11
                    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 June 30, 2000

     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  June  30,  2000  for
Southwest Royalties, Inc.                                             100.
Number  of  shares  of common stock outstanding as of  June  30,  2000  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 June 30, 2000
          (unaudited) and December 31, 1999                3

          Consolidated Statements of Operations for the
          three and six months ended June 30, 2000
          and 1999 (unaudited)                             5

          Consolidated Statements of Cash Flows for the three
          and six months ended June 30, 2000
          and 1999 (unaudited)                             7

          Notes to Consolidated Financial Statements       9

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations             21

Item 3.   Quantitative and Qualitative Disclosures About
          Market Risk                                     24

                   PART II - OTHER INFORMATION

Item 6.   Reports on Form 8-K and Exhibits                25














<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)

                                                   June 30, December 31,
                                                     2000       1999
                                                  --------- -----------
                                                 (unaudited)
ASSETS
---------------------------------------------------------
Current assets
  Cash and cash equivalents                       $  9,544   $  16,983
  Restricted cash                                    8,626      10,003
  Accounts receivable, net of allowance of $458 and
   $440, respectively                                9,305       7,134
  Receivables from related parties                   1,017         836
  Other current assets                               1,307       1,179
                                                   -------     -------
     Total current assets                           29,799      36,135
                                                   -------     -------
Oil and gas properties, using the full cost
 method of accounting
  Proved                                           197,276     193,319
  Unproved                                           1,576       2,059
                                                   -------     -------
                                                   198,852     195,378
  Less accumulated depletion, depreciation and
   amortization                                    129,283     126,742
                                                   -------     -------
Oil and gas properties, net                         69,569      68,636
                                                   -------     -------
Rental property, net                               131,592     128,685
                                                   -------     -------
Rental property - construction in progress           2,981       3,984
                                                   -------     -------
Other property and equipment, net                    4,682       4,841
                                                   -------     -------
Other assets
  Real estate investments                            3,234       3,644
  Deferred debt costs, net of accumulated
   amortization of $6,253 and $2,005, respectively               9,698
13,816
  Noncompete covenants, net of accumulated
   amortization of $711 and $563, respectively         893       1,041
  Other, net                                         1,291       1,385
                                                   -------     -------
     Total other assets                             15,116      19,886
                                                   -------     -------
Total assets                                      $253,739   $ 262,167
                                                   =======     =======
                                                             (continued)


<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

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

                                                   June 30, December 31,
                                                     2000       1999
                                                  --------- -----------
                                                 (unaudited)
LIABILITIES, MINORITY INTEREST, REDEEMABLE
COMMON STOCK AND STOCKHOLDERS' DEFICIT
---------------------------------------------------------
Current liabilities
  Current maturities of long-term debt            $  5,945   $  40,277
  Accounts payable                                   4,210       6,011
  Accounts payable to related parties                  917         867
  Accrued expenses                                   5,299       5,896
  Accrued interest payable                           4,570       4,774
                                                   -------     -------
     Total current liabilities                      20,941      57,825
                                                   -------     -------
Long-term debt                                     325,829     306,806
                                                   -------     -------
Other long-term liabilities                          1,174       1,220
                                                   -------     -------
Minority interest                                        5           8
                                                   -------     -------
Redeemable common stock of subsidiary                    -       1,228
                                                   -------     -------
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 June 30, 2000
   and December 31, 1999                               116         116
  Additional paid-in capital                         2,196       2,196
  Accumulated deficit                             (100,090)  (110,784)
  Note receivable from an officer and
   stockholder                                     (1,632)     (1,648)
  Less:  treasury stock - at cost; 214,215 shares at
   June 30, 2000 and December 31, 1999             (3,090)     (3,090)
                                                   -------     -------
     Total stockholders' deficit                  (102,500)  (113,210)
                                                   -------     -------
Total liabilities, minority interest, redeemable
  common stock and stockholders' deficit          $253,739   $ 262,167
                                                   =======     =======





           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   Six months ended
                                        June 30,            June 30,
                                   -----------------   -----------------
                                     2000      1999      2000      1999
                                    ------    -----     -----     -----
Operating revenues
  Oil and gas                      $13,023   $ 6,960   $24,342   $13,054
  Real estate                        7,444     7,742    15,458    15,951
  Other                                 77       223       173       508
                                    ------    ------    ------    ------
     Total operating revenues       20,544    14,925    39,973    29,513
                                    ------    ------    ------    ------
Operating expenses
  Oil and gas production             3,765     2,763     7,183     5,631
  Real estate                        4,582     4,428     9,156     8,642
  General and administrative, net of
   related party management and
   administrative fees of $821,
   $821, $1,669 and $1,691,
   respectively                      1,296       673     2,001     1,460
  Depreciation, depletion and
   amortization                      2,271     2,542     5,181     5,286
  Other                                259       246       589       459
                                    ------    ------    ------    ------
     Total operating expenses       12,173    10,652    24,110    21,478
                                    ------    ------    ------    ------
Operating income                     8,371     4,273    15,863     8,035
                                    ------    ------    ------    ------
Other income (expense)
  Interest and dividend income         265       258       514       412
  Interest expense                 (10,906)  (10,375)  (21,476)  (21,063)
  Other                                365     (186)       625        14
                                    ------    ------    ------    ------
                                   (10,276)  (10,303)  (20,337)  (20,637)
                                    ------    ------    ------    ------
                                                                 (contin
ued)


