5
               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, 1998

     or

o    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,  1998
for Southwest Royalties, Inc........................100.
Number of shares of common stock outstanding as of June 30,  1998
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, 1998 (unaudited)
         and December 31, 1997                             3

     Consolidated Statements of Operations for the three and  six
months ended
         June 30, 1998 and 1997 (unaudited)                5

     Consolidated Statements of Cash Flows for the three and six
months ended
         June 30, 1998 and 1997 (unaudited)                7

     Notes to Consolidated Financial Statements            9


Item 2.   Management's Discussion and Analysis of  Financial
Condition and
         Results of Operations                            18


                   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)

                                              June 30,December
31,
                                               ASSETS   1998
1997
-----------------------------------------------------------------
---------------------------------------------------------------
                                            (unaudited)
Current assets
 Cash and cash equivalents                    $19,491  $27,365
  Accounts  receivable, net of allowance of  $254           6,136
8,376
 Receivables from related parties              2,284    2,556
 Other current assets                          1,501    1,209
                                                       ----------
----------
   Total current assets                       29,412   39,506
                                                       ----------
----------

Oil and gas properties, using the full cost method of accounting
 Proved                                       191,790  188,432
 Unproved                                      4,704    4,554
                                                       ----------
----------
                                              196,494  192,986
   Less  accumulated  depletion,  depreciation  and  amortization
79,154                                        42,240
                                                       ----------
----------
   Oil and gas properties, net                117,340  150,746
                                                       ----------
----------
Rental property, net                          107,406  81,373
                                                       ----------
----------
Other property and equipment, net              5,790    5,556
                                                       ----------
----------
Other assets
 Restricted cash                               7,008    8,064
 Equity investment in subsidiaries             3,470    2,443
 Real estate investments                       3,686    4,203
 Deferred debt costs, net of accumulated amortization of
   $1,971 and $903, respectively               9,094    9,382
 Noncompete covenants, net of accumulated amortization
   of $122                                     1,481        -
 Other, net                                    1,747    4,170
                                                       ----------
----------
 Total other assets                           26,486   28,262
                                                       ----------
----------
Total assets                                  $286,434 $305,443
                                              ======   ======
                                                  (continued)


<PAGE>
       SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
                                
             CONSOLIDATED BALANCE SHEETS (continued)
              (in thousands, except per share data)

LIABILITIES, MINORITY INTEREST, REDEEMABLE    June 30,December 3
1,
 COMMON STOCK AND STOCKHOLDERS' DEFICIT         1998     1997
-----------------------------------------------------------------
-------------------------------            ----------------------
--------
                                                     (unaudited)
Current liabilities
 Current maturities of long-term debt         $5,331   $1,878
 Accounts payable                              4,888    7,119
 Accounts payable to related parties               -       64
 Accrued expenses                              5,701    4,049
 Accrued interest payable                      5,379    5,401
 Deferred income taxes                             -      254
                                                       ----------
----------
   Total current liabilities                  21,299   18,765
                                                       ----------
----------
Long-term debt                                304,596  281,764
                                                       ----------
----------
Other long-term liabilities                    1,774    1,809
                                                       ----------
----------
Deferred income taxes                              -    2,094
                                                       ----------
----------
Minority interest                              1,219    1,861
                                                       ----------
----------
Redeemable common stock of subsidiary          2,740    2,666
                                                       ----------
----------
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                              116      116
 Additional paid-in capital                    2,196    2,196
 Accumulated deficit                          (51,013) (9,321)
  Note  receivable from an officer and stockholder        (1,693)
(1,707)
  Less:   treasury stock - at cost; 214,215 shares        (3,090)
(3,090)
                                                       ----------
----------
   Total stockholders' deficit                (53,484) (11,806)
                                                        ---------
---------
Total liabilities, minority interest, redeemable common stock
   and stockholders' deficit                  $286,434 $305,443
                                              ======   ======









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 endedSix months ended
                                  June 30,         June 30,
                        -----------------------------------------
------------
                               1998     1997     1998     1997
                             -------   ------   ------   ------
Operating revenues
 Oil and gas                $ 9,120  $8,263   $18,831  $17,846
 Well servicing                   -   4,658        -    7,789
 Real estate                  5,883   1,765   10,794    3,130
 Other                          351     297      789      541
                                ------------         ------------
------------                ------------
      Total    operating   revenues            15,354      14,983
30,414             29,306
                                ------------         ------------
------------                ------------
Operating expenses
 Oil and gas production       5,209   4,159   10,662    8,161
 Well servicing                   -   3,168        -    5,600
 Real estate                  3,114     668    5,252    1,222
 General and administrative, net of related
   party management and administrative
   fees of $1,721, $1,420, $2,618 and
   $2,305, respectively       1,250   1,683    2,602    2,938
  Depreciation,  depletion and amortization       5,223     3,161
9,488                       5,878
  Impairment  of oil and gas properties          29,000         -
29,000                      -
 Other                          352     356      727      651
                                ------------         ------------
------------                ------------
    Total  operating expenses          44,148    13,195    57,731
24,450
                                ------------         ------------
------------                ------------

Operating income            (28,794)  1,788   (27,317)  4,856
                                ------------         ------------
------------                ------------
Other income (expense)
  Interest  and dividend income           354       203       797
389
 Interest expense           (8,565)  (3,832)  (16,918) (6,819)
 Other                          277    (92)      280    (125)
                                ------------         ------------
------------                ------------
                            (7,934)  (3,721)  (15,841) (6,555)
                                ------------         ------------
------------                ------------
                                                           (conti
nued)


<PAGE>

       SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
                                
        CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
              (in thousands, except per share data)
                           (unaudited)
                                
