SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC. 20549

                                    FORM 10-Q

                   QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934




For Quarter Ended September 30, 1996             Commission file number 0-10697



                            DORCHESTER HUGOTON, LTD.
             (Exact name of registrant as specified in its charter)




              Texas                                     75-1829064
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
 Incorporation or organization)



         9696 Skillman Street, Suite 320-LB 42, Dallas, Texas 75243-8200
               (Address of principal executive offices) (Zip Code)


       Registrant's telephone number, including area code: (214) 340-3443


                                      None
                  Former name, former address and former fiscal
                       year, if changed since last report


     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

    As of October 31, 1996, 10,744,380 Depositary Receipts for Units of Limited
Partnership Interest were outstanding.


<PAGE>
                            DORCHESTER HUGOTON, LTD.
                          (A Texas Limited Partnership)

                          QUARTERLY REPORT ON FORM 10-Q

                               September 30, 1996


                                      INDEX


PART I.   FINANCIAL INFORMATION

  Item 1. Financial Statements:

          Condensed Balance Sheets as of September 30, 1996 and
          December 31, 1995 (Unaudited)

          Condensed Statements of Earnings for the Three and Nine Months Ended
          September 30, 1996 and 1995 (Unaudited)

          Condensed Statements of Cash Flows for the Nine Months Ended
          September 30, 1996 and 1995 (Unaudited)

          Notes to Condensed Financial Statements (Unaudited)


  Item 2. Management's Discussion and Analysis of Financial Condition and
          Results of Operations



PART II.  OTHER INFORMATION

  Item 1. Legal Proceedings

  Item 5. Other Information

  Item 6. Exhibits and Reports on Form 8-K



SIGNATURES



<PAGE>
                            DORCHESTER HUGOTON, LTD.
                          (A Texas Limited Partnership)
PART I
Item 1
                            CONDENSED BALANCE SHEETS
                                   (Unaudited)

                    September 30, 1996 and December 31, 1995
                            (In Thousands of Dollars)

                                                           Sept. 30,    Dec. 31,
                                                              1996       1995
                                                           --------     --------
                             ASSETS

Current Assets:
    Cash and temporary cash investments ..............      $    62     $   183
    Investments - available for sale .................        2,248       2,190
    Accounts receivable, net .........................        1,395       3,197
    Prepaid expenses and other current assets ........          141         136
                                                            -------     -------
      Total Current Assets ...........................        3,846       5,706
Net Property and Equipment ...........................       16,840      13,895
                                                            -------     --------
Total Assets .........................................      $20,686     $19,601
                                                            =======     =======


              LIABILITIES AND PARTNERSHIP CAPITAL

Current Liabilities:
    Accounts payable and other current liabilities ...      $   503     $ 1,001
    Production and property taxes payable ............          681         231
    Royalties and production payment payable .........          686         297
    Distributions payable to Unitholders .............        1,848       1,848
                                                            -------     -------
      Total Current Liabilities ......................        3,718       3,377
Long-term debt .......................................        3,744       1,725
                                                            -------     -------
      Total Liabilities ..............................        7,462       5,102
Commitments and Contingencies (Note 2) ...............          -           -
Partnership Capital ..................................       13,224      14,499
                                                            -------     -------
Total Liabilities and Partnership Capital ............      $20,686     $19,601
                                                            =======     =======





            The accompanying condensed notes are an integral part of
                           these financial statements.

<PAGE>
                            DORCHESTER HUGOTON, LTD.
                          (A Texas Limited Partnership)


                         CONDENSED STATEMENT OF EARNINGS
                                   (Unaudited)

         For the Three and Nine Months Ended September 30, 1996 and 1995
                            (In Thousands of Dollars)




                                       Three Months Ended     Nine Months Ended
                                          September 30,         September 30,
                                       ------------------    ------------------
                                        1996       1995       1996       1995
                                       -------    -------    -------    -------

Net Operating Revenues .............   $ 2,388    $ 2,909    $11,756    $ 9,194
                                       -------    -------    -------    -------
Costs and Expenses:
    Operating, including prod. taxes     1,024        706      2,659      2,303
    Depletion, depreciation & amort.       363        326      1,096      1,021
    General and administrative .....       141        167        416        443
    Management fees ................        86         89        298        277
    Interest .......................        62         35        105        105
    Litigation settlement ..........     3,036         -       3,036         -
    Other income, net ..............       (14)       (22)       (72)       (66)
                                       -------    -------    -------    -------
Total Costs and Expenses ...........     4,698      1,301      7,538      4,083
                                       -------    -------    -------    -------
Net Earnings (Loss).................   $(2,310)   $ 1,608    $ 4,218    $ 5,111
                                       =======    =======    =======    =======
Net Earnings (Loss)
 per Unit (in dollars)                 $ (0.21)   $  0.15    $  0.39    $  0.47
                                       =======    =======    =======    =======





            The accompanying condensed notes are an integral part of
                           these financial statements.