<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

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

                                   Three months ended   Six months ended
                                        June 30,            June 30,
                                   -----------------   -----------------
                                     2000      1999      2000      1999
                                    ------    -----     -----     -----
Loss before income taxes, minority
  interest, equity income (loss) and
  extraordinary item             $ (1,905) $ (6,030) $ (4,474) $(12,602)
  Income tax benefit (provision)             -         -         -
-
                                   --------- --------- --------- ---------
Loss before minority interest,
  equity income (loss) and
  extraordinary item               (1,905)   (6,030)   (4,474)   (12,602)
  Minority interest in subsidiaries,
   net of tax                          810      (87)     1,172        67
  Equity income (loss) in subsidiary
   and partnerships net of tax           -         1         -     (187)
  Impairment of equity investment,
   net of tax                            -         -         -     (744)
                                   --------- --------- --------- ---------
Loss before extraordinary item     (1,095)   (6,116)   (3,302)   (13,466)
  Extraordinary gain (loss) from
   early extinguishment
   of debt                               -   (1,593)    13,996   (1,593)
                                   --------- --------- --------- ---------
Net income (loss)                $ (1,095) $ (7,709) $  10,694 $(15,059)
                                   ========= ========= ========= =========
Loss per common share before
  extraordinary item             $  (1.02) $  (5.69) $  (3.07) $ (12.52)
  Extraordinary gain (loss) from
   early extinguishment
   of debt                               -    (1.48)     13.01    (1.48)
                                   --------- --------- --------- ---------
Income (loss) per common share   $  (1.02) $  (7.17) $    9.94 $ (14.00)
                                   ========= ========= ========= =========
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   Six months ended
                                        June 30,            June 30,
                                   -----------------   -----------------
                                     2000      1999      2000      1999
                                    ------    -----     -----     -----
Cash flows from operating activities
  Net income (loss)                $(1,095)  $(7,709)  $10,694   $(15,059)
  Adjustments to reconcile net income
   (loss) to net cash provided by
   (used in) operating activities:
  Depreciation, depletion and
   amortization                      2,271     2,542     5,181     5,286
  Noncash interest expense           2,437     1,347     5,178     2,510
  Extraordinary (gain) loss from early
   extinguishment of debt                -     1,593   (13,996)    1,593
  Gain on sale of assets               (8)     (129)     (248)     (196)
  Equity (income) loss of subsidiary
   and partnerships                      -       (1)         -       187
  Impairment of equity investment            -         -         -
744
  Other noncash items                  160       426       339       605
  Amortization of lease commissions               53         -       104
-
  Bad debt expense                      35        12       140        99
  Minority interest (income) loss
   of subsidiary                     (810)        87   (1,172)      (67)
  Changes in operating assets
   and liabilities-
   Accounts receivable             (1,561)   (1,380)   (2,486)     (934)
   Other current assets              (386)     (370)     (469)     (320)
   Accounts payable and accrued
     expenses                        1,614     1,362   (2,348)     (674)
   Changes in restricted cash        5,807         -     2,212         -
   Accrued interest payable        (2,512)   (5,107)     (204)     (251)
                                    ------    ------    ------    ------
Net cash provided by (used in)
  operating activities               6,005   (7,327)     2,925   (6,477)
                                    ------    ------    ------    ------
Cash flows from investing activities
  Proceeds from sale of oil and
   gas properties                      182     4,887       336     5,205
  Purchase of oil and gas properties         (2,823)     (513)   (3,810)
(784)
  Purchase of other property and
   equipment and rental property             (5,221)   (1,391)   (5,302)
(2,473)
  Decrease in construction in progress       2,061     -         1,003
-
  Purchase of other assets            (14)     (234)      (36)     (455)
  Proceeds from sale of real
   estate investments                    -       333       643       333
  Proceeds from sale of other assets               2       713        19
945
  Proceeds from sale of other
   property and equipment and
   rental property                      79       855        80     1,068


(continued)
<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

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

                                   Three months ended   Six months ended
                                        June 30,            June 30,
                                   -----------------   -----------------
                                     2000      1999      2000      1999
                                    ------    -----     -----     -----
  Change in restricted cash        $ (564)   $ 2,727   $ (835)   $   908
  Other                                  8         8        16        16
                                    ------    ------    ------    ------
Net cash provided by (used in)
  investing activities             (6,290)     7,385   (7,886)     4,763
                                    ------    ------    ------    ------
Cash flows from financing activities
  Proceeds from borrowings           4,605    99,210    21,519   103,240
  Payments on debt                   (477)   (94,819)  (23,762)  (96,078)
  Increase (decrease) in other
   long-term liabilities              (21)      (48)      (45)      (32)
  Deferred debt cost                 (126)   (3,986)     (131)   (4,075)
  Dividends paid to minority interest
   owners                             (30)      (30)      (60)      (61)
  Other                                  1         4         1         4
  Prepayment penalty on early
   extinguishment of debt                -     (875)         -     (875)
                                    ------    ------    ------    ------
Net cash provided by (used in)
  financing activities               3,952     (544)   (2,478)     2,123
                                    ------    ------    ------    ------
Net increase (decrease) in unrestricted
  cash and cash equivalents          3,667     (486)   (7,439)       409

Unrestricted cash and cash equivalents -
  beginning of period                5,877    14,696    16,983    13,801
                                    ------    ------    ------    ------
Unrestricted cash and cash equivalents -
  end of period                    $ 9,544   $14,210   $ 9,544   $14,210
                                   =======   =======   =======    ======
Supplemental disclosures of cash flow
  information
  Interest paid                    $10,694   $14,135   $16,215   $18,804






           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"), Basic Energy Services, Inc. ("Basic") and Midland  Red
Oak  Realty, Inc. ("Red Oak") (collectively, the "Company").  In May  2000,
Basic changed its name from Sierra Well Service, Inc.  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 Basic were subsidiaries of
Southwest.  Southwest paid a dividend of the shares it owned in Red Oak and
Basic  to  SRH.  After the formation of SRH, Southwest and Red  Oak  became
subsidiaries of SRH and, as of July 1, 1997, Basic was deconsolidated.

  Southwest  is  principally  involved in  the  business  of  oil  and  gas
development  and production, as well as organizing and serving as  managing
general partner for various public and private limited partnerships engaged
in  oil  and  gas  acquisitions, exploration, development  and  production.
Southwest  is also the general partner of Southwest Partners  II  and  III,
which  own  common  stock  in  Basic.  Southwest  sells  its  oil  and  gas
production  to  a variety of purchasers, with the prices it receives  being
dependent  upon  the oil and gas commodity prices. Red Oak  is  principally
involved  in  real estate investment and development. Basic 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  June  30, 2000  and  1999,  the  Company  owned
approximately  81%  of Red Oak, 100% of Blue Heel, 39%  of  Basic,  99%  of
Midland  Southwest Software ("MSS"), and 0% and 100% of Threading  Products
International,  LLC  ("TPI").  Blue Heel, MSS and TPI are  subsidiaries  of
Southwest.   Effective  July  1,  1997, Basic  was  deconsolidated  and  is
accounted  for using the equity method.  Effective November 1999,  TPI  was
liquidated.  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.

