26
                    SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, DC  20549

                                 FORM 10-Q

(Mark One)
X    Quarterly report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934
     For the quarterly period ended September 30, 1999

     or

?    Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934
     For the transition period from __________ to __________

     Commission file number:  000-23701

     SOUTHWEST ROYALTIES, INC.                    SOUTHWEST ROYALTIES
     (Exact Name of Registrant as                 HOLDINGS, INC.
     Specified in Its Charter)                    (Exact Name of Registrant
     as
                                             Specified in Its Charter)

     Delaware                                Delaware
     (State or Other Jurisdiction of              (State or Other
Jurisdiction of
     Incorporation or Organization)               Incorporation or
     Organization)

     75-1917432                                   75-2724264
     (I.R.S. Employer                             (I.R.S. Employer
     Identification Number)                  Identification Number)

     407 North Big Spring, Suite 300
     Midland, Texas                               79701
     (Address of Principal Executive Offices)          (Zip Code)

                            (915) 686-9927
         Registrants' Telephone Number, Including Area Code:

                              Not Applicable
(Former name, former address and former fiscal year, if changed since last
                                  report)


Indicate  by  check  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 ___


Number  of shares of common stock outstanding as of September 30, 1999  for
Southwest Royalties, Inc                                              100.
Number  of shares of common stock outstanding as of September 30, 1999  for
Southwest Royalties Holdings, Inc                               1,075,868.


<PAGE>

                         SOUTHWEST ROYALTIES, INC.

                    SOUTHWEST ROYALTIES HOLDINGS, INC.



                             TABLE OF CONTENTS


                    PART I - FINANCIAL INFORMATION Page

Item 1.   Consolidated Financial Statements

          Consolidated Balance Sheets as of September 30, 1999
          (unaudited) and December 31, 1998                3

          Consolidated Statements of Operations for the
          three and  nine months ended September 30, 1999
          and 1998 (unaudited)                             5

          Consolidated Statements of Cash Flows for the three
          and nine months ended September 30, 1999
          and 1998 (unaudited)                             7

          Notes to Consolidated Financial Statements       9


Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations             17

Item 3.   Quantitative and Qualitative Disclosures About
          Market Risk                                     22

                        PART II - OTHER INFORMATION

Item 6.   Reports on Form 8-K and Exhibits                24














<PAGE>
                      PART I - FINANCIAL INFORMATION

ITEM 1.   CONSOLIDATED FINANCIAL STATEMENTS

            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

                        CONSOLIDATED BALANCE SHEETS
                   (in thousands, except per share data)

                                                September 30,December 31,
ASSETS                                               1999       1998
---------------------------------------------------------   ------------
-----------
                                                 (unaudited)
Current assets
  Cash and cash equivalents                       $ 19,638   $  13,801
  Accounts receivable, net of allowance of $234 and
   $342, respectively                                7,567       5,248
  Receivables from related parties                     365       1,594
  Other current assets                                 716       1,624
                                                   -------     -------
     Total current assets                           28,286      22,267
                                                   -------     -------
Oil and gas properties, using the full cost
 method of accounting
  Proved                                           191,817     194,096
  Unproved                                           2,369       3,230
                                                   -------     -------
                                                   194,186     197,326
  Less accumulated depletion, depreciation and
   amortization                                    125,141     121,841
                                                   -------     -------
Oil and gas properties, net                         69,045      75,485
                                                   -------     -------
Rental property, net                               131,033     132,120
                                                   -------     -------
Other property and equipment, net                    4,915       5,888
                                                   -------     -------
Other assets
  Restricted cash                                    4,642       5,050
  Equity investment in subsidiaries                      -         931
  Real estate investments                            3,685       4,019
  Deferred debt costs, net of accumulated
   amortization of $3,137 and $3,136, respectively              10,117
8,725
  Noncompete covenants, net of accumulated
   amortization of $490 and $269, respectively       1,114       1,335
  Other, net                                         1,555       1,730
                                                   -------     -------
     Total other assets                             21,113      21,790
                                                   -------     -------
Total assets                                      $254,392   $ 257,550
                                                   =======     =======
                                                             (continued)


<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

                  CONSOLIDATED BALANCE SHEETS (continued)
                   (in thousands, except per share data)

                                                September 30,December 31,
                                                     1999       1998
                                                  --------- -----------
                                                 (unaudited)
LIABILITIES, MINORITY INTEREST, REDEEMABLE
COMMON STOCK AND STOCKHOLDERS' DEFICIT
---------------------------------------------------------
Current liabilities
  Current maturities of long-term debt            $  4,777   $  12,716
  Accounts payable                                   5,934       7,116
  Accounts payable to related parties                    -         173
  Accrued expenses                                  16,660       9,737
                                                   -------     -------
     Total current liabilities                      27,371      29,742
                                                   -------     -------
Long-term debt                                     339,887     322,368
                                                   -------     -------
Other long-term liabilities                          1,928       1,797
                                                   -------     -------
Minority interest                                        9         206
                                                   -------     -------
Redeemable common stock of subsidiary                3,090       2,979
                                                   -------     -------
Redeemable common stock                              8,290       8,290
                                                   -------     -------
Stockholders' deficit
  Preferred stock - $1 par value; 5,000,000
   shares authorized; none issued                        -           -
  Common stock - $.10 par value; 5,000,000 shares
   authorized; 1,161,037 issued at September 30, 1999
   and December 31, 1998                               116         116
  Additional paid-in capital                         2,196       2,196
  Accumulated deficit                             (123,749)  (105,375)
  Note receivable from an officer and
   stockholder                                     (1,656)     (1,679)
  Less:  treasury stock - at cost; 214,215 shares at
   September 30, 1999 and December 31, 1998        (3,090)     (3,090)
                                                   -------     -------
     Total stockholders' deficit                  (126,183)  (107,832)
                                                   -------     -------
Total liabilities, minority interest, redeemable
  common stock and stockholders' deficit          $254,392   $ 257,550
                                                   =======     =======











           The accompanying notes are an integral part of these
                    consolidated financial statements.
<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF OPERATIONS
                   (in thousands, except per share data)
                                (unaudited)

                                   Three months ended  Nine months ended
                                     September 30,       September 30,
                                   ------------------  -----------------
                                     1999      1998      1999      1998
                                    ------    ------    ------    ------
Operating revenues
  Oil and gas                      $ 8,115   $ 7,357   $21,169   $26,188
  Real estate                        7,985     6,965    23,936    17,759
  Other                                599       366     1,107     1,155
                                    ------    ------    ------    ------
     Total operating revenues       16,699    14,688    46,212    45,102
                                    ------    ------    ------    ------
Operating expenses
  Oil and gas production             2,871     4,234     8,502    14,896
  Real estate                        4,670     3,534    13,312     8,786
  General and administrative, net of
   related party management and
   administrative fees of $934,    $905,
   $2,625 and $2,752, respectively           669       1,106     2,129
3,708
  Depreciation, depletion and
   amortization                      1,837     1,707     7,123    11,195
  Impairment of oil and gas
   properties                            -         -         -    29,000
  Other                                120       325       579     1,052
                                    ------    ------    ------    ------
     Total operating expenses       10,167    10,906    31,645    68,637
                                    ------    ------    ------    ------

Operating income (loss)              6,532     3,782    14,567   (23,535)
                                    ------    ------    ------    ------
Other income (expense)
  Interest and dividend income         269       346       681     1,143
  Interest expense                 (10,277)  (9,584)   (31,340)  (26,502)
  Other                                233        26       247       306
                                    ------    ------    ------    ------
                                   (9,775)   (9,212)   (30,412)  (25,053)
                                    ------    ------    ------    ------

