SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

~~FORM~~Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (dD)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter ended ~~September~~June 30, ~~2003~~2004

Commission File Number 2-71865

TEXLAND DRILLING PROGRAM-1981, LTD.

(Name of Registrant)


TEXAS		75-1791491
(State of Organization)		(I.R.S. Employer Identification No.)

777 Main Street, Suite 3200 Fort Worth, Texas	76102	~~76102~~
Address of Executive Offices)		( Zip Code)
(Address of Executive Offices)	Zip Code

Registrant’s Telephone Number (817) 336-2751

Securities registered pursuant to Section 12(b) of the Act:


Units of Limited Partnership Interest		None
(Title of Class)		(Voting Units)

Indicate by check mark whether the 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 ¨

This report contains a total of 11 pages.

Texland Drilling Program-1981, Ltd.

Index To Financial Statements

Reference Page

Balance Sheets at September 30, 2003 and December 31, 2002		3
Balance Sheets at June 30, 2004 and December 31, 2003.		3
Statements of Operations for the Three Months And Nine Months Ended September 30, 2003 and 2002		4
Statements of Operations for the Three Months And Six Months Ended June 30, 2004 and 2003.		4
Statement of Partners’ Capital at September 30, 2003.		5
Statement of Partners’ Capital at June 30, 2004.		5
Statements of Cash Flows for Nine Months Ended September 30, 2003 and 2002.		6
Statements of Cash Flows for Six Months Ended June 30, 2004 and 2003.		6
Notes to Financial Statements.		7-8

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Balance Sheets

~~September~~June 30, ~~2003~~2004 and December 31, ~~2002~~2003

(Unaudited)

	09/30/03			12/31/2002
	06/30/04			12/31/03
ASSETS
Current Assets
Cash	$	7071,~~158~~008		$	3652,~~199~~124
Accounts receivable—trade		155,396			140,943
Accounts receivable - trade		167,718			136,491
Accounts receivable—managing general partner		—			14,961
Accounts receivable - managing general partner		—			1,257
		225,554			192,103
		238,726			189,872
Property and Equipment, at Cost (Successful Efforts Method)
Intangible development costs		7,~~339~~359,~~536~~986			7,~~313~~346,~~622~~495
Lease and well equipment		4,~~258~~315,~~148~~098			4,~~237~~301,~~033~~178
Producing leaseholds		161,495			161,495
		11,759,179			11,712,150
		11,836,579			11,809,168
Accumulated depreciation, depletion and amortization		(10,~~492~~234,~~192~~915	)		(10,~~393~~178,~~780~~875	)
		1,266,987			1,318,370
		1,601,664			1,630,293
	$	1,492,541		$	1,510,473
Total Assets	$	1,840,390		$	1,820,165
LIABILITIES AND PARTNERS’ CAPITAL
LIABILITIES
Current Liabilities
Accounts payable:
Accounts payable - managing general partner	$	52,592		$	42,180
Managing general partner	$	74,222		$	56,733
Total Current Liabilities		52,592			42,180
Partners’ Capital
Asset retirement liability		179,125			172,235
Limited partners—2,425 units outstanding		1,257,712			1,275,888
Total Liabilities		231,717			214,415
General partners		160,607			177,852
PARTNERS’ CAPITAL
		1,418,319			1,453,740
Limited partners - 2,425 units outstanding		1,151,315			1,160,236
	$	1,492,541		$	1,510,473
General partners		457,358			445,514
		1,608,673			1,605,750
Total Liabilities and Partners’ Capital	$	1,840,390		$	1,820,165

See accompanying notes to financial statements.

