----

| Delaware                                                 |   | 75-2220418                         |
|----------------------------------------------------------|--------|------------------------------------|
| (State                or other jurisdiction              |   | (I.R.S.                Employer    |
| of                incorporation or organization)         |   | Identification                No.) |
|                                                     |   |                               |
| 6                Desta Drive, Suite 6500, Midland, Texas |   | 79705                              |
| (Address                of principal executive office)   |   | (Zip                Code)          |

| Indicate                by check mark if the registrant is a well-known seasoned issuer,                as                defined in Rule 405 of the Securities Act.                                                                                                                                                                                                                                                                                                             | ¨                Yes | x                No      |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|--------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                      |                     |
| Indicate                by check mark if the registrant is not required to file reports pursuant                to Section 13 or Section 15(d) of the Act.                                                                                                                                                                                                                                                                                                                       | ¨                Yes | x                No      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                      |                     |
| 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. | x                Yes      | ¨                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. See definition of                “accelerated filer and large accelerated filer” in Rule 12b-2 of the                Exchange Act. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Large                accelerated filer ¨                                                                                                                                                                                                                                                                             |   | Accelerated                filer ¨  |   | Non-accelerated                filer x |

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

----

**Table      of Contents**

|                                                            |                                                                                                    | **Page** |
|-----------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|----------|
| **Part                I**                                       |                                                                                                    |     |
| Item                1.                                          | Business                                                                                                | 3        |
|                                                            |                                                                                                    |     |
| Item                1A.                                         | Risk                Factors                                                                             | 6        |
|                                                            |                                                                                                    |     |
| Item                1B.                                         | Unresolved                Staff Comments                                                                | 7        |
|                                                            |                                                                                                    |     |
| Item                2.                                          | Properties                                                                                              | 8        |
|                                                            |                                                                                                    |     |
| Item                3.                                          | Legal                Proceedings                                                                        | 9        |
|                                                            |                                                                                                    |     |
| Item                4.                                          | Submission                of Matters to a Vote of Security                Holders                       | 9        |
|                                                            |                                                                                                    |     |
| **Part                II**                                      |                                                                                                    |     |
| Item                5.                                          | Market                for Registrant's Common Equity,                Related                            |     |
|                                                            | Stockholder                Matters and Issuer Purchases of Equity                Securities             | 10       |
|                                                            |                                                                                                    |     |
| Item                6.                                          | Selected                Financial Data                                                                  | 11       |
|                                                            |                                                                                                    |     |
| Item                7.                                          | Management's                Discussion and Analysis of                                                  |     |
|                                                            | Financial                Condition and Results of                Operations                             | 12       |
|                                                            |                                                                                                    |     |
| Item                7A.                                         | Quantitative                and Qualitative Disclosures About Market                Risk                | 14       |
|                                                            |                                                                                                    |     |
| Item                8.                                          | Financial                Statements and Supplementary                Data                               | 15       |
|                                                            |                                                                                                    |     |
| Item                9.                                          | Changes                in and Disagreements with                Accountants                             |     |
|                                                            | on                Accounting and Financial Disclosure                                                   | 28       |
|                                                            |                                                                                                    |     |
| Item                9A.                                         | Controls                and Procedures                                                                  | 28       |
|                                                            |                                                                                                    |     |
| Item                9B.                                         | Other                Information                                                                        | 28       |
|                                                            |                                                                                                    |     |
| **Part                III**                                     |                                                                                                    |     |
| Item                10.                                         | Directors,                Executive Officers and Corporate                Governance                    | 29       |
|                                                            |                                                                                                    |     |
| Item                11.                                         | Executive                Compensation                                                                   | 29       |
|                                                            |                                                                                                    |     |
| Item                12.                                         | Security                Ownership of Certain Beneficial Owners and                Management and        |     |
|                                                            | Related                Stockholder Matters                                                              | 30       |
|                                                            |                                                                                                    |     |
| Item                13.                                         | Certain                Relationships and Related Transactions, and                Director Independence | 30       |
|                                                            |                                                                                                    |     |
| Item                14.                                         | Principal                Accounting Fees and Services                                                   | 30       |
|                                                            |                                                                                                    |     |
|                                                            |                                                                                                    |     |
| **Part                IV**                                      |                                                                                                    |     |
| Item                15.                                         | Exhibits                and Financial Statement                Schedules                                | 31       |
|                                                            |                                                                                                    |     |
| **Glossary                of Oil and Gas                Terms** | 32                                                                                                      |
|                                                            |                                                                                                    |     |
| **Signatures**                                                  | 34                                                                                                      |

----

**Part      I**

**Item      1.      **
**Business**

**General**

**Operations**

**Principal      Products and Markets**

**Competition**

----

**Regulation**

**Environmental      Matters**

----

**Partnership      Employees**

----

**Item      1A.    **
**Risk      Factors**

**The      Partnership’s oil and gas reserves will decline as they are produced.**

**Volatility      of oil and gas prices significantly affects the Partnership’s cash flow and      ability to produce oil and gas economically.**

**Information      concerning the Partnership’s reserves and future net revenues estimates is      inherently uncertain.**

**The      Partnership may not be insured against all of the operating hazards to which      the      Partnership’s business is exposed.**

----

**The      Partnership’s business depends on oil and natural gas transportation facilities,      most of which are owned by others.**