(continued)


<PAGE>

            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

             CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
                   (in thousands, except per share data)
                                (unaudited)

                                   Three months ended  Nine months ended
                                     September 30,       September 30,
                                   -----------------   -----------------
                                     1999      1998      1999      1998
                                    ------    -----     -----     -----
Loss before income taxes, minority
   interest, equity loss and
   extraordinary item            $ (3,243) $ (5,430) $(15,845) $(48,588)
   Income tax benefit                    -         -         -     2,348
                                   --------- --------- --------- ---------
Loss before minority interest, equity
   loss and extraordinary item     (3,243)   (5,430)   (15,845)  (46,240)
   Minority interest in subsidiaries,
     net of tax                       (67)       290         -       489
   Equity in loss of subsidiary,
     net of tax                          -   (1,028)     (931)   (2,109)
                                   --------- --------- --------- ---------
Loss before extraordinary item     (3,310)   (6,168)   (16,776)  (47,860)
   Extraordinary item, net of tax            (5)       -         (1,598)
-
                                   --------- --------- --------- ---------
Net loss                         $ (3,315) $ (6,168) $(18,374) $(47,860)
                                   ========= ========= ========= =========

Loss per common share before
   extraordinary item            $  (3.08) $  (5.74) $ (15.60) $ (44.49)
   Extraordinary loss from early
     extinguishment of debt          (.01)         -    (1.49)         -
                                   --------- --------- --------- ---------

Loss per common share            $  (3.09) $  (5.74) $ (17.09) $ (44.49)
                                   ========= ========= ========= =========
Weighted average shares outstanding          1,075,868 1,075,868 1,075,868
1,075,868
                                   ========= ========= ========= =========




















           The accompanying notes are an integral part of these
                     consolidated financial statements
<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)
                                (unaudited)

                                   Three months ended  Nine months ended
                                     September 30,       September 30,
                                   -----------------   -----------------
                                     1999      1998      1999      1998
                                    ------    -----     -----     -----
Cash flows from operating activities
  Net loss                         $(3,315)  $(6,168)  $(18,374) $(47,860)
  Adjustments to reconcile net loss
   to net cash provided by operating
   activities:
  Depreciation, depletion and
   amortization                      1,837     1,707     7,123    11,195
  Impairment of oil and gas
   properties                            -         -         -    29,000
  Noncash interest expense           1,708       800     4,218     2,025
  Extraordinary loss from early
   extinguishment of debt                5         -     1,598         -
  Gain on sale of assets             (194)      (23)     (196)     (284)
  Equity loss of subsidiary
   and partnerships                      -     1,028       187     2,109
  Impairment of equity investment            -         -         744
-
  Other noncash items                   77        97       839       174
  Bad debt expense                     127        32       226       187
  Deferred income taxes                  -         -         -   (2,348)
  Minority interest in income (loss)
   of subsidiary                        67     (290)         -     (489)
  Changes in operating assets
   and liabilities:
   Accounts receivable               (498)       909   (1,432)     3,279
   Other current assets                197        46     (123)     (207)
   Accounts payable and accrued
     expenses                        1,374     1,177       703       534
   Accrued interest payable          5,386     5,430     5,133     5,408
                                    ------    ------    ------    ------
Net cash provided by operating
  activities                         6,771     4,745       646     2,723
                                    ------    ------    ------    ------
Cash flows from investing activities
  Proceeds from sale of oil and
   gas properties                      328       738     5,533     3,796
  Purchase of oil and gas properties         (1,670)   (2,323)   (2,454)
(8,889)
  Purchase of other property and
   equipment and rental property             (1,940)   (3,211)   (4,413)
(29,662)
  Purchase of other assets           (106)   (1,095)     (563)   (3,242)
  Purchase of noncompete covenants           -         -         -
(1,602)
  Proceeds from sale of real estate
   investments                          17         -       631       764
  Proceeds from sale of other assets              24        77       366
1,137
  Proceeds from sale of other property
   equipment and rental property             2,268     27        3,336
51
  Purchase of real estate investments              -     (328)      (30)
(328)
                                                              (continued)

<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

             CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                              (in thousands)
                                (unaudited)

                                   Three months ended  Nine months ended
                                     September 30,       September 30,
                                   -----------------   -----------------
                                     1999      1998      1999      1998
                                    ------    -----     -----     -----
  Change in restricted cash        $ (500)   $   506   $   408   $ 1,562
  Other                                  7         7        23        15
                                    ------    ------    ------    ------
Net cash provided by (used in)
  investing activities             (1,572)   (5,602)     2,837   (36,398)
                                    ------    ------    ------    ------
Cash flows from financing activities
  Proceeds from borrowings           2,576     2,330   105,816    29,295
  Payments on debt                 (2,315)     (869)   (98,393)  (1,706)
  Increase (decrease) in other
   long-term liabilities                 4        21      (28)      (14)
  Deferred debt cost                   (5)      (61)   (4,078)     (841)
  Dividends paid to minority interest
   owners                             (30)      (28)      (91)      (89)
  Purchase of minority interest in
   subsidiary                            -         -         -     (305)
  Prepayment penalty on early
   extinguishment of debt                -         -     (875)         -
  Other                                (1)         -         3       (3)
                                    ------    ------    ------    ------
Net cash provided by financing
  activities                           229     1,393     2,354    26,337
                                    ------    ------    ------    ------
Net increase (decrease) in
  unrestricted cash and cash
  equivalents                        5,428       536     5,837   (7,338)

Unrestricted cash and cash equivalents -
  beginning of period               14,210    19,491    13,801    27,365
                                    ------    ------    ------    ------
Unrestricted cash and cash equivalents -
  end of period                    $19,638   $20,027   $19,638   $20,027
                                    ======    ======    ======    ======
Supplemental disclosures of cash flow
 information
  Interest paid                    $ 3,185   $ 3,354   $21,989   $19,069












           The accompanying notes are an integral part of these
                     consolidated financial statements
<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Business

  Southwest  Royalties Holdings, Inc. ("SRH"), a Delaware  corporation  was
formed  in  June 1997 to serve as a holding company for Southwest Royalties
Inc. ("Southwest"), Sierra Well Service Inc. ("Sierra") and Midland Red Oak
Realty, Inc. ("Red Oak") (collectively, the "Company"). Each shareholder of
Southwest  was  issued one share in SRH for each share of  Southwest  stock
held.   Prior to the formation of SRH, Red Oak and Sierra were subsidiaries
of  Southwest.  Southwest paid a dividend of the shares it owned in Red Oak
and  Sierra  to  SRH.  After the formation of SRH, Southwest  and  Red  Oak
became   subsidiaries  of  SRH  and,  as  of  July  1,  1997,  Sierra   was
deconsolidated.

  Southwest  is  principally  involved in  the  business  of  oil  and  gas
development and production.  Southwest is the general partner of  Southwest
Partners II and III, which own common stock in Sierra.  Southwest sells its
oil  and  gas  production to a variety of purchasers, with  the  prices  it
receives  being  dependent upon oil and gas commodity prices.  Red  Oak  is
principally involved in real estate investment and development.  Sierra  is
principally involved in the business of oil and gas well services.

