STERLING GAS DRILLING FUND 1982 - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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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, 2001
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. 2-78441

STERLING GAS DRILLING FUND 1982
(Exact name of registrant as specified in its charter)

NEW YORK 13-3147901
(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 INTERESTS
(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 15, 2002,
was: 14,370.

DOCUMENTS INCORPORATED BY REFERENCE

NONE

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STERLING GAS DRILLING FUND 1982

FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2001

PART I

ITEM 1. BUSINESS

Sterling Gas Drilling Fund 1982 (the "Registrant" or the "Partnership")
is a limited partnership formed under the laws of the State of New York on July
28, 1982. 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 $14,370,000, all of
which, net of the organization expenses of the Partnership, was expended in the
drilling of such formation extension wells. Such properties are located in Clay,
Roane, Calhoun, Wirt, Kanawha, Lincoln and Putnam Counties, West Virginia. The
Partnership does not operate any of the properties in which it has an interest,
but generally such properties are operated and serviced by Prime Operating
Company, a Texas corporation, and Eastern Oil Well Service Company, a West
Virginia corporation, both wholly-owned subsidiaries of PrimeEnergy Corporation.

During 2001, 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, 2001, 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.

During early 2001, PrimeEnergy Management negotiated a Farmout
Agreement with Eastern American Energy. (EAE) covering leasehold interests in
approximately 5,000 acres in Clay County, West Virginia. Acreage held by
Sterling Gas Drilling Fund 1982 Limited Partnership has been included in the
Farmout Agreement. This agreement provided for a small cash bonus paid at
closing and gives EAE the right but not the obligation to select acreage and
drill a deep well on the selected acreage, subject to an overriding royalty
interest due to the leasehold owners. This agreement closed in May 2001 and will
be in effect till May 1, 2003. If EAE does not exercise their rights under this
agreement PrimeEnergy will attempt to find other parties interested in this
acreage, however there is no guarantee that a new agreement will be made.

During 2000, PrimeEnergy Management negotiated a Farmout Agreement with
Columbia Natural Resources, Inc. (CNR) covering leasehold interests in
approximately 5,000 acres in Clay County, West Virginia. Acreage held by
Sterling Gas Drilling Fund 1982 Limited Partnership was included in the Farmout
Agreement. Pursuant to this agreement, CNR had the right but not the obligation
to select acreage and drill a deep well on the selected acreage, subject to an
overriding royalty interest due to the leasehold owners. This agreement
terminated in April 2001. CNR did not exercise their rights to select acreage
and drill a well.

COMPETITION AND MARKETS

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

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

The Partnership does not currently own or lease any bulk storage
facilities or pipelines, other than adjacent to and used in connection with
producing wells. The Partnership deals with a number of major and independent
companies for the purchase of its oil and gas production, in the areas of
production. Sales are made under short-term contractual arrangements or monthly
spot prices. In 2001, approximately $353,113 or 87% of the Partnership's gas
production was purchased by Dominion field Services( formerly named Phoenix
Diversified) and about $23,289 or 93%, of the Partnership's oil production was
purchased by the clearfield Appalachian Holdings ( formerly named the American
Refining Group). None of these purchasers has any relationship or is otherwise
affiliated with the Partnership. The Partnership believes that its current
purchasers will continue to purchase oil and gas products and, if not, could be
replaced by other purchasers.

ENVIRONMENTAL MATTERS

The petroleum industry is subject to numerous federal and state
environmental statutes, regulations and other pollution controls. In general,
the Partnership is, and will be subject to, present and future environmental
statutes and regulations, and in the future the cost of its activities may
materially increase as a result thereof. The Partnership's expenses relating to
preserving the environment during 2001 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 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 transporter's 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.

Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
regulatory bodies and the courts. The Partnership cannot predict when or if any
such proposals might become effective, or their effect, if any, on the
Partnership's operations. The Partnership believes that it will comply with all
orders and regulation changes 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 December, 1982,
contracted for the drilling of 51 development wells, which resulted in 50
producing wells and one dry hole.

As of December 31, 2001, 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:

(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 & gas production,
average sales price and average production costs as of and for the periods
indicated:

OIL AND GAS RESERVES

The Ryder Scott Company, L.P. has evaluated the Partnership's interests
in proved developed oil and gas properties 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):

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):

The estimated reserve quantities and future income quantities are
related to hydrocarbon prices. Therefore, volumes of reserves actually recovered
and amounts of income actually received may differ significantly from the
estimated quantities presented in this report.