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Statements of Operations

~~September~~June 30, ~~2003~~2004 and ~~2002~~2003

(Unaudited)

	Three Months Ended September 30,							Nine Months Ended September 30,
	Three Months EndedJune 30,						Six Months Ended June 30,
	2003				2002			2003			2002
	2004			2003			2004			2003
Revenue
Oil and gas sales	$	~~360~~389,~~430~~342		$	$353,938	~~345,259~~	$	$805,161	~~1,158,809~~	$	$798,379	~~909,597~~
Interest income		~~114~~118			190	59		224	~~441~~		327	~~187~~
Miscellaneous Income		—			—	—		—	—		—	—
Gain on sale of assets		~~(1,424~~—	)		88	~~3,100~~		—	~~1,403~~		2,827	~~10,255~~
		359,120				348,418			1,160,653			920,039
		389,460			354,216			805,385			801,533
Expense
Fees to managing general partner		2230,~~875~~000			22,875	~~23,250~~		52,875	~~68,625~~		45,750	~~69,750~~
Production expense		~~135~~115,~~388~~455			130,417	~~144,012~~		233,886	~~366,878~~		231,490	~~396,566~~
Severance tax		1819,~~942~~566			18,201	~~17,293~~		42,010	~~62,024~~		43,082	~~46,087~~
Depreciation, depletion and amortization		3328,~~785~~634			33,125	~~48,877~~		56,039	~~99,815~~		66,030	~~141,642~~
Other		513,~~337~~834			20,340	~~2,023~~		31,419	~~27,474~~		22,137	~~20,704~~
		216,327				235,455			624,816			674,749
Accretion expense		3,445			3,189			6,890			6,379
Net Income	$	142,793			$	112,963		$	535,837		$	245,290
		210,934			228,147			423,119			414,868
Income before change in accounting principle		178,526			126,069			382,266			386,665
Cumulative effect of change in accounting principle		—			—			—			214,257
Net Income	$	178,526		$	126,069		$	382,266		$	600,922
Allocation of Net Income
Limited partners	$	6680,~~232~~361		$	$50,350	~~50,399~~	$	$171,742	~~247,846~~	$	$99,048	~~96,075~~
General partners		7698,~~561~~165			75,719	~~62,564~~		210,524	~~287,991~~		501,874	~~149,215~~
	$	~~142~~178,~~793~~526		$	$126,069	~~112,963~~	$	$382,266	~~535,837~~	$	$600,922	~~245,290~~
Net Income per $5,000 Limited Partner (2,425 Units Outstanding)	$	27			$	21		$	~~102~~		$	40
Net income per limited partner unit before change in accounting principle	$	33		$	21		$	71		$	74
Cumulative effect of change in accounting principle	$	—		$	—		$	—		$	(33	)
Net income per limited partner unit	$	33		$	21		$	71		$	41

See accompanying notes to financial statements.

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Statements of Partners’ Capital

~~Nine~~Six Months Ended ~~September~~June 30, ~~2003~~2004

(Unaudited)

	Limited Partners			General Partners			Total
	LimitedPartners			GeneralPartners			Total
Balance at December 31, 2002	$	1,275,888		$	177,852		$	1,453,740
Balance at December 31, 2003	$	1,160,236		$	445,514		$	1,605,750
Partners’ distributions		(~~266~~180,~~022~~663	)		(~~326~~212,~~350~~600	)		(~~592~~393,~~372~~263	)
Partners’ contributions		—			2113,~~114~~920			2113,~~114~~920
Net income		~~247~~171,~~846~~742			~~287~~210,~~991~~524			~~535~~382,~~837~~266
Balance at September 30, 2003	$	1,257,712		$	160,607		$	1,418,319
Balance at June 30, 2004	$	1,151,315		$	457,358		$	1,608,673

See accompanying notes to financial statements.

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Statements of Cash Flow

~~Nine~~Six Months Ended ~~September~~June 30, ~~2003~~2004 and ~~2002~~2003

(Unaudited)