**The      Partnership’s industry is highly competitive.**

**Compliance      with environmental and other government regulations could be costly and could      negatively impact production.**

**Item      1B.    **
**Unresolved      Staff Comments**

----

**Item      2.      **
**Properties**

**Reserves**

|                                              |   | Proved                Developed |    | Proved       |   | Total       |   |
|---------------------------------------------------|--------|---------------------------------|---------|--------------|--------|-------------|--------|
|                                              |   | Producing                       |    | Nonproducing |   | Undeveloped |   | Proved |   |
| Oil                (Bbls)                         |   |                            | 488,000 |         |   | -           |   |   | - |   |   | 488,000 |   |
| Gas                (Mcf)                          |   |                            | 289,000 |         |   | -           |   |   | 1,000 |   |   | 290,000 |   |
| Total                (BOE)                        |   |                            | 536,000 |         |   | -           |   |   | - |   |   | 536,000 |   |
|                                              |   |                            |    |         |   |        |   |   |   |   |   |   |   |
| Standardized                measure of discounted |   |                            |    |         |   |        |   |   |   |   |   |   |   |
| future                net cash flows              |   |                            |    |         |   |        |   |   |   |   | $ | 8,084,000 |   |

|                   |   | Proved                Reserves |    |   |   |
|------------------------|--------|--------------------------------|---------|--------|--------|
|                   |   |                           |    |   |   | Total                Oil |   | Percent                of |   |
|                   |   | Oil                            |    | Gas    |   | Equivalent |   | Total                Oil |   |
|                   |   | (Bbls)                         |    | (Mcf)  |   | (BOE) |   | Equivalent |   |
| Block                D |   |                           | 227,000 |   |   | - |   |   | 227,000 |   |   | 42.4 | % |
| Hendrick               |   |                           | 91,000  |   |   | 24,000 |   |   | 95,000 |   |   | 17.7 | % |
| Collie                 |   |                           | 78,000  |   |   | 85,000 |   |   | 92,000 |   |   | 17.2 | % |
| Scott                  |   |                           | 53,000  |   |   | 114,000 |   |   | 72,000 |   |   | 13.4 | % |
| Other                  |   |                           | 39,000  |   |   | 67,000 |   |   | 50,000 |   |   | 9.3 | % |
| Total                  |   |                           | 488,000 |   |   | 290,000 |   |   | 536,000 |   |   | 100.0 | % |

----

**Item      3.      **
**Legal      Proceedings**

**Item      4.**
 
 

**Submission      of Matters to a Vote of Security Holders**

----

**Part      II**

**Item      5.**
**Market      for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases      of Equity Securities**

**Market      Information**

**Number      of Limited Partner Interest Holders**

**Distributions**

**Issuer      Purchases of Equity Securities**

|                          |   | **Total                Number** |   |                             |   |
|-------------------------------|--------|---------------------------------|--------|----------------------------------|--------|
|                          |   | **of                Units**     |   | **Average                Price** |   |
| **Period**                    |   | **Purchased**                   |   | **Paid                Per Unit** |   |
| January                2006   |   |                            | -      |                             | $      | - |   |
| February                2006  |   |                            | -      |                             |   | - |   |
| March                2006     |   |                            | -      |                             |   | - |   |
| April                2006     |   |                            | 344    |                             |   | 692.47 |   |
| May                2006       |   |                            | -      |                             |   | - |   |
| June                2006      |   |                            | -      |                             |   | - |   |
| July                2006      |   |                            | -      |                             |   | - |   |
| August                2006    |   |                            | -      |                             |   | - |   |
| September                2006 |   |                            | -      |                             |   | - |   |
| October                2006   |   |                            | -      |                             |   | - |   |
| November                2006  |   |                            | -      |                             |   | - |   |
| December                2006  |   |                            | -      |                             |   | - |   |
| TOTALS                        |   |                            | 344    |                             | $      | 692.47 |   |

----

**Item      6.**
 
**Selected      Financial Data**

|                                                |   | **Years                ended December 31,** |      |
|-----------------------------------------------------|--------|---------------------------------------------|-----------|
|                                                |   | **2006**                                    |      | **2005** |   | **2004** |   | **2003** |   | **2002** |   |
| Revenues                                            |   | $                                           | 1,647,951 |   | $ | 1,506,592 |   | $ | 1,096,546 |   | $ | 668,388 |   | $ | 374,754 |   |
|                                                |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                from continuing operations    |   |                                        | 1,521,435 |   |   | 1,397,100 |   |   | 981,156 |   |   | 547,871 |   |   | 267,816 |   |
|                                                |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Results                from discontinued operations |   |                                        | -         |   |   | - |   |   | - |   |   | 11,801 |   |   | 13,168 |   |
|                                                |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                before cumulative             |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| effects                of accounting changes        |   |                                        | 1,521,435 |   |   | 1,397,100 |   |   | 981,156 |   |   | 559,672 |   |   | 280,984 |   |
|                                                |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                income                           |   |                                        | 1,521,435 |   |   | 1,397,100 |   |   | 981,156 |   |   | 474,787 |   |   | 275,984 |   |
|                                                |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Partners'                share of net income:       |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| General                partner                      |   |                                        | 153,638   |   |   | 141,119 |   |   | 99,678 |   |   | 49,679 |   |   | 31,098 |   |
|                                                |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Limited                partners                     |   |                                        | 1,367,797 |   |   | 1,255,981 |   |   | 881,478 |   |   | 425,108 |   |   | 244,886 |   |
|                                                |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Limited                partners' income per         |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| unit                before discontinued operations  |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and                cumulative effect of             |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| accounting                change                    |   |                                        | 134.80    |   |   | 123.78 |   |   | 86.87 |   |   | 48.37 |   |   | 23.48 |   |
|                                                |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discontinued                operations per          |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| limited                partner unit                 |   |                                        | -         |   |   | - |   |   | - |   |   | 1.04 |   |   | 1.15 |   |
|                                                |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Limited                partners'                    |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| net                income per unit                  |   |                                        | 134.80    |   |   | 123.78 |   |   | 86.87 |   |   | 41.89 |   |   | 24.13 |   |
|                                                |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Limited                partners'                    |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| cash                distributions per unit          |   |                                        | 146.40    |   |   | 126.39 |   |   | 75.43 |   |   | 57.36 |   |   | 20.41 |   |
|                                                |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                assets                         |   | $                                           | 702,098   |   | $ | 713,950 |   | $ | 707,421 |   | $ | 566,121 |   | $ | 576,739 |   |