In accordance with FASB Statement No. 69, December 31, 2001 market
prices were determined using the daily oil price or daily gas sales price ("spot
price") adjusted for oilfield or gas gathering hub and wellhead price
differentials (e.g. grade, transportation, gravity, sulfur, and BS&W) as
appropriate. Also, in accordance with SEC and FASB specifications, changes in
market prices subsequent to December 31, 2000 and 2001 were not considered. The
spot price for gas at December 31, 2000 was $9.23 per MMBTU. The range of spot
prices during the year 2000 was a low of $2.14 and a high of $10.50 and the
average was $4.28. The spot price for gas at December 31, 2001 was $2.63 per
MMBTU. The range of spot prices during the year 2001 was a low of $1.77 and a
high of $10.29 and the average was $3.94. The range during the first quarter of
2002 has been from $2.01 to $3.31 with an average of $2.42. The recent futures
market prices have been in the $3.00 range.

While it may reasonably be anticipated that the prices received by
Sterling Gas Drilling Fund 1982 for the sale of its production may be higher or
lower than the prices used in this evaluation, as described above, and the
operating costs relating to such production may also increase or decrease from
existing levels, such possible changes in prices and costs were, in accordance
with rules adopted by the SEC, omitted from consideration in making this
evaluation for the SEC case. Actual volumes produced, prices received and costs
incurred by the partnership may vary significantly from the SEC case.

Since January 1, 2001, 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 2001 for vote by the holders of
Partnership Units.

PART II

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

There is no market for the Limited Partnership Units (the "Units") of
the Partnership. As of March 15, 2002, there were 856 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. There were no
distributions to the holders of Units in 2001 or 2000. Aggregate cash
distributions to the holders of the Units as of December 31, 2001, was
$1,402,512.

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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Registrant is a "small business issuer" as defined in the Securities
and Exchange Act Rule 12b-2 and no information is required to be provided by
this Item 7A.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There was no disagreement between the Partnership and its certified
public accountants on any matter of accounting principles or practices or
financial statement disclosure.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Managing General Partner of the Partnership is PrimeEnergy
Management Corporation, a New York corporation ("Management"). The principal
business of Management is the management of the Partnership and other publicly
and privately held exploration and development limited partnerships and joint
ventures and publicly held asset and income fund limited partnerships. As of
March 15, 2002, Management acts as the Managing General Partner in a total of 45
limited partnerships and joint ventures, of which 4 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
approximately 207 employees, including their principal officers, providing
management and administrative services, accounting, engineers, geologists,
production engineers, land department personnel and field employees.

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

Charles E. Drimal, Jr., age 54, 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 Samford University School of Law in
1973 and is a member of the New York State Bar.

Beverly A. Cummings, age 49, 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.

Lynne G. Pizor, age 42, 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 Prime Energy 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 69, 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 2001 and 2000, the allocation of general and
administrative expenses to the Partnership was $100,800 and $85,000
respectively.

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 Partner and PrimeEnergy Corporation that beneficially
owns more than five percent of the Partnership Units. The following table shows
as of March 15, 2002, 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.

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 2001 was paid well operating
fees ranging from about $287 to $ 943 per month per well. Together with 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 2001 and 2000, the Partnership paid an
aggregate of $158,564 and $98,374, respectively, in such fees and expenses.

PART IV

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

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

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

2. Financial Statement Schedules:

Schedule V Property and Equipment - Oil and Gas
Properties

Schedule VI Accumulated Depreciation, Depletion and
Amortization - Oil and Gas Properties

3. Exhibits:

(3) Form of Agreement of Limited Partnership of
Sterling Gas Drilling Fund 1981
(Incorporated by reference to Exhibit (3) of
Sterling Gas Drilling Fund 1981 Form 10-K
for the year ended December 31, 1994.)

(23) Consent of Ryder Scott Company, L.P. (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.

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 28th day of
March, 2002.

Sterling Gas Drilling Fund 1982
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 28th day of March, 2002.

/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

STERLING GAS DRILLING FUND 1982
(A NEW YORK LIMITED PARTNERSHIP)

Index to Financial Statements and Schedules

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

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.

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

1. Liquidity: The oil and gas industry is competitive in all its
phases. There is also competition between this industry and other industries in
supplying energy and fuel requirements of industrial and residential consumers.
It is not possible for the Registrant to calculate its position in the industry
as the Registrant competes with many other companies having substantially
greater financial and other resources. In accordance with the terms of the
Agreement of Limited Partnership of the Partnership, the General Partners of the
Registrant will make cash distributions of as much of the Partnership cash
credited to the capital accounts of the partners as the General Partners have
determined is not necessary or desirable for the payment of any contingent
debts, liabilities or expenses for the conduct of the Partnership business. As
of December 31, 2001, the General Partners have distributed to the Limited
Partners $1,402,512 or 9.76% of the total Limited Partner capital contributions.