<PAGE>
                            DORCHESTER HUGOTON, LTD.
                          (A Texas Limited Partnership)


                        CONDENSED STATEMENT OF CASH FLOWS
                                   (Unaudited)

              For the Nine Months Ended September 30, 1996 and 1995
                            (In Thousands of Dollars)




                                                            1996         1995
                                                           -------      -------

Cash Flows Provided by Operating Activities ..........     $ 7,442      $ 6,777
                                                           -------      -------
Cash Flows Used in Investing Activities:
    Purchases of prop. & equipment, net of retirements      (4,063)        (646)
    Cash received on sale of other prop. & equipment..          16           18
                                                           -------      -------
Cash Flows Used in Investing Activities ..............      (4,047)        (628)
                                                           -------      -------
Cash Flows Used in Financing Activities:
    Distributions paid to Unitholders ................      (5,535)      (5,553)
    Additions to long-term debt ......................      10,566        5,775
    Reductions of long-term debt .....................      (8,547)      (6,100)
    Other ............................................           0         (123)
                                                           -------      -------
Cash Flows Used in Financing Activities ..............      (3,516)      (6,001)
                                                           -------      -------

Increase (Decrease) in Cash and Temp. Cash Investments        (121)         148
Cash and Temporary Cash Investments at January 1, ....         183            0
                                                           -------      -------
Cash and Temporary Cash Investments at September 30, .     $    62      $   148
                                                           =======      =======












            The accompanying condensed notes are an integral part of
                           these financial statements.
<PAGE>
                            DORCHESTER HUGOTON, LTD.
                          (A Texas Limited Partnership)

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

1.   The condensed financial statements reflect all adjustments (consisting only
     of normal and recurring  adjustments except for certain adjustments related
     to the litigation settlement discussed in Note 2) which are, in the opinion
     of management,  necessary for a fair  presentation  of Dorchester  Hugoton,
     Ltd.'s (the  "Partnership's")  financial position and operating results for
     the interim periods.  Interim period results are not necessarily indicative
     of the  results  for  the  calendar  year.  Please  refer  to  Management's
     Discussion  and Analysis of Financial  Condition  and Results of Operations
     for  additional   information.   The  weighted   average  number  of  Units
     outstanding for each of the periods was 10,744,380.

2.   On August 14, 1996 the Partnership paid Parker & Parsley  Petroleum Company
     entities (successor to Damson Oil Corporation and Dorchester Master Limited
     Partnership -  collectively  referred to as "P&P" or as "Parker & Parsley")
     $7.0  million in  settlement  of all  outstanding  litigation.  Some of the
     numerous issues  resolved by this settlement  include the withdrawal by P&P
     of its claims of gas processing  rights to the  Partnership's  Oklahoma gas
     production,  its rights to participate  in any Oklahoma gas wells,  and its
     claims  for  unpaid  production  payment  amounts.  The  Partnership  will,
     prospectively  only, pay P&P any  production  payment  (overriding  royalty
     interest) amount that may be due as set forth in a 1986 amended  agreement.
     The  first  production  payment  to be  paid in  1997  is  estimated  to be
     $800,000,  of which  $471,000 is accrued  through  September 30, 1996.  The
     production payment  calculation is based upon the difference between market
     gas prices  compared to a table of rising  prices and based upon a table of
     declining  volumes.  The  Partnership  also agreed to exchange with P&P its
     interests  in fourteen  non-operated  Kansas  wells for P&P's  interests in
     eighteen   Kansas   wells  which  the   Partnership   presently   operates.
     Consequently, the Partnership increased its working interest ownership from
     80% to 100% in each of these eighteen  wells.  In addition,  the settlement
     confirmed the Partnership's  ownership of the gas gathering  pipelines that
     deliver gas from the  Partnership's  Oklahoma  wells to its gas  compressor
     facilities.  The settlement resulted in an earnings charge of approximately
     $4,246,000,  a reduction  of  liabilities  of  $200,000  and an increase in
     natural gas properties of $3,025,000 as reflected in the Partnership's 1996
     third  quarter  financial  statements.  Additionally,  as a  result  of the
     settlement, the Partnership incurred approximately $407,000 in costs during
     the third  quarter of 1996  which are  primarily  made up of mineral  lease
     royalties,  Oklahoma  production  taxes, and  legal  fees  related  to  the
     settlement.  The  primary  portion of these  charges  are  included  in the
     Partnership's  income  statement  as  follows:  $1,710,000  offset  to  net
     operating revenues,  $121,000 offset to operating expenses,  and $3,036,000
     to litigation settlement expenses.  ALL OF THE OUTSTANDING  LITIGATION WITH
     P&P,  AS  WELL  AS  ANY  RELATED  JUDGMENTS,  THAT  ARE  DESCRIBED  IN  THE
     PARTNERSHIP'S  1995 FORM 10-K AND PREVIOUS 1996 FORMS 10-Q HAS BEEN OR WILL
     BE  DISMISSED.  In addition,  each party is  responsible  for its own legal
     costs.