Principles of Consolidation

  The  consolidated financial statements include the accounts  of  SRH  and
its  subsidiaries.  As of September 30, 1999 and 1998,  the  Company  owned
approximately  81% of Red Oak, 29% and 39% of Sierra, as  well  as  99%  of
Midland  Southwest  Software ("MSS"), 100% and 98%  of  Threading  Products
International,  LLC ("TPI"), both of which are subsidiaries  of  Southwest.
Effective November 11, 1999, TPI was liquidated.  Effective July  1,  1997,
Sierra  was  deconsolidated and is accounted for using the  equity  method.
The  consolidated financial statements include the Company's  proportionate
share  of  the  assets, liabilities, income and expenses  of  oil  and  gas
limited  partnerships for which it serves as managing general partner.  The
Company accounts for its investments in Southwest Partners II and III using
the  equity method, as the Company exercises significant influence over the
operations   of   these   partnerships.    All   significant   intercompany
transactions have been eliminated.

Restricted Cash

  Restricted  cash represents amounts required to be reserved  in  separate
accounts  by  financial lenders.  These reserves are principally  for  real
estate  activity  and  are held in the names of Red  Oak  and  its  various
subsidiaries, but withdrawals from such accounts require the  signature  or
authorization of the lender.


<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies - continued

  Restricted  cash accounts, principally for Red Oak and its  subsidiaries,
have been established for the following purposes (in thousands):
                                                  September 30,December 31,
                                                       1999        1998
                                                       ----        ----
     Certificate of Deposits                        $    110        105
     Tenant security deposits                            503        412
     Interest reserves                                     -        707
     Capital expenditures account                        259      1,229
     Tax and insurance reserve                         2,766      1,009
     Tenant bankruptcy reserve                             -        767
     Lockbox                                             378        217
     Customer service reserve                              6         10
     Escrow fund                                         620        594
                                                       -----      -----
                                                    $  4,642      5,050
                                                       =====      =====
Interim Financial Statements

  In  the  opinion  of  management,  the unaudited  consolidated  financial
statements  of  the Company as of September 30, 1999 and 1998  include  all
adjustments  and  accruals,  consisting only of  normal  recurring  accrual
adjustments, which are necessary for a fair presentation of the results for
the  interim periods.  These interim results are not necessarily indicative
of results for a full year.

  Certain  information  and  footnote  disclosures  normally  included   in
financial  statements  prepared  in  accordance  with  generally   accepted
accounting  principles  have  been condensed  or  omitted  in  this  Report
pursuant  to  the  rules  and regulations of the  Securities  and  Exchange
Commission.   These  consolidated financial statements should  be  read  in
conjunction  with the consolidated financial statements and  notes  thereto
included in the 1998 Form 10-K of the Company.

Reclassifications

  Certain  reclassifications have been made to the 1998 amounts to  conform
to the 1999 presentation.

2. Liquidity

  The accompanying consolidated financial statements have been prepared  on
a going concern basis, which contemplates the realization of assets and the
satisfaction  of  liabilities  in  the  normal  course  of  business.   The
consolidated  financial statements do not include any adjustments  relating
to  the  recoverability  and classification of liabilities  that  might  be
necessary should the Company be unable to continue as a going concern.

  The  Company has a highly leveraged capital structure with $21.0  million
of  interest payments due by April 15, 2000 on its 10.5% Senior  Notes  and
approximately $4.8 million of principal and approximately $13.0 million  of
cash  interest payments due by September 30, 2000 on its other  obligations
(principally  related  to  Red Oak).  Due to severely  depressed  commodity
prices  experienced by the oil and gas industry during the last quarter  of
1997, throughout 1998 and continuing through the first quarter of 1999  and
lagging rental property utilization, the Company is experiencing difficulty
in  generating sufficient cash flow to meet its obligations and sustain its
operations.   Management  is attempting to renegotiate  the  terms  of  the
Company's  various  obligations with its note holders  and  lenders  and/or
attempting   to  seek  new  lenders  or  equity  investors.   Additionally,
management would consider disposing of certain assets in order to meet  its
obligations.

<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Liquidity - continued

  There  can be no assurance that the Company's debt restructuring  efforts
will  be  successful or that the note holders or lenders will  agree  to  a
course   of   action   consistent  with  the  Company's   requirements   in
restructuring the obligations.  Even if such agreement is reached,  it  may
require  approval  of additional note holders, or possibly,  agreements  of
other  creditors  of  the Company, none of which is assured.   Furthermore,
there  can  be  no  assurance that the sale of assets can  be  successfully
accomplished   on   terms   acceptable  to  the  Company.   Under   current
circumstances, the Company's ability to continue as a going concern depends
upon its ability to (1) successfully restructure its 10.5% Senior Notes and
other  obligations or obtain additional financing as may be  required,  (2)
maintain  compliance with all debt covenants, (3) generate sufficient  cash
flow   to  meet  its  obligations  on  a  timely  basis,  and  (4)  achieve
satisfactory levels of future earnings.  If the Company is unsuccessful  in
its  efforts, it may be unable to meet its obligations on the 10.5%  Senior
Notes, as well as other obligations, making it necessary to undertake  such
other actions as may be appropriate to preserve asset values.

3. Commitments and Contingencies

  The   Company   is  subject  to  extensive  federal,  state   and   local
environmental  laws  and  regulations.  These laws,  which  are  constantly
changing, regulate the discharge of materials into the environment and  may
require the Company to remove or mitigate the environmental effects of  the
disposal  or release of petroleum or chemical substances at various  sites.
Environmental expenditures are expensed or capitalized depending  on  their
future economic benefit.  Expenditures that relate to an existing condition
caused  by  past operations and that have no future economic  benefits  are
expensed.  Liabilities for expenditures of a noncapital nature are expensed
when  environmental assessment and/or remediation is probable and the costs
can be reasonably estimated.

  Management  recognizes  a  financial exposure  that  may  require  future
expenditures  presently  existing for oil  and  gas  properties  and  other
operations.   As  of September 30, 1999, the Company has  not  been  fined,
cited  or  notified  of any environmental violations  which  would  have  a
material  adverse  effect  upon  capital  expenditures,  earnings  or   the
competitive position in the oil and gas industry. However, management  does
recognize that by the very nature of its business, significant costs  could
be  incurred to bring the Company into total compliance. The amount of such
future  expenditures  is not readily determinable due to  several  factors,
including  the  unknown magnitude of possible contaminations,  the  unknown
timing  and  extent of the corrective actions which may  be  required,  the
determination of the Company's liability in proportion to other responsible
parties  and  the  extent to which such expenditures are  recoverable  from
insurance   or   indemnifications  from  prior  owners  of  the   Company's
properties. It is reasonably possible this estimate could change materially
in the near term.

  In  the  normal course of its business, the Company is subject to pending
or threatened legal actions; in the opinion of management, any such matters
will  be resolved without material effect on the Company's operations, cash
flows or financial position.

4. Commodity Hedging and Derivative Financial Instruments

  The  Company,  from time to time, uses option contracts to  mitigate  the
volatility of price changes on commodities the Company produces  and  sells
as  well  as to lock in prices to protect the economics related to  certain
capital projects.

  On  March 15, 1999, Southwest entered into a commodity swap agreement  to
hedge  a  portion of its crude oil sales.  The agreement is for a  notional
amount  of 1,000 BBls of oil a day, approximately 30% of total current  oil
production, with a strike price of $14.67, based on West Texas Intermediate
-  NYMEX.   The contract is for the period April 1, 1999 through  June  30,
1999,  but  could be extended to September 30, 1999, at the option  of  the
counter-party. The contract period was extended through September 30, 1999.

<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Commodity Hedging and Derivative Financial Instruments - continued

  On  July  9,  1999, Southwest entered into a commodity swap agreement  to
hedge  a  portion of its crude oil sales.  The agreement is for a  notional
amount  of 1,000 BBls of oil a day, approximately 30% of total current  oil
production, with a strike price of $20.22, based on West Texas Intermediate
- NYMEX.  The contract is for the period August 1, 1999 through October 31,
1999.  Subsequent to September 30, 1999, at the option of the counter-party
the contract has been extended to January 31, 2000.