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, 2001 was approximately
$788,035 as compared to December 31, 2000, of about $4,363,671. Overall
reservoir engineering is a subjective process of estimating underground
accumulations of gas and oil that can not be measure in an exact manner. The
estimated reserve quantities and future income quantities are related to
hydrocarbon prices. Therefore, volumes of reserves actually recovered and
amounts of income actually received may differ significantly from the estimated
quantities presented in this report.

F-2

In accordance with FASB Statement No. 69, December 31, 2001 market
prices were determined using the daily oil price or daily gas sales price ("spot
price") adjusted for oilfield or gas gathering hub and wellhead price
differentials (e.g. grade, transportation, gravity, sulfur, and BS&W) as
appropriate. Also, in accordance with SEC and FASB specifications, changes in
market prices subsequent to December 31, 2001 were not considered. The spot
price for gas at December 31, 2001 was $2.63 per MMBTU. The range of spot prices
during the year 2001 was a low of $1.77 and a high of $10.29 and the average was
$3.94. The range during the first quarter of 2002 has been from $2.01 to $3.31
with an average of $2.42. The recent futures market prices have been in the
$3.00 range.

While it may reasonably be anticipated that the prices received by
Sterling Gas Drilling Fund 1982 for the sale of its production may be higher or
lower than the prices used in this evaluation, as described above, and the
operating costs relating to such production may also increase or decrease from
existing levels, such possible changes in prices and costs were, in accordance
with rules adopted by the SEC, omitted from consideration in making this
evaluation for the SEC case. Actual volumes produced, prices received and costs
incurred by the partnership may vary significantly from the SEC case

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 December, 1982 for $11,400,000.
Pursuant to the terms of this contract, fifty-one wells have been drilled
resulting in fifty producing wells and one dry-hole. The Partnership has had a
reserve report prepared which details reserve value information, and such
information is available to the Limited Partners pursuant to the buy-out
provision of the Agreement of Limited Partnership of the Partnership.

3. Results of operations:

2001 compared to 2000

The Partnership's overall operating revenue increased from $373,290 in
2000 to $ 517,181 in 2001. The Partnership receives the majority of its revenue
from gas production combined with some oil production. During 2001, the
Partnership's oil production and average price per barrel declined from the
previous year, from 1,174 barrels and $27.32 in 2000 to 1,091 barrels and $22.82
in 2001. The main contributing factor to the overall revenue increase was a
higher average price per MCF, $3.53 in 2000 to $5.13 in 2001. The Partnership
was not adversely affected by lower gas production, from 85,689 MCF in 2000 to
78,744 MCF in 2001. For most of 2001 the Partnership's revenue was based upon a
higher contract price than was the average spot market price. A new contract was
entered into in December 2001 and the Partnership will be paid based upon
current spot market prices until November 2002.

The Partnership's other income is a result of a cash bonus paid to
the partnership for a farmout agreement. The farmout agreement allows a third
party the right to drill a deep well on leasehold acerage owned by the
partnership for a period of two years. If the third party exercises their rights
within the two years the Partnership could receive an overriding royalty
interest.

F-3

Production expenses increased from $147,353 in 2000 to $226,542 in
2001. During 2001 and 2000, the production expenses include repairs and labor
costs associated with the wells and well sites Some lease operating expenses
vary with the amount of production sold and the revenue received. The variable
costs expended in both 2001 and 2000 were reasonable based upon each years
production and revenue received. General and administrative costs increased
slightly from $105,407 in 2000 to $115,478 in 2001. Management will use in-house
resources if it provides efficient and timely services to the partnership.
Amounts in both years are substantially less than the $ 718,500 allowed to be
allocated to the Partnership under the Partnership Agreement. The lower
allocable 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 exceed the
undiscounted future net cash flows attributable to the partnership. No
additional depletion deduction was needed in 2001 or 2000. The overall
depreciation, depletion and amortization was consistent with the rates used and
the existing property basis.

2000 compared to 1999

The Partnership's overall operating revenue increased from $246,405 in
1999 to $ 373,290 in 2000. The Partnership receives the majority of its revenue
from gas production combined with some oil production. During 2000, the
Partnership's oil production was stable and average price per barrel was
significantly higher than the previous year, from 1,226 barrels and $14.81 in
1999 to 1,174 barrels and $27.32 in 2000. The main contributing factor to the
overall revenue increase was a higher average price per MCF, $2.53 in 1999 to
$3.53 in 2000. The Partnership was not adversely affected by lower gas
production than in the previous year, from 88,511 MCF in 1999 to 85,689 MCF in
2000. The Partnership also received $38,424 in revenue from a one time
settlement of a class action lawsuit in which the Partnership participated.
Production declines can be of a normal nature, a result of minor shut-ins due to
repairs or even as a result of variations in pressure flows between the wells
gas lines and the main transport line.

