SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 2-71865

TEXLAND DRILLING PROGRAM-1981, LTD.

(Exact Name of Registrant as Specified in its Partnership Agreement)

Texas

75-1791491

(State or Other Jurisdiction of

Incorporation or Organization)

(I. R. S. Employer

Identification No.)


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

(817) 336-2751

(Issuer’s Telephone Number, Including Area Code)

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


Title of each class		Name of each exchange on which registered
2425 Units of Limited Partnership Interest		None

Securities registered pursuant to Section 12(g) of the Exchange Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 of 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. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer, “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

PART I

Item 1. Business

Texland Drilling Program-1981, Ltd. (a Limited Partnership) was formed on July 20, 1981 with $12,125,000 in aggregate Limited Partnership subscriptions for the purpose of engaging in the exploration for oil and gas. Such exploration has taken place principally in the geological area known as the Texas Permian Basin. The Partnership’s drilling and exploration phase is complete. Development of the Partnership’s properties is also complete; except for possible occasional developmental drilling which may be undertaken to the extent necessary to insure the maximum commercial recovery of reserves. In 2008, the Partnership re-completed three developmental wells.

The Partnership has no plans to borrow funds or reinvest significant amounts of oil and gas revenues. To the extent that in-fill development is deemed advisable, however; such operations will be funded from available cash flow.

Sales to such purchasers are on a competitive basis on short-term contracts customarily used in the industry. Should sales to these purchasers become interrupted, management believes alternative purchasers would be immediately available on similar terms.

Purchasers, which accounted for 10% or more of the Partnership’s sales, were as follows:


	2008		2007		2006
BP America					42	%
Conoco Phillips	68	%	65	%	26	%
Sun Partners Marketing and Terminals, L.P.	15	%	17	%	18	%
Occidental Premium, Ltd.					13	%
Other	17	%	18	%	1	%

	100	%	100	%	100	%

Texland Petroleum, L.P. as the operator receives substantially all revenues directly from the purchasers and subsequently disburses these revenues to interest owners. Substantially all trade accounts receivable were due from Texland Petroleum, L.P. at December 31, 2008 and 2007.

The price of oil and gas is affected by world wide supply and demand beyond the Partnership’s control. The monthly average price during the past five years for West Texas Sour (adjusted for gravity and marketing costs), the primary type of Partnership oil, and for the widely available NYMEX benchmark West Texas Intermediate are as follows:


Year	WTS		NYMEX
2004	$	37.23	$	41.38
2005	$	50.33	$	56.56
2006	$	58.68	$	66.22
2007	$	64.77	$	72.39
2008	$	93.63	$	99.75

From January 1, 2009 to March 4, 2009, monthly average oil prices of WTS oil ranged from $30.38 to $33.21 and NYMEX ranged from $39.40 to $42.99.

- 2 -

Item 1A. Risk Factors

The primary factor affecting Partnership net income and cash distributions is the price of oil and gas. Partnership oil and gas is sold on short-term contracts whose prices fluctuate widely from month to month in response to a world wide supply and demand and geopolitical factors over which the Partnership has no control.

Texland Drilling Program-1981 LTD will not incur any debt and will not request funds from the Limited Partners. Therefore, the existing reserves will be produced and depleted until exhausted; or until the Partnerships properties are sold. Unless prices rise to offset this depletion, the Partners can anticipate declining future net income and cash distributions.

Our reserve estimates depend on many assumptions that may be inaccurate, which could materially adversely affect the quantities and value of our reserves. Future oil and gas prices, operating costs, developmental capital expenditures, state production taxes and abandonment costs, are such factors over which we have limited control and will likely vary from estimates; and these variations could materially affect the estimates of economically available quantities of oil and gas.

Increased governmental regulation and taxes imposed at the wellhead may increase in the future and could materially affect the cash distributions to the Partners.

Limited Partners have limited voting rights and therefore have limited ability to affect Partnership operations.

The Partnership can be terminated under certain circumstances. The General Partner may sell all of the assets of the Partnership and terminate the Partnership. The expiration of the Partnership term could cause the Partnership to be reformed as a nominee entity without limited liability protection.

Item 1B. Unresolved Staff Comments

None.

Item 2 - Properties

The Partnership currently has an interest in 286 active gross oil and gas wells, representing 22.04 net wells. Two of the gross wells and 0.45 of the net wells are gas wells and the remainder are oil wells.

The Partnership currently has 278 oil wells included in 8 different enhanced recovery projects operated by Texland Petroleum, L. P. Such enhanced recovery projects are designed to pressurize the oil bearing reservoirs and increase the producing rates, property life and overall ultimate recovery of oil.

The Partnership has interests in 21,087 gross and 1,756 net acres, all of which are fully developed. The Partnership has no plans to acquire any additional acreage.

Item 3 - Legal Proceedings

None.

Item 4 - Submission of Matters to a Vote of Security Holders

None.

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PART II

Item 5 - Market for Registrant’s Common Equity and Related Stockholder Matters

Omitted. Not applicable.

