##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



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Form 10-Q



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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)

OF THE SECURITIES EXCHANGE
ACT OF 1934



For the Quarter ended September 30, 2004



Commission File Number 2-71865



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TEXLAND DRILLING PROGRAM-1981, LTD.

(Name of Registrant)



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|                        |  |                                     
|----------------------- |  | ------------------------------------
|TEXAS                   |  | 75-1791491                          
|(State of Organization) |  | (I.R.S. Employer Identification No.)



|                                              |  |         
|--------------------------------------------- |  | --------
|777 Main Street, Suite 3200 Fort Worth, Texas |  | 76102   
|(Address of Executive Offices)                |  | Zip Code



Registrants
Telephone Number (817) 336-2751



Securities registered
pursuant to Section 12(b) of the Act:



|                                      |  |               
|------------------------------------- |  | --------------
|Units of Limited Partnership Interest |  | None          
|(Title of Class)                      |  | (Voting Units)



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



This report contains a total
of 11 pages.



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##### Table of Contents

Texland Drilling Program-1981, Ltd.



Index To Financial Statements



Reference
Page



|                                                                                                 |  |    
|------------------------------------------------------------------------------------------------ |  | ---
|Balance Sheets at September 30, 2004 and December 31, 2003.                                      |  | 3  
|                                                                                                 | 
|Statements of Operations for the Three Months And Nine Months Ended September 30, 2004 and 2003. |  | 4  
|                                                                                                 | 
|Statement of Partners Capital at September 30, 2004.                                            |  | 5  
|                                                                                                 | 
|Statements of Cash Flows for Nine Months Ended September 30, 2004 and 2003.                      |  | 6  
|                                                                                                 | 
|Notes to Financial Statements.                                                                   |  | 7-8



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##### Table of Contents

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)



Balance Sheets

September 30, 2004 and December 31, 2003

(Unaudited)



|                                                            |  |          |             |   |          |   |             |  
|----------------------------------------------------------- |  | -------- | ----------- | - | -------- | - | ----------- | -
|                                                            |  | 09/30/04 |             |   | 12/31/03 |  
|ASSETS                                                      |  |          |             |   |          |   |             |  
|Current Assets                                              |  |          |             |   |          |   |             |  
|Cash                                                        |  | $        | 100,223     |   |          | $ | 52,124      |  
|Accounts receivable - trade                                 |  |          | 194,966     |   |          |   | 136,491     |  
|Accounts receivable - managing general partner              |  |          |            |   |          |   | 1,257       |  
|                                                            |  |          |             |   |          |   |             |  
|                                                            |  |          | 295,189     |   |          |   | 189,872     |  
|                                                            |  |          |             |   |          |   |             |  
|Property and Equipment, at Cost (Successful Efforts Method) |  |          |             |   |          |   |             |  
|Intangible development costs                                |  |          | 7,372,810   |   |          |   | 7,346,495   |  
|Lease and well equipment                                    |  |          | 4,317,075   |   |          |   | 4,301,178   |  
|Producing leaseholds                                        |  |          | 161,495     |   |          |   | 161,495     |  
|                                                            |  |          |             |   |          |   |             |  
|                                                            |  |          | 11,851,380  |   |          |   | 11,809,168  |  
|Accumulated depreciation, depletion and amortization        |  |          | (10,263,702 | ) |          |   | (10,178,875 | )
|                                                            |  |          |             |   |          |   |             |  
|                                                            |  |          | 1,587,678   |   |          |   | 1,630,293   |  
|                                                            |  |          |             |   |          |   |             |  
|Total Assets                                                |  | $        | 1,882,867   |   |          | $ | 1,820,165   |  
|                                                            |  |          |             |   |          |   |             |  
|LIABILITIES                                                 |  |          |             |   |          |   |             |  
|Current Liabilities                                         |  |          |             |   |          |   |             |  
|Accounts payable - managing general partner                 |  | $        | 67,928      |   |          | $ | 42,180      |  
|                                                            |  |          |             |   |          |   |             |  
|Total Current Liabilities                                   |  |          | 67,928      |   |          |   | 42,180      |  
|                                                            |  |         
|Asset retirement liability                                  |  |          | 182,569     |   |          |   | 172,235     |  
|                                                            |  |          |             |   |          |   |             |  
|Total Liabilities                                           |  |          | 250,497     |   |          |   | 214,415     |  
|                                                            |  |         
|PARTNERS CAPITAL                                           |  |          |             |   |          |   |             |  
|Limited partners - 2,425 units outstanding                  |  |          | 1,175,608   |   |          |   | 1,160,236   |  
|General partners                                            |  |          | 456,762     |   |          |   | 445,514     |  
|                                                            |  |          |             |   |          |   |             |  
|                                                            |  |          | 1,632,370   |   |          |   | 1,605,750   |  
|                                                            |  |          |             |   |          |   |             |  
|Total Liabilities and Partners Capital                     |  | $        | 1,882,867   |   |          | $ | 1,820,165   |  
|                                                            |  |          |             |   |          |   |             |  