                             Three months endedSix months ended
                                  June 30,         June 30,
                        -----------------------------------------
------------
                               1998     1997     1998     1997
                             -------   ------   ------   ------
Loss before income taxes, minority interest,
  equity  loss and extraordinary item       $   (36,728) $(1,933)
$  (43,158)             $   (1,699)
 Income tax benefit             404     579    2,348      504
                                ------------         ------------
------------                ------------
Loss before minority interest, equity loss and
 extraordinary item         (36,324) (1,354)  (40,810) (1,195)
  Minority  interest in subsidiaries, net of  tax              93
174                         199      222
  Equity  in loss of subsidiary, net of tax       (759)         -
(1,081)                     -
                                ------------         ------------
------------                ------------
Loss  before extraordinary item       (36,990) (1,180)   (41,692)
(973)
  Extraordinary item, net of tax            -     (490)         -
(490)
                                ------------         ------------
------------                ------------
Net  loss                    $(36,990)     $   (1,670)  $(41,692)
$  (1,463)
                            =======  =======  =======  =======

Loss per common share before extraordinary
 item                       $(34.38) $(1.10)  $(38.75) $(.90)
 Extraordinary loss from early extinguishment
   of debt                        -   (.46)        -    (.45)
                                ------------         ------------
------------                ------------

Loss per common share       $(34.38) $(1.56)  $(38.75) $(1.35)
                            =======  =======  =======  =======
Weighted    average   shares   outstanding              1,075,868
1,076,201                   1,075,868         1,079,748
                            =======  =======  =======  =======



















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 endedSix months ended
                                  June 30,         June 30,
                        -----------------------------------------
------------
                               1998     1997     1998     1997
                             -------   ------   ------   ------
Cash flows from operating activities
 Net loss                   $(36,990)     $   (1,670)  $(41,692)
$  (1,463)
 Adjustments to reconcile net loss to net cash
   provided by operating activities:
 Depreciation, depletion and amortization      5,223    3,161
9,488                       5,878
 Impairment of oil and gas properties         29,000        -
29,000                      -
 Noncash interest expense            577      385      1,225
543
 Extraordinary loss from early extingushment
   of debt                        -     490        -      490
 Loss (gain) on sale of assets        (261)      125    (261)
125
 Equity loss of subsidiary           759      -        1,081
-
 Other noncash items            142     139       77      172
 Bad debt expense               150       -      155        -
 Deferred income taxes        (404)   (407)   (2,348)   (471)
 Minority interest in loss of subsidiary        (93)    (174)
(199)                       (222)
 Changes in operating assets and liabilities-
   Accounts receivable           73   (170)    2,370   (5,488)
   Other current assets       (263)    (26)    (253)    (586)
   Accounts payable and accrued expenses       1,457    2,581
(643)                       5,847
   Accrued interest payable          (5,223)    (90)     (22)
313
   Income taxes payable           -       -        -     (30)
                            ------------      ------------
------------                ------------
Net cash provided (used) by operating activities       (5,853)
4,344                       (2,022)   5,108
                            ------------      ------------
------------                ------------

Cash flows from investing activities
 Proceeds from sale of oil and gas properties          2,838
62                  3,058        82
 Purchase of oil and gas properties           (2,275)  (8,423)
(6,566)                     (19,090)
 Purchase of other property and equipment
   and rental property      (25,415) (11,837) (26,451) (16,409)
 Purchase of other assets            (790)    (2,214)  (2,147)
(2,660)
 Purchase of noncompete covenants        -        -   (1,602)
 -
 Proceeds from sale of real estate investments           764
 -                   764         -
 Proceeds from sale of other assets          1,040    302
 1,060                     478
 Proceeds from sale of other property and
  equipment and rental property         24      117       24
 234
 Purchase of real estate investments         -        (53)  -
 (53)
 Change in restricted cash          384      (1,912)   1,056
 (2,459)
 Purchase of treasury stock by subsidiary         -   (1,174)
 -               (1,174)
 Other                        (14)     130        8      137
                            ------------      ------------
------------                ------------
 Net cash used by investing activities       (23,444) (25,002)
 (30,796)                  (40,914)
                           ------------      ------------   ---
 ---------                 ------------
                                                  (continued)

<PAGE>
       SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

        CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                         (in thousands)
                           (unaudited)
                                
                             Three months endedSix months ended
                                  June 30,         June 30,
                        -----------------------------------------
------------
                               1998     1997     1998     1997
                             -------   ------   ------   ------
Cash flows from financing activities
 Proceeds from borrowings         $  24,873   $47,331  $26,965
$  60,032
 Payments on debt             (561)  (27,899)  (837)   (29,813)
 Payments on other long-term liabilities        (14)     (21)
(63)                        (43)
 Increase in other long-term liabilities          28       81
28                    628
 Cash received on subscriptions receivable         -       97
-                   2,807
 Purchase of treasury stock          -        -        -
(552)
 Issuance of redeemable common stock,
   net of issue costs             -      30        -       32
 Deferred debt cost           (637)   (883)    (780)    (935)
 Dividends paid to minority interest owners            (30)
(32)                        (61)     (62)
 Purchase of minority interest in subsidiary           (108)
-                   (305)         -
 Other                          (3)       6      (3)        6
                            ------------      ------------
------------                ------------
Net cash provided by financing activities     23,548   18,710
24,944                      32,100
                            ------------      ------------
------------                ------------
Net decrease in unrestricted cash and
 cash equivalents           (5,749)  (1,948)  (7,874)  (3,706)

Unrestricted cash and cash equivalents -
 beginning of period         25,240   6,526   27,365    8,284
                            ------------      ------------
------------                ------------
Unrestricted cash and cash equivalents -
 end of period              $19,491  $4,578   $19,491  $4,578
                            =======  =======  =======  =======
Supplemental disclosures of cash flow information
 Interest paid              $13,212  $3,471   $15,716  $5,898
 Income taxes received      $     -  $    -   $    -   $   88














                                
      The accompanying notes are and 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, each of which are wholly owned, except
for  Red Oak, Sierra, Midland Southwest Software (`Software") and
Threading  Products International, LLC ("TPI"), a  subsidiary  of
Southwest.   As of June 30, 1998, the Company owned approximately
81%  of  Red Oak, 39% of Sierra, 99% of Software and 98% of  TPI.
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  Sierra,
Southwest  Partners  II  and III using the  equity  method.   All
significant intercompany transactions have been eliminated.