----

**Item      7.**
 
**Management's      Discussion and Analysis of Financial Condition and Results of      Operations**

**General**

**Critical      Accounting Policies**

----

**Supplemental      Information**

|                                                     |   | **Year                Ended December 31,** |      |
|----------------------------------------------------------|--------|--------------------------------------------|-----------|
|                                                     |   | **2006**                                   |      | **2005** |   | **2004** |   |
| Oil                production in barrels                 |   |                                       | 35,708    |   |   | 37,013 |   |   | 36,487 |   |
| Gas                production in mcf                     |   |                                       | 32,716    |   |   | 31,883 |   |   | 34,123 |   |
| Total                (BOE)                               |   |                                       | 41,161    |   |   | 42,327 |   |   | 42,174 |   |
| Average                price per barrel of oil           |   | $                                          | 61.76     |   | $ | 51.99 |   | $ | 40.46 |   |
| Average                price per mcf of gas              |   | $                                          | 7.37      |   | $ | 7.09 |   | $ | 5.99 |   |
| Partnership                distributions                 |   | $                                          | 1,650,633 |   | $ | 1,425,000 |   | $ | 850,515 |   |
| Limited                partner distributions             |   | $                                          | 1,485,497 |   | $ | 1,282,500 |   | $ | 765,392 |   |
| Per                unit distribution to limited partners |   | $                                          | 146.40    |   | $ | 126.39 |   | $ | 75.43 |   |
| Number                of limited partner units           |   |                                       | 10,147    |   |   | 10,147 |   |   | 10,147 |   |

**Operating      Results**

**Income      from net profits**

**Expenses**

**Texas      Margin Taxes**

----

**Liquidity      and Capital Resources**

**Recent      Accounting Pronouncements**

**Item      7A.    **
**Quantitative      and Qualitative Disclosures About Market Risk**

----

**Item      8.      **
**Financial      Statements and Supplementary Data**

**Index      to Financial Statements**

|                                                                                  |   | **Page** |
|---------------------------------------------------------------------------------------|--------|----------|
| Report                of Independent Registered Public Accounting                Firm |   | 16       |
|                                                                                  |   |     |
| Balance                Sheets                                                         |   | 17       |
|                                                                                  |   |     |
| Statements                of                Operations                                |   | 18       |
|                                                                                  |   |     |
| Statements                of Changes in Partners'                Equity               |   | 19       |
|                                                                                  |   |     |
| Statements                of Cash Flows                                               |   | 20       |
|                                                                                  |   |     |
| Notes                to Financial Statements                                          |   | 21       |

----

**REPORT      OF INDEPENDENT REGISTERED**

**PUBLIC      ACCOUNTING FIRM**

----

**Southwest      Royalties Institutional Income Fund VIII-B,      L.P.**

**(a      Delaware limited partnership)**

**Balance      Sheets**

|                                                     |   | **December                31,** |      |
|----------------------------------------------------------|--------|---------------------------------|-----------|
|                                                     |   | **2006**                        |      | **2005** |   |
| **Assets**                                               |   |                            |      |   |   |
|                                                     |   |                            |      |   |   |
| Current                assets:                           |   |                            |      |   |   |   |   |
| Cash                and cash equivalents                 |   | $                               | 88,009    |   | $ | 173,094 |   |
| Receivable                from Managing General Partner  |   |                            | 181,507   |   |   | 198,811 |   |
| New                Mexico income tax deposits            |   |                            | 1,168     |   |   | 359 |   |
| Total                current assets                      |   |                            | 270,684   |   |   | 372,264 |   |
|                                                     |   |                            |      |   |   |   |   |
| Oil                and gas properties - using the full-  |   |                            |      |   |   |   |   |
| cost                method of accounting                 |   |                            | 4,198,748 |   |   | 4,094,077 |   |
| Less                accumulated depreciation,            |   |                            |      |   |   |   |   |
| depletion                and amortization                |   |                            | 3,767,334 |   |   | 3,752,391 |   |
|                                                     |   |                            |      |   |   |   |   |
| Net                oil and gas properties                |   |                            | 431,414   |   |   | 341,686 |   |
|                                                     |   | $                               | 702,098   |   | $ | 713,950 |   |
|                                                     |   |                            |      |   |   |   |   |
| **Liabilities                and Partners' Equity**      |   |                            |      |   |   |   |   |
|                                                     |   |                            |      |   |   |   |   |
| Current                liability - distributions payable |   | $                               | -         |   | $ | 683 |   |
|                                                     |   |                            |      |   |   |   |   |
| Asset                retirement obligation               |   |                            | 322,606   |   |   | 204,577 |   |
|                                                     |   |                            |      |   |   |   |   |
| Partners'                equity:                         |   |                            |      |   |   |   |   |
| General                partner                           |   |                            | 3,031     |   |   | 14,529 |   |
| Limited                partners                          |   |                            | 376,461   |   |   | 494,161 |   |
|                                                     |   |                            |      |   |   |   |   |
| Total                partners' equity                    |   |                            | 379,492   |   |   | 508,690 |   |
|                                                     |   | $                               | 702,098   |   | $ | 713,950 |   |

