FORM 10-K
                    SECURITIES AND EXCHANGE COMMISSION
                         WASHINGTON, D.C.  20549
(Mark One)

[x]    Annual  report  pursuant to Section 13 or 15(d)  of  the  Securities
       Exchange Act of 1934 [Fee Required]

For the fiscal year ended December 31, 1999

                                    OR

[ ]    Transition  report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934 [No Fee Required]

For the transition period from                      to

Commission File Number 000-24181

                       Southwest Partners III, L.P.
                (Exact name of registrant as specified in
                    its limited partnership agreement)

Delaware                                                     75-2699554
(State or other jurisdiction                             (I.R.S. Employer
of incorporation or organization)                       Identification No.)

407 N. Big Spring, Suite 300, Midland, Texas                 79701
(Address of principal executive office)                   (Zip Code)

Registrant's telephone number, including area code   (915) 686-9927

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

                                   None

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

                      limited partnership interests

Indicate by check mark whether registrant (1) has filed 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

Indicate by check mark if disclosure of delinquent filers pursuant to  Item
405  of  Regulation S-K (229.405 of this chapter) is not contained  herein,
and  will  not  be  contained,  to the best of registrant's  knowledge,  in
definitive  proxy or information statements incorporated  by  reference  in
Part III of this Form 10-K or any amendment to this Form 10-K.     [x]

The  registrant's  outstanding  securities  consist  of  Units  of  limited
partnership  interests for which there exists no established public  market
from which to base a calculation of aggregate market value.

The  total  number of pages contained in this report is 44.   There  is  no
exhibit index.

<PAGE>
                            Table of Contents

Item                                                                   Page

                                  Part I

 1.  Business                                                            3

 2.  Properties                                                          4

 3.  Legal Proceedings                                                   5

 4.  Submission of Matters to a Vote of Security Holders                 5

                                 Part II

 5.  Market for Registrant's Common Equity and Related
     Stockholder Matters                                                 6

 6.  Selected Financial Data                                             7

 7.  Management's Discussion and Analysis of
     Financial Condition and Results of Operations                       8

 8.  Financial Statements and Supplementary Data                        13

 9.  Changes in and Disagreements with Accountants
     on Accounting and Financial Disclosure                             25

                                 Part III

10.  Directors and Executive Officers of the Registrant                 26

11.  Executive Compensation                                             27

12.  Security Ownership of Certain Beneficial Owners and
     Management                                                         27

13.  Certain Relationships and Related Transactions                     27

                                 Part IV

14.  Exhibits, Financial Statement Schedules, and Reports
     on Form 8-K                                                        28

     Signatures                                                         29

<PAGE>
                                  Part I

Item 1.   Business

General
Southwest   Partners  III,  L.P.,  a  Delaware  limited  partnership   (the
"Partnership") was organized March 11, 1997 to invest in oil field  service
companies  and assets.  The Partnership's business strategy was to  acquire
interests  in  oil  field  service companies and  assets  with  a  view  to
providing capital appreciation in the value of the Partnership's  units  of
limited partnership interest (the "Units").  The Partnership concluded  its
acquisition of oil field service company assets in December 1997.

Private Placement
From  March 15, 1997 to June 30, 1997, the Partnership originally conducted
a  "blind  pool"  offering  of the Units in accordance  with  Regulation  D
promulgated under the Securities Act (the "Private Placement").  On July 1,
1997,  the  Partnership  amended  the  offering,  which  was  concluded  on
September  30, 1997, to invest the entire proceeds in the common  stock  of
Sierra  Well  Service,  Inc.  ("Sierra"),  an  oil  field  service  company
affiliated with the General Partner.  A total of 170.92511 Units were  sold
to   525  Investors  for  an  aggregate  net  price  of  $17,092,510.   The
Partnership  invested  a  total  of  $17,054,500  (including  the   capital
contribution  of the General Partner) in 2,005 shares of the Sierra  common
stock.

Sierra  in  March  2000  filed  a  restated  certificate  of  incorporation
increasing its authorized common shares to 25,000,000 and completed a  445-
for-1 stock split.  All shares have been restated as if the stock split had
occurred  at the beginning of 1998.  The Partnership at December  31,  1999
owns 44.94% or 892,225 shares of Sierra's outstanding common stock.