Estimates and Uncertainties

  Preparation  of  the  accompanying consolidated financial  statements  in
conformity   with   generally  accepted  accounting   principles   requires
management  to  make  estimates and assumptions that  affect  the  reported
amounts of assets and liabilities and disclosures of contingent assets  and
liabilities  at  the  date  of the financial statements  and  the  reported
amounts  of  revenues  and  expenses during the reporting  period.   Actual
results could differ from those estimates.

Cash and Cash Equivalents

  The  Company considers all highly liquid debt instruments purchased  with
a  maturity  of three months or less to be cash equivalents.  In  addition,
the  Company maintains its excess cash in several interest bearing accounts
in various financial institutions.


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

Restricted Cash

  Restricted  cash represents amounts required to be reserved  in  separate
accounts by financial lenders. The interest sinking fund is cash set  aside
to pay interest on the 10.5% Senior Notes.

  Restricted  cash  accounts  have  been  established  for  the   following
purposes (in thousands):
                                                     June 30,  December 31,
                                                       2000        1999
                                                       ----        ----
     Cash bonds                                     $      -   $     35
     Certificate of Deposits                             115        112
     Tenant security deposits                            523        512
     Capital expenditures account                      1,387        552
     Tax and insurance reserve                         1,789      2,465
     Lockbox                                             360        439
     Customer service reserve                             10         10
     Interest reserve                                    175          -
     Escrow fund                                         744        627
     Interest sinking                                  3,523      5,251
                                                       -----     ------
                                                    $  8,626   $ 10,003
                                                       =====     ======

Real Estate Revenue Recognition

  The   Company   leases   offices  and  retail  shopping   centers   under
noncancelable  operating leases.  The Company reports base  rental  revenue
for  financial  statement purposes straight-line  over  the  terms  of  the
respective  leases.  Accrued straight-line rents represent the amount  that
straight-line rental revenue exceeds rents collected in accordance with the
lease  agreements. Management, considering current information  and  events
regarding   the  tenants'  ability  to  fulfill  their  lease  obligations,
considers accrued straight-line rents to be impaired if it is probable that
the  Company  will  be  unable to collect all rents due  according  to  the
contractual lease terms.  If accrued straight-line rents associated with  a
tenant  are  considered to be impaired, the amount  of  the  impairment  is
measured  based  on  the  present  value of  expected  future  cash  flows.
Impairment losses, if any, are recorded through a loss on the write-off  of
assets.   Cash receipts on impaired accrued straight-line rents are applied
to  reduce  the  remaining  outstanding  balance  and  as  rental  revenue,
thereafter.

  Some  leases provide for percentage rents based on the tenant's  revenue.
Percentage  rents are accrued monthly based on prior experience or  current
tenant financial information.  Some leases require tenants to reimburse the
Company for certain expenses of operating the property.

Concentrations of Credit Risk

  The  Company  is  subject  to  credit risk  through  oil  and  gas  trade
receivables  and  real  estate lease receivables.  Although  a  substantial
portion  of  its customers' ability to pay is dependent upon conditions  in
the  oil  and  gas industry as well as general economic conditions,  credit
risk is reduced due to a large customer base.

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


Commodity Hedging and Derivative Financial Instruments

  The  Company  has  only  limited involvement  with  derivative  financial
instruments and generally does not use them for trading purposes.  They are
used  to  manage commodity price risks.  The Company is exposed  to  credit
losses  in  the  event  of  nonperformance by the  counter-parties  to  its
commodity  hedges.   The Company anticipates, however, that  such  counter-
parties  will  be  able  to  fully  satisfy  their  obligations  under  the
contracts.   The  Company does not obtain collateral or other  security  to
support  financial  instruments subject to credit  risk  but  monitors  the
credit standing of the counter-parties.

  The  derivative  financial instruments that the Company accounts  for  as
hedging  contracts must meet the following criteria:  the underlying  asset
must  expose the Company to price risk that is not offset in another  asset
or  liability,  the hedging contract must reduce that price risk,  and  the
instrument  must be designated as a hedge at the inception of the  contract
and  throughout the contract period.  In order to qualify as a hedge, there
must  be  clear  correlation between changes  in  the  fair  value  of  the
financial  instrument and the fair value of the underlying asset such  that
changes  in the market value of the financial instrument will be offset  by
the effect of price changes on the exposed items.

  Premiums paid for commodity option contracts which qualify as hedges  are
amortized   to  oil  and  gas  sales  over  the  term  of  the  agreements.
Unamortized  premiums  are  included in other assets  in  the  consolidated
balance  sheet.   Amounts receivable or payable under the commodity  option
contracts  are accrued as an increase or decrease in oil and gas sales  for
the applicable periods.

Oil and Gas Properties

  All  of  the  Company's oil and gas properties are located in the  United
States  and  are accounted for at cost under the full cost  method.   Under
this  method, all productive and nonproductive costs incurred in connection
with  the  acquisition, exploration and development of oil and gas reserves
are  capitalized.  No gain or loss is recognized on the sale of oil and gas
properties unless nonrecognition would significantly alter the relationship
between  capitalized costs and remaining proved reserves for  the  affected
amortization  base.  When gain or loss is not recognized, the  amortization
base is reduced by the amount of sales proceeds.

  Net  capitalized costs of oil and gas properties, including the estimated
future  costs to develop proved reserves, are amortized using the units  of
revenue  method, whereby the provision is computed on the basis of  current
gross  revenues from production in relation to future gross revenues, based
on  current  prices,  from  estimated production  of  proved  oil  and  gas
reserves.  Should the net capitalized costs net of related deferred  income
taxes exceed the estimated present value of oil and gas reserves discounted
at  10%  and adjusted for related income taxes, such excess costs would  be
charged to expense in the Consolidated Statements of Operations. As of June
30,  2000, no write down of the capitalized costs of oil and gas properties
was deemed necessary.

  It  is reasonably possible that the estimates of anticipated future gross
revenues,  the  remaining estimated economic life of the product,  or  both
could  change significantly in the near term due to the fluctuation of  oil
and  gas  prices or production.  Depletion estimates would also be affected
by such changes.