----

**Southwest      Royalties Institutional Income Fund      VIII-B, L.P.**

**(a      Delaware limited partnership)**

**Statements      of Operations**

|                                                    |   | **Years                ended December 31,** |      |
|---------------------------------------------------------|--------|---------------------------------------------|-----------|
|                                                    |   | **2006**                                    |      | **2005** |   | **2004** |   |
| **Revenues**                                            |   |                                        |      |   |   |   |   |
|                                                    |   |                                        |      |   |   |   |   |
| Income                from net profits interests        |   | $                                           | 1,641,567 |   | $ | 1,502,655 |   | $ | 1,093,785 |   |
| Interest                income                          |   |                                        | 6,384     |   |   | 3,937 |   |   | 1,303 |   |
| Other                                                   |   |                                        | -         |   |   | - |   |   | 1,458 |   |
|                                                    |   |                                        | 1,647,951 |   |   | 1,506,592 |   |   | 1,096,546 |   |
|                                                    |   |                                        |      |   |   |   |   |   |   |   |
| **Expenses**                                            |   |                                        |      |   |   |   |   |   |   |   |
|                                                    |   |                                        |      |   |   |   |   |   |   |   |
| Depreciation,                depletion and amortization |   |                                        | 14,943    |   |   | 14,092 |   |   | 15,622 |   |
| Accretion                expense                        |   |                                        | 17,484    |   |   | 11,540 |   |   | 10,026 |   |
| General                and administrative               |   |                                        | 94,089    |   |   | 83,860 |   |   | 89,742 |   |
|                                                    |   |                                        | 126,516   |   |   | 109,492 |   |   | 115,390 |   |
|                                                    |   |                                        |      |   |   |   |   |   |   |   |
| Net                income                               |   | $                                           | 1,521,435 |   | $ | 1,397,100 |   | $ | 981,156 |   |
|                                                    |   |                                        |      |   |   |   |   |   |   |   |
| Net                income allocated to:                 |   |                                        |      |   |   |   |   |   |   |   |
|                                                    |   |                                        |      |   |   |   |   |   |   |   |
| Managing                General Partner                 |   | $                                           | 153,638   |   | $ | 141,119 |   | $ | 99,678 |   |
|                                                    |   |                                        |      |   |   |   |   |   |   |   |
| Limited                partners                         |   | $                                           | 1,367,797 |   | $ | 1,255,981 |   | $ | 881,478 |   |
|                                                    |   |                                        |      |   |   |   |   |   |   |   |
| Per                limited partner unit                 |   | $                                           | 134.80    |   | $ | 123.78 |   | $ | 86.87 |   |

----

**Southwest      Royalties Institutional Income Fund VIII-B,      L.P.**

**(a      Delaware limited partnership)**

**Statements      of Changes in Partners' Equity**

**Years      ended December 31, 2006, 2005 and 2004**

|                                        |   | **General**  |     | **Limited**  |   |       |   |
|---------------------------------------------|--------|--------------|----------|--------------|--------|------------|--------|
|                                        |   | **Partners** |     | **Partners** |   | **Total**  |   |
| Balance                at December 31, 2003 |   | $            | 1,355    |         | $      | 404,594    |   | $ | 405,949 |   |
|                                        |   |         |     |         |   |       |   |   |   |   |
| Net                income                   |   |         | 99,678   |         |   | 881,478    |   |   | 981,156 |   |
|                                        |   |         |     |         |   |       |   |   |   |   |
| Distributions                               |   |         | (85,123  | )            |   | (765,392   | )      |   | (850,515 | ) |
|                                        |   |         |     |         |   |       |   |   |   |   |
| Balance                at December 31, 2004 |   |         | 15,910   |         |   | 520,680    |   |   | 536,590 |   |
|                                        |   |         |     |         |   |       |   |   |   |   |
| Net                income                   |   |         | 141,119  |         |   | 1,255,981  |   |   | 1,397,100 |   |
|                                        |   |         |     |         |   |       |   |   |   |   |
| Distributions                               |   |         | (142,500 | )            |   | (1,282,500 | )      |   | (1,425,000 | ) |
|                                        |   |         |     |         |   |       |   |   |   |   |
| Balance                at December 31, 2005 |   |         | 14,529   |         |   | 494,161    |   |   | 508,690 |   |
|                                        |   |         |     |         |   |       |   |   |   |   |
| Net                income                   |   |         | 153,638  |         |   | 1,367,797  |   |   | 1,521,435 |   |
|                                        |   |         |     |         |   |       |   |   |   |   |
| Distributions                               |   |         | (165,136 | )            |   | (1,485,497 | )      |   | (1,650,633 | ) |
|                                        |   |         |     |         |   |       |   |   |   |   |
| Balance                at December 31, 2006 |   | $            | 3,031    |         | $      | 376,461    |   | $ | 379,492 |   |