Commodity Hedging and Derivative Financial Instruments

   The  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 a 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.
   
   Since  the  contracts  are accounted for as  hedges,  premiums
paid  for such contracts 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 under the commodity option contracts are accrued as an
increase in oil and gas sales for the applicable periods.


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

1. Organization and Summary of Significant Accounting Policies -
continued

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.
   
Reporting Comprehensive income
   
   In   June   1997,  the  FASB  issued  Statement  of  Financial
Accounting  Standards  No. 130 "Reporting  Comprehensive  Income"
("SFAS  130")  which  establishes  standards  for  reporting  and
display of comprehensive income and its components in a full  set
of  general-purpose financial statements.  Specifically, SFAS 130
requires   that  an  enterprise  (i)  classify  items  of   other
comprehensive income by their nature in a financial statement and
(ii)  display  the  accumulated balance  of  other  comprehensive
income  separately from retained earnings and additional  paid-in
capital  in  the  equity  section of  a  statement  of  financial
position.  This statement has no effect on the Company.
   
Segment Reporting

   In   June   1997,  the  FASB  issued  Statement  of  Financial
Accounting  Standards No. 131 "Disclosures about Segments  of  an
Enterprise   and   Related  Information"   ("SFAS   131")   which
establishes   standards  for  public  business  enterprises   for
reporting   information  about  operating  segments   in   annual
financial  statements and requires that such  enterprises  report
selected   information  about  operating  segments   in   interim
financial  reports issued to shareholders.  This  statement  also
establishes standards for related disclosures about products  and
services,  geographic  areas, and major customers.   The  Company
implemented SFAS 131 during 1997.
  
Interim Financial Statements

   In  the  opinion  of  management, the  unaudited  consolidated
financial statements of the Company as of June 30, 1998 and  1997
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  amounts  in  the  prior  period  financial
statements  have  been reclassified to conform with  the  current
period presentation.

   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 1997 Form 10-K of the Company.
  
2.   Subsidiaries, Acquisitions and Dispositions
  
  During  the  six months ended June 30, 1998, Red  Oak  acquired
three  office  buildings  one  real  estate  fee  management  and
brokerage  company and one retail shopping mall for approximately
$26  million.   The  transactions were accounted  for  using  the
purchase  method.   The  results of operations  of  the  acquired
properties  and  the  real  estate fee management  and  brokerage
company are included in the Consolidated Statements of Operations
as of the close of each acquisition.

<PAGE>
       SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
3. Property and Equipment
  
  Property  and equipment, including oil and gas well  servicing,
rental  property  and  other,  consists  of  the  following   (in
thousands):
                               June 30, 1998   December 31,
                               ----------------------------------
                                (unaudited)   1997      1996
                                             ------    ------

     Land                       $  2,287  $  2,157  $  2,157
       Building   and  improvements             1,419       1,413
1,326
     Machinery and equipment       2,667     2,277     7,365
     Furniture and fixtures        1,761     1,743     1,714
      Equipment  under capital  lease              659        614
1,000
     Rental property             110,785    83,696    30,287
                                   ----------            --------
--------
                                 119,578    91,900    43,849
      Less  accumulated  depreciation            6,382      4,971
5,171
                                   ----------            --------
--------
                                $113,196  $ 86,929  $ 38,678
                                  ======     =====     =====
4. Long-term Debt
  
   Long-term debt consists of the following (in thousands):

                               June 30, 1998   December 31,
                               ----------------------------------
                                (unaudited)   1997      1996
                                             ------    ------
     10.5% Senior Notes, interest payable
      semi-annually due October 15, 2004,
      net of discount of $2,245 and $2,346,
      respectively              $197,755  $197,654  $      -
     13% Notes payable, due April 2000.
      Cash interest of 10% payable monthly
      with additional interest payable based
      on excess cash flow or through
      the issuance of additional notes.
       Collateralized  by  real estate.         71,502     70,628
-
     Revolving line of credit with variable-
      rate interest, due February 1999.
       Collateralized  by  oil and gas  properties            100
100   28,125
     9% Notes payable, with variable
      quarterly payments including interest,
      due December 2003.               -         -    27,649

<PAGE>

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

4. Long-term Debt - continued
                               June 30, 1998   December 31,
                               ----------------------------------
                                (unaudited)   1997      1996
                                             ------    ------
     10% Note payable, interest payable monthly,
      due June 1998.                   -         -     9,000
     12% Note payable, interest payable
       semi-annually  due November  2001.            -          -
7,143
       Capital   lease   obligations              385         473
352
     Note payable at 3-year U.S. Treasury plus
      3.875%, monthly payments of $41
       including  interest, due  February  2002                 -
-     4,428
     Note payable at 3-year U.S. Treasury plus
      3.5%, monthly payments of $46
       including  interest, due  November  2002                 -
-     4,954
     Note payable, at prime plus 1.5%, monthly
      payments of $68 including interest,
      due September 2003..             -         -     7,106
     Notes payable due July 2001.  Variable rate
      interest due and payable monthly with
      additional 1% payable based on the lock
       box  agreement.   Net of discount of  $1,944.       13,557
-     -
     Other                        26,628    14,787     5,048
                                                       ----------
----------                      --------
                                              309,927     283,642
93,805
     Less current maturities       5,331     1,878    10,216
                                                       ----------
----------                      --------
                                             $304,596    $281,764
$    83,589
                                               ======      ======
=====

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  to  be
used for working capital.
  
<PAGE>
       SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Long-term Debt - continued
  
  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% Note Payable
       
  In  April  1997 MROP 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  six 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 the Company.  At December  31,
1997  and  June  30, 1998 the Company was not in compliance  with
certain  reporting requirements of the term  note.   The  Company
has obtained waivers for those events of non-compliance.