Item 6 - Selected Financial Data

The following table presents selected financial data for each of the past five years ended December 31, 2008. The data has been derived from the audited financial statements:

TEXLAND DRILLING PROGRAM – 1981, LTD.

SELECTED FINANCIAL INFORMATION

FOR THE YEAR ENDED DECEMBER 31,

STATEMENT OF INCOME:


	2008		2007		2006		2005		2004
Revenues	$	3,417,208	$	2,548,394	$	2,346,334	$	2,228,832	$	1,742,842

Net Income	$	1,979,358	$	1,312,050	$	1,284,051	$	1,248,156	$	868,821

Allocation of Net Income:
Limited Partners	$	984,323	$	635,346	$	627,418	$	599,288	$	410,104
General Partners		995,035		676,704		656,633		648,868		458,717

	$	1,979,358	$	1,312,050	$	1,284,051	$	1,248,156	$	868,821

Net Income per $5,000
Limited Partner Units (2,425 Units Outstanding)	$	406	$	262	$	259	$	247	$	169


BALANCE SHEET DATA:
Total Assets	$	2,230,268	$	2,386,426	$	2,211,240	$	2,091,047	$	1,852,199

Total Liabilities	$	686,790	$	498,727	$	416,659	$	415,921	$	243,963

Partners’ Equity	$	1,543,478	$	1,887,699	$	1,794,581	$	1,675,126	$	1,608,236

PARTNERSHIP CASH DISTRIBUTIONS
Limited Partner (per $5,000 unit)	$	495	$	221	$	240	$	234	$	170
General Partner	$	1,178,600	$	728,000	$	778,600	$	665,700	$	480,100

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Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Risk Factors and Cautionary Statement for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995

Certain information included in Items 1 and Items 7 of this report contains certain statements that may constitute forward-looking statements within the meaning of Securities and Exchange regulations. Such forward-looking statements are based upon the current expectations of Texland Drilling Program-1981, Ltd. and speak only as of the date made.

Where any forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, we caution that while we believe these assumptions or bases to be reasonable and to be made in good faith, assumed facts or bases almost always vary from actual results and the difference between assumed facts or bases and the actual results could be material, depending on the circumstances.

Factors that could cause our results to differ materially from the results discussed in such forward-looking statements include, but are not limited to, the following: production variance from expectations, volatility of oil and gas prices, the need to further develop reserves, the substantial capital expenditures required to fund operations, development risks, environmental risks, uncertainties about estimates of reserves, litigation, government regulation, political risks, costs and results of developmental drilling, and mechanical and other inherent risks associated with oil and gas production. All such forward-looking statements in this document are expressly qualified in their entirety by the cautionary statements in this paragraph, and the Partnership undertakes no obligation to publicly update or revise any forward-looking statements.

Critical Accounting Policies and Estimates

The Partnership’s discussion and analysis of its financial condition and results of operations are based upon financial statements which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires the Partnership to make estimates and judgments that affect the amounts reported in the financial statements and related footnote disclosures. Application of certain of the Partnership’s accounting policies, including those related to oil and gas revenues, oil and gas properties, asset retirement obligations, and litigation require significant estimates. The Partnership bases its estimates on historical experience and various assumptions that are believed reasonable under the circumstances. Actual results may differ from these estimates. The Partnership believes the following critical accounting policies reflect its more significant judgments and estimates used in the preparation of its financial statements.

Property, Plant and Equipment

Proved reserves are defined by the U.S. Securities and Exchange Commission (“SEC”) as those volumes of crude oil, condensate, natural gas liquids and natural gas that geological and engineering data demonstrate with reasonable certainty are recoverable from known reservoirs under existing economic and operating conditions. Proved developed reserves are volumes expected to be recovered through existing wells with existing equipment and operating methods. Although the Managing General Partner’s engineers are knowledgeable of and follow the guidelines for reserves established by the SEC, the estimation of reserves requires a significant number of assumptions based on professional judgment. Reserve estimates are updated at least annually and consider recent production levels and other technical information. Estimated reserves are often subject to future revision, which could be substantial, based on the availability of additional information. Changes in oil and gas prices can lead to substantial revisions to reserve quantities.

Reserve revisions in turn may cause adjustments in the units-of-production depreciation and depletion rates, the estimates of potential impairment of carrying value, and the supplemental disclosure of standardized measure of discounted future net cash flows relating to oil and gas producing activities. The Partnership cannot predict what reserve revisions may be required in future periods.

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Asset Retirement Obligations

The Partnership has material obligations to remove tangible equipment and restore land at the end of oil and gas production operations. The Partnership’s removal and restoration obligations are primarily associated with plugging and abandoning onshore wells. Estimating the future asset removal costs is difficult and requires management to make estimates and judgments because most of the removal obligations are many years in the future and contracts and regulations often have vague descriptions of what constitutes removal. Asset removal costs are constantly changing, as well as related regulatory, political, environmental, and safety considerations.