----

**Southwest      Royalties Institutional Income Fund VIII-B,      L.P.**

**(a      Delaware limited partnership)**

**Statements      of Cash Flows**

|                                                                |   | **Years                ended December 31,** |       |
|---------------------------------------------------------------------|--------|---------------------------------------------|------------|
|                                                                |   | **2006**                                    |       | **2005** |   | **2004** |   |
| Cash                flows from operating activities:                |   |                                        |       |   |   |   |   |   |   |   |
| Cash                received from net profits interests             |   | $                                           | 1,653,936  |   | $ | 1,523,163 |   | $ | 987,905 |   |
| Cash                paid for administrative fees and general        |   |                                        |       |   |   |   |   |   |   |   |
| and                administrative overhead                          |   |                                        | (94,089    | ) |   | (83,860 | ) |   | (89,742 | ) |
| Interest                received                                    |   |                                        | 6,384      |   |   | 3,937 |   |   | 1,303 |   |
| Other                                                               |   |                                        | -          |   |   | - |   |   | 1,458 |   |
|                                                                |   |                                        |       |   |   |   |   |   |   |   |
| Net                cash provided by operating activities            |   |                                        | 1,566,231  |   |   | 1,443,240 |   |   | 900,924 |   |
|                                                                |   |                                        |       |   |   |   |   |   |   |   |
| Cash                flows from financing activities:                |   |                                        |       |   |   |   |   |   |   |   |
| Distributions                to partners                            |   |                                        | (1,650,633 | ) |   | (1,425,000 | ) |   | (850,515 | ) |
| (Decrease)                increase in distributions payable         |   |                                        | (683       | ) |   | (507 | ) |   | 966 |   |
|                                                                |   |                                        |       |   |   |   |   |   |   |   |
| Net                cash used in financing activities                |   |                                        | (1,651,316 | ) |   | (1,425,507 | ) |   | (849,549 | ) |
|                                                                |   |                                        |       |   |   |   |   |   |   |   |
| Net                (decrease) increase in cash and cash equivalents |   |                                        | (85,085    | ) |   | 17,733 |   |   | 51,375 |   |
|                                                                |   |                                        |       |   |   |   |   |   |   |   |
| Beginning                of year                                    |   |                                        | 173,094    |   |   | 155,361 |   |   | 103,986 |   |
|                                                                |   |                                        |       |   |   |   |   |   |   |   |
| End                of year                                          |   | $                                           | 88,009     |   | $ | 173,094 |   | $ | 155,361 |   |
|                                                                |   |                                        |       |   |   |   |   |   |   |   |
| Reconciliation                of net income to net                  |   |                                        |       |   |   |   |   |   |   |   |
| cash                provided by operating activities:               |   |                                        |       |   |   |   |   |   |   |   |
|                                                                |   |                                        |       |   |   |   |   |   |   |   |
| Net                income                                           |   | $                                           | 1,521,435  |   | $ | 1,397,100 |   | $ | 981,156 |   |
|                                                                |   |                                        |       |   |   |   |   |   |   |   |
| Adjustments                to reconcile net income to               |   |                                        |       |   |   |   |   |   |   |   |
| net                cash provided by operating activities:           |   |                                        |       |   |   |   |   |   |   |   |
|                                                                |   |                                        |       |   |   |   |   |   |   |   |
| Depreciation,                depletion and amortization             |   |                                        | 14,943     |   |   | 14,092 |   |   | 15,622 |   |
| Accretion                expense                                    |   |                                        | 17,484     |   |   | 11,540 |   |   | 10,026 |   |
| Settlement                of asset retirement obligations           |   |                                        |       |   |   |   |   |   |   |   |
| for                plugged and abandoned wells                      |   |                                        | (4,126     | ) |   | - |   |   | - |   |
| Decrease                (increase) in receivables and deposits      |   |                                        | 16,495     |   |   | 20,508 |   |   | (105,880 | ) |
|                                                                |   |                                        |       |   |   |   |   |   |   |   |
| Net                cash provided by operating activities            |   | $                                           | 1,566,231  |   | $ | 1,443,240 |   | $ | 900,924 |   |
|                                                                |   |                                        |       |   |   |   |   |   |   |   |
| Noncash                investing and financing activities:          |   |                                        |       |   |   |   |   |   |   |   |
| Increase                (decrease) in oil and gas properties -      |   |                                        |       |   |   |   |   |   |   |   |
| SFAS                No. 143                                         |   | $                                           | 104,671    |   | $ | 23,396 |   | $ | (333 | ) |