3.   The third  quarter of 1996's  operating  expenses  also include a charge of
     $387,000  for Kansas tax  reimbursements  (plus  related  interest  through
     September 30, 1996)  received by the  Partnership  during the years 1983 to
     1987.  This  charge  results  from a ruling by the United  States  Court of
     Appeals for the District of Columbia  which  overruled a previous  order by
     the Federal  Energy  Regulatory  Commission.  The  Partnership,  as well as
     numerous other parties,  may pursue further  judicial  review or regulatory
     relief with respect to this matter.

4.   On July 19,  1994 the  Partnership  entered  into a  $15,000,000  unsecured
     revolving  credit facility (the  "Agreement")  with Bank One,  Texas,  N.A.
     Effective  August 12,  1996,  the  Agreement  was  restated to increase the
     borrowing  base  from  $4,250,000  to  $8,500,000.  The  Agreement  will be
     re-evaluated by Bank One at least semi-annually.  If, on any such date, the
     aggregate  amount of  outstanding  loans and  letters of credit  exceed the
     current  borrowing  base as most  recently  determined  by  Bank  One,  the
     Partnership is required to repay the excess.  This credit  facility  covers
     both cash advances and any letters of credit that the Partnership may need,
     with interest  being charged at the base rate for Bank One, which was 8.25%
     on November 5, 1996.  All amounts  borrowed under this facility will become
     due and payable on July 31, 1999. As of November 5, 1996, letters of credit
     totaling  $267,000  were issued  under the credit  facility  and the amount
     borrowed was  $5,000,000.  The weighted  average amount  borrowed under the
     credit facility was  approximately  $2,600,000  during the third quarter of
     1996.
<PAGE>
                            DORCHESTER HUGOTON, LTD.
                          (A Texas Limited Partnership)
PART I
Item 2
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


As discussed in Note 2 to the Partnership's Condensed Financial Statements,  all
of the  Partnership's  outstanding  litigation, claims, and  counterclaims  with
Parker & Parsley  Petroleum  Company  entities have been settled.  In connection
with the settlement,  the Partnership  paid Parker & Parsley $7.0 million at the
settlement  closing on August 14, 1996 and will  prospectively  pay a production
payment which is expected to be $800,000 in 1997. The settlement  resulted in an
increase in natural gas properties of  approximately  $3,025,000,  a decrease in
liabilities of approximately $200,000, and a charge to earnings of approximately
$4,246,000, which are included in the Partnership's 1996 third quarter financial
statements.  As a  direct  result  of  the  settlement,  additional  charges  of
approximately  $407,000 were incurred for various costs including  mineral lease
royalties, Oklahoma production taxes, and legal fees during the third quarter of
1996. Third quarter 1996 net operating  revenues of $2,388,000 have been reduced
by approximately $1,710,000 resulting from such litigation settlement. Operating
costs  have also been  reduced  by  approximately  $121,000  resulting  from the
litigation  settlement.  The litigation  settlement expense of $3,036,000 is the
major portion of the remaining  costs of settlement.  The  settlement,  combined
with the Partnership's provision for a possible refund of approximately $387,000
(which  includes  related  interest  through  September  30,  1996) of Kansas ad
valorem taxes (see Note 3 to the Condensed  Financial  Statements),  resulted in
the third quarter loss of $2,310,000  or $0.21 per unit.  Absent the  settlement
and the Kansas ad valorem tax  provision,  the  Partnership's  earnings  for the
quarter would have been approximately  $2,730,000 or $0.25 per unit.  Generally,
it is expected that for income tax purposes,  the settlement will tend to offset
higher revenues resulting from higher gas prices during 1996.

Net cash flows from operating  activities during the three and nine months ended
September 30, 1996 were ($1,222,000) and $7,442,000,  respectively,  compared to
$1,237,000 and $6,777,000 for the same periods of 1995.  Absent the  settlement,
net cash flows  during the three and nine months ended  September  30, 1996 were
$3,133,000 and $11,797,000,  respectively.  Operating cash flows were positively
impacted in both the three month and the nine month periods ended  September 30,
1996 by natural gas market prices which were  significantly  higher  compared to
the same periods last year.