Asset retirement obligations are not unique to the Partnership or to the oil and gas industry; accordingly, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations,” (“SFAS 143”). The Partnership adopted this statement effective January 1, 2003. SFAS 143 significantly changed the method of accruing for costs an entity is legally obligated to incur related to the retirement of fixed assets (“asset retirement obligations” or “ARO”). Primarily, the new statement requires the Partnership to record a separate liability for the discounted present value of the Partnership’s asset retirement obligations, with an offsetting increase to the related oil and gas properties on the Partnership’s Balance Sheet.

Inherent in the present value calculation are numerous assumptions and judgments including the ultimate retirement costs, inflation factors, credit adjusted discount rates, timing of retirement, and changes in the legal and regulatory environments. To the extent future revisions to these assumptions impact the present value of the existing ARO liability, a corresponding adjustment is made to the oil and gas property balance. In addition, increases in the discounted ARO liability resulting from the passage of time will be reflected as accretion expense in the Statement of Income.

SFAS 143 required a cumulative adjustment to reflect the impact of implementing the statement had the rule been in effect since inception. The Partnership, therefore, calculated the cumulative accretion expense on the ARO liability and the cumulative depletion expense on the corresponding property balance to determine the impact of adopting this standard.

Financial Results

Oil sales increased by 36% and gas sales increased by 13% in 2008 as compared to 2007. The average price of Partnership oil increased by approximately 37% in 2008. The price of gas sold by the Partnership in 2008, which represents approximately 7% of total sales, increased by approximately 6% in 2008. Gas volumes decreased by 13% in 2008 as compared to 2007.

Oil sales increased by 15% and gas sales decreased by 29% in 2007 as compared to 2006. The average price of Partnership oil increased by approximately 5% in 2007. The price of gas sold by the Partnership in 2007, which represents approximately 9% of total sales, decreased by approximately 2% in 2007. Gas volumes decreased by 28% in 2007 as compared to 2006 primarily due to a decrease in the Partnership’s interest in the Partnership’s two major gas wells as a result of contractual provisions.

Oil sales increased by 13% and gas sales decreased by 27% in 2006 as compared to 2005. The average price of Partnership oil increased by approximately 16% in 2006. The price of gas sold by the Partnership in 2006, which represents approximately 14% of total sales, decreased by approximately 18% in 2006. Gas volume sales decreased by 11% in 2006 as compared to 2005 primarily due to a decrease in the Partnership’s interest in the Partnership’s two major gas wells as a result of contractual provisions.

In addition, normal and expected declines were experienced in the production of existing oil and gas wells in 2008, 2007 and 2006. These declines were somewhat offset by increased production from in-fill developmental oil wells drilled during 2008, 2007 and 2006.

Fees to the managing general partner remained constant in 2008 as compared to 2007. They decreased by 13% in 2006, due to discretionary changes in fees charged by the General Partner. Such changes are within the allowable fees specified by the provisions of the Partnership Agreement.

- 6 -

Depreciation, depletion and amortization are calculated on the units-of-production method. Therefore, changes in these amounts are affected by upward or downward revisions in future oil and gas reserve estimates. In addition, such revisions are also caused by changes in current prices of oil and gas, which correspondingly affect the number of future years that oil and gas properties will remain economically viable.

Depreciation, depletion and amortization for 2008, 2007, and 2006 were $193,998, $148,415 and $142,225. Changes in depreciation, depletion and amortization for the period 2006 through 2008, were due primarily to the effect that changes in oil and gas prices have on the calculation of estimated future economically recoverable oil and gas reserves; and due to normal expected declines in the recoverable reserves due to production.

On January 1, 2003, the Partnership adopted Statements of Financial Accounting Standard 143, “Accounting for Asset Retirement Obligations”. Accretion expense of $37,966, $29,721 and $28,102, respectively, was recorded for 2008, 2007, and 2006.

Production expenses increased by approximately 13% in 2008 as compared to 2007 due to a significant increase in ad valorem taxes and an increase in the cost of oil field services. Production expenses increased by approximately 24% in 2007 as compared to 2006 due to a significant increase in workover activity.

Changes in oil prices substantially impact the net income and cash flow of the Partnership. All oil produced by the Partnership is sold under short term contracts that are immediately affected by changes in oil prices. Since 1981, world oil supply and demand conditions and other factors have caused prices to rise and decline in an essentially unpredictable manner. It is not possible to predict whether the recent dramatic volatility in oil prices will continue for the near or long term.

Texland Drilling Program-1981, Ltd. has substantially completed all the exploration and development on the oil and gas properties in which it has an interest. No long-term debt will be incurred and no new properties will be acquired. Therefore, no future liquidity problems are anticipated by the Partnership.

Off-Balance Sheet Arrangements

The Partnership does not have any off-balance sheet arrangements.

Item 7A - Quantitative and Qualitative Disclosure about Market Risk.

The Partnership has no derivative instruments.

Item 8 - Financial Statements and Supplementary Data:

See Index to Financial Statements on Page 13 of this report.

Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.

None.

Item 9A - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We use certain internal controls and procedures to help ensure that information we are required to disclose in reports that we file with the SEC is accurately accumulated, reported and communicated to our management. As of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) were evaluated by management and based upon such evaluation have concluded that our disclosure controls and procedures are effective, as of the end of the period covered by this Annual Report on Form 10-K, for their intended purposes.