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


Property and Equipment

  Rental  property  and other property and equipment  is  stated  at  cost.
Repairs  and maintenance are charged to expense as incurred, with additions
and  improvements  being  capitalized.  Upon sale or  other  retirement  of
depreciable  property,  the cost and accumulated depreciation  are  removed
from  the  related  accounts  and any gain or  loss  is  reflected  in  the
Consolidated Statements of Operations.

  Depreciation  is  provided  on  the straight-line  method  based  on  the
estimated useful lives of the depreciable assets as follows:

     Building and improvements                    20 to 30 years
     Rental property and improvements             5 to 30 years
     Leasehold improvements                       2 to 10 years
     Machinery and equipment                      3 to 5 years
     Furniture and fixtures                       3 to 5 years
     Equipment under capital lease                3 to 5 years

Rental Property - Construction in Progress

  All  costs  associated with construction in progress are capitalized  and
subject  to  depreciation  when each project  is  completed.   Interest  is
capitalized  for  construction in progress.  The  capitalized  interest  is
recorded as part of the asset to which it relates and is amortized over the
assets useful life.  In 2000 and 1999, no interest costs were capitalized.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

  In  accordance  with the provisions of SFAS No. 121, Accounting  for  the
Impairment  of Long-Lived Assets and for Long-Lived Assets to  Be  Disposed
Of,  the  Company  reviews its long-lived assets,  excluding  oil  and  gas
properties  accounted  for using the full cost method  of  accounting,  and
certain  identifiable intangibles for impairment whenever events or changes
in  circumstances indicate that the carrying amount of an asset may not  be
recoverable.   In this circumstance, the Company recognizes  an  impairment
loss  for the amount by which the carrying amount of the asset exceeds  the
estimated fair value of the asset.

Deferred Debt Costs

  The  Company  capitalizes  certain  costs  incurred  in  connection  with
issuing debt.  These costs are being amortized to interest expense  on  the
straight-line method over the term of the related debt.

Gas Balancing

  The  Company  utilizes the sales method of accounting for over  or  under
deliveries of natural gas.  Under this method, the Company recognizes sales
revenue  on all natural gas sold. As of December 31, 1999, 1998  and  1997,
the  Company was underproduced by approximately 587 MMcf, 620 MMcf and  697
MMcf, respectively.

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

Income Taxes

  Deferred  tax  assets and liabilities are recognized  for  the  estimated
future  tax  effects  attributable  to differences  between  the  financial
statement  carrying  amount of existing assets and  liabilities  and  their
respective  tax  basis.  Deferred tax assets and liabilities  are  measured
using enacted tax rates expected to apply to taxable income in the years in
which  those temporary differences are expected to be recovered or settled.
The  effect on deferred tax assets and liabilities of a change in tax  rate
is  recognized  in income in the period that includes the  enactment  date.
Deferred tax assets are reduced, if necessary, by a valuation allowance for
the amount of tax benefits that may not be realized.

  SRH  and  its  eligible  subsidiaries file a  consolidated  U.S.  federal
income  tax  return.  Basic  (through  June  30,  1997)  and  Red  Oak  are
consolidated  for  financial reporting purposes, but beginning  January  1,
1996,  were  not eligible to be included in the consolidated  U.S.  federal
income  tax  return.   Separate  provisions  for  income  taxes  have  been
determined for these entities.

Reclassifications

  Certain  reclassifications have been made to the 1999 amounts to  conform
to the 2000 presentation.

Derivative Instruments and Hedging Activities

  In   June  1998,  the  FASB  issued  Statement  of  Financial  Accounting
Standards  No.  133  "Accounting  for Derivative  Instruments  and  Hedging
Activities"  ("SFAS  133")  which  established  standards  for   derivative
instruments,  including certain derivative instruments  embedded  in  other
contracts,  and  for  hedging  activities.   It  requires  that  an  entity
recognize  all derivatives as either assets or liabilities in the statement
of  financial  position and measure those instruments at  fair  value.   It
establishes  conditions under which a derivative may  be  designated  as  a
hedge, and establishes standards for reporting changes in the fair value of
a  derivative.   SFAS  133,  as amended by SFAS  137,  is  required  to  be
implemented  for  all fiscal quarters of all fiscal years  beginning  after
June 15, 2000.  Early adoption is permitted.

Income (loss) per share

  Basic  net  income  (loss)  per  share is  computed  by  dividing  income
available  to common stockholders by the weighted average number of  common
shares  outstanding for the period.  The computation of diluted net  income
(loss)  per  share  reflects the potential dilution  that  could  occur  if
securities  or  other  contracts to issue common stock  were  exercised  or
converted  into  common stock or resulted in the issuance of  common  stock
that  would then share in the earnings of the entity.  For 2000  and  1999,
the  computation  of diluted net income (loss) per share was  antidilutive;
therefore, the amounts reported for basic and diluted net income (loss) per
share were the same.

Noncompete covenants

  Noncompete  covenants are carried at cost less accumulated  amortization.
The  covenants are being amortized over their contractual lives,  generally
three to five years.

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

Interim Financial Statements

  In  the  opinion  of  management,  the unaudited  consolidated  financial
statements  of  the  Company  as of June 30,  2000  and  1999  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 1999 Form 10-K of the Company.

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.

  SRH  has  a highly leveraged capital structure with, after giving  effect
to the refinance closed on August 17, 2000 (See Note 7 "Subsequent Events")
approximately, $33.8 million of cash interest and $5.9 million of principal
due  within the next twelve months.  Management is currently in the process
of  renegotiating  the  terms of SRH'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.

  There  can  be  no  assurance  that SRH's continuing  debt  restructuring
efforts will be successful or that the note holders will agree to a  course
of   action  consistent  with  SRH'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 SRH,
none of which is assured.  Furthermore, there can be no assurance that  the
sales  of  assets can be successfully accomplished on terms  acceptable  to
SRH.   Under  current circumstances, SRH'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 SRH is unsuccessful  in
its  efforts, it may be unable to meet its obligations on the  Amended  and
Restated Revolving Loan Facility, 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.