See accompanying
notes to financial statements.



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##### Table of Contents

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)



Statements of Operations

September 30, 2004 and 2003

(Unaudited)



|                                                                          |  |                                 |         |      |                                |         |      |  |      |           |  |   |           |  
|------------------------------------------------------------------------- |  | ------------------------------- | ------- | ---- | ------------------------------ | ------- | ---- |  | ---- | --------- |  | - | --------- | -
|                                                                          |  | Three Months EndedSeptember 30, |         |      | Nine Months EndedSeptember 30, |        
|                                                                          |  | 2004                            |         | 2003 |                                |         | 2004 |  | 2003 |          
|Revenue                                                                   |  |                                 |         |      |                                |         |      |  |      |           |  |   |           |  
|Oil and gas sales                                                         |  | $                               | 469,730 |      | $                              | 360,430 |      |  | $    | 1,274,891 |  | $ | 1,158,809 |  
|Interest income                                                           |  |                                 | 146     |      |                                | 114     |      |  |      | 370       |  |   | 441       |  
|Miscellaneous Income                                                      |  |                                 |        |      |                                |        |      |  |      |          |  |   |          |  
|Gain on sale of assets                                                    |  |                                 |        |      |                                | (1,424  | )    |  |      |          |  |   | 1,403     |  
|                                                                          |  |                                 |         |      |                                |         |      |  |      |           |  |   |           |  
|                                                                          |  |                                 | 469,876 |      |                                | 359,120 |      |  |      | 1,275,261 |  |   | 1,160,653 |  
|                                                                          |  |                                 |         |      |                                |         |      |  |      |           |  |   |           |  
|Expense                                                                   |  |                                 |         |      |                                |         |      |  |      |           |  |   |           |  
|Fees to managing general partner                                          |  |                                 | 33,563  |      |                                | 22,875  |      |  |      | 86,438    |  |   | 68,625    |  
|Production expense                                                        |  |                                 | 123,467 |      |                                | 135,388 |      |  |      | 357,353   |  |   | 366,878   |  
|Severance tax                                                             |  |                                 | 24,139  |      |                                | 18,942  |      |  |      | 66,149    |  |   | 62,024    |  
|Depreciation, depletion and amortization                                  |  |                                 | 28,787  |      |                                | 33,785  |      |  |      | 84,826    |  |   | 99,815    |  
|Other                                                                     |  |                                 | 1,619   |      |                                | 5,337   |      |  |      | 33,038    |  |   | 27,474    |  
|Accretion expense                                                         |  |                                 | 3,444   |      |                                |        |      |  |      | 10,334    |  |   | 9,569     |  
|                                                                          |  |                                 |         |      |                                |         |      |  |      |           |  |   |           |  
|                                                                          |  |                                 | 215,019 |      |                                | 216,327 |      |  |      | 638,138   |  |   | 634,385   |  
|                                                                          |  |                                 |         |      |                                |         |      |  |      |           |  |   |           |  
|Income before change in accounting principle                              |  |                                 | 254,857 |      |                                | 142,793 |      |  |      | 637,123   |  |   | 526,268   |  
|Cumulative effect of change in accounting principle                       |  |                                 |        |      |                                |        |      |  |      |          |  |   | 214,257   |  
|                                                                          |  |                                 |         |      |                                |         |      |  |      |           |  |   |           |  
|Net Income                                                                |  | $                               | 254,857 |      | $                              | 142,793 |      |  | $    | 637,123   |  | $ | 740,525   |  
|                                                                          |  |                                 |         |      |                                |         |      |  |      |           |  |   |           |  
|Allocation of Net Income                                                  |  |                                 |         |      |                                |         |      |  |      |           |  |   |           |  
|Limited partners                                                          |  | $                               | 124,930 |      | $                              | 66,232  |      |  | $    | 296,672   |  | $ | 163,654   |  
|General partners                                                          |  |                                 | 129,927 |      |                                | 76,561  |      |  |      | 340,451   |  |   | 576,871   |  
|                                                                          |  |                                 |         |      |                                |         |      |  |      |           |  |   |           |  
|                                                                          |  | $                               | 254,857 |      | $                              | 142,793 |      |  | $    | 637,123   |  | $ | 740,525   |  
|                                                                          |  |                                 |         |      |                                |         |      |  |      |           |  |   |           |  
|Net Income per $5,000 Limited Partner (2,425 Units Outstanding)           |  |                                 |         |      |                                |         |      |  |      |           |  |   |           |  
|Net income per limited partner unit before change in accounting principle |  | $                               | 52      |      | $                              | 27      |      |  | $    | 122       |  | $ | 100       |  
|Cumulative effect of change in accounting principle                       |  | $                               |        |      | $                              |        |      |  | $    |          |  | $ | (33       | )
|                                                                          |  |                                 |         |      |                                |         |      |  |      |           |  |   |           |  
|Net income per limited partner unit                                       |  | $                               | 52      |      | $                              | 27      |      |  | $    | 122       |  | $ | 67        |  
|                                                                          |  |                                 |         |      |                                |         |      |  |      |           |  |   |           |  