----

**Southwest      Royalties Institutional Income Fund VIII-B,      L.P.**

**(a      Delaware limited partnership)**

**Notes      to Financial Statements**

| **1.** | **Organization** |
|--------|------------------|

|                                                                              | Limited  |   | General  |
|-----------------------------------------------------------------------------------|----------|--------|----------|
|                                                                              | Partners |   | Partners |
| Interest                income on capital contributions                           | 100%     |   | -        |
| Oil                and gas sales from net profits interests                       | 90%      |   | 10%      |
| All                other revenues                                                 | 90%      |   | 10%      |
| Organization                and offering costs (1)                                | 100%     |   | -        |
| Amortization                of organization costs                                 | 100%     |   | -        |
| Property                acquisition costs                                         | 100%     |   | -        |
| Gain/loss                on property dispositions                                 | 90%      |   | 10%      |
| Operating                and administrative costs (2)                             | 90%      |   | 10%      |
| Depreciation,                depletion and amortization of oil and gas properties | 100%     |   | -        |
| All                other costs                                                    | 90%      |   | 10%      |

|   | (1) | All                organization costs in excess of 3% of initial capital contributions                will                be paid by the Managing General Partner and will be treated as a                capital                contribution. The Partnership paid the Managing General Partner an                amount                equal to 3% of initial capital contributions for such organization                costs. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Administrative                costs in any year, which exceed 2% of capital contributions shall                be paid                by the Managing Partner and will be treated as a capital                contribution. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **2.** | **Summary                of Significant Accounting                Policies** |
|--------|------------------------------------------------------------------------------|

*Oil      and Gas Properties*

----

**Southwest      Royalties Institutional Income Fund VIII-B, L.P.**

**(a      Delaware limited partnership)**

**Notes      to Financial Statements**

| **2.** | **Summary                of Significant Accounting Policies -                continued** |
|--------|------------------------------------------------------------------------------------------|

*Estimates      and Uncertainties*

*Syndication      Costs*

*Environmental      Costs*

*Revenue      Recognition*

*Gas      Balancing*

*Income      Taxes*

*Cash      and Cash Equivalents*

*Number      of Limited Partner Units*

----

**Southwest      Royalties Institutional Income Fund VIII-B, L.P.**

**(a      Delaware limited partnership)**

**Notes      to Financial Statements**

| **2.** | **Summary                of Significant Accounting Policies -                continued** |
|--------|------------------------------------------------------------------------------------------|

*Concentrations      of Credit Risk*

*Fair      Value of Financial Instruments*

*Net      Income per limited partnership unit*

*Recent      Accounting Pronouncements*

**3.          **
**Abandonment      Obligations**

|                                                                       |   | **2006** |    | **2005** |   |
|----------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| Beginning                of year                                           |   | $        | 204,577 |     | $      | 169,641 |   |
| Reduction                of obligations due to wells plugged and abandoned |   |     | (4,126  | )        |   | - |   |
| Accretion                expense                                           |   |     | 17,484  |     |   | 11,540 |   |
| Revisions                of previous estimates                             |   |     | 104,671 |     |   | 23,396 |   |
| End                of year                                                 |   | $        | 322,606 |     | $      | 204,577 |   |

----

**Southwest      Royalties Institutional Income Fund VIII-B, L.P.**

**(a      Delaware limited partnership)**

**Notes      to Financial Statements**

| **4.** | **Commitments                and Contingent                Liabilities** |
|--------|--------------------------------------------------------------------------|

| **5.** | **Related                Party Transactions** |
|--------|-----------------------------------------------|

----

**Southwest      Royalties Institutional Income Fund VIII-B, L.P.**

**(a      Delaware limited partnership)**

**Notes      to Financial Statements**

| **6.** | **Oil                and Gas Reserves Information                (unaudited)** |
|--------|--------------------------------------------------------------------------------|

|                                                 |   | Oil                (bbls) |    | Gas                (mcf) |   |
|------------------------------------------------------|--------|---------------------------|---------|--------------------------|--------|
| **Total                Proved -**                    |   |                      |    |                     |   |
|                                                 |   |                      |    |                     |   |
| January                1, 2004                       |   |                      | 533,000 |                     |   | 363,000 |   |
|                                                 |   |                      |    |                     |   |   |   |
| Revisions                of previous estimates       |   |                      | 4,000   |                     |   | 64,000 |   |
| Production                from continuing operations |   |                      | (36,000 | )                        |   | (34,000 | ) |
|                                                 |   |                      |    |                     |   |   |   |
| December                31, 2004                     |   |                      | 501,000 |                     |   | 393,000 |   |
|                                                 |   |                      |    |                     |   |   |   |
| Revisions                of previous estimates       |   |                      | 108,000 |                     |   | 18,000 |   |
| Production                from continuing operations |   |                      | (37,000 | )                        |   | (32,000 | ) |
|                                                 |   |                      |    |                     |   |   |   |
| December                31, 2005                     |   |                      | 572,000 |                     |   | 379,000 |   |
|                                                 |   |                      |    |                     |   |   |   |
| Revisions                of previous estimates       |   |                      | (48,000 | )                        |   | (56,000 | ) |
| Production                from continuing operations |   |                      | (36,000 | )                        |   | (33,000 | ) |
|                                                 |   |                      |    |                     |   |   |   |
| December                31, 2006                     |   |                      | 488,000 |                     |   | 290,000 |   |
|                                                 |   |                      |    |                     |   |   |   |
| **Proved                developed reserves -**  |   |                      |    |                     |   |   |   |
|                                                 |   |                      |    |                     |   |   |   |
| December                31, 2004                     |   |                      | 497,000 |                     |   | 386,000 |   |
| December                31, 2005                     |   |                      | 571,000 |                     |   | 378,000 |   |
| December                31, 2006                     |   |                      | 488,000 |                     |   | 289,000 |   |