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

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.   Other  long-term  liabilities  at  June  30,  2000   includes
approximately  $663,000 for estimated future remedial actions  and  cleanup
costs.  As  of  June  30, 2000, 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
flow 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  December 30, 1999, Southwest entered into a basket revenue protection
agreement,  which provides the Company with an oil and gas  revenue  floor.
The  contract is for the period January 1, 2000 through December 31,  2000.
The  agreement is to be calculated on a calendar year quarter as  disclosed
in the following table based on NYMEX Natural Gas and NYMEX Crude Oil:

            Notional Volumes              Strike Prices
       -------------------------  -----------------------------
           Crude      Natural        Crude    Natural              Minimum
         Oil (bbl)  Gas (MMBtu)       Oil       Gas       Boe      Revenue
         ---------- -----------      -----    -------     ----     --------
Quarter 1 269,254      976,676     $  21.12  $   1.91  $  28.76  $7,552,096
Quarter 2 263,058      910,325     $  18.88  $   1.92  $  26.56  $6,714,359
Quarter 3 257,206      857,728     $  18.00  $   1.97  $  25.88  $6,319,432
Quarter 4 251,914      813,400     $  18.00  $   2.20  $  26.80  $6,323,932

  Payments  shall  be  made no later than five business  days,  after  each
quarterly  floating price is determinable by NYMEX.  The cost of the  floor
was  approximately $638,000 and is amortized monthly as a reduction of  oil
and  gas  revenues.   The  carrying value of  the  floor  is  approximately
$300,000 at June 30, 2000.

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

5.  Long-term Debt

     Long-term debt consists of the following (in thousands):
                                                    June 30,  December 31,
                                                      2000        1999
                                                     -----       -----
     10.5% Senior Notes, interest payable semi-annually due
      October 15, 2004, net of discount of $1,043 and $1,487,
      respectively                                  $122,642  $160,598
     Revolving Loan Facility with variable rate interest,
      due August 2003 (See Note 7 "Subsequent Events").
      Collateralized by oil and gas properties.       50,000    35,000
     Variable Rate Notes Payables:
     Notes payable due July 2001, accrued interest due and
      payable monthly at 7.1%, per annum with additional
      1% payable in cash or additional notes.
       Net  of  discount  of $611 and $944, respectively             17,229
15,883
     Notes payable due December 2001, accrued interest due
      and payable monthly at 7.1%, per annum with additional
      1.5% payable in cash or additional notes.
       Net  of  discount  of $1,889 and $2,556, respectively         28,924
25,298
     Notes payable due July 2002, interest at 8.5% minimum
      per annum, accrued interest due and payable monthly.
       Net  of  discount  of $3,345 and $4,229, respectively        104,059
101,835
     Other                                             8,920     8,469
                                                     -------   -------
                                                     331,774   347,083
     Less current maturities                           5,945    40,277
                                                     -------   -------
                                                    $325,829  $306,806
                                                     =======   =======
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.


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

Revolving Loan Facility

  In  December 1999, Southwest entered into a Revolving Loan Facility  with
Bank One Texas, N.A., which provided a borrowing base of $50 million with a
maturity date of December 29, 2000.  Funds from the Revolving Loan Facility
may  be  used  for  working capital and other general  corporate  purposes,
including  the  repurchase  of a portion of Southwest's  outstanding  10.5%
Senior  Notes  due  2004.  Advances on the  Revolving  Loan  Facility  bear
interest  at the option of Southwest, based on the prime rate of  Bank  One
Texas,  N.A.  (8.5% at December 31, 1999) plus one fourth  of  one  percent
(.25%),  when the borrowing base usage is equal to or greater than  80%  or
zero  percent  (0%) when the borrowing base usage is less than  80%  or,  a
Eurodollar  rate (substantially equal to the London InterBank Offered  Rate
("LIBOR"))  plus  1.25%  up  to  2.0% based on  the  borrowing  base  usage
percentage.  The Revolving Loan Facility is secured by no less than 85%  of
Southwest's oil and gas properties.  As of December 31, 1999 Southwest  had
drawn  $35.0  million.  The remaining $15.0 million was  drawn  in  January
2000.

  The  Revolving Loan Facility imposes certain limitations on  the  ability
of Southwest 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 Revolving Loan Facility required  Southwest  to
establish  a sinking fund account with an initial deposit of $3.5  million.
Southwest  is  to  transfer  monthly one-twelfth  of  the  annual  interest
payments  on the 10.5% Senior Notes beginning December 31, 1999  into  this
sinking  fund  account for the purpose of making interest payments  on  the
10.5% Senior Notes. Effective August 17, 2000, this Revolving Loan Facility
was refinanced with a new lender (See Note 7 "Subsequent Events").

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  reserved  for  capital
improvements  to  the rental property purchased of which $2.3  million  has
been  utilized  as of June 30, 2000.  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  a retail shopping center and the funding  of  various
escrow balances.  The $9.7 million note is for capital improvements to  the
rental  property purchased of which $4.6 million has been  utilized  as  of
June 30, 2000. 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  and  $8.0
million, net of discounts of $5.3 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%.  Approximately $91.4 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  $4.7
million   has  been  utilized  as  of  June  30,  2000.   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 - (continued)

Extinguishment of Debt

     In June 1999, MRO Southwest 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,
approximately, $1,598,000 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.

     In  December  of  1999,  Southwest  purchased  approximately  19%,  or
approximately $37.9 million original face amount, of its 10.5% Senior Notes
with   the  proceeds  from  the  aforementioned  Revolving  Loan  facility.
Southwest paid approximately $22.0 million, including all fees, to purchase
the  10.5%  Senior Notes and wrote off approximately $980,000  of  deferred
loan  issue costs and approximately $349,000 of the original issue discount
to  recognize  a  $14.5 million extraordinary gain on the purchase  of  the
Notes.   Southwest has not recorded any income tax benefits  on  continuing
operations and therefore there is no income tax expense recognized  on  the
extraordinary  gain.   The extraordinary gain per  share  is  approximately
$13.48.