See accompanying
notes to financial statements.



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##### Table of Contents

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)



Statements of Partners Capital

Nine Months Ended September 30, 2004

(Unaudited)



|                              |  |                 |           |   |                 |   |          |       |  |   |           |  
|----------------------------- |  | --------------- | --------- | - | --------------- | - | -------- | ----- |  | - | --------- | -
|                              |  | LimitedPartners |           |   | GeneralPartners |   |          | Total | 
|Balance at December 31, 2003  |  | $               | 1,160,236 |   |                 | $ | 445,514  |       |  | $ | 1,605,750 |  
|Partners distributions       |  |                 | (281,300  | ) |                 |   | (345,100 | )     |  |   | (626,400  | )
|Partners contributions       |  |                 |          |   |                 |   | 15,897   |       |  |   | 15,897    |  
|Net income                    |  |                 | 296,672   |   |                 |   | 340,451  |       |  |   | 637,123   |  
|                              |  |                 |           |   |                 |   |          |       |  |   |           |  
|Balance at September 30, 2004 |  | $               | 1,175,608 |   |                 | $ | 456,762  |       |  | $ | 1,632,370 |  
|                              |  |                 |           |   |                 |   |          |       |  |   |           |  



See accompanying
notes to financial statements.



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##### Table of Contents

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)



Statements of Cash Flow

Nine Months Ended September 30, 2004 and 2003

(Unaudited)