- 7 -

Changes in Internal Control Over Financial Reporting

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our internal control over financial reporting to determine whether any changes occurred during the fourth quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there were no changes in our internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with existing policies or procedures may deteriorate.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an assessment of our internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, our management has concluded that, as of December 31, 2008, our internal control over financial reporting was effective.

PART III

Item 10 - Directors, Executive Officers and Corporate Governance of the Registrant

The Partnership has no officers, employees or directors. The background of the General Partners is as follows:

R. J. Schumacher - Age 79, Vice President and Co-Owner of Texland Petroleum, L.P. since May, 1967, has been an independent oil operator involved in drilling and producing operations and the financing of oil and gas prospects, principally in West Texas, Oklahoma and Arkansas. He has served as an executive officer with Texland since its incorporation. For more than ten years prior to becoming an independent oil operator, Mr. Schumacher was the chief financial officer, contract drilling manager and land supervisor for an independent oil and gas drilling contractor and operator. He received a Bachelor of Science in Commerce degree from Texas Christian University in 1950 and a Master in Professional Accounting degree from the University of Texas in 1951.

J. N. Namy - Age 70, President and Chief Executive Officer of Texland Petroleum, L.P., was employed by Texland as a geologist in June 1978. From 1967 to 1970 he was employed by Pan American Petroleum Corp. in the Fort Worth Division. From 1970 to 1978 he taught at Baylor University achieving the rank of Associate Professor. During this time, he served as a consultant for several independent petroleum companies working on exploration and development projects in the Eastern Shelf and the Permian Basin of West Texas and New Mexico, as well as the southern Rockies of New Mexico and Colorado. He received his Bachelor and Master degrees from Western Reserve University in Cleveland, Ohio and his Ph. D. degree from the University of Texas at Austin in 1969. Mr. Namy is a member of the American Association of Petroleum Geologists, Geological Society of America and the Society of Economic Paleontologists and Mineralogists.

J. H. Wilkes - Age 53 President and Chief Operating Officer of Texland Petroleum, L.P., was employed by Texland as a reservoir engineer in August 1984. From 1978 to 1984, he was employed by Sun Exploration and Production Company in Midland and Abilene, Texas. The first three years he served as a production engineer and for the remaining three years he served as a reservoir engineer. He received a Bachelor of Science degree in Petroleum Engineering from Texas A&M University in 1978. He is a member of the Society of Petroleum Engineers, A.I.M.E. and is a registered professional engineer in Texas.

The Partnership has not adopted a formal code of ethics.

- 8 -

Item 11 - Executive Compensation

See Item 13 of this report for information with respect to payments to the Managing General Partner.

Item 12 - Security Ownership of Certain Beneficial Owners and Management

Omitted. Not applicable to Registrant.

Item 13 - Certain Relationships and Related Transactions

Contributions by General Partners

Under terms of the Partnership agreement, Texland Properties - 1981 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. In addition, Texland Properties - 1981 and Texland Petroleum, L.P. currently hold 41.27 units and 12 units, respectively. These investments as a limited partner are reported with other limited partners’ capital in the accompanying financial statements.

Payments to Managing General Partner

The Partnership was charged $229,025 $186,118 and $180,585 in 2008, 2007 and 2006, respectively, for technical and accounting services performed by employees of the managing general partner. These charges are included in intangible development costs, production expenses and fees to managing general partner.

Item 14 - Principal Accountant Fees and Services

Weaver and Tidwell L.L.P. was engaged to perform audit services only.

The following table sets forth the aggregate fees for professional services rendered to Texland Drilling Program-1981, Ltd. for the years 2008, 2007 and 2006 by the accounting firm Weaver and Tidwell, LLP


Type of Fee	2008	2007	2006
Audit	26,500	23,700	20,700

The General Partners of Texland Drilling Program-1981, Ltd. fulfill the responsibilities of an audit committee and have established policies and procedures for the approval of audit services and permitted non-audit services. The General Partners approved the engagement of Weaver and Tidwell L.L.P. for the performance of audit services for the years 2008, 2007, and 2006.

- 9 -

Item 15 - Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)1 and (a)2 Financial Statement and Financial Statement Schedules

See Index to Financial Statements on Page 13 of this report.

(a)3 Item 601 (Reg. S-K) Exhibits:

None.

(a) Exhibits:


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

(32)		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.

(d) Other Financial Statements and Financial Statement Schedules:

Not applicable.

- 10 -

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 March 30, 2009

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, Vice President
	Texland Petroleum, L.P.		Date March 30, 2009

By	/s/ J. N. Namy	.
	J. N. Namy, President & C.E.O.
	Texland Petroleum, L.P.		Date March 30, 2009

By	/s/ J. H. Wilkes	.
	J. H. Wilkes, President & C.O.O.
	Texland Petroleum, L.P.		Date March 30, 2009

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Texland Drilling Program-1981, LTD.