Revolving Line of Credit
  
  The  revolving  credit  line allows  Southwest  to  borrow  the
lesser of $75 million or the borrowing base which is redetermined
periodically.   As of December 31, 1996, the borrowing  base  was
$28.1 million and as of December 31, 1997, the borrowing base was
$40  million.   As  of  June 30, 1998,  the  borrowing  base  was
$100,000.   The revolving line of credit agreement  provides  for
the  revolver  to  become due and payable on February  28,  1999.
Fees  on  the unused portion of the revolving line of credit  are
three-eighths  of  one  percent (3/8%) per  annum  on  the  daily
average of the unadvanced amount of the borrowing base.
       
  Southwest  has  the option to elect an interest rate  based  on
LIBOR plus the applicable Eurodollar Margin or Prime plus a  base
rate  margin.   Both margins are based on the percentage  of  the
revolving  commitment outstanding.  The Eurodollar Margin  ranges
from  a minimum of 1.75% to a maximum of 2.50% and the Prime base
rate margin ranges from a minimum of .25% to a maximum of 1.00%.
  
  Certain  covenants of the revolving line of  credit  require  a
tangible  net worth of not less than $2 million, a current  ratio
of  1.0  to  1,  a  minimum fixed coverage ratio  of  1.1  to  1,
restrictions  on  cash  dividends,  additional  indebtedness  and
purchases of investments. The covenants that the Company violated
as  of December 31, 1997 consisted of minimum tangible net worth,
sale of assets and minimum interest coverage ratio which were all
subsequently  waived.   On  March 27, 1998,  the  covenants  were
amended  to  remove the tangible net worth requirement,  increase
allowable  sales of assets from $250,000 to at least $10  million
and  revise  the minimum interest coverage ratio to  .7  to  1.0.
Substantially  all  of Southwest's assets are  collateralized  in
connection with this debt.
  
<PAGE>
       SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Long-term Debt - continued

9% Note Payable
       
  In  August 1995, a subsidiary of Southwest entered into a  note
agreement  which provided for $30.3 million to purchase  oil  and
gas  properties.  In October 1997, this note was  repaid  with  a
portion of the proceeds from the aforementioned Note.

10% Note Payable
       
  In  October 1996, Red Oak, through a subsidiary, issued a  term
note  of $9 million to finance the purchase of real estate.  This
note  was  repaid  with  a  portion  of  the  proceeds  from  the
aforementioned 13% note payable.

12% Note Payable
  
  In  November 1996, Southwest entered into a senior subordinated
note  agreement  which provided for $8 million  to  be  used  for
developmental drilling.  This note was repaid with a  portion  of
the proceeds from the aforementioned 10.5% Senior Notes.
  
Variable Rate Notes Payable
  
  In  June 1998, MRO N Cross, Inc., a wholly owned subsidiary  of
Midland Red Oak Realty, Inc. 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 has  not  been
utilized  as  of June 30, 1998.  The notes are collateralized  by
the property purchased.
  
Extinguishment of Debt
  
  In   1997,  the  Company  repaid  the  aforementioned  9%  Note
Payable,  10%  Note Payable and 12% Note Payable.  The  remaining
unamortized  deferred  debt  costs associated  with  these  notes
resulted  in  an  extraordinary  charge  of  $4,350,000,  net  of
$1,241,000 of tax benefit, or $2.88 per share.
  
  Aggregate  maturities of all long-term  debt  as  of  June  30,
1998, including capital leases, are as follows (in thousands):
  
         For the twelve
         months ended
         June 30, 1998                        $5,331
         June 30, 1999                         1,122
         June 30, 2000                         72,112
         June 30, 2001                        13,866
         June 30, 2002                         2,318
         Thereafter                           215,178




<PAGE>



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

5. 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 June 30, 1998, 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.
  
6.   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.  Prior
to June 30, 1998, the Company purchased put options on a total of
13,000  MMBtu  of natural gas per day.  These options  expire  on
October  31, 1998 and have a strike price, based on the  El  Paso
Natural  Gas Co. - Permian Basin Index, of $1.90 for 6,500  MMBtu
per  day and $1.70 for the remaining 6,500 MMBtu per day.  In May
1998,  the Company purchased a collar for 1,500 MMBtu of  natural
gas per day which expires on October 31, 1998.  The collar has  a
call  strike price of $2.63 per MMBtu and a put strike  price  of
$1.95  per MMBtu based on the NYMEX Henry Hub Natural Gas Futures
Contract.
  
  In  August 1998, the Company purchased an additional put option
on  a  total of 15,000 MMBtu of natural gas per day with a strike
price  of  $2.00 per MMBtu.  The option is based on the  El  Paso
Natural Gas Co. - Permian Basin Index and is for the period  from
November 1, 1998 through March 31, 1999.
  
<PAGE>
  
       SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Impairment of Oil and Gas Properties
  
  Southwest  uses  the  full cost method of  accounting  for  its
investment in oil and gas properties. Under the full cost  method
of   accounting,  all  costs  of  acquisition,  exploration   and
development of oil and gas reserves are capitalized into a ''full
cost  pool'' as incurred, and properties in the pool are depleted
and  charged to operations using the gross revenues method  based
on  the  ratio  of current gross revenues to total proved  future
gross revenues, computed based on current prices.  Should the net
capitalized costs exceed the estimated present value of  oil  and
gas  reserves,  discounted at 10%, such  excess  costs  would  be
charged  to  current  expense.  As of  June  30,  1998,  the  net
capitalized cost exceeded the estimated present value of oil  and
gas reserves, thus a noncash adjustment of $29.0 million was made
to  the  financial statement.  Once incurred, a writedown of  oil
and gas properties is not reversible at a later date, even if oil
or natural gas prices increase.