The General Partner
The  general partner of the Partnership is Southwest Royalties,  Inc.  (the
"General Partner").  The General Partner was formed in 1983 to acquire  and
develop oil and gas properties. The General Partner initially financed  the
acquisition  of  oil and gas reserves and its exploration  and  development
efforts  through  public  and  private limited partnership  offerings.  The
General  Partner  has raised approximately $115 million in  31  public  and
private  limited partnership offerings. The General Partner  is  a  general
partner of these limited partnerships, owns interests in these partnerships
and  receives management fees and operating cost reimbursements  from  such
partnerships. Since its inception, The General Partner, on behalf of itself
and  the investment partnerships, has acquired over $320 million of oil and
gas  properties,  primarily in the Permian Basin  of  West  Texas  and  New
Mexico.

The  principal executive offices of the Partnership are located at  407  N.
Big Spring, Suite 300, Midland, Texas, 79701.  The Managing General Partner
of  the  Partnership,  Southwest Royalties,  Inc.  (the  "Managing  General
Partner")   and  its  staff  of  97  individuals,  together  with   certain
independent  consultants  used  on an "as needed"  basis,  perform  various
services on behalf of the Partnership, including the selection of  oil  and
gas properties and the marketing of production from such properties.  H. H.
Wommack,  III,  a  stockholder, director, President and  Treasurer  of  the
Managing  General Partner, is also a general partner.  The Partnership  has
no employees.

The Partnership
The  sole  business  of  the  Partnership  is  holding  Sierra  stock.  The
Partnership has no employees and has no operations, except through  Sierra.
The Partnership and the General Partner effectively control Sierra.

Sierra Well Service, Inc.
Sierra provides a broad range of services used for the drilling, completion
and  operation  of  oil  and gas wells, including well  servicing,  liquids
handling  and  fresh and brine water supply and disposal services.   Sierra
provides  services in its areas of operation in Texas, New Mexico, Oklahoma
and  Louisiana.   These  services are used by  oil  and  gas  companies  to
complete  newly  drilled  oil  and gas wells,  maintain  and  optimize  the
performance  of  existing wells, recomplete wells to  additional  producing
zones  and  plug  and  abandon  wells at the end  of  their  useful  lives.
Sierra's well servicing and fluid service equipment fleets includes 92 well
servicing rigs and 130 fluid service trucks.

Formed  in 1992 by the General Partner, Sierra has grown primarily  through
selective  acquisitions.  It has completed 14 purchases  of  well  services
companies as well as purchases of additional equipment.  Sierra's  revenues
have  grown  from  $932,000 in 1992 to approximately $37,331,000  in  1999.
Sierra's strategy emphasizes diversification and expansion through internal
growth  and  the  acquisition of well servicing  companies  to  provide  an
integrated group of oil field services.
<PAGE>

Sierra  uses  its  well servicing rigs to provide completion,  maintenance,
workover  and plugging and abandonment services.  Sierra's related trucking
services are used to move large equipment to and from the job sites of  its
customers.   Sierra  also provides an integrated mix  of  liquids  handling
services,  including vacuum truck services, frac tank  rentals,  test  tank
rentals  and  Enviro-Vat system rentals. Sierra's  fresh  and  brine  water
supply  and disposal services include the production and sale of fresh  and
brine  water which is used in drilling, completion and workover  processes,
as well as operation of injection wells that dispose of produced salt water
and  incidental  non-hazardous  oil field  wastes.   Sierra  also  provides
certain  other  well services, including pit lining services  and  hot  oil
services

Environmental
Hazards  in the operation of oil field service companies, such as  employee
injuries  on  the  job site and accidental petroleum or waste  spills,  are
sometimes  encountered.  Such hazards may cause substantial liabilities  to
third  parties or governmental entities, the payment of which could  reduce
ultimately   the  funds  available  for  distribution.   Although   it   is
anticipated that customary insurance will be obtained, the Partnership  may
be  subject  to liability for pollution and other damages due  to  hazards,
which  cannot  be  insured against or will not be insured  against  due  to
prohibitive  premium costs or for other reasons.  Environmental  regulatory
matters  also  could  increase the cost of doing business  or  require  the
modification  of  operations in certain areas.  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  recorded  when  environmental
assessment  and/or redemption is probable, and the costs can be  reasonably
estimated.