     In   January  of  2000,  Southwest  purchased  approximately  19%,  or
approximately $38.4 million original face amount, of its 10.5% Senior Notes
with   the  proceeds  from  the  aforementioned  Revolving  Loan  facility.
Southwest paid approximately $23.0 million, including all fees, to purchase
the  10.5%  Senior Notes and wrote off approximately $980,000  of  deferred
loan  issue costs and approximately $349,000 of the original issue discount
to  recognize  a  $14.1 million extraordinary gain on the purchase  of  the
Notes.   Southwest has not recorded any income tax benefits  on  continuing
operations and therefore there is no income tax expense recognized  on  the
extraordinary  gain.   The extraordinary gain per  share  is  approximately
$13.01.

     Aggregate maturities of all long-term debt as of December 31, 1999 are
as follows (in thousands):

     2000                                           $ 40,277
     2001                                             41,412
     2002                                            101,926
     2003                                                391
     2004                                            160,680
     Thereafter                                        2,397
                                                     -------
                                                    $347,083
                                                     =======

     Aggregate  maturities of all long-term debt as of  June  30,  2000  as
adjusted  for  the refinancing of debt, which occurred on August  17,  2000
(See Note 7 "Subsequent Events") are as follows (in thousands):

     For the twelve
     months ended
     --------------
     June 30, 2001                                  $  5,945
     June 30, 2002                                    46,169
     June 30, 2003                                   105,686
     June 30, 2004                                    50,045
     June 30, 2005                                   123,056
     Thereafter                                          873
                                                     -------
                                                    $331,774
                                                     =======

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

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  Six months ended
                                   June 30,           June 30,
                              ------------------ -----------------
                                 2000     1999      2000      1999
                                -----    -----     -----     -----
                                (in thousands)     (in thousands)
                                 (unaudited)        (unaudited)
 Operating Revenue
   Oil and gas              $  13,032   $ 6,971   $24,361   $13,082
   Real estate                  7,444     7,742    15,458    15,951
   Other and eliminations               68        212       154       480
                               ------    ------    ------    ------
                            $  20,544   $14,925   $39,973   $29,513
                               ======    ======    ======    ======
 Operating profit (loss)
   Oil and gas              $   7,440   $ 2,564   $13,277   $ 3,673
   Real estate                  1,247     1,755     3,133     4,350
   Other and eliminations               (316)     (46)      (547)     12
                              -------    ------    ------    ------
                            $   8,371   $ 4,273   $15,863   $ 8,035
                              =======    ======    ======    ======
 Interest Expense
   Oil and gas              $   5,726   $ 5,601   $11,309   $11,128
   Real Estate                  5,191     4,831    10,188    10,039
   Other and eliminations               (11)      (57)      (21)      (104)
                              -------    ------    ------    ------
                            $  10,906   $10,375   $21,476   $21,063
                              =======    ======    ======    ======
 Depreciation, depletion and
   amortization
   Oil and gas              $   1,036   $ 1,308   $ 2,767   $ 2,979
   Real Estate                  1,194     1,198     2,333     2,222
   Other and eliminations               41        36        81        85
                              -------    ------    ------    ------
                            $   2,271   $ 2,542   $ 5,181   $ 5,286
                              =======    ======    ======    ======
 Capital expenditures
   Oil and gas              $   2,823   $   513   $ 3,810   $   784
   Oil and gas, other             113       100       132       156
   Real Estate                  3,030     1,152     4,089     2,134
   Other                           17       139        78       183
                              -------    ------    ------    ------
                            $   5,983   $ 1,904   $ 8,109   $ 3,257
                              =======    ======    ======    ======


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

                                            June 30,December 31,
                                               2000      1999
                                            --------------------
 Identifiable assets
   Oil and gas                               $104,461  $115,520
   Real estate                               150,258   150,269
   Other and eliminations                      (980)   (3,622)
                                             -------   -------
                                             $253,739  $262,167
                                             =======   =======
7.  Subsequent Events

   Southwest  Royalties,  Inc.,  a  wholly owned  subsidiary  of  Southwest
Royalties  Holdings,  Inc. successfully completed a  refinancing  of  their
Revolving Loan Facility in the amount of $50.0 million on August  17,  2000
with  a  new  lender. The Amended and Restated Loan and Security  Agreement
allows  for a prime rate of interest (based on the new lenders prime rates)
plus one and one-half percent (1.5%).  Southwest was able to extend the due
date  from  December 29, 2000 to August 17, 2003. This  extension  of  time
allows Southwest the opportunity to plan and strategize potential solutions
to  their highly leveraged capital structure.  Southwest, in recording  the
refinancing  of  the revolving loan facility, anticipates an  extraordinary
loss  from early extinquishment of debt in the amount of approximately $1.4
million.  Southwest reclassified the above mentioned debt at June 30,  2000
to  non-current based upon the signing of the Amended and Restated Loan and
Security Agreement.


<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., Basic
Energy Services, Inc. and Midland Red Oak Realty, Inc.  In May 2000,  Basic
changed its name from Sierra Well Service, 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, Basic, and owns and manages  real  estate
properties through its subsidiary, Red Oak.

Results of Operations

Three months and six months ended June 30, 2000 compared to three months
and six months ended June 30, 1999.

  The  following table summarizes production volumes, average sales  prices
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   Six months ended
                                      June 30,            June 30,
                                ------------------- -------------------
                                  2000       1999     2000       1999
                                 -----      -----    -----      -----
                                   (in thousands)      (in thousands)
                                    (unaudited)         (unaudited)
Production volumes:
       Oil and condensate (MBbls)              310       333       616
689
       Natural gas (MMcf)          1,197       988     2,392     2,139

Average sales prices:
       Oil and condensate (per Bbl)    $  27.13  $  14.99  $  26.57  $
13.08
       Natural gas (per Mcf)    $   3.80  $   1.94  $   3.27  $   1.88

  Revenues.  Revenues for the Company increased 38% to  $20.5  million  for
the  three months ended June 30, 2000 and 35% to $40.0 million for the  six
months  ended June 30, 2000, as compared to $14.9 million and $29.5 million
for the same periods in 1999.

  Oil  and gas revenues increased 87% to $13.0 million for the three months
ended June 30, 2000 and 86% to $24.3 million for the six months ended  June
30,  2000,  as  compared to $7.0 million and $13.1  million  for  the  same
periods  in 1999.  The increase in oil and gas revenue is due primarily  to
increases  in oil and gas prices, which were partially offset by  decreases
in oil production.

