SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter ended June 30, 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

(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 June 30, 2004 and December 31, 2003.		3

Statements of Operations for the Three Months And Six Months Ended June 30, 2004 and 2003.		4

Statement of Partners’ Capital at June 30, 2004.		5

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

June 30, 2004 and December 31, 2003

(Unaudited)


	06/30/04			12/31/03
ASSETS
Current Assets
Cash	$	71,008		$	52,124
Accounts receivable - trade		167,718			136,491
Accounts receivable - managing general partner		—			1,257

		238,726			189,872

Property and Equipment, at Cost (Successful Efforts Method)
Intangible development costs		7,359,986			7,346,495
Lease and well equipment		4,315,098			4,301,178
Producing leaseholds		161,495			161,495

		11,836,579			11,809,168
Accumulated depreciation, depletion and amortization		(10,234,915	)		(10,178,875	)

		1,601,664			1,630,293

Total Assets	$	1,840,390		$	1,820,165


LIABILITIES
Current Liabilities
Accounts payable - managing general partner	$	52,592		$	42,180

Total Current Liabilities		52,592			42,180

Asset retirement liability		179,125			172,235

Total Liabilities		231,717			214,415

PARTNERS’ CAPITAL
Limited partners - 2,425 units outstanding		1,151,315			1,160,236
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

June 30, 2004 and 2003

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
Revenue
Oil and gas sales	$	389,342	$	353,938	$	805,161	$	798,379
Interest income		118		190		224		327
Miscellaneous Income		—		—		—		—
Gain on sale of assets		—		88		—		2,827

		389,460		354,216		805,385		801,533

Expense
Fees to managing general partner		30,000		22,875		52,875		45,750
Production expense		115,455		130,417		233,886		231,490
Severance tax		19,566		18,201		42,010		43,082
Depreciation, depletion and amortization		28,634		33,125		56,039		66,030
Other		13,834		20,340		31,419		22,137
Accretion expense		3,445		3,189		6,890		6,379

		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	$	80,361	$	50,350	$	171,742	$	99,048
General partners		98,165		75,719		210,524		501,874

	$	178,526	$	126,069	$	382,266	$	600,922

Net Income per $5,000 Limited Partner (2,425 Units Outstanding)

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

Six Months Ended June 30, 2004

(Unaudited)


	Limited Partners			General Partners			Total
Balance at December 31, 2003	$	1,160,236		$	445,514		$	1,605,750
Partners’ distributions		(180,663	)		(212,600	)		(393,263	)
Partners’ contributions		—			13,920			13,920
Net income		171,742			210,524			382,266

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

Six Months Ended June 30, 2004 and 2003

(Unaudited)


Operating Activities
Net income	$	382,266		$	600,922

Adjustments to reconcile net income to net cash provided by operating activities:
Cumulative effect of change in accounting principle		—			(214,257	)
Accretion expense		6,890			6,379
Depreciation, depletion and amortization		56,039			66,030
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		—			—

		43,372			(128,874	)

Net cash provided by operating activities		425,638			472,048

Investing Activities
Acquisition of property and equipment		(27,411	)		(35,650	)
Proceeds from sale of assets		—			2,827

Net cash used in investing activities		(27,411	)		(32,823	)

Financing Activities
Partners’ contributions		13,920			12,669
Partners’ distributions		(393,263	)		(364,363	)

Net cash used in financing activities		(379,343	)		(351,694	)

Net Increase in Cash		18,884			87,531
Cash - beginning of year		52,124			36,199

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

June 30, 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

June 30, 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 six months ended June 30, 2004 and June 30, 2003, the Partnership was charged $80,242 and $85,046 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

June 30, 2004

The Partnership’s approximate average price actually received per barrel of oil for the second quarter of 2004 was $35.73 as compared to $27.24 for the second quarter of 2003. The increased revenue and related severance tax expense result primarily from the increase in the price of oil. Gas sales, which represent 15-20% of total oil and gas sales, decreased 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 second quarter of 2004 was $28,634 as compared to $33,125 for the second quarter of 2003. Changes in depreciation and depletion for 2004 through 2003, are due primarily to normal expected decline in oil and gas 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:

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:

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

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
	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

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TEXLAND DRILLING PROGRAM 1981 10-Q