Industry  Regulations  and  Guidelines - Certain industry  regulations  and
guidelines  apply  to  the  registration, qualification  and  operation  of
limited partnerships.  The Partnership is subject to these guidelines which
regulate and restrict transactions between the Managing General Partner and
the  Partnership.  The Partnership complies with these guidelines  and  the
Managing  General  Partner  does not anticipate that  continued  compliance
would have a material adverse effect on Partnership operations.

Partnership Employees
The  Partnership has no employees; however the Managing General Partner has
a  staff of geologists, engineers, accountants, landmen and clerical  staff
who  engage in Partnership activities and operations and perform additional
services  for  the  Partnership as needed.  In  addition  to  the  Managing
General  Partner's  staff, the Partnership engages independent  consultants
such  as petroleum engineers and geologists as needed.  As of December  31,
1999  there  were 97 individuals directly employed by the Managing  General
Partner in various capacities.

Item 2.   Properties

The  Partnership  does  not  currently own  or  lease  any  property.   The
Partnership  operates from the offices of its General Partner  in  Midland,
Texas.

Sierra's  corporate office is located in Midland, Texas, which  complements
the  core of its operations in the Permian Basin of West Texas and  eastern
New Mexico ("the Permian Basin").  Within the Permian Basin, Sierra owns 10
field  offices  and  leases  five field offices  over  short-term  periods.
Additionally,  Sierra leases a field office in South  Texas  and  owns  two
field offices in East Texas.  Sierra leases a field office in Oklahoma.

Sierra's  well  servicing equipment fleet includes 92 well servicing  rigs,
130  fluid  service  trucks, 90 Enviro-Vat systems and 314  frac  and  test
tanks.   Additionally,  the Company operates nine injection  wells  and  32
fresh or brine water stations.

Sierra  uses  its  well servicing rigs to provide completion,  maintenance,
workover  and plugging and abandonment services.  Sierra's related trucking
services are used to move large equipment to and from the job sites of  its
customers  as  well  as  provide  an integrated  mix  of  liquids  handling
services,  including vacuum truck services, frac tank  rentals,  test  tank
rentals  and  Enviro-Vat system rentals.  Sierra's fresh  and  brine  water
supply  and disposal services include the production and sale of fresh  and
brine  water which is used in drilling, completion and workover  processes,
as well as operation of injection wells that dispose of produced salt water
and incidental non-hazardous oil field wastes.

Sierra  believes  it  has satisfactory title to all of  its  properties  in
accordance  with  standards generally accepted within  the  well  servicing
industry.

<PAGE>

Item 3.   Legal Proceedings

The Partnership is not currently involved in any legal proceeding nor is it
party to any pending or threatened claims that could reasonably be expected
to  have a material adverse effect on its financial condition or results of
operations.

Item 4.   Submission of Matters to a Vote of Security Holders

No  matter  was submitted to a vote of security holders during  the  fourth
quarter of 1999 through the solicitation of proxies or otherwise.

<PAGE>
                                 Part II

Item 5.   Market   for   the   Registrant's  Common  Equity   and   Related
          Stockholder Matters

Market Information
There is no trading market for the Units, and it is unlikely that a trading
market will exist at any time in the future.  The Partnership does not have
any  units  (i)  that  are subject to outstanding options  or  warrants  to
purchase, or securities convertible into, common equity of the Partnership,
(ii)  that could be sold pursuant to Rule 144 under the Securities  Act  or
that  we  have  agreed to register under the Securities  Act  for  sale  by
security  holders, or (iii) that are being, or have been publicly  proposed
to  be,  publicly offered by the Partnership, the offering of  which  could
have  a  material  effect  on the market price of the  limited  partnership
units.   Any  transfer  of  the  Units is severely  restricted  by  certain
conditions  outlined in the Partnership Agreement and requires the  consent
of the General Partner.

There have been no cash distributions to the Limited Partners to date.   In
general,  the  Partnership expects to reinvest all cash flow received  from
operations  and does not expect to make distributions until liquidation  of
the  Partnership.   The  following  is  a  summary  of  certain  allocation
provisions of the Partnership Agreement and is qualified in its entirety by
reference  to the Partnership Agreement, which was filed as an  Exhibit  to
the  partnership's  Form 10, filed April 1998.  Any distributions  of  cash
flow,  income, gain, profit, or loss will be allocated 85% to  the  Limited
Partners  and  15% to the General Partner in accordance with their  capital
accounts  until  the  Limited Partners have recovered,  through  cumulative
distributions  100% of their capital contributions plus  a  10%  cumulative
(but not compounded) return.  Thereafter, distributions will be made 75% to
the Limited Partners and 25% to the General Partner.