	2003			2002
Operating Activities
Net income (loss)	$	535,837		$	245,290
Net income	$	382,266		$	600,922
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		99,815			141,642
Cumulative effect of change in accounting principle		—			(214,257	)
Gain on sale of assets		(1,403	)		(10,255	)
Accretion expense		6,890			6,379
(Increase) decrease in accounts receivable		508			(36,705	)
Depreciation, depletion and amortization		56,039			66,030
(Decrease) increase in accounts payable		17,489			18,238
Gain on sale of assets		—			(2,827	)
(Increase) decrease in accounts receivable		(29,970	)		(31,595	)
(Decrease) increase in accounts payable		10,413			47,396
Other		—			—
		116,409			112,920
		43,372			(128,874	)
Net cash provided by operating activities		~~652~~425,~~246~~638			~~358~~472,~~210~~048
Investing Activities
Acquisition of property and equipment		(4827,~~432~~411	)		(~~102~~35,~~242~~650	)
Proceeds from sale of assets		~~1,403~~—			102,~~255~~827
Net cash used in investing activities		(4727,~~029~~411	)		(9132,~~987~~823	)
Financing Activities
Partners’ contributions		2113,~~114~~920			2712,~~501~~669
Partners’ distributions		(~~592~~393,~~372~~263	)		(~~245~~364,~~788~~363	)
Net cash used in financing activities		(~~571~~379,~~258~~343	)		(~~218~~351,~~287~~694	)
Net Increase in Cash		3318,~~959~~884			4787,~~936~~531
Cash—beginning of year		36,199			2,599
Cash - beginning of year		52,124			36,199
Cash—End of Quarter	$	70,158		$	50,535
Cash - End of Quarter	$	71,008		$	123,730

See accompanying notes to financial statements.

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Notes To Financial Statements

~~September~~June 30, ~~2003~~2004

(Unaudited)

1. Summary Of Significant Accounting Policies

The Partnership was organized as a limited partnership on July 20, 1981 for the purpose of engaging in oil and gas exploration and production. Texland Properties-1981, a general partnership, and Texland Petroleum, L.P. are the General Partners. The Managing General Partner is Texland Petroleum, L.P. The Partnership’s accounting policies are summarized below:

Basis Of Accounting

The Partnership follows generally accepted accounting principles applicable to established enterprises in the extractive industries under a method which is generally known as the successful method of accounting.

Property And Equipment

Costs incurred for the acquisition of producing and nonproducing leaseholds are capitalized. Costs of intangible development and lease and well equipment incurred to drill and equip successful exploratory and development wells are capitalized. Costs to drill and equip unsuccessful exploratory wells are charged to operations while costs of unsuccessful development wells remain capitalized. Costs associated with uncompleted wells are capitalized as wells-in-progress.

Abandoned Leaseholds

Costs of nonproducing properties are charged to expense at such time as they are deemed to be impaired, based upon periodic assessments of such costs.

Depletion

Leasehold costs of producing properties are amortized on the unit of production method based on proved oil and gas reserves. Intangible development costs of producing properties are amortized on the unit of production method based on estimated proved developed oil and gas reserves.

Depreciation

Depreciation of equipment is provided by using the unit of production method based on estimated proved developed oil and gas reserves.

Organization Costs

These costs are amortized by the straight-line method over ten years, the life of the Partnership.

Federal Income Tax

The Partnership files its federal income tax return on the accrual basis.

2. Contributions By General Partner (Texland Properties-1981)

Under terms of the Partnership Agreement, the General Partner is charged for certain costs related to drilling and production operations which are required to be capitalized for federal income tax purposes. These costs are treated as capital contributions by the General Partner. In addition, Texland Properties-1981 and Texland Petroleum, L.P. have invested in limited partnership units in the amount of $95,000 and $30,000 respectively.

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Notes To Financial Statements

~~September~~June 30, ~~2003~~2004

(Unaudited)

3. Fees To Managing General Partner (Texland Petroleum, L.P.)

In consideration of its management services rendered, the Managing General Partner is entitled to charge management fees to the Partnership. In addition, for the ~~nine~~ six months ended ~~September~~June 30, ~~2003~~2004 and ~~September~~June 30, ~~2002~~2003, the Partnership was charged $~~127~~80,~~568~~242 and $~~124~~85,~~769~~ 046 respectively for technical services, accounting services, and supervisory services performed by the employees of the Managing General Partner and such charges are included in intangible development costs, production expenses and fees to Managing General Partner. These charges are allocated between the General and Limited Partners based upon applicable revenue and expense sharing rates.

4. Accounting Principles Adopted in 2003

On January 1, 2003, the Partnership adopted Statements of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations,” which addresses the financial accounting and reporting obligations and retirement costs related to the retirement of tangible long-lived assets. Among other things, SFAS No. 143 requires oil and gas companies to reflect asset retirement obligation liabilities on the face of the balance sheet at fair value on a discounted basis.