The Partnership's  settlement with P&P removes any  uncertainties  regarding the
status of its natural gas properties,  its ability to transport its Oklahoma gas
to market, as well as its ability to obtain a market responsive price for all of
its natural gas.  Consequently,  the  Partnership  has  canceled its  previously
announced plans to build a new pipeline  gathering  system in Oklahoma.  Through
September 30, 1996,  approximately $707,000 in capital expenditures were made by
the Partnership for electronic meters,  meter houses, and certain  rights-of-way
necessary to construct the new pipeline.  These expenditures include the cost of
installing the new metering  facilities on the existing  pipeline system serving
the Partnership's wells.

The Partnership has available a $15,000,000  unsecured revolving credit facility
with a current borrowing base of $8,500,000.  Please see Note 4 to the financial
statements for additional information. As of November 5, 1996, letters of credit
totaling  $267,000 were issued under the credit facility and the amount borrowed
was $5,000,000. The Partnership's cash position was zero on January 1, 1995 as a
result of cash  management  practices  which minimize  borrowings.  The weighted
average amount borrowed under the credit facility was  approximately  $2,600,000
during the third  quarter of 1996  compared to  approximately  $260,000  for the
previous  quarter of 1996. The current  amount  borrowed is primarily due to the
Partnership's  need  for  additional  cash to  fund  the  litigation  settlement
discussed above.
<PAGE>
                            DORCHESTER HUGOTON, LTD.
                          (A Texas Limited Partnership)

PART I
Item 2
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                   (Continued)


The  Partnership's  portion of gas sales volumes (in MMCF) and weighted  average
BTU adjusted sales prices per MCF were as follows:

                                    Three Months Ended         Nine Months Ended
                               ----------------------------    -----------------
                                 September 30,                   September 30,
                               ----------------     June 30    -----------------
                                1996       1995       1996       1996      1995
Sales Volumes:                 -----      -----      -----      -----     -----
   Oklahoma .............      1,416      1,594      1,578      4,717     4,719
   Kansas ...............        526        505        564      1,696     1,586
                               -----      -----      -----      -----     -----
Total ...................      1,942      2,099      2,142      6,413     6,305
                               =====      =====      =====      =====     =====
Weighted Average BTU Adjusted Sales Prices:
   Oklahoma ...............    $2.10      $1.38      $2.19      $2.10     $1.46
   Kansas .................     2.08       1.32       2.11       2.04      1.40
Overall Weighted Average.      $2.09      $1.36      $2.16      $2.08     $1.44


Oklahoma  natural gas sales volumes were lower during the third quarter compared
to the second  quarter of 1996 due to routine  annual  state well  tests.  Also,
Oklahoma third quarter sales volumes were lower than 1995 third quarter  volumes
although nine month volumes were essentially unchanged from 1995 to 1996. Kansas
natural gas sales  volumes were lower during the third  quarter  compared to the
second  quarter of 1996 as a result of  beginning  annual state well testing and
slightly  higher  compared to the third quarter of 1995.  Neither the volumes or
prices stated above have been adjusted for litigation  settlement other than the
exchange of Kansas properties effective September 1, 1996.  Consideration of the
current production payment would reduce Oklahoma volumes approximately 5%.

The  Partnership is pleased to have resolved its  litigation  with P&P and looks
forward  to  reducing  debt  during  the  near  term and  then  emphasizing  the
previously  announced unit repurchase program. The increase in current borrowing
base from  $4,250,000  to  $8,500,000  was  needed to  complete  funding  of the
litigation  settlement payment and remains adequate to fund current  anticipated
capital expenditures.  Presently, the Partnership is drilling and completing one
replacement  well in Oklahoma  and one infill  development  well in Kansas.  The
maximum amount borrowed during 1996 has been $5,800,000.
<PAGE>
                            DORCHESTER HUGOTON, LTD.
                          (A Texas Limited Partnership)

                                OTHER INFORMATION
PART II

     Item 1. Legal  Proceedings:  See Notes to Condensed  Financial  Statements.

     Item 5. Other  Information:  Mr. W. Randall Blank was  re-appointed  to the
          Partnership's  Advisory  Committee  for a two year  term.  Mr.  Rawles
          Fulgham, initially appointed for a two year term, will be eligible for
          re-appointment to the Advisory Committee in 1997.

     Item 6. Exhibits  and  Reports  on Form 8-K:
         a)  Exhibit  27 -  Financial  Data Schedule
         b)  Reports on Form 8-K - On August 14, 1996 the Partnership  announced
             that it had closed with Parker & Parsley Petroleum Company Entities
             the  previously  announced  settlement agreement resolving all out-
             standing litigation.



                                   SIGNATURES

Pursuant  to the  requirements  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.


                                       DORCHESTER HUGOTON, LTD.
                                       Registrant





Date:  November 11, 1996               /s/ Kathleen A. Rawlings
                                       Kathleen A. Rawlings
                                       Controller (Principal Accounting Officer)