Fort Worth, Texas

Annual Financial Report

December 31, 2008

Texland Drilling Program-1981 (A Limited Partnership)

Table of Contents


Report of Independent Registered Public Accounting Firm		15

Balance Sheets		16

Statements of Income		17

Statements of Partners’ Capital		18

Statements of Cash Flows		19

Notes to Financial Statements		20

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners

Texland Drilling Program-1981, Ltd.

Fort Worth, Texas

We have audited the accompanying balance sheets of Texland Drilling Program-1981, Ltd. (the Partnership) as of December 31, 2008 and 2007, and the related statements of income, partners’ capital and cash flows for each of the three years ended December 31, 2008, 2007, and 2006. The Partnership’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Texland Drilling Program-1981, Ltd. as of December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the three years ended December 31, 2008, 2007, and 2006 in conformity with accounting principles generally accepted in the United States of America.

WEAVER AND TIDWELL, L.L.P.

Fort Worth, Texas

March 30, 2009

Texland Drilling Program-1981, Ltd. (A Limited Partnership)

Balance Sheets

December 31, 2008 and 2007


	2008		2007
ASSETS
Current Assets
Cash and cash equivalents	$	20,345	$	141,479
Accounts receivable:
Trade		122,577		255,303

Total Current Assets		142,922		396,782


Property and Equipment (Successful Efforts Method)
Intangible development costs		7,828,324		7,727,462
Lease and well equipment		4,977,953		4,787,115
Producing leaseholds		161,495		161,495

		12,967,772		12,676,072
Less: Accumulated depreciation and depletion		10,880,426		10,686,428

		2,087,346		1,989,644

Total Assets	$	2,230,268	$	2,386,426


LIABILITIES

Current Liabilities
Accounts payable - Managing General Partner	$	82,932	$	68,762

Total Current Liabilities		82,932		68,762
Asset Retirement Liability		603,858		429,965

Total Liabilities		686,790		498,727

PARTNERS’ CAPITAL
Limited Partners - 2,425 units outstanding		1,120,413		1,335,980
General Partners		423,065		551,719

		1,543,478		1,887,699

Total Liabilities and Partners’ Capital	$	2,230,268	$	2,386,426

See accompanying notes to financial statements.

Texland Drilling Program-1981, Ltd. (A Limited Partnership)

Statements of Income

For the Years Ended December 31, 2008, 2007, and 2006


	2008		2007		2006
Revenue
Oil and gas sales	$	3,416,348	$	2,547,053	$	2,344,576
Interest income		860		1,341		1,758

		3,417,208		2,548,394		2,346,334


Operating Expenses
Production expense		882,940		783,499		628,192
Depreciation, depletion and amortization		193,998		148,415		142,225
Fees to Managing General Partner		104,700		104,700		104,700
Severance tax		164,476		123,673		117,047
Other		53,770		46,336		42,017
Accretion expense		37,966		29,721		28,102

		1,437,850		1,236,344		1,062,283

Net Income	$	1,979,358	$	1,312,050	$	1,284,051


Allocation of Net Income
Limited partners		984,323		635,346		627,418
General partners		995,035		676,704		656,633

	$	1,979,358	$	1,312,050	$	1,284,051

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

Net income per limited partner unit	$	406	$	262	$	259

See accompanying notes to financial statements.

Texland Drilling Program-1981, Ltd. (A Limited Partnership)

Statements of Partners’ Capital

For the Years Ended December 31, 2008, 2007 and 2006


	Limited Partner			General Partner			Total
Balance at December 31, 2005		1,191,140			483,986			1,675,126

Partners’ Distributions		(582,000	)		(778,600	)		(1,360,600	)
Partners’ Contributions					196,004			196,004
Net income		627,419			656,632			1,284,051


Balance at December 31, 2006		1,236,559			558,022			1,794,581

Partners’ Distributions		(535,925	)		(728,000	)		(1,263,925	)
Partners’ Contributions					44,993			44,993
Net income		635,346			676,704			1,312,050


Balance at December 31, 2007		1,335,980			551,719			1,887,699

Partners’ Distributions		(1,199,890	)		(1,178,600	)		(2,378,490	)
Partners’ Contributions					54,911			54,911
Net income		984,323			995,035			1,979,358

Balance at December 31, 2008	$	1,120,413		$	423,065		$	1,543,478

See accompanying notes to financial statements.