|                                                                                  |  |      |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                                                                  |  | 2004 |          |   | 2003 |  
|Operating Activities                                                              |  |      |          |   |      |   |          |  
|Net income                                                                        |  | $    | 637,123  |   |      | $ | 740,525  |  
|                                                                                  |  |      |          |   |      |   |          |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |          |   |      |   |          |  
|Cumulative effect of change in accounting principle                               |  |      |         |   |      |   | (214,257 | )
|Accretion expense                                                                 |  |      | 10,334   |   |      |   | 9,569    |  
|Depreciation, depletion and amortization                                          |  |      | 84,826   |   |      |   | 99,815   |  
|Gain on sale of assets                                                            |  |      |         |   |      |   | (1,403   | )
|(Increase) decrease in accounts receivable                                        |  |      | (57,218  | ) |      |   | 508      |  
|(Decrease) increase in accounts payable                                           |  |      | 25,749   |   |      |   | 17,489   |  
|Other                                                                             |  |      |         |   |      |   |         |  
|                                                                                  |  |      |          |   |      |   |          |  
|                                                                                  |  |      | 63,691   |   |      |   | (88,279  | )
|                                                                                  |  |      |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |      | 700,814  |   |      |   | 652,246  |  
|                                                                                  |  |      |          |   |      |   |          |  
|Investing Activities                                                              |  |      |          |   |      |   |          |  
|Acquisition of property and equipment                                             |  |      | (42,212  | ) |      |   | (48,432  | )
|Proceeds from sale of assets                                                      |  |      |         |   |      |   | 1,403    |  
|                                                                                  |  |      |          |   |      |   |          |  
|Net cash used in investing activities                                             |  |      | (42,212  | ) |      |   | (47,029  | )
|                                                                                  |  |      |          |   |      |   |          |  
|Financing Activities                                                              |  |      |          |   |      |   |          |  
|Partners contributions                                                           |  |      | 15,897   |   |      |   | 21,114   |  
|Partners distributions                                                           |  |      | (626,400 | ) |      |   | (592,372 | )
|                                                                                  |  |      |          |   |      |   |          |  
|Net cash used in financing activities                                             |  |      | (610,503 | ) |      |   | (571,258 | )
|                                                                                  |  |      |          |   |      |   |          |  
|Net Increase in Cash                                                              |  |      | 48,099   |   |      |   | 33,959   |  
|Cash - beginning of year                                                          |  |      | 52,124   |   |      |   | 36,199   |  
|                                                                                  |  |      |          |   |      |   |          |  
|Cash - End of Quarter                                                             |  | $    | 100,223  |   |      | $ | 70,158   |  
|                                                                                  |  |      |          |   |      |   |          |  



See accompanying
notes to financial statements.



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##### Table of Contents

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)



Notes To Financial Statements

September 30, 2004

(Unaudited)



1. Summary Of Significant Accounting Policies



The Partnership was organized as a limited partnership on July 20, 1981 for the purpose of
engaging in oil and gas exploration and production. Texland Properties-1981, a general partnership, and Texland Petroleum, L.P. are the General Partners. The Managing General Partner is Texland Petroleum, L.P. The Partnerships accounting
policies are summarized below:



Basis Of Accounting



The Partnership follows generally accepted accounting principles applicable to established
enterprises in the extractive industries under a method which is generally known as the successful method of accounting.



Property And Equipment



Costs incurred for the acquisition of producing and nonproducing leaseholds are capitalized. Costs of intangible development and lease and well equipment incurred to
drill and equip successful exploratory and development wells are capitalized. Costs to drill and equip unsuccessful exploratory wells are charged to operations while costs of unsuccessful development wells remain capitalized. Costs associated with
uncompleted wells are capitalized as wells-in-progress.



Abandoned
Leaseholds



Costs of nonproducing properties are charged to expense at
such time as they are deemed to be impaired, based upon periodic assessments of such costs.



Depletion



Leasehold costs of
producing properties are amortized on the unit of production method based on proved oil and gas reserves. Intangible development costs of producing properties are amortized on the unit of production method based on estimated proved developed oil and
gas reserves.



Depreciation



Depreciation of equipment is provided by using the unit of production method based on
estimated proved developed oil and gas reserves.



Organization Costs



These costs are amortized by the straight-line method over ten years,
the life of the Partnership.



Federal Income Tax



The Partnership files its federal income tax return on the accrual basis.



2. Contributions By General Partner (Texland Properties-1981)



Under terms of the Partnership Agreement, the General Partner is charged for certain costs
related to drilling and production operations which are required to be capitalized for federal income tax purposes. These costs are treated as capital contributions by the General Partner. In addition, Texland Properties-1981 and Texland Petroleum,
L.P. have invested in limited partnership units in the amount of $95,000 and $30,000 respectively.



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Texland Drilling Program-1981, Ltd.

(A Limited Partnership)



Notes To Financial Statements (Continued)

September 30, 2004

(Unaudited)



3. Fees To Managing General Partner (Texland Petroleum, L.P.)



In consideration of its management services rendered, the Managing General Partner is entitled to charge management fees to the Partnership. In addition, for the nine months ended September 30, 2004 and September 30,
2003, the Partnership was charged $120,363 and $127,569 respectively for technical services, accounting services, and supervisory services performed by the employees of the Managing General Partner and such charges are included in intangible
development costs, production expenses and fees to Managing General Partner. These charges are allocated between the General and Limited Partners based upon applicable revenue and expense sharing rates.