Consistent with industry practice, historically the Company had assumed the costs of plugging abandonment on its properties would be offset by salvage value received. SFAS 143 requires the Company to consider estimated salvage value in the calculation of depreciation, depletion and amortization. As a result of such implementation, a gain of $214,257 as cumulative effect adjustment of a change in accounting principle has been reflected in the Statement of Income for 2003.

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Management’s Discussion And Analysis Of Financial

Condition And Results Of Operations

~~September~~June 30, ~~2003~~2004

The Partnership’s approximate average price actually received per barrel of oil for the ~~third~~second quarter of ~~2003~~2004 was $2735.0873 as compared to $2527.6324 for the ~~third~~second quarter of ~~2002~~2003. The increased revenue and related severance tax expense result primarily from ~~such~~the increase in ~~average~~the ~~oil~~price ~~and~~of ~~gas prices~~oil. Gas sales, which represent 15-20% of total oil and gas sales, ~~also~~decreased ~~increased~~approximately 20% for this period. Gas sales are primarily short-term contracts which can vary widely from month to month.

Depreciation, depletion and amortization for the ~~third~~second quarter of ~~2003~~2004 was $3328,~~785~~634 as compared to $4833,~~877~~125 for the ~~third~~second quarter of ~~2002~~2003. Changes in depreciation and depletion for ~~2003~~2004 through ~~2002~~2003, are due primarily to ~~the~~normal ~~effect~~expected ~~that~~decline ~~changes~~ in oil and gas ~~prices have on the calculation of estimated future economically recoverable oil and gas reserves~~production.

The Partnership was formed with cash contributions from the Limited and General Partners. Management does not intend to incur any substantial indebtedness and any developmental drilling which is necessary will be processed by farmout to other parties or by reinvestment of internally generated funds. Management, therefore, anticipates no liquidity problems during the life of the Partnership.

Part II

Items 1 through 3

Omitted— - Not applicable to Registrant.

Item 4. Controls and Procedures

Based on an evaluation of the effectiveness of the Texland Drilling Program-1981 (the Partnership) disclosure controls and procedures, the Partnership’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Partnership’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Partnership in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

There have been no changes in the Partnership’s internal control over financial reporting identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

Item 5

Omitted— - Not applicable to Registrant.

Item 6

(a)

Exhibits:

31		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

Certification by CEO & CFO Pursuant to Rule 13a-14(a)/15d-14(a).

Certification by CEO & CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

(b)	Reports on Form 8-K:

~~None~~Item 9: Change in Registrant’s Certifying Accountant On January 13, 2004, the Registrant engaged Weinstein Spira & Company P.C. as it’s Independent auditors for the fiscal year ending December 31, 2003.

SIGNATURE

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.

TEXLAND DRILLING PROGRAM-1981, LTD. Registrant
TEXLAND DRILLING PROGRAM-1981, LTD.
By:	/s/ M. E. Chapman		Date November 13, 2003
Registrant
	M. E. Chapman, Vice President—Finance Texland Petroleum, L.P.
By	/s/ M. E. Chapman	.
	M. E. Chapman, Vice President - Finance
	Texland Petroleum, L.P.	Date August 17, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/ R. J. Schumacher		Date November 13, 2003
By	/s/ R. J. Schumacher
	R. J. Schumacher, Chairman of the Board Texland Petroleum, L.P.
	R. J. Schumacher, Chairman of the Board
	Texland Petroleum, L.P.	Date August 17, 2004
By	/s/ J. N. Namy
	J. N. Namy, President & C.E.O.
	Texland Petroleum, L.P.	Date August 17, 2004
By	/s/ J. H. Wilkes
	J. H. Wilkes, President & C.O.O.
	Texland Petroleum, L.P.	Date August 17, 2004

By:		/s/ J. N. Namy						Date November 13, 2003
		J. N. Namy, President & C.E.O. Texland Petroleum, L.P.

By:		/s/ J. H. Wilkes						Date November 13, 2003
		J. H. Wilkes, President & C.O.O. Texland Petroleum, L.P.

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Filing Compare · TEXLAND DRILLING PROGRAM 1981