The   revenues  generated  and  capital  appreciation,  if  any,  from  the
Partnership's  investment  in Sierra is highly dependent  upon  the  future
prices  and  demand for oil and gas in that the level of use of  oil  field
services and equipment is directly related to the amount of activity in the
oil fields.  In addition, investments in oil field service companies, while
presenting  significant potential for capital appreciation, may  take  from
four  to  seven years from the date of initial investment to reach  such  a
state  of  maturity  that  disposition can  be  considered.   Thus,  it  is
anticipated  that capital gains or losses typically will take two  to  five
years or longer to realize.  In view of these factors, it is unlikely  that
any  significant  distributions of the proceeds  from  the  disposition  of
investments will be made until such time.  The Partnership's investment  in
Sierra will generate little, if any, current income.

The  Managing  General Partner has the right, but not  the  obligation,  to
purchase limited partnership units should an investor desire to sell.   The
value  of  the  unit is determined by adding the sum of (1) current  assets
less  liabilities  and  (2) the present value of the  future  net  revenues
attributable to proved reserves and by discounting the future net  revenues
at  a rate not in excess of the prime rate charged by NationsBank, N.A.  of
Midland, Texas plus one percent (1%), which value shall be further  reduced
by  a risk factor discount of no more than one-third (1/3) to be determined
by the Managing General Partner in its sole and absolute discretion.  As of
December 31, 1999 the Managing General Partner purchased no limited partner
units.

Number of Limited Partner Interest Holders
As of December 31, 1999, there were 523 holders of limited partner units in
the Partnership.

Distributions
Pursuant  to Section 4.1 of the Partnership's Certificate and Agreement  of
Limited  Partnership, "Net Cash From Operations and Net Cash From Sales  or
Refinancings"  shall be distributed, at such times as the  General  Partner
may  determine  in  its  sole discretion.  "Net Cash  From  Operations"  is
defined  as "the gross cash proceeds from Partnership operations  less  the
portion  thereof  used  to  pay or establish reasonable  reserves  for  all
Partnership  expenses, fees, commissions, debt payments,  new  investments,
capital  improvements,  replacements, repairs and contingencies,  and  such
other  purposes  deemed  appropriate, all  as  determined  by  the  General
Partner."   "Net Cash From Sales or Refinancings" is defined  as  "the  net
cash  proceeds  from all sales and other dispositions (other  than  in  the
ordinary  course of business) and all refinancings of Partnership Property,
less  any portion thereof used to establish reserves, all as determined  by
the General Partner.  During 1999, no distributions were made.




<PAGE>


Item 6.   Selected Financial Data

The following selected financial data for the years ended December 31 1999,
1998  and  March  11, 1997 (date of inception) through  December  31,  1997
should  be  read in conjunction with the financial statements  included  in
Item 8:

                                                              March 11, 1997
                                    Years ended December 31,through December 3
1,
                                    ------------------------------------------
--

                                        1999         1998          1997
                                        ----         ----          ----

Revenues                           $    11,164      11,514       147,356

Equity  loss  in unconsolidated subsidiary       (2,005,000)    (5,046,321)
(542,414)

Impairment of equity investment of
 unconsolidated subsidiary (Refer
 to footnote 2)                              - (9,460,765)             -

Net loss                           (2,120,433)(14,702,959)     (420,813)

Partners' share of net loss:

 General partners                    (318,065) (2,195,181)      (68,107)

 Limited partners                  (1,802,368)(12,507,778)     (352,706)

Limited partners' net
 loss per unit                        (10,545)    (73,177)       (2,054)

Total assets                       $   392,709   2,386,545    17,081,587


<PAGE>

Item 7.   Management's  Discussion and Analysis of Financial Condition  and
          Results of Operations

Southwest Partners III, L.P.

General
Southwest   Partners  III,  L.P.  was  organized  as  a  Delaware   limited
partnership on March 11, 1997.  The Partnership was formed for the  purpose
of  investing  in  Sierra Well Service, Inc., an oilfield  service  company
which  provides  services and products to oil and  gas  operators  for  the
workover,  maintenance and plugging of existing oil and gas  wells  in  the
southwestern United States.