  Oil  and gas production increased 2%, to 5,603 BOEPD for the three months
ended  June 30, 2000 and decreased 3%, or approximately 199 BOEPD, to 5,575
BOEPD  for  the  six  months ended June 30, 2000 as compared  to  the  same
periods  in  1999.  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  $336,000 and $5.2 million in the six months ended  June  30,
2000  and  1999,  respectively. The increase in production  for  the  three
months ended June 30, 2000 represented an increase of approximately 8%  net
of  a  decline from oil and gas property sales of approximately 6%  or  353
BOEPD.   The decrease in production for the six months ended June 30,  2000
is primarily due to oil and gas property sales which resulted in production
declines  of approximately 401 BOEPD, or approximately 6% and is  partially
offset  by  increased production of approximately 3% or 202  BOEPD  on  the
remaining oil and gas properties.

<PAGE>
  Real  estate  revenues decreased 4% to $7.4 million for the three  months
ended  June 30, 2000 and 3% to $15.5 million for the six months ended  June
30,  2000,  as  compared to $7.7 million and $16.0  million  for  the  same
periods in 1999.

  Operating    Expenses.   Operating   expenses,   before    general    and
administrative   expense,  impairment  of  oil  and  gas   properties   and
depreciation, depletion and amortization, increased 16% to $8.6 million for
the  three months ended June 30, 2000 and 15% to $16.9 million for the  six
months  ended June 30, 2000, as compared to $7.4 million and $14.7  million
for the same periods in 1999.

  Oil  and  gas  operating  expense increased  approximately  36%  to  $3.8
million for the three months ended June 30, 2000 and approximately  28%  to
$7.2  million for the six months ended June 30, 2000, as compared  to  $2.8
million and $5.6 million for the same periods in 1999. The increase in  oil
and  gas operating expenses for the three and six months periods ended June
30,  2000  is due primarily to increased production taxes, associated  with
the  86%  increase in oil and gas revenue as discussed above, and increased
workover  expense and repairs associated with bringing wells back on  line,
which  were  deemed  uneconomical  due to  depressed  oil  and  gas  prices
experienced  during  the  six  months ended June  30,  1999.   The  average
operating expense increased 33% to $7.38 per BOE for the three months ended
June  30,  2000 and 31% to $7.08 per BOE for the six months ended June  30,
2000 from $5.55 and $5.39 per BOE for the same periods in 1999.

  Real  estate operating expense increased 3% to $4.6 million for the three
months ended June 30, 2000 and 6% to $9.2 million for the six months  ended
June  30,  2000, as compared to $4.4 million and $8.6 million for the  same
periods in 1999.

  General  and  Administrative  (''G&A'')  Expense.  G&A  expense  for  the
Company  increased 93% to $1.3 million for the three months ended June  30,
2000  and  approximately 37% to $2.0 million for the six months ended  June
30, 2000, as compared to $673,000 and $1.5 million for the same periods  in
1999.

  Oil  and gas G&A expense increased 135% to $791,000 for the three  months
ended  June 30, 2000 and 42% to $1.1 million for the six months ended  June
30,  2000,  as  compared to $336,000 and $799,000 for the same  periods  in
1999.   Oil  and  gas G&A expense per BOE increased 128% to $1.55  for  the
three  months  ended June 30, 2000 and 47% to $1.12 per  BOE  for  the  six
months  ended June 30, 2000, as compared to $.68 per BOE and $.76  per  BOE
for  the same periods in 1999.  The increase in oil and gas G&A expense for
the  three  months  ended June 30, 2000 is due primarily  to  increases  in
personnel  and  insurance  costs as well as  legal  and  professional  fees
associated with managements evaluation of corporate strategies and  options
for  dealing with its highly leverage structure.  Increases in oil and  gas
G&A  expense  for the six months ended June 30, 2000 are primarily  due  to
increased personnel and insurance costs.

  Real  estate  G&A expense increased 13% to $421,000 for the three  months
ended  June 30, 2000 and 14% to $836,000 for the six months ended June  30,
2000,  as  compared to $371,000 and $731,000 for the same periods in  1999.
The increase are due primarily to increased personnel and insurance costs.

  Depreciation,   Depletion  and  Amortization  (''DD&A'')  Expense.   DD&A
expense for the Company decreased 11% to $2.3 million for the three  months
ended  June  30, 2000 and 2% to $5.2 million for the six months ended  June
30, 2000, as compared to $2.5 million and $5.3 million for the same periods
in 1999.

  Oil  and  gas  DD&A  decreased 21% to $1.0 million for the  three  months
ended  June  30, 2000 and 7% to $2.8 million for the six months ended  June
30, 2000, as compared to $1.3 million and $3.0 million for the same periods
in  1999.  Oil and gas depletion expense on a BOE basis, decreased  24%  to
$1.81 per BOE for the three months ended June 30, 2000 and 4% to $2.50  per
BOE  for  the six months ended June 30, 2000, as compared to $2.37 per  BOE
and $2.60 per BOE for the same periods in 1999.

  Real  estate DD&A expense remained constant at $1.2 million for the three
months  ended June 30, 2000 and increased 5% to $2.3 million  for  the  six
months  ended  June 30, 2000, as compared to $1.2 million and $2.2  million
for  the  same periods in 1999.  The increase in DD&A expense for  the  six
months   ended  June  30,  2000  is  due  to  the  impact  of   capitalized
improvements.
<PAGE>
  Interest Expense. Interest expense for the Company increased 5%  to  10.9
million  for  the  three months ended June 30, 2000 and  2%  to  and  $21.5
million  for  the  six  months ended June 30, 2000, as  compared  to  $10.4
million and $21.1 million for the same periods in 1999.

  Oil  and gas interest expense increased 2% to $5.7 million for the  three
months ended June 30, 2000 and 2% to $11.3 million for the six months ended
June  30, 2000, as compared to $5.6 million and $11.1 million for the  same
periods in 1999.

  Real  estate interest expense increased 7% to $5.2 million for the  three
months ended June 30, 2000 and 1% to $10.2 million for the six months ended
June  30, 2000, as compared to $4.8 million and $10.0 million for the  same
periods in 1999.