  On  July  28, 1999, Southwest entered into a commodity swap agreement  to
hedge  a portion of its natural gas sales.  The agreement is for a notional
amount of 2,250 MMBtu of gas a day, approximately 25% of total current  gas
production, with a strike price of $2.78, based on Henry Hub - NYMEX.   The
contract is for the period September 1, 1999 through November 30, 1999, but
can be extended to February 28, 2000, at the option of the counter-party.

  On  July  29, 1999, Southwest entered into a commodity swap agreement  to
hedge  a portion of its natural gas sales.  The agreement is for a notional
amount of 2,250 MMBtu of gas a day, approximately 25% of total current  gas
production, with a strike price of $2.64, based on Henry Hub - NYMEX.   The
contract is for the period September 1, 1999 through November 30, 1999.

5.  Long-term Debt

     Long-term debt consists of the following (in thousands):
                                                 September 30,December 31,
                                                      1999        1998
                                                     -----       -----
     10.5% Senior Notes, interest payable semi-annually due
      October 15, 2004, net of $1,909 and $2,116 discount,
      respectively                                  $198,091  $197,884
     13.5% Notes payable, due April 2000.  Cash interest of
      10.5% payable monthly with additional interest payable
      based on excess cash flow or through the issuance of
       additional  notes.  Collateralized by  real  estate.               -
72,273
     Revolving line of credit, variable interest, due February
       1999.   Collateralized by oil and  gas  properties                 1
40
     Capital lease obligations                           274       418
     Variable Rate Notes Payables:
     Notes payable due July 2001.  Variable interest of
      7.4% and 7.1% at September 30, 1999 and December
      31, 1998, respectively, due and payable monthly with
      additional 1% payable in cash or additional notes.
      Net of $1,111 and $1,611 discount               14,379    13,891
     Note payable due December 2001.  Variable interest of
      7.4% and 7.1% at September 30, 1999 and December
      31, 1998, respectively, due and payable monthly
      with additional 1.5% payable in cash or additional
      notes.  Net of $2,889 and $3,889 discount       23,033    21,806
     Note payable due July 2002.  Variable interest of 9.0%
      at September 30, 1999, due and payable monthly.
      Net of $4,333 discount                          98,042         -
     Other                                            10,844    28,772
                                                     -------   -------
                                                     344,664   335,084
     Less current maturities                           4,777    12,716
                                                     -------   -------
                                                    $339,887  $322,368
                                                     =======   =======


<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.  Long-term Debt - continued

10.5% Senior Notes

  In  October  1997,  the Company issued $200 million  aggregate  principal
amount of 10.5% Senior Notes due October 15, 2004 (the "Notes").  The Notes
were sold at a discount and interest is payable April 15 and October 15  of
each  year,  commencing  April 15, 1998.  The Notes are  general  unsecured
senior obligations of the Company and rank equally in right of payment with
all other senior indebtedness of the Company and senior in right of payment
of  all  existing  future subordinated indebtedness  of  the  issuer.   Net
proceeds  from  the  issuance of the Notes were  used  primarily  to  repay
existing debt of approximately $84 million, purchase oil and gas properties
for  approximately $72 million, purchase additional stock in  Red  Oak  for
approximately  $10 million, invest $1.7 million in an affiliate,  with  the
remaining balance used for working capital.

  The  Indenture imposes certain limitations on the ability of the  Company
and  its  restricted subsidiaries to, among other things, incur  additional
indebtedness or issue disqualified capital stock, make payments in  respect
to  capital  stock, enter into transactions with affiliates,  incur  liens,
sell  assets, change the nature of its business, merge or consolidate  with
any  other  person  and  sell,  lease, transfer  or  otherwise  dispose  of
substantially all of its properties or assets.  The indenture requires  the
issuer to repurchase notes under certain circumstances with the excess cash
of  certain  asset  sales.  The limitations are  subject  to  a  number  of
important  qualifications and exceptions.  The issuer must  report  to  the
Trustee on compliance with such limitations on a quarterly basis.

13.5% Note Payable

  In  April  1997 MRO Properties Inc. ("MROP"), a 100% owned subsidiary  of
Red  Oak entered into a $42 million credit facility maturing in April  2000
with an institutional lender (the "MROP Facility").  The MROP Facility  was
executed  in order to consolidate nine mortgage loans, originally  incurred
to  complete the acquisition of certain Red Oak properties and  to  finance
the  acquisition  of an additional real estate property.  Borrowings  under
the  facility bear interest at a rate of 13%, with 10% payable in cash  and
the  remaining  3%  payable  in  cash or additional  notes.   The  facility
contains  a  number  of  covenants that, among other things,  restrict  the
ability  of  MROP to incur additional indebtedness and dispose  of  assets.
The  facility  is secured by a first lien on substantially  all  of  MROP's
properties.  In September 1997, the Company negotiated an additional  $30.5
million in loan proceeds which was used to acquire a retail shopping center
and office building in Oklahoma City, Oklahoma and a retail shopping center
in  San  Antonio,  Texas.   The loan is collateralized  by  the  properties
purchased, and by properties contributed by Red Oak.  This note was  repaid
with  a  portion  of  the proceeds from the June 1999  Variable  Rate  Note
Payable.


<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.  Long-term Debt - continued

Revolving Line of Credit

  Southwest  Credit Facility. The Southwest Credit Facility was amended  to
provide for a $75 million revolving line of credit due upon demand, subject
to  semi-annual borrowing base redetermination. The initial borrowing  base
of  $40 million is subject to a $15 million available sub-limit for oil and
gas  acquisitions,  with the balance of the borrowing  base  available  for
general  corporate purposes. Borrowings accrue interest  at  LIBOR  plus  a
margin  ranging  from 1.75% to 2.50% and the facility  incurs  a  quarterly
commitment  fee  of three-eighths of one percent (3/8%) per  annum  on  the
daily  average  of  the  unadvanced amount  of  the  borrowing  base.   The
Southwest  Credit Facility is secured by substantially all  of  Southwest's
proved oil and gas properties.  The facility contains a number of covenants
that  limit  loans  and advances, investments, and dividends,  as  well  as
setting  a  minimum  interest coverage ratio for SRH.   During  the  second
quarter, in response to the sustained low oil price environment, the lender
issued  lower pricing parameters for the computation of the borrowing  base
for  all  of  its  oil and gas customers. Using the new  price  parameters,
Southwest has no current availability under its line of credit.  The lender
schedules  quarterly reviews of its pricing policy and  should  oil  prices
strengthen, the Company can request a redetermination at that time.

Variable Rate Notes Payable

  In  June  1998, MRO N Cross, Inc., a wholly owned subsidiary of  Red  Oak
negotiated two notes payable in the amount of $13.5 million, net  of  a  $2
million discount, and $2.5 million. The $13.5 million note was used for the
acquisition  of  rental property in the amount of $12.9  million  with  the
remaining  $600,000  to  be  used for capital improvements  to  the  rental
property  purchased.  The $2.5 million note is for capital improvements  to
the rental property purchased and $2.0 million has not been utilized as  of
September  30,  1999.   The  notes  are  collateralized  by  the   property
purchased.

  In  December 1998, MRO Commercial, Inc., a wholly owned subsidiary of Red
Oak  negotiated two notes payable in the amount of $21.7 million, net of  a
$4 million discount, and $9.7 million.  The $21.7 million note was used for
the  acquisition of rental property.  The $9.7 million note is for  capital
improvements to the rental property purchased and $8.5 million has not been
utilized  as  of September 30, 1999.  The notes are collateralized  by  the
property purchased.

