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, $87,747, $71,148 and $100,509 of production
          operator's fees were incurred, respectively.



                                      F-14
<PAGE>   28
                      STERLING DRILLING FUND 1983-1, L.P.
                        (a New York limited partnership)

                         NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1996, 1995 AND 1994


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

     (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, $22,703 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 $10,690.

(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 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 $160,000, respectively.



                                      F-15
<PAGE>   29
                      STERLING DRILLING FUND 1983-1, 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 (loss) as
  reported on the
  Partnership's federal
  income tax return .....................  $   36,200   $  106,566   $  (13,525)
 Depreciation, depletion and
  amortization for income
  tax purposes in excess
  of (less than) financial
  reporting amount ......................     (76,579)     (86,048)    (597,686)
                                           ----------   ----------   ----------
 Net income (loss) per
  accompanying financial
  statements ............................  $  (40,379)  $   20,518   $ (611,211)
                                           ==========   ==========   ==========
</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>   30
                      STERLING DRILLING FUND 1983-1, L.P.
                        (a New York limited partnership)

                         NOTES TO FINANCIAL STATEMENTS

                        DECEMBER 31, 1996, 1995 AND 1994


(9)  Major Customers:

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


<TABLE>
<CAPTION>
      Purchaser                                  1996      1995      1994
      ---------                                --------  --------  --------
<S>                                            <C>       <C>       <C>
       Brooklyn Union Gas ...................  $   --    $   --    $ 58,732
       Phoenix Diversified ..................  $251,463  $219,969  $259,113
</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-17
<PAGE>   31
                                                                     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, 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 .................  $   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
                                     ===========  ===========  ===========  ===========   ===========
Year Ended December 31, 1994:
-----------------------------
  Leasehold costs .................  $   321,314  $      --    $      --    $      --     $   321,314
  Wells and related facilities ....    9,127,910         --           --           --       9,127,910
  Uncompleted wells and related
    equipment .....................       11,748         --           --        (11,748)         --
                                     -----------  -----------  -----------  -----------   -----------
                                     $ 9,460,972  $      --    $      --    $   (11,748)  $ 9,449,224
                                     ===========  ===========  ===========  ===========   ===========
</TABLE>



                                      F-18
<PAGE>   32
                                                                    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, 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 ...   $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
                                     ==========   ==========   ===========   ==========   ==========
Year Ended December 31, 1994:
-----------------------------
  Wells and related facilities ...   $6,802,640   $  598,120   $      --     $     --     $7,400,760
  Leasehold costs ................      321,314         --            --           --        321,314
                                     ----------   ----------   -----------   ----------   ----------
                                     $7,123,954   $  598,120   $      --     $     --     $7,722,074
                                     ==========   ==========   ===========   ==========   ==========
</TABLE>


                                      F-19
<PAGE>   33
                               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>