8. Lines of Business
  
  The  Company  operates  in three 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), Oil and  Gas
Well  Servicing  (provides  well  completion,  recompletion   and
production equipment, transportation services, tank supply rental
services  and  other  support and well  maintenance  services  to
operating  oil and gas companies) and Real Estate Investment  and
Management  (owns and manages retail shopping centers and  office
buildings).   Other  items  include eliminations,  manufacturing,
computer  service  and  broker/dealer and  the  holding  company.
Effective  July  1, 1997, Sierra, the oil and gas well  servicing
business,   was   deconsolidated,  therefore   income   statement
information  for  the  six months ended  June  30,  1998  is  not
displayed  in  the  tables and no balance  sheet  information  is
displayed as of June 30, 1998.

                             Three months endedSix months ended
                                  June 30,         June 30,
                        -----------------------------------------
------------
                               1998     1997     1998     1997
                             -------   ------   ------   ------
                              (in thousands)   (in thousands)
                               (unaudited)      (unaudited)
 Operating profit (loss)
    Oil  and gas              $(30,428)     $   910  $   (30,974)
$  3,823
   Well service                   -     229        -      184
   Real estate                1,702     621    3,680    1,076
    Other  and  eliminations             (68)      28        (23)
(227)
                            ----------        ----------
----------                  ----------
                             $(28,794)     $   1,788$    (27,317)
$  4,856
                             ======  ======   ======   ======
 Interest Expense
   Oil and gas              $ 5,569  $2,297   $11,127  $4,480
   Well Service                   -     129        -      184
   Real Estate                2,965   1,392    5,746    2,131
     Other  and  eliminations             31        14         45
24
                            ----------        ----------
----------                  ----------
                            $ 8,565  $3,832   $16,918  $6,819
                             ======  ======   ======   ======

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

8. Lines of Business - continued
  
                             Three months endedSix months ended
                                  June 30,         June 30,
                        -----------------------------------------
------------
                               1998     1997     1998     1997
                             -------   ------   ------   ------
                              (in thousands)   (in thousands)
                               (unaudited)      (unaudited)
 Depreciation, depletion and amortization
   Oil and gas              $ 4,478  $2,415   $8,169   $4,512
   Well service                   -     432        -      747
   Real estate                  698     267    1,226      533
     Other  and  eliminations             47        47         93
86
                            ----------        ----------
----------                  ----------
                            $ 5,223  $3,161   $9,488   $5,878
                             ======  ======   ======   ======

 Capital expenditures
   Oil and gas              $ 2,537  $10,820  $6,955   $21,722
   Well service                   -   2,969        -    6,905
   Real estate               25,043   6,410   25,868    6,802
     Other  and  eliminations             110       61        194
70
                            ----------        ----------
----------                  ----------
                            $27,690  $20,260  $33,017  $35,499
                             ======  ======   ======   ======
  
                                               June   30,December
31,
                                               1998    1997
                                             --------------------
-----
 Identifiable assets
   Oil and gas                                $161,236 $205,054
   Real estate                                124,727  98,890
     Other   and  eliminations                                471
1,499
                                              ----------
----------
                                              $286,434 $305,443
                                              ======   ======
  
9. Subsequent Events

  In  July  1998,  Red  Oak  purchased  an  additional  pad  site
adjacent  to  one  of its existing properties  and  a  commercial
office  center  for a combined purchase price  of  $2.2  million.
Subsequent to June 30, 1998, Red Oak escrowed approximately  $530
thousand  to  be used towards the purchase price of approximately
$25.5 million for a retail pad site, a retail shopping center and
a  retail  mall  in  Tucson, AZ, Midland, TX  and  Victoria,  TX,
respectively.
  
  
<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.  References in this  report  to
the  "Company"  are  to  SRH  and its consolidated  subsidiaries,
including  Southwest,  Red  Oak  and  Sierra,  an  unconsolidated
affiliate.
  
  Southwest  has  grown principally through  the  acquisition  of
producing   properties,  establishing  a  substantial   base   of
producing  and undeveloped properties in the Permian Basin.   The
Company  intends to increase its oil and gas reserves, production
and  cash  flow  by  conducting development  activities  such  as
recompletions for the remainder of 1998.  During the  first  half
of  1998, the Company drilled 17 gross (7.3 net) wells, of  which
all were successfully completed as productive.
  
  The   Company   places   emphasis  on  profitable   acquisition
opportunities as long as such opportunities exist.  However,  the
Company  understands  the cyclical nature  of  the  oil  and  gas
industry.  Therefore, the Company also actively seeks to  develop
its  inventory  of  existing proved developed  non-producing  and
proved  undeveloped reserves.  The Company's staff and operations
can  easily  shift  emphasis  between  acquisitions  and  reserve
development   depending  on  market  conditions.   A  significant
portion of the Company's reserves are proved undeveloped and  are
therefore available for development.
  
  Southwest's   revenue,  profitability   and   cash   flow   are
substantially dependent upon prevailing prices for crude oil  and
natural  gas  and  the volumes of crude oil and  natural  gas  it
produces.  In addition, Southwest's proved reserves and  oil  and
gas  production  will decline as crude oil and  natural  gas  are
produced,  unless Southwest is successful in acquiring  producing
properties  or  conducts successful exploration  and  development
activities.

  Southwest  uses  the  full cost method of  accounting  for  its
investment in oil and gas properties. Under the full cost  method
of   accounting,  all  costs  of  acquisition,  exploration   and
development of oil and gas reserves are capitalized into a ''full
cost  pool'' as incurred, and properties in the pool are depleted
and  charged to operations using the gross revenues method  based
on  the  ratio  of current gross revenues to total proved  future
gross  revenues,  computed based on current  prices.  Significant
downward revisions of quantity estimates or declines in  oil  and
gas prices that are not offset by other factors could result in a
writedown  for  impairment  of  oil  and  gas  properties.   Once
incurred, a writedown of oil and gas properties is not reversible
at  a  later  date,  even if oil or natural gas prices  increase.
During  most of 1996 and 1997, the Company benefited from  higher
oil  prices  as compared to previous years.  However, during  the
second  quarter  of  1998,  oil prices were  significantly  lower
causing  the  Company  to incur a $29.0 million  noncash  charge.
Also,  further declines in oil prices could result in  additional
decreases  in  the carrying value of the Company's  oil  and  gas
properties.
   