  In  June 1999, MRO Southwest, Inc., a wholly owned subsidiary of Red  Oak
negotiated two notes payable in the amount of $97.5 million, net of a  $4.9
million  discount,  and  $8.0 million.  Borrowings for  both  notes  accrue
interest  in arrears at a rate per annum equal to the greater  of  8.6%  or
LIBOR plus 360 basis points.  The interest rate includes a servicing fee of
10  basis  points  per  annum.  Approximately $93.6 million  of  the  $97.5
million note was used to retire existing debt, on properties contributed to
MRO  Southwest  by  Red  Oak,  $1.5  million  was  deposited  into  various
restricted  cash accounts and the remaining proceeds were used for  general
corporate  purposes.  The $8.0 million note is for capital improvements  to
rental property and $6.9 million has not been utilized as of September  30,
1999.   The  notes  are  collateralized by  the  properties  owned  by  MRO
Southwest.   The  notes  impose  certain  restrictive  covenants  including
restrictions  on  the  incurrence of additional indebtedness,  dissolution,
termination  or  liquidation of all or substantially  all  of  the  assets,
changes  in the legal structure of the assets, making any loans or advances
to any third party and commingling its assets with the assets of any of its
affiliates or of any other person or entity.

<PAGE>

            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.  Long-term Debt - continued

Extinguishment of Debt

  In  June  1999,  the Company repaid certain notes payable  with  proceeds
from  the  aforementioned Variable Note Payable issued  in  June  of  1999.
Prepayment  penalties  and the remaining unamortized  deferred  debt  costs
associated with these notes resulted in an extraordinary charge  of  $1,598
million  or  $(1.49)  per  share.  Since there is no  recorded  income  tax
benefits  on continuing operations there is no income tax benefits recorded
on the extraordinary loss.

  Aggregate  maturities  of all long-term debt as of  September  30,  1999,
including capital leases, are as follows (in thousands):

     For the twelve
     months ended
     --------------
     September 30, 2000                             $  4,777
     September 30, 2001                               15,411
     September 30, 2002                              123,488
     September 30, 2003                                  417
     September 30, 2004                                   80
     Thereafter                                      200,491
                                                     -------
                                                    $344,664
                                                     =======
6. Lines of Business

  The  Company operates in two major segments: Oil and Gas Activities  (oil
and  gas  acquisition, development, exploration and production, as well  as
organizing  and serving as managing general partner for various public  and
private  limited  partnerships  engaged in  oil  and  gas  development  and
production)  and  Real Estate Investment and Management (owns  and  manages
retail  shopping  centers  and  office  buildings).   Other  items  include
eliminations, manufacturing, computer service and the holding Company.
                              Three months ended Nine months ended
                                September 30,      September 30,
                              ------------------ -----------------
                                 1999     1998      1999      1998
                                -----    -----     -----     -----
                                (in thousands)     (in thousands)
                                 (unaudited)        (unaudited)
 Operating profit (loss)
   Oil and gas              $   4,752   $ 1,685   $ 8,425   $(29,289)
   Real estate                  1,752     2,094     6,102     5,774
   Other and eliminations               28        3         40        (20)
                              -------    ------    ------    ------
                            $   6,532   $ 3,782   $14,567   $(23,535)
                              =======    ======    ======    ======
 Interest Expense
   Oil and gas              $   5,629   $ 5,719   $16,757   $16,846
   Real Estate                  4,663     3,882    14,702     9,628
   Other and eliminations               (15)      (17)      (119)     28
                              -------    ------    ------    ------
                            $  10,277   $ 9,584   $31,340   $26,502
                              =======    ======    ======    ======

<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Lines of Business - continued
                              Three months ended Nine months ended
                                September 30,      September 30,
                              ------------------ -----------------
                                 1999     1998      1999      1998
                                -----    -----     -----     -----
                                (in thousands)     (in thousands)
                                 (unaudited)        (unaudited)
 Depreciation, depletion and
   amortization
   Oil and gas              $     697   $   852   $ 3,676   $ 9,021
   Real Estate                  1,127       808     3,349     2,034
   Other and eliminations               13        47        98        140
                              -------    ------    ------    ------
                            $   1,837   $ 1,707   $ 7,123   $11,195
                              =======    ======    ======    ======

 Capital expenditures
   Oil and gas              $   1,609   $ 2,534   $ 2,392   $ 9,489
   Real Estate                  1,614     4,174     3,210    30,042
   Other and eliminations               -         106       -         300
                              -------    ------    ------    ------
                            $   3,223   $ 6,814   $ 5,602   $39,831
                              =======    ======    ======    ======

                                           September 30, December 31,
                                                 1999         1998
                                              ----------   ----------
Identifiable assets
  Oil and gas                                 $ 108,550   $ 111,876
  Real estate                                   148,878     148,340
  Other and eliminations                        (3,036)     (2,666)
                                                -------     -------
                                              $ 254,392   $ 257,550
                                                =======     =======










<PAGE>
ITEM  2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND
RESULTS OF OPERATIONS

General

  Southwest  Royalties Holdings, Inc., a Delaware corporation,  was  formed
in 1997 to serve as a holding company for Southwest Royalties, Inc., Sierra
Well  Service, Inc. and Midland Red Oak Realty, Inc.  SRH is an independent
oil  and gas company engaged in the acquisition, development and production
of oil and gas properties, primarily in the Permian Basin of West Texas and
southeastern  New  Mexico, through its wholly-owned subsidiary,  Southwest.
Since 1983, Southwest has grown primarily through selective acquisitions of
producing oil and gas properties, both directly and through the oil and gas
partnerships  it  manages.  SRH also participates  in  the  well  servicing
industry  through its affiliate, Sierra, and owns and manages  real  estate
properties through its subsidiary, Red Oak.

Results of Operations

Three months and nine months ended September 30, 1999 compared to three
months and nine months September 30, 1998

  The  following table summarizes production volumes, average sales  prices
(which include the results of hedging) and period to period comparisons for
the Company's oil and gas operations, including the effect on revenues, for
the periods indicated:
                                 Three months ended  Nine months ended
                                   September 30,       September 30,
                                ------------------- -------------------
                                  1999       1998     1999       1998
                                 -----      -----    -----      -----
                                   (in thousands)      (in thousands)
                                    (unaudited)         (unaudited)
Production volumes:
      Oil and condensate (MBbls)               325       412     1,013
1,341
      Natural gas (MMcf)           1,056     1,325     3,195     4,336
Average sales prices:
      Oil and condensate (per Bbl)        $  17.42  $  12.04  $  14.47
$     13.16
      Natural gas (per Mcf)     $   2.27  $   1.66  $   2.01  $   1.85

  Revenues. Revenues for the Company increased 14% to $16.7 million and  2%
to  $46.2  million for the three and nine months ended September 30,  1999,
respectively, as compared to $14.7 million and $45.1 million for  the  same
periods in 1998.

  Oil  and  gas revenue increased 10% to $8.1 million for the three  months
ended  September 30, 1999 and decreased 19% to $21.2 million for  the  nine
months  ended  September 30, 1999, as compared to $7.4  million  and  $26.2
million  for  the  same periods in 1998.  The increase in revenue  for  the
three months ended September 30, 1999 is due primarily to increases in  oil
and  gas prices which resulted in increased revenues of approximately  $3.0
million.  The increase in revenue due to the increase in oil and gas prices
was  offset  by  declines in oil and gas production of  approximately  $2.2
million  and  a  decline of other oil and gas partnership distributions  of
approximately $100,000.  The decrease in revenue for the nine months  ended
September  30,1999 is due primarily to decreases in oil and gas  production
which  resulted in approximately $7.0 million in decreased revenues  offset
by  increased revenues of approximately $2.4 million from oil and gas price
increases  experienced  during the period. The  remaining  balance  of  the
decrease  of  approximately  $400,000 was due  to  decreased  oil  and  gas
partnership distributions.