Production expenses increased from $122,394 in 1999 to $147,353 in
2000. During 2000 and 1999, the production related expenditures included
repairs, maintenance, labor, supplies and other normal upkeep expenses. Some
lease operating expenses vary with the amount of production sold. The variable
costs expended in both 2000 and 1999 were reasonable based upon each years
production. General and administrative costs remained relatively unchanged from
$107,109 in 1999 to $105,407 in 2000. Management will use in-house resources if
it provides efficient and timely services to the partnership. Amounts in both
years are substantially less than the $ 718,500 allowed to be allocated to the
Partnership under the Partnership Agreement. The lower allocable 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 exceed the
undiscounted future net cash flows attributable to the partnership. No
additional depletion deduction was needed in 2000 or 1999. The overall
depreciation, depletion and amortization was consistent with the rates used and
the existing property basis.

F-4

STERLING GAS DRILLING FUND 1982
(a New York limited partnership)

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
Sterling Gas Drilling Fund 1982:

We have audited the accompanying balance sheets of Sterling Gas Drilling Fund
1982 (a New York limited partnership) as of December 31, 2001 and 2000, and the
related statements of operations, changes in partners' equity, and cash flows
for the years ended December 31, 2001, 2000 and 1999. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sterling Gas Drilling Fund 1982
as of December 31, 2001 and 2000, and the results of its operations and cash
flows for the years ended December 31, 2001, 2000 and 1999 in conformity with
accounting principles generally accepted in the United States of America.

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
March 26, 2002

F-5

STERLING GAS DRILLING FUND 1982
(A NEW YORK LIMITED PARTNERSHIP)

BALANCE SHEETS

DECEMBER 31, 2001 AND 2000

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

F-6

STERLING GAS DRILLING FUND 1982
(A NEW YORK LIMITED PARTNERSHIP)

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, 1999

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

F-7

STERLING GAS DRILLING FUND 1982
(A NEW YORK LIMITED PARTNERSHIP)

STATEMENTS OF CHANGES IN PARTNERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, 1999

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

F-8

STERLING GAS DRILLING FUND 1982
(A NEW YORK LIMITED PARTNERSHIP)

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, 1999

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

F-9

STERLING GAS DRILLING FUND 1982
(a New York limited partnership)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2001, 2000 AND 1999

(1) Organization and Capital Contributions:

Sterling Gas Drilling Fund 1982, a New York limited partnership (the
"Partnership"),was formed on July 28, 1982 for the primary purpose of acquiring,
drilling, developing, operating 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), formerly known as
K.R.M. Petroleum Corporation (KRM), Charles E. Drimal, Jr., Oliver J. Sterling
and Samuel R. Campbell. Fourteen thousand three hundred seventy limited
partnership units, (14,370), were sold at $1,000 per unit aggregating
$14,370,000 in total limited partner capital contributions. The general
partners' made no capital contributions. Partnership operations commenced on
December 22, 1982.

(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

F-10

STERLING GAS DRILLING FUND 1982
(a New York limited partnership)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2001, 2000 AND 1999

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

(utilizing aggregations of common geological structures) by the
unit-of-production method based upon the ratio of production to proved developed
oil and gas reserves. Additional depreciation, depletion and amortization may be
recorded if 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' Income (Loss) Per Equity Unit:

The limited partners' income (loss) per equity unit is computed on the 14,370
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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.

(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. During 1982, the Partnership, as reimbursement of costs for leases it
acquired from PEMC, paid PEMC $466,804. The Partnership currently pays royalties
of approximately 12.5% to 19.8% of the selling price of the gas and oil
extracted.

F-11

STERLING GAS DRILLING FUND 1982
(a New York limited partnership)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2001, 2000 AND 1999

(3) Oil and Gas Properties (continued):

The following table sets forth certain revenue and expense data
concerning the Partnership's oil and gas activities for the years ended
December 31, 2001, 2000 and 1999:

(4) Quantities of Oil and Gas Reserves:

The amount of proved developed reserves presented below has been
estimated by an independent firm of petroleum engineers as of January
1, 2002. Petroleum engineers on the staff of PEC have reviewed the data
presented below, as of December 31, 2001, for consistency with current
year production and operating history. All of the Partnership's gas and
oil reserves are located within the United States:

F-12

STERLING GAS DRILLING FUND 1982
(a New York limited partnership)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2001, 2000 AND 1999

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

The revisions of previous estimates are primarily due to price changes
that have occurred during the years. If future prices were to decline,
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 that included above.