   Red  Oak  was  formed by the Company in 1992  to  acquire  and
manage  neighborhood and community shopping centers, other retail
and  commercial properties and office buildings. These properties
are  primarily  leased,  on a long-term basis,  to  major  retail
companies,   local  specialty  retailers  and  professional   and
business  tenants  throughout  secondary  urban  markets  in  the
southwestern United States. As of June 30, 1998, Red Oak owns and
operates  15 shopping centers, six office buildings and raw  land
held for future development.
   
<PAGE>
   Effective  July  1, 1997, Sierra was deconsolidated  from  the
financial  statements of SRH and is subsequently  reported  using
the equity method of accounting.  As such, comparisons of revenue
and  expenses  for the six months ended 1998 to  the  six  months
ended  1997 are not relevant and therefore no discussion of  such
results of operations are provided.

Results of Operations

  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 endedSix months ended
                                  June 30,         June 30,
                        -----------------------------------------
------------
                               1998     1997     1998     1997
                             -------   ------   ------   ------
  Production volumes:
  Oil and condensate (MBbls)           460      282      929
554
  Natural gas (MMcf)         1,488   1,543    3,010    2,865
  
  Average sales prices:
  Oil and condensate (per Bbl)      $12.99   $18.21   $13.66
$  20.52
  Natural gas (per Mcf)    $  1.95  $ 1.87   $ 1.94   $ 2.03
  
  Revenues.  Revenues for the Company increased to $15.4  million
and  $30.4  million for the three and six months ended  June  30,
1998,  respectively,  as  compared to  $15.0  million  and  $29.3
million for the same periods in 1997. Revenues increased in  each
segment, with the exception of Sierra which was deconsolidated.
  
  Oil  and  gas  revenues increased 10% to $9.1 million  for  the
three months ended June 30, 1998 and 5% to $18.9 million for  the
six  months ended June 30, 1998, as compared to $8.3 million  and
$17.9 million for the same periods in 1997. The increase for  the
three  and  six  months ended June 30, 1998 is primarily  due  to
increases  in  oil and gas production, offset by  a  decrease  in
average oil prices. The majority of the increased production is a
direct result of a large oil and gas acquisition in October 1997.
  
  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.  Prior
to June 30, 1998, the Company purchased put options on a total of
13,000  MMBtu per day, which represents approximately 80% of  the
Company's  gas  production.   These  options  expire  on  October
31,1998 and have a strike price, based on the El Paso Natural Gas
Co.  - Permian Basin Index, of $1.90 for 6,500 MMBtu per day  and
$1.70  for  the remaining 6,500 MMBTU per day.  In May 1998,  the
Company purchased a collar for 1,500 MMBtu of natural gas per day
which expires on October 31, 1998.  The collar has a strike price
of  $2.63  per  MMBtu and a put strike price of $1.95  per  MMBtu
based  on  the NYMEX Henry Hub Natural Gas Futures Contract.   In
August 1998, the Company purchased an additional put option on  a
total of 15,000 MMBtu of natural gas per day based on the El Paso
Natural  Gas Co. - Permian Basin Index.  The option  is  for  the
period  from November 1, 1998 through March 31, 1999  and  has  a
strike price $2.00 per MMBtu.
  
  Real  estate  revenues increased 233% to $5.9 million  for  the
three  months ended June 30, 1998 and 245% to $10.8  million  for
the  six  months ended June 30, 1998, as compared to $1.8 million
and $3.1 million for the same periods in 1997.

<PAGE>
  Operating  Expenses.  Operating expenses,  before  general  and
administrative expense, impairment of oil and gas properties  and
depreciation,  depletion  and  amortization,  increased  to  $8.7
million and $16.6 million for the three and six months ended June
30,  1998,  respectively, as compared to $8.4 million  and  $15.6
million  for  the  same  periods in 1997.  The  increase  relates
primarily  to  costs associated with the growth in the  Company's
businesses through acquisitions, offset by the deconsolidation of
Sierra on July 1, 1997.
  
  Oil  and  gas operating expense per Boe decreased 6%  to  $7.35
for  the three months ended June 30, 1998 from $7.80 per Boe  for
the same period in 1997.  For the six months ended June 30, 1998,
operating  expense per Boe decreased 6% to $7.45 from  $7.91  per
Boe  for  the same period in 1997.  Lease operating expense,  the
primary oil and gas operating expense, decreased 3% to $5.86  per
Boe for the six months ended June 30, 1998 from $6.04 per Boe for
the same period in 1997.  The decreases on a Boe basis is due  to
the Company's ongoing efforts to decrease operating costs coupled
with  divestitures of oil and gas properties with high  operating
costs.
  
  Real  estate  operating expense increased 366%  to  $3.1million
for the three months ended June 30, 1998 and 330% to $5.3 million
for  the  six months ended June 30, 1998, as compared to $668,000
and  $1.2  million for the same periods in 1997.  These increases
were due primarily to acquisitions.
  
  General  and Administrative (''G&A'') Expense. G&A expense  for
the  Company  decreased 26% to $1.3 million for the three  months
ended  June  30, 1998 and 11% to $2.6 million for the six  months
ended June 30, 1998, as compared to $1.7 million and $2.9 million
for  the same periods in 1997.  The decrease is primarily due  to
the  deconsolidation of Sierra which accounted for  $1.3  million
for  the  first  half  of  1997, offset by  an  increase  in  the
Company's activities resulting from recent acquisitions.  Oil and
gas  G&A  expense per Boe decreased 14% to $1.24  for  the  three
months ended June 30, 1998 from $1.44 per Boe for the same period
in 1997.  For the six months ended June 30, 1998, G&A expense per
Boe  increased 6% to $1.42 from $1.34 per Boe for the same period
in  1997,  due  primarily to an unexpected charge  in  the  first
quarter  of 1998.  Real estate G&A expense increased to  $369,000
and  $636,000 for the three and six months ended June  30,  1998,
respectively  from  $208,000  and  $299,000  for  the  comparable
periods   of  1997.   The  increases  are  directly  related   to
administrative  staff  increases  necessitated   by   Red   Oak's
significant growth.
  