<PAGE>
  Oil  and  gas production decreased 21% or approximately 1,437 BOEPD,  for
three months ended September 30, 1999 and 25%, or approximately 1,896 BOEPD
for  the  nine  months ended September 30, 1999, as compared  to  the  same
periods  in  1998.   In an ongoing effort to increase  the  Company's  cash
position and reduce the number of high operating expense properties in  its
oil  and  gas  portfolio, management has sold oil and  gas  properties  for
approximately  $7.4 million since October 1, 1998.  The production  decline
resulting  from oil and gas property sales was approximately 836 BOEPD  and
885  BOEPD, or 12% of the total production decline for the three month  and
nine  month periods, respectively, ended September 30, 1999.  The remainder
of  the  production decline of approximately 9% and 13% for the  three  and
nine  months  periods  ended September 30, 1999,  respectively  are  mostly
results of natural decline.

  Real  estate revenues increased 15% to $8.0 million for the three  months
ended September 30, 1999 and 35% to $23.9 million for the nine months ended
September 30, 1999, as compared to $7.0 million and $17.8 million  for  the
same periods in 1998.  The increase in revenues is due primarily to several
acquisitions  which  were  made late in the  second  quarter  of  1998  and
subsequent.

  Operating    Expenses.   Operating   expenses,   before    general    and
administrative   expense,  impairment  of  oil  and  gas   properties   and
depreciation, depletion and amortization, decreased 5% to $7.7 million  and
9% to $22.4 million for the three and nine months ended September 30, 1999,
respectively, as compared to $8.1 million and $24.7 million  for  the  same
periods in 1998.

  Oil  and  gas  operating  expense decreased  approximately  32%  to  $2.9
million for the three months ended September 30, 1999 and approximately 43%
to $8.5 million for the nine months ended September 30, 1999, due primarily
to  management's efforts to cut expenses through more efficient operations,
and  by selectively eliminating high operating expense properties from  its
oil  and  gas  portfolio.  The average operating expense decreased  14%  to
$5.73  per  BOE for the three months ended September 30, 1999  and  24%  to
$5.50  per BOE for the nine months ended September 30, 1999 from $6.69  and
$7.22 for the same periods in 1998.

  Real  estate  operating expense increased 32% to  $4.7  million  for  the
three months ended September 30, 1999 and 52% to $13.3 million for the nine
months  ended  September 30, 1999, as compared to  $3.5  million  and  $8.8
million  for the same periods in 1998.  These increases were due  primarily
to  acquisitions, which were made late in the second quarter  of  1998  and
subsequent.

  General  and Administrative ("G&A") Expense. G&A expense for the  Company
decreased 40% to $669,000 for the three months ended September 30, 1999 and
decreased 43% to $2.1 million for the nine months ended September 30, 1999,
as  compared to $1.1 million and $3.7 million for the same periods in 1998.
Oil  and gas G&A expense per BOE decreased 34% to $.65 for the three months
ended  September  30, 1999 from $.99 per BOE for the same period  in  1998.
For the nine months ended September 30, 1999, G&A expense per BOE decreased
43%  to  $.73 from $1.29 per BOE for the same period in 1998.  Real  estate
G&A  expense decreased 23% to $406,000 and 2% to $1.1 million for the three
and  nine  months ended September 30, 1999, respectively from $529,000  and
$1.2  million  for  the comparable periods of 1998.  The decrease  in  real
estate  G&A for the three months ended September 30, 1999 relates primarily
to  charges incurred during the three months ended September 30,  1998  for
travel  and  other professional services associated with a non  consummated
refinance.

  Depreciation, Depletion and Amortization ("DD&A") Expense.  DD&A  expense
for  the  Company increased 8% to $1.8 million and decreased  36%  to  $7.1
million   for  the  three  and  nine  months  ended  September  30,   1999,
respectively, as compared to $1.7 million and $11.2 million  for  the  same
periods  in 1998.  Oil and gas depletion expense on a BOE basis,  increased
2%  to  $1.16  per BOE for the three months ended September 30,  1999  from
$1.14  per  BOE  for  the same period in 1998.  For the nine  months  ended
September  30, 1999, depletion expense per BOE decreased 48% to $2.14  from
$4.19 per BOE for the same period in 1998.  The decrease in DD&A expense on
an  overall  basis  and per BOE is due primarily to the  reduction  in  the
carrying  value  of  the Company's oil and gas properties  because  of  the
impairment  of approximately $64.0 million, which was recorded  during  the
third  and forth quarters of 1998.  Real estate DD&A expense increased  39%
to $1.1 million and 65% to $3.3 million for the three and nine months ended
September  30,  1999, respectively from $808,000 and $2.0 million  for  the
three  and nine months ended September 30, 1998, respectively, due  to  the
impact of acquisitions.
<PAGE>
  Interest Expense. Interest expense for the Company increased 7% to  $10.3
million  and  18%  to  $31.3 million for the three and  nine  months  ended
September  30,  1999, respectively, as compared to $9.6 million  and  $26.5
million  for  the  same  periods in 1998.  Oil  and  gas  interest  expense
remained  relatively  constant at $5.6 million and $16.8  million  for  the
three  and  nine  months ended September 30, 1999.   Real  estate  interest
expense  increased 20% to $4.7 million for the three months ended September
30,  1999 and 53% to $14.7 million for the nine months ended September  30,
1999, as compared to $3.9 million and $9.6 million for the same periods  in
1998.    The  increases  were  due  to  additional  debt  used  to  finance
acquisitions.

  Equity  in Loss of Subsidiary.  Equity in Loss of Subsidiary resulted  in
a  charge  of  $931,000 of which, $744,000 was a non-cash  charge  for  the
impairment  of  the equity investment in Sierra for the nine  months  ended
September 30, 1999.  This amount relates to the Company's 29% investment in
Sierra.

  Net  Income (Loss).  Due to the factors described above, net loss for the
Company  decreased 46% and 62% to $3.3 million and $18.4  million  for  the
three  and nine months ended September 30, 1999, respectively, as  compared
to  net  losses of $6.2 million and $47.9 million for the same  periods  in
1998.   Oil  and  gas net losses decreased 87% to $538,000  for  the  three
months  ended September 30, 1999 and approximately 81% to $8.0 million  for
the  nine months ended September 30, 1999, as compared to $4.0 million  and
$43.2  million  for  the  same periods in 1998.   Real  estate  net  losses
increased 48% to $2.5 million for the three months ended September 30, 1999
and  177% to $9.6 million for the nine months ended September 30, 1999,  as
compared to $1.7 million and $3.5 million for the same periods in 1998.

Liquidity and Capital Resources

  Management is constantly monitoring its cash position and its ability  to
meet  financial obligations as they become due, and as part of this effort,
is  exploring  various  strategies for addressing its  current  and  future
liquidity needs.  As of September 30, 1999, SRH's consolidated cash balance
was  approximately $19.6 million, of which approximately $18.6 million  was
available to Southwest.  Southwest has a $10.5 million interest payment due
October 15, 1999, which after the payment is made, will leave approximately
$8.6  million for working capital.  Southwest currently has no availability
under it's revolving line of credit.

  The  Company's financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities  in the normal course of business.  The consolidated  financial
statements  do  not include any adjustments relating to the  recoverability
and  classification  of  liabilities that might  be  necessary  should  the
Company be unable to continue as a going concern.