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 may record additional
depreciation, depletion and amortization if net capitalized costs
exceed the undiscounted future net cash flows attributable to
Partnership properties. Significant price declines affect estimated
future net revenues both directly and as a consequence of their impact
on estimates of future production. The Partnership has recorded no
additional provision in 2001, 2000 and 1999. 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 in 2001, 2000 and 1999.

F-13

STERLING GAS DRILLING FUND 1982
(a New York limited partnership)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2001, 2000 and 1999

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

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

Drilling and completion costs (paid out of initial capital
contributions):

Limited partners 99.00%
General partners 1.00%
-------
100.00%

Syndication costs sales commission and cost acquiring leases:

Limited partners - %
General partners 100.00%
-------
100.00%

Offering costs up to $50,000 incurred by Dealer-Manager:

Limited partners - %
General partners 100.00%
-------
100.00%

Offering costs other than $50,000 paid by the general partners (up to a
maximum of $50,000):

Limited partners 99.00%
General partners 1.00%
-------
100.00%

Net Revenue from oil and gas operations, general and administrative
expenses and production operating fees:

Limited partners 84.15%
General partners 15.85%
-------
100.00%

All other income, gains, losses, costs, expenses, deductions and
credits:

Limited partners 99.00%
General partners 1.00%
-------
100.00%

F-14

STERLING GAS DRILLING FUND 1982
(a New York limited partnership)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2001,2000 AND 1999

(6) Transactions With Affiliates:

(a) The payable or receivable to affiliates at December 31, 2001
and 2000 represents general and administrative and certain
other expenses incurred on behalf of the Partnership by PEC
and its subsidiaries, including amounts due for production
operator's fees (Note 6(b)), and revenues collected on behalf
of the Partnership. PEMC intends to continue to make advances
to the Partnership to fund any working capital deficiencies in
the future on an interest free basis.

(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
$523 for each producing gas well and $943 for each producing
oil or combination gas and oil well, based on the
Partnership's percentage of working interest in the well.
These fees are subject to annual adjustments by the percentage
increase in the Cost of Living Index published by the U.S.
Department of Labor over the year $ 149,542, $92,043 and
$62,122 of production operator's fees were incurred,
respectively.

(c) Eastern Oil Well Services Company (EOWSC), a subsidiary of
PEC, provided field services to the Partnership during the
years ending December 31, 2001, 2000 and 1999 for which it was
billed $9,022, $5,971, and $14,234, respectively.

(7) General and Administrative Expenses:

In accordance with the Management Agreement, PEMC will be reimbursed
for the portion of PEMC's 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 shall be borne by the general partners in
their individual capacity.

During 2001, 2000 and 1999, the Partnership recognized general and
administrative expenses incurred on its behalf by a general partner of
$100,800 , $85,000 and $85,000 respectively.

F-15

STERLING GAS DRILLING FUND 1982
(a New York limited partnership)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2001, 2000 AND 1999

(8) Federal Income Taxes:

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

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

F-16

STERLING GAS DRILLING FUND 1982
(a New York limited partnership)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2001, 2000 AND 1999

(9) Major Customers:

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

The Partnership renewed its gas purchase contracts in December, 2001
resulting in a gas contract price based upon spot market pricing.

(10) Other Revenue:

The Partnership's other income is a result of a cash bonus paid to the
partnership for a two-year farmout agreement. The farmout agreement
allows a third party the right to drill a deep well on leasehold
acerage owned by the partnership for a period of two years. If the
third party exercises their rights with in the two years the
Partnership could receive an overriding royalty interest.

In 2000 the Partnership was a member of a Class of Oil Producers
involved in litigation alleging that the principal refiners of Penn
Grade crude engaged in a conspiracy to fix, lower, maintain and
stabilize the purchase prices of crude purchased by the refiners from
the oil producers. The Partnership received this amount pursuant to the
Settlement Agreement of this litigation.

In 1999 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

SCHEDULE V
STERLING GAS DRILLING FUND 1982
(a New York limited partnership)

PROPERTY AND EQUIPMENT - OIL AND GAS PROPERTIES

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

F-18

SCHEDULE VI
STERLING GAS DRILLING FUND 1982
(a New York limited partnership)

ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION - OIL AND GAS PROPERTIES

FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

F-19

EXHIBIT INDEX