----

**Southwest      Royalties Institutional Income Fund VIII-B, L.P.**

**(a      Delaware limited partnership)**

**Notes      to Financial Statements**

| **6.** | **Oil                and Gas Reserves Information (unaudited) -                continued** |
|--------|--------------------------------------------------------------------------------------------|

|   | The                evaluation of oil and gas properties is not an exact science and                inevitably involves a significant degree of uncertainty, particularly                with                respect to the quantity of oil or gas that any given property is                capable                of producing. Estimates of oil and gas reserves are based on available                geological and engineering data, the extent and quality of which                may vary                in each case and, in certain instances, may prove to be inaccurate.                Consequently, properties may be depleted more rapidly than the geological                and engineering data have indicated. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                         |   | **2006** |       | **2005** |   | **2004**   |   |
|--------------------------------------------------------------|--------|----------|------------|----------|--------|------------|--------|
| Future                cash inflows                           |   | $        | 29,013,000 |     | $      | 36,663,000 |   | $ | 22,902,000 |   |
| Production,                development and abandonment costs |   |     | 13,454,000 |     |   | 14,595,000 |   |   | 11,205,000 |   |
| Future                net cash flows                         |   |     | 15,559,000 |     |   | 22,068,000 |   |   | 11,697,000 |   |
| 10%                annual discount for                       |   |     |       |     |   |       |   |   |   |   |
| estimated                timing of cash flows                |   |     | 7,475,000  |     |   | 11,698,000 |   |   | 5,705,000 |   |
| Standardized                measure of                       |   |     |       |     |   |       |   |   |   |   |
| discounted                future net cash flows              |   | $        | 8,084,000  |     | $      | 10,370,000 |   | $ | 5,992,000 |   |

|   | Changes                in the standardized measure of discounted future net cash flows relating                to proved reserves for the years ended December 31, 2006, 2005 and                2004                are as follows: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                  |   | **2006** |       | **2005** |   | **2004**   |   |
|-----------------------------------------------------------------------|--------|----------|------------|----------|--------|------------|--------|
| Sales                of oil and gas produced, net of production costs |   | $        | (1,642,000 | )        | $      | (1,503,000 | )      | $ | (1,094,000 | ) |
| Changes                in prices and production costs                 |   |     | (1,642,000 | )        |   | 3,765,000  |   |   | 1,761,000 |   |
| Changes                of production rates (timing) and others        |   |     | 825,000    |     |   | (295,000   | )      |   | 158,000 |   |
| Revisions                of previous quantities estimates             |   |     | (864,000   | )        |   | 1,812,000  |   |   | 155,000 |   |
| Accretion                of discount                                  |   |     | 1,037,000  |     |   | 599,000    |   |   | 456,000 |   |
| Discounted                future net cash flows -                     |   |     |       |     |   |       |   |   |   |   |
| Beginning                of year                                      |   |     | 10,370,000 |     |   | 5,992,000  |   |   | 4,556,000 |   |
| End                of year                                            |   | $        | 8,084,000  |     | $      | 10,370,000 |   | $ | 5,992,000 |   |

----

**Southwest      Royalties Institutional Income Fund VIII-B, L.P.**

**(a      Delaware limited partnership)**

**Notes      to Financial Statements**

| **7.** | **Selected                Quarterly Financial Results -                (unaudited)** |
|--------|--------------------------------------------------------------------------------------|

|                                                |   | **Quarter** |    |
|-----------------------------------------------------|--------|-------------|---------|
|                                                |   | **First**   |    | **Second** |   | **Third** |   | **Fourth** |   |
| **2006:**                                           |   |        |    |   |   |   |   |   |   |
| Total                revenues                       |   | $           | 490,032 |   | $ | 450,382 |   | $ | 445,720 |   | $ | 261,817 |   |
| Total                expenses                       |   |        | 30,653  |   |   | 35,863 |   |   | 30,531 |   |   | 29,469 |   |
| Net                income                           |   | $           | 459,379 |   | $ | 414,519 |   | $ | 415,189 |   | $ | 232,348 |   |
|                                                |   |        |    |   |   |   |   |   |   |   |   |   |   |
| Net                income per limited partners unit |   | $           | 40.71   |   | $ | 36.73 |   | $ | 36.79 |   | $ | 20.57 |   |

|                                                |   | **Quarter** |    |
|-----------------------------------------------------|--------|-------------|---------|
|                                                |   | **First**   |    | **Second** |   | **Third** |   | **Fourth** |   |
| **2005:**                                           |   |        |    |   |   |   |   |   |   |
| Total                revenues                       |   | $           | 299,066 |   | $ | 354,725 |   | $ | 478,976 |   | $ | 373,825 |   |
| Total                expenses                       |   |        | 22,606  |   |   | 28,780 |   |   | 25,790 |   |   | 32,316 |   |
| Net                income                           |   | $           | 276,460 |   | $ | 325,945 |   | $ | 453,186 |   | $ | 341,509 |   |
|                                                |   |        |    |   |   |   |   |   |   |   |   |   |   |
| Net                income per limited partners unit |   | $           | 24.49   |   | $ | 28.87 |   | $ | 40.16 |   | $ | 30.26 |   |

----

**Item      9.      **
**Changes      in and Disagreements With Accountants on Accounting and Financial      Disclosure**