  The  Company has a highly leveraged capital structure with $21.0  million
of  interest payments due by April 15, 2000 on its 10.5% Senior  Notes  and
approximately $4.8 million of principal and approximately $13.0 million  of
cash  interest payments due by September 30, 2000 on its other  obligations
(principally  related  to  Red Oak).  Due to severely  depressed  commodity
prices  experienced by the oil and gas industry during the last quarter  of
1997, throughout 1998 and continuing through the first quarter of 1999  and
lagging rental property utilization, the Company is experiencing difficulty
in  generating sufficient cash flow to meet its obligations and sustain its
operations.   Management is currently in the process of  renegotiating  the
terms  of  the  Company's various obligations with its note holders  and/or
attempting   to  seek  new  lenders  or  equity  investors.   Additionally,
management would consider disposing of certain assets in order to meet  its
obligations.

<PAGE>

  There  can be no assurance that the Company's debt restructuring  efforts
will  be  successful or that the note holders will agree  to  a  course  of
action  consistent  with the Company's requirements  in  restructuring  the
obligations.  Even if such agreement is reached, it may require approval of
additional note holders, or possibly, agreements of other creditors of  the
Company,  none of which is assured.  Furthermore, there can be no assurance
that  the  sales  of  assets  can  be successfully  accomplished  on  terms
acceptable  to  the  Company.  Under current circumstances,  the  Company's
ability  to  continue as a going concern depends upon its  ability  to  (1)
successfully  restructure its 10.5% Senior Notes and other  obligations  or
obtain  additional  financing as may be required, (2)  maintain  compliance
with  all  debt covenants, (3) generate sufficient cash flow  to  meet  its
obligations  on  a  timely basis, and (4) achieve  satisfactory  levels  of
future earnings.  If the Company is unsuccessful in its efforts, it may  be
unable to meet its obligations on the 10.5% Senior Notes, as well as  other
obligations, making it necessary to undertake such other actions as may  be
appropriate to preserve asset values.

Net Cash Provided by Operating Activities

  Net  cash  provided by operating activities was $6.8 million and $646,000
for  the  three and nine months ended September 30, 1999, respectively,  as
compared  to net cash provided by operating activities of $4.7 million  and
$2.7 million for the same periods in 1998.

Net Cash Used in Investing Activities

  Net  cash provided by (used in) investing activities by the Company  were
$(1.6)  million  and  $2.8  million for the three  and  nine  months  ended
September  30, 1999, as compared to $(5.6) million and $(36.4) million  for
the  comparable  periods in 1998.  Capital expenditures  for  oil  and  gas
development activities and commercial real estate projects were the primary
uses of funds for both periods.  The primary source of funds from investing
activities  were  from sales of oil and gas properties and commercial  real
estate.

  In  response to the substantial decrease in oil prices during  1998,  SRH
has  initiated  a  short-term alternate business plan that  delays  certain
development and exploratory projects until oil and gas industry  conditions
improve.  Based on this plan, SRH has tentatively budgeted $3.4 million  in
capital  expenditures  at Southwest for oil and gas  development  projects.
This  budget  is subject to change based on financial strategies  currently
being  developed,  including  hedging  strategies,  divestitures  and  debt
restructuring, as well as the level of oil and gas prices in the future.

Net Cash Provided by Financing Activities.

  Net  cash provided by the Company's financing activities was $229,000 and
$2.4  million  for the three and nine months ended September  30,  1999  as
compared  to $1.4 million and $26.3 million for the comparable  periods  in
1998.  Net cash provided by financing activities was primarily used to fund
real   estate  acquisitions  in  1998.   Net  cash  provided  by  financing
activities,  was  from debt refinancing and primarily  used  to  fund  real
estate operations in 1999.

<PAGE>
Other Issues

  Information  Systems for the Year 2000.  SRH has identified and  assessed
its  exposure  to  the  potential  Year 2000  software  and  imbedded  chip
processing  and  date sensitivity issue.  Through Red Oak  and  SRH's  data
processing  subsidiary, Midland Southwest Software, Inc.,  SRH  proactively
initiated  an  internal plan to identify applicable hardware and  software,
assess   impact  and  effect,  estimate  costs,  construct  and   implement
corrective actions, and prepare contingency plans.

  Identification  & Assessment.  SRH currently believes it  identified  the
internal and external software and hardware that had the potential for date
sensitivity   problems.   Five  critical  systems  and/or  functions   were
identified and addressed:  (1) the proprietary software of Southwest (OGAS)
that  is  used  for oil & gas property management and financial  accounting
functions, (2) the proprietary software of Red Oak (Yardi) that is used for
real estate property management and financial accounting functions (3)  the
DEC   VAX/VMS  hardware  and  operating  system,  (4)  various  third-party
application  software  including  lease  economic  analysis,  fixed   asset
management,  geological applications, and payroll/human resource  programs,
and (5) External Agents.

  The  proprietary software of SRH has met compliance requirements.   Since
this  is  an  internally  generated  software  package,  SRH  has  incurred
approximately  $25,000 in man-hours.  Modifications were made  by  internal
staff  and  did  not represent additional costs to SRH. SRH  has  not  made
contingency  plans at this time since the conversion is ahead  of  schedule
and  being  handled by Company controlled internal programmers.  Given  the
complexity of the systems that were modified, it is anticipated  that  some
problems  may  arise, but having met the early completion date,  SRH  feels
that adequate time remains available to overcome unforeseen delays.

  DEC  has released a fully compliant version of its operating system  that
is used by Southwest on the DEC VAX system.  It was installed, SRH believes
that this solved any potential problems on the system.

  SRH  has  identified  various third-party software  that  may  have  date
sensitivity problems and is continuing to work with the vendors  to  secure
solutions  as  well  as  prepare  contingency  plans.   After  review   and
evaluation  of the vendor plans and status, SRH believes that the  problems
will  be resolved prior to the year 2000 or the alternate contingency  plan
will sufficiently and adequately remediate the problem so that there is  no
material disruption to business functions.

  The   External  Agents  of  SRH  include  suppliers,  customers,  owners,
vendors, banks, product purchasers including pipelines, and other  oil  and
gas  property  operators.   SRH  is  in  the  process  of  identifying  and
communicating with each critical External Agent about its plan and progress
thereof in addressing the Year 2000 issue.  This process is on schedule and
SRH,  at  this time, believes that there should be no material interference
or  disruption  associated  with  any  of  the  critical  External  Agent's
functions  necessary to SRH's business.  SRH estimates completion  of  this
audit by year-end 1999 and believes that alternate plans can be devised  to
circumvent  any  material  problems arising from  critical  External  Agent
noncompliance.

  Cost.   To  date,  SRH has incurred only minimal internal man-hour  costs
for  identification,  planning, and maintenance.   SRH  believes  that  the
necessary  additional costs will also be minimal and most will  fall  under
normal  and  general maintenance procedures and updates.  An accurate  cost
cannot  be determined at this time, but it is expected that the total  cost
to remediate all systems to be less than $60,000.


<PAGE>
  Risks/Contingency.  The failure to correct critical systems  of  SRH,  or
the  failure  of a material business partner or External Agent  to  resolve
critical  Year  2000  issues could have a serious  adverse  impact  on  the
ability of SRH to continue operations and meet obligations.  Based on SRH's
evaluation and assessment to date, it is believed that any interruption  in
operation will be minor and short-lived and pose no material monetary loss,
safety, or environmental risk to SRH.  However, due to the external  nature
of  the  potential  problems, it is impossible to accurately  identify  the
risks,  quantify  potential impacts or establish a final contingency  plan.
SRH  believes that its assessment and contingency planning will be complete
no later than year-end 1999.