The Partnership intends to wind up its operations and distribute its assets
or the proceeds therefrom on or before December 31, 2008, at which time the
Partnership's  existence  will  terminate,  unless  sooner  terminated   or
extended in accordance with the terms of the Partnership agreement.  As  of
December 31, 1999, the Partnership owned a 44.94% interest in Sierra, which
is  accounted for using the equity method of accounting.  The equity method
adjusts  the  carrying  value  of  the  Partnership's  investment  by   its
proportionate share of Sierra's undistributed earnings or losses  for  each
respective period.

Results of Operations
For the year ended December 31, 1999

Revenues
Revenues  consisted of interest income.  The surplus cash  remaining  after
the periodic investments in Sierra generated interest income of $11,164.

Expenses
Direct  expenses  totaled $126,597 for the year, relating  to  general  and
administrative.   General and administrative expenses represent  management
fees paid to the Managing General Partner for costs incurred to operate the
partnership.

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

Results of Operations
For the year ended December 31, 1998

Revenues
Revenues  consisted of interest income.  The surplus cash  remaining  after
the periodic investments in Sierra generated interest income of $11,514.

Expenses
Direct  expenses totaled $207,387 for the year, which consisted of $138,972
relating  to  general  and  administrative  and  $68,415  of  amortization.
General and administrative expenses represent management fees paid  to  the
Managing  General  Partner for costs incurred to operate  the  partnership.
Amortization   expense  for  the  period  relates  to   the   Partnership's
organization  cost,  which were entirely written off in  the  current  year
based  on  Statement of Position 98-5 "Reporting on the Cost  of  Start  up
Activities".

Equity  loss  in  unconsolidated  subsidiary  of  $5,046,321  reflects  the
Partnership's  weighted average proportionate share of the $9,336,000  loss
by  Sierra in the amount of $4,284,290 for the year and the amortization of
goodwill in relation to the Partnerships investment in Sierra of $762,031.

Impairment  of equity investment of unconsolidated subsidiary of $9,460,765
is  the  result of the Partnership's equity investment incurring  an  other
than  temporary  decline  in  the  fair value  of  their  investment.   The
Partnership continually evaluates the current fair value of the  investment
in  Sierra  for impairment.  The Partnership determined that  the  carrying
value of the investment, including excess cost over equity interest, is not
recoverable, and thus recorded a charge to reduce the carrying value of the
investment  to its fair value.  The Partnership's investment in  Sierra  is
subject  to possible future dilution and/or elimination, in which case  the
investment could be written down to zero.

<PAGE>


Revenue and Distribution Comparison

Partnership loss for the years ended December 31, 1999, 1998 and the period
from  March  11,  1997 (date of inception) through December  31,  1997  was
$2,120,433, $14,702,959 and $420,813, respectively.  Excluding the  effects
of  amortization, net loss would have been $2,120,433 in 1999,  $14,634,544
in  1998 and $410,288 in 1997.  Since inception of the Partnership, no cash
contributions have been made to the partners.

Liquidity and Capital Resources

Cash  flows provided by operating activities were approximately $11,164  in
1999  compared to $11,480 in 1998 and $27,735 in 1997.  The source  of  the
1999 cash flow from operating activities was interest.

There  were  no  cash  flows used in investing activities  during  1999  as
compared to $63,514 in 1998 and $17,069,927 in 1997.

There  were no cash flows provided by (used in) financing activities during
1999 as compared to $(67,507) in 1998 and $17,543,278 in 1997.

As  of  December  31, 1999, the Partnership had approximately  $127,200  in
working   capital.   The  Managing  General  Partner  knows  of  no   other
commitments.

Liquidity - Equity Investment in Subsidiary

Sierra has a highly leveraged capital structure.  Sierra on March 23,  2000
filed  a Form S-1 "Registration Statement Under the Securities Act of 1933"
with the Securities and Exchange Commission.   Sierra plans to use the  net
proceeds from this offering to a)repay $25 million in existing Subordinated
Notes;   b)finalize  $14.5  million  as  cash  consideration   to   acquire
businesses; c)redeem $5.3 million Series A Cumulative Preferred  Stock  and
d)cover  expenses in connection with the offering and for general corporate
purposes.