4. Accounting Principles Adopted in 2003



On January 1, 2003, the Partnership adopted Statements of Financial Accounting Standards
(SFAS) No. 143, Accounting for Asset Retirement Obligations, which addresses the financial accounting and reporting obligations and retirement costs related to the retirement of tangible long-lived assets. Among other things, SFAS No.
143 requires oil and gas companies to reflect asset retirement obligation liabilities on the face of the balance sheet at fair value on a discounted basis.



Consistent with industry practice, historically the Company had assumed the costs of plugging abandonment on its properties would be offset by salvage value received.
SFAS 143 requires the Company to consider estimated salvage value in the calculation of depreciation, depletion and amortization. As a result of such implementation, a gain of $214,257 as cumulative effect adjustment of a change in accounting
principle has been reflected in the Statement of Income for 2003.



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##### Table of Contents

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)



Managements Discussion And Analysis Of Financial

Condition And Results Of Operations



September 30, 2004



The Partnerships approximate average price actually received per barrel of oil for the
third quarter of 2004 was $38.96 as compared to $27.08 for the third quarter of 2003. The increased revenue and related severance tax expense result primarily from the increase in the price of oil. Gas sales represent 15-25% of total oil and gas
sales. Gas sales are primarily short-term contracts which can vary widely from month to month.



Depreciation, depletion and amortization for the third quarter of 2004 was $28,787 as compared to $33,785 for the third quarter of 2003. Changes in depreciation and depletion for 2003 through 2004, are due primarily
to normal expected decline in oil and gas production.



The Partnership was
formed with cash contributions from the Limited and General Partners. Management does not intend to incur any substantial indebtedness and any developmental drilling which is necessary will be processed by farmout to other parties or by reinvestment
of internally generated funds. Management, therefore, anticipates no liquidity problems during the life of the Partnership.



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Part II



Items 1 through 3



Omitted - Not applicable to Registrant.



Item 4. Controls and Procedures



Based on an evaluation of the effectiveness of the Texland Drilling Program-1981 (the Partnership) disclosure controls and procedures, the Partnerships Chief
Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Partnerships disclosure controls and procedures are effective to ensure that information required to be disclosed by the
Partnership in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms.



There have been no changes in the Partnerships internal control over financial
reporting identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, the Partnerships internal control over financial reporting.



Item 5



Omitted - Not applicable to Registrant.



Item 6



|(a) | Exhibits:
|--- | ---------



| | 31 | Certification by CEO & CFO Pursuant to Rule 13a-14(a)/15d-14(a).
| | -- | ----------------------------------------------------------------



| | 32 | Certification by CEO & CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
| | -- | --------------------------------------------------------------------------------------------------------------------------------



|(b) | Reports on Form 8-K:
|--- | --------------------



| | Item 9:  Change | in Registrants Certifying Accountant
| | --------------- | -------------------------------------

On January 13,
2004, the Registrant engaged Weinstein Spira & Company P.C. as its Independent auditors for the fiscal year ending December 31, 2003.



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SIGNATURE



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, thereunto duly authorized.



|                                    |  |                                         |  |                       
|----------------------------------- |  | --------------------------------------- |  | ----------------------
|TEXLAND DRILLING PROGRAM-1981, LTD. |  |                                        
|Registrant                          |  |                                        
|                                    |  |                                        
|By                                  |  | /s/ M. E. Chapman                       |  |                       
|                                    |  | M. E. Chapman, Vice President - Finance |  |                       
|                                    |  | Texland Petroleum, L.P.                 |  | Date November 12, 2004



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



|   |  |                                         |  |                       
|-- |  | --------------------------------------- |  | ----------------------
|By |  | /s/ R. J. Schumacher                    |  |                       
|   |  | R. J. Schumacher, Chairman of the Board |  |                       
|   |  | Texland Petroleum, L.P.                 |  | Date November 12, 2004
|   |  |                                        
|By |  | /s/ J. N. Namy                          |  |                       
|   |  | J. N. Namy, President & C.E.O.          |  |                       
|   |  | Texland Petroleum, L.P.                 |  | Date November 12, 2004
|   |  |                                        
|By |  | /s/ J. H. Wilkes                        |  |                       
|   |  | J. H. Wilkes, President & C.O.O.        |  |                       
|   |  | Texland Petroleum, L.P.                 |  | Date November 12, 2004



11