Texland Drilling Program-1981, Ltd. (A Limited Partnership)

Statements of Cash Flows

For the Years Ended December 31, 2008, 2007, and 2006


	2008			2007			2006
Cash Flows From Operating Activities
Net income	$	1,979,358		$	1,312,050		$	1,284,051
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion expense		37,966			29,721			28,102
Depreciation, depletion and amortization		193,998			148,415			142,225
(Increase) Decrease in accounts receivable		132,726			(68,159	)		64,367
Increase (Decrease) in accounts payable		14,170			17,673			(13,550	)


Net Cash Provided by Operating Activities		2,358,218			1,439,700			1,505,195


Cash Flows From Investing Activities
Acquisition of property and equipment		(155,773	)		(130,031	)		(436,513	)


Net Cash Used in Investing Activities		(155,773	)		(130,031	)		(436,513	)


Cash Flows From Financing Activities
Partners’ contributions		54,911			44,993			196,004
Partners’ distributions		(2,378,490	)		(1,263,925	)		(1,360,600	)


Net Cash Used in Financing Activities		(2,323,579	)		(1,218,932	)		(1,164,596	)


Net Change in Cash and Cash Equivalents		(121,134	)		90,737			(95,914	)

Cash and Cash Equivalents - Beginning of Year		141,479			50,742			146,656


Cash and Cash Equivalents - End of Year	$	20,345		$	141,479		$	50,742


Non Cash Disclosure
ARO Revision	$	135,927		$	33,357		$	(20,582	)

See accompanying notes to financial statements.

Texland Drilling Program-1981, Ltd. (A Limited Partnership)

Notes to Financial Statements

1.	Organization and Summary of Significant Accounting Policies

Texland Drilling Program - 1981, Ltd. (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. Partnership operations are conducted predominately in West Texas.

The Partnership shall continue in existence, unless terminated sooner through the occurrence of a final terminating event as defined by the Partnership agreement, until December 31, 2009, as extended through approval by the limited partners owning a majority of aggregate Partnership subscriptions.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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 reported revenues and expenses during the reporting period. Actual results could differ from those estimates. The estimation of oil and gas reserves is inherently imprecise and may change materially in the near term.

Basis of Accounting

The Partnership maintains its financial records on the income tax basis. The financial statements are presented in accordance with accounting principles generally accepted in the United States of America. The primary differences in accounting methods are identified in Note 8.

Revenue Recognition

Revenues associated with the production of oil and gas properties, in which we have an interest, are based on volumes produced during the period.

Property and Equipment

The Partnership uses the successful efforts method of accounting for oil and gas producing activities. Costs incurred for the acquisition of producing and non-producing 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 to carry unproved properties and geophysical costs are expensed. Costs associated with uncompleted wells are capitalized as wells-in-progress.

On the sale or retirement of a complete unit of a proved property, the cost and the related accumulated depreciation, depletion, and amortization are eliminated from the property accounts, and the resultant gain or loss is recognized. On the retirement or sale of a partial unit of proved property, the cost is charged to accumulated depreciation, depletion, and amortization with a resulting gain or loss recognized in income.

Texland Drilling Program-1981, Ltd. (A Limited Partnership)

Notes to Financial Statements

Impairment of Oil and Gas Properties

The Partnership reviews its proved oil and gas properties for impairment on an annual basis or whenever events and circumstances indicate a potential decline in the recoverability of their carrying value. The Partnership compares expected undiscounted future net cash flows on a cost center basis to the unamortized capitalized cost of the asset. If the future undiscounted net cash flows, based on the Partnership‘s estimate of future oil and natural gas prices and operating costs and anticipated production from proved reserves, are lower than the unamortized capitalized cost, then the capitalized cost is reduced to fair market value.

The factors used to determine fair value include, but are not limited to, estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures. The Partnership has no unproven properties.

Given the complexities associated with oil and gas reserve estimates and the history of price volatility in the oil and gas markets, events may arise that will require the Partnership to record an impairment of its oil and gas properties and there can be no assurance that such impairments will not be required in the future nor that they will not be material.

No impairment has been recorded as a result of these reviews.

Non-producing Leaseholds

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

Amortization and Depletion

Leasehold costs of producing properties are amortized on the unit-of-production method based on proved oil and gas reserves as estimated by the Partnership. 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 the unit-of-production method based on estimated proved developed oil and gas reserves.

Income Taxes

Income taxes have not been provided for by the Partnership, because the partners are liable for taxes on their respective shares of the Partnership’s taxable income. Beginning January 1, 2007, the Partnership is subject to the Texas Margin Tax. However, no margin tax was due for 2007 or 2008.

In July, 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of SFAS 109” (“FIN 48”). This interpretation clarifies the application of SFAS 109 by defining the criterion that an individual tax position must meet for any part of the benefit of that

Texland Drilling Program-1981, Ltd. (A Limited Partnership)

Notes to Financial Statements

position to be recognized in an entity’s financial statements and also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, and disclosure. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Partnership adopted the provisions of FIN 48 on January 1, 2007. The adoption of this standard did not have a material impact on the Partnership’s financial statements. No liabilities or assets have been recognized as a result of the implementation of Interpretation 48.

The Partnership’s income is passed through and paid at the partner level on a federal basis. The tax years 2005 to 2008 remain open to examination by the major taxing jurisdictions in which the partners are subject to tax.

Statement of Cash Flows

For purposes of these statements, the Partnership considers cash on deposits and highly liquid money market funds as cash and cash equivalents.

Net Income Allocation

Revenues and costs of the Partnership are allocated between the general and limited partners in accordance with the Partnership agreement.

Fair Values of Financial Instruments

The Partnership’s financial instruments consist of cash, accounts receivable and accounts payable. The carrying amount of each of these financial instruments reported in the accompanying statements of financial position approximates the instruments fair value.