Sierra  on  March 31, 1999 finalized a restructuring of its debt  with  the
lender.  The restructuring of Sierra's debt with its lender provided for  a
senior  subordinated credit facility and three classes of preferred  stock.
According to the redemption and/or conversion features of the three classes
of  preferred stock, if Sierra does not meet repayment of scheduled  senior
subordinated debt starting at December 31, 1999 with final payment due June
30,  2004,  the lender has the right to exercise their conversion features.
The conversion amount as a percentage of post-conversion outstanding common
stock  can range from 25% to 100%.  Therefore, the Partnership's investment
in  Sierra is subject to possible future dilution and/or elimination  as  a
result  of  the convertible preferred stock held by Sierra's  lender.   The
Partnership's ownership percentage in Sierra upon the signing  of  Sierra's
debt restructuring at March 31, 1999 remained 45.89%.  However, should  the
lender  exercise  the  conversion  feature  of  the  preferred  stock,  the
Partnership's ownership percentage would decrease by 14.11%.

Liquidity - Managing General Partner

The  Managing General Partner has a highly leveraged capital structure with
over  $35.1  million principal and $17.5 million interest payments  due  in
2000  on  its  debt  obligations. Due to the severely  depressed  commodity
prices  experienced  during the last quarter of 1997, throughout  1998  and
continuing through the second quarter of 1999 the Managing General  Partner
is  experiencing difficulty in generating sufficient cash flow to meet  its
obligations  and sustain its operations.  The Managing General  Partner  is
currently  in  the  process  of renegotiating  the  terms  of  its  various
obligations  with its creditors and/or attempting to seek  new  lenders  or
equity  investors.   Additionally,  the  Managing  General  Partner   would
consider disposing of certain assets in order to meet its obligations.

There  can  be  no  assurance  that  the Managing  General  Partner's  debt
restructuring efforts will be successful or that the lenders will agree  to
a   course   of  action  consistent  with  the  Managing  General  Partners
requirements  in restructuring the obligations.  Even if such agreement  is
reached,  it  may  require approval of additional  lenders,  which  is  not
assured.   Furthermore, there can be no assurance that the sales of  assets
can  be  successfully  accomplished on terms  acceptable  to  the  Managing
General   Partner.   Under  current  circumstances,  the  Managing  General
Partner's  ability to continue as a going concern depends upon its  ability
to  (1)  successfully  restructure  its obligations  or  obtain  additional
financing  as  may  be  required, (2) maintain  compliance  with  all  debt
covenants, (3) generate sufficient cash flow to meet its obligations  on  a
timely  basis, and (4) achieve satisfactory levels of future earnings.   If
the  Managing  General Partner is unsuccessful in its efforts,  it  may  be
unable to meet its obligations making it necessary to undertake such  other
actions as may be appropriate to preserve asset values.
<PAGE>
Information Systems for the Year 2000

The  year  2000  issue  referred to the risk of disruptions  of  operations
caused  by  the  failure of computer-controlled systems, including  systems
used  by  third  parties, to properly recognize date sensitive  information
when  the  year changed from 1999 to 2000.  During the year ended  December
31, 1999, the Managing General Partners data processing subsidiary, Midland
Southwest  Software, Inc., installed new software as part  of  an  on-going
project  to upgrade its financial and management information systems.   The
cost  of  upgrading the software occurred in the normal course  of  Midland
Southwest  Software's  business and was not  material  to  the  results  of
operations or financial condition of the Partnership.

The  Partnership  has not experienced any significant business  disruptions
due  to  year  2000 issues causing processing errors in its systems,  or  a
third  party's  systems, during the period of operations after  January  1,
2000 until the filing of the 10-K.




<PAGE>
Item 7.   Management's  Discussion and Analysis of Financial Condition  and
          Results of Operations - continued

Sierra Well Service, Inc.

General
Sierra  derives  its revenues from well servicing, liquids handling,  fresh
and  brine  water  supply  and disposal and other related  services.   Well
servicing rigs are billed at hourly rates that are generally determined  by
the  type  of equipment required, market conditions in the region in  which
the  well  servicing rig operates, ancillary equipment  and  the  necessary
personnel  provided on the rig.  Sierra charges its customers  for  liquids
handling  and  fresh  and brine water supply and disposal  services  on  an
hourly  or per barrel basis depending on the services offered.  Demand  for
services  depends substantially upon the level of activity in the  oil  and
gas  industry,  which  in turn depends, in part, on  oil  and  gas  prices,
expectations about future prices, the cost of exploring for, producing  and
delivering  oil and gas, the discovery rate of new oil and gas reserves  in
on-shore areas, the level of drilling and workover activity and the ability
of oil and gas companies to raise capital.