  Depreciation,  Depletion and Amortization  (''DD&A'')  Expense.
DD&A  expense for the Company increased to $5.2 million and  $9.5
million  for  the  three  and six months  ended  June  30,  1998,
respectively,  as compared to $3.2 million and $5.9  million  for
the  same periods in 1997, due to growth in each of the Company's
businesses. Oil and gas depletion expense increased 40% to  $6.13
per  Boe for the three months ended June 30, 1998 from $4.37  per
Boe  for the same period in 1997.  For the six months ended  June
30,  1998, depletion expense per Boe increased 31% to $5.53  from
$4.23  per Boe for the same period in 1997.  The increase in  oil
and  gas depletion expense on an overall basis and per Boe is due
primarily to the decrease in the oil price used in the period end
reserve reports for June 30, 1998 compared to the reserve reports
used for the same period in 1997, which led to a higher depletion
rate using the units of revenue depreciation method.  Real estate
DD&A expense increased to $698,000 and $1.2 million from $267,000
and  $533,00  for the three and six months ended June  30,  1998,
respectively, due to the impact of acquisitions.
  
  Impairment of Oil and Gas Properties. Southwest uses  the  full
cost  method  of  accounting for its investment in  oil  and  gas
properties. Under the full cost method of accounting,  all  costs
of  acquisition,  exploration and  development  of  oil  and  gas
reserves  are capitalized into a ''full cost pool'' as  incurred,
and properties in the pool are depleted and charged to operations
using  the  gross revenues method based on the ratio  of  current
gross  revenues  to total proved future gross revenues,  computed
based  on  current  prices.  Significant  downward  revisions  of
quantity estimates or declines in oil and gas prices that are not
offset  by  other  factors  could  result  in  a  writedown   for
impairment of oil and gas properties.  Once incurred, a writedown
of oil and gas properties is not reversible at a later date, even
if  oil or natural gas prices increase.  As of June 30, 1998, the
net  capitalized cost exceeded the estimated present value of oil
and  gas  reserves, discounted at 10%, primarily due to depressed
commodity prices; thus, the Company incurred a noncash charge  of
$29.0 million for the three and six months ended June 30, 1998.
  

<PAGE>

  Interest  Expense.  Interest expense for the Company  increased
to  $8.6  million and $16.9 million for the three and six  months
ended  June  30, 1998, respectively, as compared to $3.8  million
and  $6.8  million for the same periods in 1997.   The  increases
result  from increased borrowings incurred to fund a  portion  of
the  Company's acquisitions and oil and gas development.  Oil and
gas interest expense increased to  $5.6 million and $11.1 million
for  the  three  and  six months ended June 30,  1998  from  $2.3
million and $4.5 million for the comparable periods in 1997 as  a
result  of  increased  borrowings for  development  drilling  and
acquisitions   made  in  1997.   Real  estate  interest   expense
increased  104% to $3.0 million for the three months  ended  June
30,  1998 and 170% to $5.7 million for the six months ended  June
30,  1998, as compared to $1.4 million and $2.1 million  for  the
same  periods in 1997.  The increases were due to additional debt
used to finance acquisitions.
  
  Income  Taxes.  The Company recorded an income tax  benefit  of
$404,000 and $2.3 million for the three and six months ended June
30,  1998  as  compared  to $579,000 and $504,000  for  the  same
periods  in  1997.   As of June 1998, the Company  established  a
valuation allowance for its deferred tax asset, consisting mainly
of  net  operating loss carryforwards and a temporary  difference
relating to net oil and gas properties.  Future benefits will not
be  available  henceforth; however, the amount of  the  valuation
allowance could be reduced if estimates of future taxable  income
during the carryforward periods are increased.
  
  Equity  in  Loss of Subsidiary.  Equity in Loss  of  Subsidiary
resulted  in a charge of $759,000 and $1.1 million for the  three
and  six months ended June 30, 1998.  These amounts relate to the
Company's  39% investment in Sierra, which was deconsolidated  on
July 1, 1997.
  
  Net  Income. Due to the factors described above, net  loss  for
the  Company  increased $40.2 million to  a  net  loss  of  $41.7
million for the six months ended June 30, 1998, as compared to  a
net loss of $1.5 million for the same period in 1997.
  
Liquidity and Capital Resources
  
  As  of  June 30, 1998, the Company's consolidated cash  balance
was  $19.5  million, of which $18.1 was available  to  Southwest.
Funding  for  the Company's business activities has  historically
been  provided by operating cash flows, bank borrowings and  debt
issuance, reserve-based financing and sales of equity; however, a
continuation of the oil price environment experienced during  the
first  half of 1998 will have an adverse affect on the  Company's
revenues  and  operating cash flow.  Any future acquisitions  may
require additional financing and will be dependent upon financing
arrangements  available  at  the time.   The  Company  sold  $3.1
million  of oil and gas properties during the first half of  1998
in an ongoing effort to decrease its production costs and improve
its cash position.
  
  As  discussed  previously,  as of July  1,  1997,  Sierra  Well
Service  was  deconsolidated  from SRH  and  is  currently  being
accounted  for using the equity method of accounting;  therefore,
cash  flow information for Sierra is reported for the six  months
ended June 30, 1997.  For the comparable period in 1998, no  cash
flow information for Sierra is reported.
  