2.	Costs Incurred in Oil and Gas Producing Activities

The following summarizes the Partnership’s costs incurred in its oil and gas activities, all of which were conducted within the United States, for the years ended December 31:


	Lease Acquisition Costs		Development Costs
	Expensed	Capitalized	Expensed		Capitalized
2008			$	—	$	155,773
2007				—		130,031
2006				424		430,543

3. Acquisition of Non-producing Properties

The Partnership acquired working interests in certain oil and gas properties through assignments from other Texland Drilling Program partnerships. These acquisitions involved no cost to the Partnership and are subject to retained nonworking interests by the assignor. Upon payout of these properties, the assignor has an option to convert the retained nonworking interest to a working interest.

Texland Drilling Program-1981, Ltd. (A Limited Partnership)

Notes to Financial Statements

4.	Contributions by General Partners

5.	Payments to Managing General Partner

The Partnership was charged $199,018, $186,118 and $180,585 in 2008, 2007 and 2006, respectively, for technical and accounting services performed by employees of the managing general partner. These charges are included in intangible development costs, production expenses and fees to managing general partner.

Supervisory fees charged to the Partnership by the managing general partner for drilling and operating the partnership wells were $229,025, $211,324 and $194,876 in 2008, 2007 and 2006, respectively, and are included in intangible development costs and production expenses. These charges are allocated between the general and limited partners based upon applicable revenue and expense sharing rates.

6.	Major Purchasers

Purchasers, which accounted for 10% or more of the Partnership’s sales, were as follows:


	2008		2007		2006
BP America	—		—		42	%
Conoco Phillips	68	%	65	%	26	%
Sun Partners Marketing and Terminals, L.P.	15	%	17	%	18	%
Occidental Premium, Ltd.	—		—		13	%
Other	17	%	18	%	1	%

	100	%	100	%	100	%

Texland Petroleum, L.P. receives substantially all revenues directly from the purchasers and subsequently disburses these revenues to interest owners. Substantially all trade accounts receivable were due from Texland Petroleum, L.P. at December 31, 2008, 2007 and 2006 for oil and gas sales to the above purchasers. Based on past experience, it is believed that all receivables are collectible.

7.	Asset Retirement Obligations

On January 1, 2003, the Partnership adopted Statement 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.

Texland Drilling Program-1981, Ltd. (A Limited Partnership)

Notes to Financial Statements

Consistent with industry practice, historically the Partnership had assumed the costs of plugging abandonment on its properties would be offset by salvage value received. SFAS 143 requires the Partnership to consider estimated salvage value in the calculation of depreciation, depletion and amortization. The general partner has received the benefit of the change in asset salvage value while the asset retirement obligation was allocated based on income allocation. The Partnership has no material assets that are legally restricted for purposes of settling its asset retirement obligation liabilities.

The following table describes the changes in the Partnership’s asset retirement obligations for the years ended 2008, 2007 and 2006:


	2008		2007			2006
Asset retirement obligation, beginning of year	$	429,965	$	365,570		$	351,282
Liability incurred during the period		—		2,758			6,768
Liabilities settled during the period		—		(1,441	)		—
Revision in estimated cash flows		135,927		33,357			(20,582	)
Accretion expense		37,966		29,721			28,102

Asset retirement obligation, end of year	$	603,858	$	429,965		$	365,570

The estimate of the asset retirement obligations may change materially in the near term.

Texland Drilling Program-1981, Ltd. (A Limited Partnership)

Notes to Financial Statements

8.	Reconciliation of Book-Tax Reporting Differences

Although the Partnership’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, its books and records are maintained on the basis of accounting used for federal income tax purposes. The following information is presented to assist the limited partners in reconciling the tax information provided to the information provided in these financial statements.


	Limited Partners			General Partners			Total
Net Income Differences for 2008:
Net income for financial reporting purposes	$	984,323		$	995,035		$	1,979,358


Expenses for federal income tax purposes, capitalized for financial reporting purposes		(100,861	)					(100,861	)

Excess (Deficiency) of depreciation, depletion and amortization expense for financial reporting purposes over amounts for federal income tax purposes		117,525			4,827			122,352

Additional income (loss) for federal income tax purposes


Net income for federal income tax purposes	$	1,000,987		$	999,862		$	2,000,849


Partners’ Capital Differences:
Partners’ capital at December 31, 2008, for financial reporting purposes	$	1,120,413		$	423,065		$	1,543,478

Additional income (loss) for federal income tax purposes:
2008		16,664			4,827			21,491
2007		17,544			(22,948	)		(5,404	)
2006		(142,878	)		(1,100	)		(143,978	)
2005		54,177			(4,144	)		50,033
2004		46,793			(10,423	)		36,370
2003		131,934			(303,210	)		(171,276	)
2002		22,693			(7,866	)		14,827
2001		(1,649	)		37,048			35,399
2000		71,096			19,652			90,748
1999		96,076			20,149			116,225
1998 and prior		(284,369	)		56,404			(227,965	)
Investment tax credit basis reduction not recognized for financial reporting purposes					(38,802	)		(38,802	)


Partners’ capital December 31, 2008, for federal income tax purposes	$	1,148,494		$	172,652		$	1,321,146

Texland Drilling Program-1981, Ltd. (A Limited Partnership)

Notes to Financial Statements

9.	Supplemental Oil and Gas Information (Unaudited)

Proved Oil and Gas Reserves

The following table summarizes the Partnership’s net ownership interests in estimated quantities of proved oil and gas reserves and changes in net proved reserves, all of which are located in the continental United States. All proved reserves are classified as proved developed.