**Item      9A.    **
**Controls      and Procedures**

*Internal      Control Over Financial Reporting*

**Item      9B.    **
**Other      Information**

----

**Part      III**

**Item      10.    **
**Directors,      Executive Officers and Corporate Governance**

**Code      of Ethics**

**Item      11.    **
**Executive      Compensation**

----

**Item      12.    **
**Security      Ownership of Certain Beneficial Owners and Management and Related Stockholder      Matters**

**Item      13.    **
**Certain      Relationships and Related Transactions, and Director      Independence**

**Item      14.    **
**Principal      Accounting Fees and Services**

| **For                the Year Ended December 31,** |   | **2006** |   | **2005** |   |
|----------------------------------------------------|--------|----------|--------|----------|--------|
| Audit                Fees                          |   | $        | 15,084 |     | $      | 13,303 |   |
| Audit                Related Fees                  |   |     | -      |     |   | - |   |
| Tax                Fees                            |   |     | -      |     |   | - |   |
| All                Other Fees                      |   |     | -      |     |   | - |   |
|                                               |   |     |   |     |   |   |   |
| TOTAL                                              |   | $        | 15,084 |     | $      | 13,303 |   |

----

**Part      IV**

**Item      15.    **
**Exhibits      and Financial Statement Schedules**

| (a)    | (1)    | Financial                Statements:                                                                                                                                                                                                                                            |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                            |
|   |   | Included                in Part II of this report                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                            |
|   |   | Report                of Independent Registered Public Accounting Firm                                                                                                                                                                                                          |
|   |   | Balance                Sheets                                                                                                                                                                                                                                                   |
|   |   | Statements                of Operations                                                                                                                                                                                                                                         |
|   |   | Statements                of Changes in Partners' Equity                                                                                                                                                                                                                        |
|   |   | Statements                of Cash Flows                                                                                                                                                                                                                                         |
|   |   | Notes                to Financial Statements                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                            |
|   | (2)    | Schedules                required by Article 12 of Regulation S-X are either omitted because                they                are not applicable or because the required information is shown in                the                financial statements or the notes thereto. |
|   |   |                                                                                                                                                                                                                                                                            |
|   | (3)    | Exhibits:                                                                                                                                                                                                                                                                       |

| 4      | (a)    | Certificate                of Limited Partnership of Southwest Royalties Institutional Income                Fund                VIII-B, L.P., dated November 30, 1987. (Incorporated by reference                from                Partner-ship's S-1 Registration Statement, File Number 33-18852 effective                March 31, 1988.) |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                            |
|   | (b)    | Agreement                of Limited Partnership of South-west Royalties Institutional Income                Fund                VIII-B, L.P. dated July 11, 1988. (Incor-porated by reference from                Partnership's Form 10-K for the fiscal year ended December 31,                1988.)                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                            |
|   | 31.1   | Rule                13a-14(a)/15d-14(a) Certification                                                                                                                                                                                                                                                                                           |
|   | 31.2   | Rule                13a-14(a)/15d-14(a) Certification                                                                                                                                                                                                                                                                                           |
|   | 32.1   | Certification                of Chief Executive Officer and Chief Financial Officer Pursuant to                18                U.S.C. Section 1350, as adopted Pursuant to Section 906 of the                Sarbanes-Oxley Act of 2002                                                                                                       |

----

**Glossary      of Oil and Gas Terms**

*Bbl.      *

*BOE.      *

*Developmental      well. *

*Exploratory      well. *

*Farm-out      arrangement. *

*Field.      *

*Mcf.      *

*Net      Profits Interest. *

*Oil.      *

*Overriding      royalty interest*

*Standardized      measure of discounted future net cash flows. *
* *

----

*Production      costs. *

*Proved      Area*

*Proved      developed oil and gas reserves*

*Proved      properties*

*Proved      oil and gas reserves. *

*Proved      undeveloped reserves. *

*Reservoir.      *

*Royalty      interest. *

*Working      interest. *

*Workover.      *

----

**Signatures**

|   | Southwest                Royalties Institutional Income Fund |
|--------|--------------------------------------------------------------|
|   | VIII-B,                L.P., a Delaware limited partnership  |
|   |                                                         |
| By:    | Southwest                Royalties, Inc., Managing           |
|   | General                Partner                               |
|   |                                                         |
|   |                                                         |
| By:    | /s/                L. Paul Latham                            |
|   | L.                Paul Latham                                |
|   | President                and Chief Executive Officer         |
|   |                                                         |
| Date:  | April                5, 2007                                 |

|                                                      |   |                                                    |
|-----------------------------------------------------------|--------|---------------------------------------------------------|
| /s/                Clayton W Williams                     |   | /s/                L. Paul Latham                       |
| Clayton                W. Williams, Chairman of the Board |   | L.                Paul Latham, President and a Director |
| and                a Director                             |   |                                                    |
|                                                      |   |                                                    |
| Date: April                5, 2007                   |   | Date: April                5, 2007                 |
|                                                      |   |                                                    |
|                                                      |   |                                                    |
|                                                      |   |                                                    |
|                                                      |   |                                                    |
| /s/                Mel G. Riggs                           |   |                                                    |
| Mel                G. Riggs, Vice President - Finance,    |   |                                                    |
| Treasurer                and a Director                   |   |                                                    |
|                                                      |   |                                                    |
| Date: April                5, 2007                   |   |                                                    |
|                                                      |   |                                                    |
|                                                      |   |                                                    |