Results of Operations
For the year ended December 31, 1999

Revenues
Sierra's  revenues decreased to $37.3 million, or 18%, for the  year  ended
December 31, 1999 as compared to $45.3 million for the same period in 1998.
The  decrease was primarily attributable to a severe decline in oil prices,
resulting in reduced oilfield service activity.

Expenses
Operating  expenses  decreased $5.1 million, or 14%,  for  the  year  ended
December  31, 1999 as compared to the same period for 1998.  The components
of  operating expenses consisted of decreases in cost of revenues  of  $4.8
million  and general and administrative decreases of $300,000. The decrease
reflects  Sierra's cost cutting measures taken after the hiring  of  a  new
chief executive officer in early 1999.  Interest expense for the year ended
December 31, 1999 decreased to $6.1 million from $7.2 million for the  same
period in 1998.  The decrease was due to a decrease in long-term debt as  a
result of the March 1999 refinancing and a decrease in amortization of debt
issuance costs.

Results of Operations
For the year ended December 31, 1998, as restated

Revenues
Sierra's  revenues increased to $45.3 million, or 73%, for the  year  ended
December 31, 1998 as compared to $26.1 million for the same period in 1997.
The  increase was primarily attributable to acquisitions completed in  late
1997.

Expenses
The increased activity from the acquisitions also caused operating expenses
to  increase $17.3 million, or 75%, for the year ended December 31, 1998 as
compared to the same period for 1997.  The components of operating expenses
consisted of increases in cost of revenues of $14.6 million and general and
administrative  increases of $2.7 million.  In late 1997  Sierra  funded  a
substantial portion of the acquisitions with borrowings of $52 million from
a financial institution.  Consequently, interest expense for the year ended
December 31, 1998 increased to $7.2 million from $1.5 million for the  same
period in 1997.

Liquidity and Capital Resources
The  primary source of cash is from operations, the receipt of income  from
well services provided.

Net  Cash  Provided  by  Operating  Activities.   Cash  flows  provided  by
operating  activities for the period consisted primarily of  net  operating
income net of expenses of $865,000.

Net  Cash  Used  in  Investing Activities.  Cash flows  used  in  investing
activities totaled $970,000 for the period, and consisted primarily of  the
purchase  of property and equipment partially offset by proceeds  from  the
sale of property and equipment.

Net  Cash  Used  in  Financing Activities.  Cash flows  used  in  financing
activities  totaled $1,679 million for the period.  The use of these  funds
included $1,057 in deferred loan costs.

<PAGE>

Liquidity - Equity Investment by Investors

Sierra  has a highly leveraged capital structure.  Sierra on March  23,2000
filed  a Form S-1 "Registration Statement Under the Securities Act of 1933"
with  the Securities and Exchange Commission.  Sierra plans to use the  net
proceeds from this offering to a)repay $25 million in existing Subordinated
Notes;   b)finalize  $14.5  million  as  cash  consideration   to   acquire
businesses; c)redeem $5.3 million Series A Cumulative Preferred  Stock  and
d)cover  expenses in connection with the offering and for general corporate
purposes.

Sierra  on  March 31, 1999 finalized a restructuring of its debt  with  the
lender.  The restructuring of Sierra's debt with its lender provided for  a
senior  subordinated credit facility and three classes of preferred  stock.
According to the redemption and/or conversion features of the three classes
of  preferred stock, if Sierra does not meet repayment of scheduled  senior
subordinated debt starting at December 31, 1999 with final payment due June
30,  2004,  the lender has the right to exercise their conversion features.
The conversion amount as a percentage of post-conversion outstanding common
stock  can range from 25% to 100%.  Therefore, the Partnership's investment
in  Sierra is subject to possible future dilution and/or elimination  as  a
result  of  the convertible preferred stock held by Sierra's  lender.   The
Partnership's ownership percentage in Sierra upon the signing  of  Sierra's
debt restructuring at March 31, 1999 remained 45.89%.  However, should  the
lender  exercise  the  conversion  feature  of  the  preferred  stock,  the
Partnership's ownership percentage would decrease by 14.11%.