  Equity  Loss in Partnership. The Company's direct and indirect investment
in  Basic upon recording its portion of Basic's losses for the three months
ended  March 31, 1999 was reduced to zero.  Therefore, according to General
Accepted  Accounting  Principles, the equity  method  was  suspended.   The
Company did not record their ownership percentage of Basic's losses for the
six months ended June 30, 2000.  If Basic subsequently begins to report net
income,  the Company will resume applying the equity method only after  its
share  of  net income equals the share of net losses not recognized  during
the period the equity method is suspended.

  Net  Income.  Due to the factors described above, net income  (loss)  for
the Company decreased 86% to $(1.1) million for the three months ended June
30,  2000 and 171% to net income of $10.7 million for the six months  ended
June  30, 2000, as compared to a net loss of $7.7 million and $15.1 million
for  the  same periods in 1999.  Oil and gas net income increased  177%  to
$1.9  million  for the three months ended June 30, 2000 and  320%  to  16.5
million  for the six months ended June 30, 2000, as compared to a net  loss
of $2.5 million and $7.5 million for the same periods in 1999.  Included in
the  oil and gas net income for the six months ended June 30, 2000,  is  an
extraordinary gain associated with the repurchase of approximately  19%  of
the  original issue, $200 million face 10.5% Senior Notes issued in October
1997, of approximately $14.1 million.  Real estate net losses decreased 21%
to  $3.5  million for the three months ended June 30, 2000 and 10% to  $6.3
million for the six months ended June 30, 2000 as compared $4.5 million and
$7.0 million for the same periods in 1999.

Liquidity and Capital Resources

  Management is constantly monitoring the Company's cash position  and  its
ability  to meet its financial obligations as they become due, and in  this
effort,  is  exploring various strategies for addressing  its  current  and
future liquidity needs.  During 1999 and 1998, for instance, Southwest sold
$5.6  million and $5.7 million, respectively, of oil and gas properties  in
an  ongoing  effort to decrease its production costs and improve  its  cash
position.   In December 31, 1999 the Company also negotiated a $50  million
revolving  line  of credit with BankOne Texas, N.A. the proceeds  of  which
were  used  to  purchase in December 1999 and January  2000,  approximately
$76.3 million of the 10.5% Senior Notes due 2004.  As of June 30, 2000, the
Company's  consolidated cash balance was approximately  $18.2  million,  of
which $9.5 million was unrestricted.

  SRH  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  SRH  be
unable to continue as a going concern.

  SRH  has  a highly leveraged capital structure with, after giving  effect
to the refinance closed on August 17, 2000 (See Note 7 "Subsequent Events")
approximately, $33.8 million of cash interest and $5.9 million of principal
due  within the next twelve months.  Management is currently in the process
of  renegotiating  the  terms of SRH'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 SRH's continuing  debt  restructuring
efforts will be successful or that the note holders will agree to a  course
of   action  consistent  with  SRH'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 SRH,
none of which is assured.  Furthermore, there can be no assurance that  the
sales  of  assets can be successfully accomplished on terms  acceptable  to
SRH.   Under  current circumstances, SRH'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 SRH is unsuccessful  in
its  efforts, it may be unable to meet its obligations on the  Amended  and
Restated Revolving Loan Facility, 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 $6.0  million  and  $2.9
million for the three and six months ended June 30, 2000, respectively,  as
compared to net cash used in operating activities of $7.3 million and  $6.5
million  for  the same periods in 1999.  The increase in cash  provided  by
operating  activities, is primarily attributable to increased oil  and  gas
commodity prices.

Net Cash Used In Investing Activities

  Net  cash  used in investing activities by the Company were $6.3  million
and  $7.9  million  for the three and six months ended June  30,  2000,  as
compared  to net cash provided by investing activities of $7.4 million  and
$4.8  for  the  comparable  periods in  1999.   Purchase  of  oil  and  gas
properties as well as capital improvements to Real Estate holdings were the
primary uses of funds in 2000.  Oil and gas property sales were the primary
sources of funds in 1999.

  SRH has tentatively budgeted $7.2 million, for the remainder of 2000,  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 (Used in) Financing Activities.

  Net  cash  provided by (used in) the Company's financing  activities  was
$4.0  and  $(2.5) million for the three and six months ended June 30,  2000
and $(544,000) and $2.1 million for the same periods in 1999, respectively.
For  the  three  months ended June 30, 2000, proceeds from borrowings  were
$4.6  million and were used to finance capital improvements on Real  Estate
holdings and provide working capital for real estate operations.   For  the
six  month ended June 30, 2000, proceeds from borrowings were $21.5 million
and  were used to fund the buy back of a portion of the 10.5% Senior  notes
due  2004, as well as fund capital improvements on Real Estate holdings and
provide working capital for real estate operations.

Other Issues

  The  information included in "Other Issues" in Item 7 of SHR's 1999  Form
10-K regarding Information Systems for the year 2000 is incorporated herein
by  reference.  As of June 30, 2000, there have been no material changes in
SRH's Year 2000 disclosure.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

  The  information  included in "Quantitative and  Qualitative  Disclosures
About  Market  Risk"  in Item 7A of SRH's 1999 Form  10-K  is  incorporated
herein  by  reference.   Such information includes a description  of  SHR's
potential  exposure  to market risks, including commodity  price  risk  and
SHR's interest rate risk.  As of June 30, 2000, there have been no material
changes in SRH's market risk exposure from that disclosed in the 1998  Form
10-K (see Note 4 and Note 7).
<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,
                                 and Chief Executive Officer

                                 Date:  August 28, 2000

  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 August 28, 2000

/s/ J Steven Person
-----------------------------
J Steven Person                  Vice President, Marketing/
                                 Chief Financial Officer August 28, 2000

/s/ H. Allen Corey
-----------------------------
H. Allen Corey                   Director/Secretary      August 28, 2000


<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,
                                 and Chief Executive Officer

                                 Date:  August 28, 2000

  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 August 28, 2000

/s/ J Steven Person
------------------------------
J Steven Person                  Vice President, Marketing/
                                 Chief Financial Officer August 28, 2000

/s/ H. Allen Corey
-----------------------------
H. Allen Corey                   Director/Secretary      August 28, 2000


<PAGE>