	For the Years Ended December 31,
	2008				2007				2006
	Oil (Mbbls)		Gas (Mmcf)		Oil (Mbbls)		Gas (Mmcf)		Oil (Mbbls)		Gas (Mmcf)
Net proved reserves at beginning of year	329		854		304		1,252		357		1,014
Production	(34	)	(52	)	(35	)	(60	)	(33	)	(88	)
Extensions and discoveries	—		—		—		—		—		—
Revisions	(20	)	(6	)	60		(338	)	(20	)	326

Net proved reserves at end of year	275		796		329		854		304		1,252

There are numerous uncertainties in estimating quantities of proved reserves believed to have been discovered and in projecting future rates of production and the timing of development expenditures, including many factors beyond the control of the Partnership. The reserve data set forth in this document are only estimates. Reserve estimates are inherently imprecise and may be expected to change as additional information becomes available. Furthermore, estimates of oil and natural gas reserves, of necessity, are projections based on engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures. Reservoir engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured exactly, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Accordingly, estimates of the economically recoverable quantities of oil and natural gas attributable to any particular group of properties, classifications of such reserves based on risk of recovery and estimates of the future net cash flows expected therefrom prepared by different engineers or by the same engineers at different times may vary substantially. There also can be no assurance that the reserves set forth herein will ultimately be produced. It is possible that variances from the estimates will be material.

Standardized Measure of Discounted Future Net Cash Flows

The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A federal income tax provision has not been calculated as the income of the Partnership is included in the individual federal income tax returns of the respective partners.

Texland Drilling Program-1981, Ltd. (A Limited Partnership)

Notes to Financial Statements

Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.

The following table summarizes the Partnership’s standardized measure of discounted future net cash flows of its ownership interests in proved oil and gas reserves and changes in the standardized measure of discounted future net cash flows:


	2008			2007			2006
	(in thousands)
Future cash inflows	$	12,359		$	30,910		$	20,117
Future production cost		(6,730	)		(9,138	)		(7,070	)
Future development cost		—			—			—

		5,629			21,772			13,047
10% annual discount factor		(2,458	)		(10,300	)		(6,194	)


Standardized measure of discounted future net cash flows	$	3,171		$	11,472		$	6,853

The following table summarizes the changes in the Partnership’s standardized measure of discounted future net cash flows:


	2008			2007			2006
	(in thousands)
Oil and gas sales, net of production costs	$	(2,369	)	$	(1,639	)	$	(1,600	)
Net change in prices and production costs		(7,812	)		5,629			(2,229	)
Extensions and discoveries		0			0			0
Revisions of previous quantity estimates		(287	)		228			879
Changes in production rates, timing and other		1,020			(284	)		(736	)
Change in development costs		0			0			341
Accretion of discount		1,147			685			927

Change in present value of future net revenues		(8,301	)		4,619			(2,418	)
Balance, beginning of year		11,472			6,853			9,271

Balance, end of year	$	3,171		$	11,472		$	6,853

Texland Drilling Program-1981, Ltd. (A Limited Partnership)

Notes to Financial Statements

10.

Supplemental Oil and Gas Information (Unaudited)

The following is a summary of the quarterly results of operations for the years ended December 31, 2008 and 2007:


	First Quarter 2008		Second Quarter 2008		Third Quarter 2008		Fourth Quarter 2008
Fiscal 2008 Quarters
Revenues	$	833,466	$	1,032,609	$	1,048,616	$	502,517
Expenses		298,023		362,584		358,163		419,080

Net Income		535,443		670,025		690,453		83,437

Limited Partners		267,997		329,736		321,049		65,541
General Partner		267,446		340,289		369,404		17,896

		535,443		670,025		690,453		83,437

Net Income per Limited Partner unit	$	110.51	$	135.97	$	132.39	$	27.03


	First Quarter 2007		Second Quarter 2007		Third Quarter 2007		Fourth Quarter 2007
Fiscal 2007 Quarters
Revenues	$	508,636	$	562,306	$	739,536	$	737,916
Expenses		256,366		315,271		359,161		305,546

Net Income		252,270		247,035		380,375		432,370

Limited Partners		114,607		117,424		187,274		216,041
General Partner		137,663		129,611		193,101		216,329

		252,270		247,035		380,375		432,370

Net Income per Limited Partner unit	$	47.26	$	48.42	$	77.23	$	89.09

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

TEXLAND DRILLING PROGRAM 1981 10-K