  Worst  Case  Scenario.  The Securities and Exchange  Commission  requires
public  companies to forecast the most reasonably likely  worst  case  Year
2000  scenario,  assuming  that SRH's Year  2000  plan  is  not  effective.
Analysis  of the most reasonably likely worst case Year 2000 scenarios  SRH
may  face  leads  to  contemplation of the following  possibilities  which,
though considered highly unlikely, must be included in any consideration of
worst cases: widespread failure of electrical, gas, and similar supplies by
utilities   serving  SRH;  widespread  disruption  of   the   services   of
communications common carriers; similar disruption to means  and  modes  of
transportation  for  SRH  and  its employees, contractors,  suppliers,  and
customers; significant disruption to SRH's ability to gain access  to,  and
continue  working  in,  office  buildings and  other  facilities;  and  the
failure,  of  third-parties systems, the effects  of  which  would  have  a
cumulative  material adverse impact on SRH's critical systems.   SRH  could
experience  an inability by customers, traders, and others  to  pay,  on  a
timely   basis   or  at  all,  obligations  owed  to  SRH.    Under   these
circumstances,  the  adverse effect on SRH, and the diminution  of  Company
revenues, could be material, although not quantifiable at this time.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

  The  following quantitative and qualitative information is provided about
financial  instruments to which the Company is a party as of September  30,
1999,  and from which the Company may incur future earnings gains or losses
from changes in market interest rates or commodity prices.

Quantitative Disclosures

  Interest  rate  sensitivity.   The following table  provides  information
about  the  Company's debt obligations which are sensitive  to  changes  in
interest  rates.   The table presents cash maturities by expected  maturity
dates together with the weighted average interest rates expected to be paid
on  the  debt, given current contractual terms and market conditions.   For
fixed  rate  debt,  the  weighted  average  interest  rate  represents  the
contractual  fixed rates that the Company is obligated to periodically  pay
on  the  debt; for variable rate debt, the average interest rate represents
the average rates being paid on the debt at September 30, 1999.
                                      As of September 30, 1999
                         2000    2001   2002  2003  2004ThereafterTotalFair
Value
                        ----   ----  ----  ----  --------------------------
---
Total Debt
  maturities              $4,777    $15,411  $123,488 $  417 $  80$200,491$
344,664        $244,573
Fixed  rate  debt         $3,202    $   377  $ 29  $ 19  $  16 $198,981   $
202,624               $ 102,533
Weighted average
  interest rate          10.49%      10.49% 10.49%      10.49%       10.49%
10.50%
Variable rate debt      $1,575    $15,034  $123,459 $  398 $ 64   $   1,510
142,040                 142,040
Average interest rate   8.92% 8.97% 9.04%  9.00% 9.00%  9.00%

  Commodity  price  sensitivity.   See Note  4  of  Notes  to  Consolidated
Financial   Statements   included  in  "Item  1.   Consolidated   Financial
Statements" for a description of the accounting procedures followed by  SRH
relative  to  hedge  derivative  financial  instruments  and  for  specific
information  regarding  the  terms of the  Company's  derivative  financial
instrument  which  is sensitive to changes in natural  gas  and  crude  oil
commodity prices.


<PAGE>
Qualitative Disclosures

  Non-derivative  financial instruments.  The Company is a  borrower  under
fixed  rate  and variable rate debt instruments that give rise to  interest
rate  risk.   The Company's objective in borrowing under fixed or  variable
rate debt is to satisfy capital requirements while minimizing the Company's
costs  of  capital.  To realize its objectives, the Company  borrows  under
fixed  and  variable  rate debt instruments, based on the  availability  of
capital  and  market  conditions.  See Note  5  of  Notes  to  Consolidated
Financial   Statement   included  in  "Item  1.    Consolidated   Financial
Statements" for a discussion relative to the Company's debt instruments.

  Derivative   financial   instruments.   Revenues   from   the   Company's
operations  are highly dependent on the price of oil and gas.  The  markets
for oil and natural gas are volatile and prices for oil and gas are subject
to  wide fluctuations in response to relatively minor changes in the supply
of  and demand for oil and gas and a variety of additional factors that are
beyond  SRH's control.  These factors include the level of consumer demand,
weather  conditions, domestic and foreign governmental regulations,  market
uncertainty,  the  price and availability of alternative  fuels,  political
conditions  in  the  Middle  East, foreign  imports  and  overall  economic
conditions.  It is impossible for SRH to predict future oil and gas  prices
with  any certainty.  In order to reduce the Company's exposure to oil  and
gas  price risks, from time to time the Company enters into commodity price
derivative  contracts  to  hedge commodity price  risks.   See  Note  4  of
Consolidated  Financial  Statements  included  in  "Item  1.   Consolidated
Financial Statements."

  As   of   September  30,  1999,  the  Company's  primary  risk  exposures
associated  with  financial instruments to which  it  is  a  party  include
natural  gas  and crude oil price volatility and interest rate  volatility.
The  Company's primary risk exposures associated with financial instruments
have not changed significantly since September 30, 1999.

<PAGE>
                        PART II - OTHER INFORMATION

ITEM 6.   REPORTS ON FORM 8K AND EXHIBITS

Reports on Form 8-K

  None.

Exhibits

  The  following instruments and documents are included as Exhibits to this
Report.    Exhibits  incorporated  by  reference  are   so   indicated   by
parenthetical information.


  Exhibit Number                            Description
  --------------                            ------------

  27*                                  Financial Data Schedule.

   * Filed herewith.


<PAGE>
                                SIGNATURES
                         SOUTHWEST ROYALTIES, INC.

  Pursuant  to  the requirements of Section 13 or 15(d) of  the  Securities
Exchange  Act  of 1934, the registrant has duly caused this  report  to  be
signed on its behalf by the undersigned, thereto duly authorized.

                            SOUTHWEST ROYALTIES, INC.

                      By:   /s/ H. H. Wommack, III
                            ---------------------------------------
                            H.H. Wommack, III, Chairman, President,
                            Chief Executive Officer, and Director

                      Date: November 19, 1999

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

  SIGNATURE                TITLE                 DATE
  ---------                -----                 ----

  /s/ H.H. Wommack, III
  ---------------------------
  H. H. Wommack, III       Chairman/President/
                           Chief Executive Officer    November 19, 1999

  /s/ Bill E. Coggin
  ---------------------------
  Bill E. Coggin           Vice President/Chief
                           Financial Officer     November 19, 1999

  /s/ H. Allen Corey
  ---------------------------
  H. Allen Corey           Director/Secretary    November 19, 1999


<PAGE>
                                SIGNATURES
                    SOUTHWEST ROYALTIES HOLDINGS, INC.

  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereto duly authorized.

                            SOUTHWEST ROYALTIES HOLDINGS, INC.

                      By:   /s/ H. H. Wommack, III
                            ---------------------------------------
                            H.H. Wommack, III, Chairman, President,
                            Chief Executive Officer, and Director

                      Date: November 19, 1999

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

  SIGNATURE                TITLE                 DATE
  ---------                -----                 -----

  /s/ H.H. Wommack, III
  ---------------------------
  H. H. Wommack, III       Chairman/President/
                           Chief Executive Officer    November 19, 1999

  /s/ Bill E. Coggin
  ---------------------------
  Bill E. Coggin           Vice President/Chief
                           Financial Officer     November 19, 1999

  /s/ H. Allen Corey
  ---------------------------
  H. Allen Corey           Director/Secretary    November 19, 1999


<PAGE>