Net Cash Provided by Operating Activities

   Net  cash  used by operating activities was $5.9  million  and
$2.0  million for the three and six months ended June  30,  1998,
respectively,  as  compared  to net cash  provided  by  operating
activities of $4.3 million and $5.1 million for the same  periods
in  1997.  The changes are primarily attributable to decreases in
average  oil prices and an increase in interest expense resulting
principally  from  acquisitions in all the Company's  businesses,
which was offset by increases in oil and gas production.
  
<PAGE>
Net Cash Used in Investing Activities

   Net  cash  used  in investing activities by the  Company  were
$23.4  million  and $30.8 million for the three  and  six  months
ended  June 30, 1998, as compared to $25.0 million and $40.9  for
the  comparable periods in 1997.  Acquisitions and  oil  and  gas
development  activities  and  commercial  real  estate  were  the
primary uses of funds for both periods.
  
  As  a  result  of  its  success in  development  projects,  the
Company  increased  its 1998 oil and gas capital  expenditure  to
$8.1  million, of which $6.6 was expended for the first  half  of
1998.   Further revisions may be necessary for the  remainder  of
the  year  in response to market conditions. No amount  has  been
budgeted for oil and gas acquisitions, although the Company  will
continue  to search for strategic and complementary oil  and  gas
acquisitions.    The  Company  anticipates  Red   Oak's   capital
improvement  budget to approximate $7.2 million,  of  which  $1.6
million was expended for the first half of 1998.  Red Oak has not
specified an amount for their remaining 1998 acquisition  budget;
however,  any   additional acquisitions would be funded  by  non-
recourse debt.
  
Net Cash Provided by Financing Activities.

   Net  cash  provided by the Company's financing activities  was
$25.0 million and $32.1 million for the six months ended June 30,
1998  and  1997,  respectively.  Net cash provided  by  financing
activities  was primarily used to fund  real estate  acquisitions
in 1998.
  
  Southwest  Credit Facility. The Southwest Credit  Facility  was
amended  to  provide for a $75 million revolving line  of  credit
maturing in February 1999, 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.  In  March  1998,  the
covenants   were  amended  to  remove  the  tangible  net   worth
requirement, increase allowable sales of assets from $250,000  to
at  least  $10  million and revise the minimum interest  coverage
ratio from 1.0 to 0.7.  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.  Scheduled redetermination will occur again at the end
of  the  year.   The lender schedules quarterly  reviews  of  its
pricing policy and should oil prices strengthen, the Company  can
request a redetermination at that time.
  
  For   the  remainder  of  1998,  Red  Oak  intends  to  acquire
additional  real  estate  properties.   Funding  will  likely  be
obtained  through an additional increase in the MROP Facility  or
from other sources that are nonrecourse to SRH and Southwest.
  
  The   Company  believes  the  availability  of  the   Red   Oak
Acquisition  Facilities  and  current  cash  balances   will   be
sufficient   for   planned  operating  and  capital   expenditure
requirements for the remainder of 1998.  However, if the  Company
identifies  acquisitions  in  any of its  businesses,  additional
financing will be needed and the Company expects to evaluate  all
available  funding  sources including equity and  debt  financing
alternatives.






<PAGE>


Other Issues
  
Information Systems for the Year 2000
  
  The  Company has reviewed and evaluated its information systems
to  determine if its systems accurately process data  referencing
the   year   2000.    Substantially  all  necessary   programming
modifications  to  correct  year  2000  referencing  in  internal
accounting  and operating systems have been made.   However,  the
Company  has  not  completed its evaluation of  its  vendors  and
suppliers  systems  to determine the effect,  if  any,  the  non-
compliance  of such systems would have on the operations  of  the
Company.   The Company expects to have all evaluations  completed
by early 1999.

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" which establishes  accounting
and  reporting  standards for derivative  instruments,  including
certain  derivative  instruments  embedded  in  other  contracts,
(collectively  referred  to  as  derivatives)  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.  If certain
conditions  are met, a derivative may be specifically  designated
as (a) a hedge of the exposure to charges in the fair value of  a
recognized asset or liability or an unrecognized firm commitment,
(b)  a  hedge  of  the  exposure to  variable  cash  flows  of  a
forecasted  transaction, or (c) a hedge of the  foreign  currency
exposure  of  a  net  investment  in  a  foreign  operation,   an
unrecognized firm commitment, an available-for-sale security,  or
a foreign-currency-denominated forecasted transaction.
  
  Under  this  Statement, an entity that elects  to  apply  hedge
accounting is required to establish at the inception of the hedge
the  method  it will use for assessing the effectiveness  of  the
hedging  derivative and the measurement approach for  determining
the  ineffective  aspect of the hedge.   Those  methods  must  be
consistent with the entity's approach to managing risk.
  
  This  Statement  applies to all entities and is  effective  for
all  fiscal  quarters of fiscal years beginning  after  June  15,
1999.  Initial application of this Statement should be as of  the
beginning  of  an entity's fiscal quarter; on that date,  hedging
relationships must be designated anew and documented pursuant  to
the provisions of this Statement.  Earlier application of all  of
the  provisions  of  this  Statement is  encouraged,  but  it  is
permitted  only  as of the beginning of any fiscal  quarter  that
begins  after issuance of this Statement.  This Statement  should
not  be  applied retroactively to financial statements  of  prior
periods.

<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 15, 1998
  
  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 15,
1998
  
  /s/ Bill E. Coggin
  -----------------------------
  Bill E. Coggin           Vice President/Chief
                           Financial Officer     August 15, 1998
  
  /s/ H. Allen Corey
  -----------------------------
  H. Allen Corey           Director/Secretary    August 15, 1998
  
  
  <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 15, 1998
  
  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 15,
1998
  
  /s/ Bill E. Coggin
  -----------------------------
  Bill E. Coggin           Vice President/Chief
                           Financial Officer     August 15, 1998
  
  /s/ H. Allen Corey
  -----------------------------
  H. Allen Corey           Director/Secretary    August 15, 1998
  
  
  <PAGE>