Information Systems for the Year 2000
Sierra's  data processing needs are provided by the same system  which  the
Managing  General  Partner  uses through their data  processing  subsidiary
Midland Southwest Software, Inc.
<PAGE>
Item 8.   Financial Statements and Supplementary Data

                      Index to Financial Statements

                                                                       Page

Independent Auditors Report                                             14

Balance Sheets                                                          15

Statements of Operations                                                16

Statements of Changes in Partners' Equity                               17

Statements of Cash Flows                                                18

Notes to Financial Statements                                           20

<PAGE>









                        INDEPENDENT AUDITORS REPORT

The Partners
Southwest Partners III, L.P.
(A Delaware Limited Partnership):


We  have audited the accompanying balance sheets of Southwest Partners III,
L.P.  (the "Partnership") as of December 31, 1999 and 1998, and the related
statements  of operations, changes in partners' equity and cash  flows  for
each  of the years in the three-year period ended December 31, 1999.  These
financial   statements   are  the  responsibility  of   the   Partnership's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

We  conducted  our  audits in accordance with generally  accepted  auditing
standards.  Those standards require that we plan and perform the  audit  to
obtain reasonable assurance about whether the financial statements are free
of  material  misstatement.  An audit includes examining, on a test  basis,
evidence   supporting  the  amounts  and  disclosures  in   the   financial
statements.   An  audit  also includes assessing the accounting  principles
used  and  significant estimates made by management, as well as  evaluating
the  overall financial statement presentation.  We believe that our  audits
provide a reasonable basis for our opinion.

In  our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Southwest Partners III,
L.P. as of December 31, 1999 and 1998 and the results of its operations and
its  cash  flows  for  each  of the years in the  three-year  period  ended
December   31,  1999  in  conformity  with  generally  accepted  accounting
principles.






                                                  KPMG LLP



Midland, Texas
April 7, 2000





<PAGE>



                       Southwest Partners III, L.P.
                     (a Delaware limited partnership)
                              Balance Sheets
                        December 31, 1999 and 1998


                                              1999              1998
                                              ----              ----
  Assets

Current asset:
 Cash and cash equivalents              $    392,709           381,545
                                                                 ----------
----------
                                         Total current assets           392
,709                                         381,545
                                                                 ----------
----------

Equity investment in subsidiary                    -         2,005,000
                                                                 ----------
----------
                                                            $       392,709
2,386,545
                                                                 ==========
==========

  Liabilities and Partners' Equity

Current liabilities:
 Payable to General Partner             $    265,535           138,938
                                                                 ----------
----------
                                         Total current liabilities      265
,535                                         138,938
                                                                 ----------
----------
Partners' equity:
 General Partner                           (897,750)         (579,685)
 Limited partners                          1,024,924         2,827,292
                                                                 ----------
----------
                                         Total partners' equity         127
,174                                       2,247,607
                                                                 ----------
----------
                                                            $       392,709
2,386,545
                                                                 ==========
==========

































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

<PAGE>
                       Southwest Partners III, L.P.
                     (a Delaware limited partnership)
                         Statements of Operations
    Years Ended December 31, 1999, 1998 and Period from March 11, 1997
               (date of inception) through December 31, 1997

                                         1999         1998          1997
                                         ----         ----          ----

  Revenues

Interest   from   capital  contributions            $      -              -
104,391
Interest income                         11,164        11,514       42,965
                                                   ----------    ----------
---------
                                                       11,164        11,514
147,356
                                                   ----------    ----------
---------
  Expenses

General and administrative             126,597       138,972       15,230
Amortization                                 -        68,415       10,525
Equity  loss  in unconsolidated subsidiary          2,005,000     5,046,321
542,414
Impairment of equity investment of
 unconsolidated subsidiary                   -     9,460,765            -
                                                   ----------    ----------
---------
                                                    2,131,597    14,714,473
568,169
                                                   ----------    ----------
---------
Net loss                         $ (2,120,433)    (14,702,959)  (420,813)
                                                   ==========    ==========
=========
Net loss allocated to:

 General Partner                 $   (318,065)    (2,195,181)    (68,107)
                                                   ==========    ==========
=========
    Limited    partners                  $   (1,802,368)       (12,507,778)
(352,706)
                                                   ==========    ==========
=========
  Per limited partner unit       $    (10,545)      (73,177)      (2,054)
                                                   ==========    ==========
=========

































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

<PAGE>
                       Southwest Partners III, L.P.
                     (a Delaware limited partnership)
                 Statement of Changes in Partners' Equity
    Years Ended December 31, 1999, 1998 and Period from March 11, 1997
               (date of inception) through December 31, 1997




                                  General     Limited    Notes
                                  Partner     Partners Receivable  Total
                                  --------    -------- ----------  -----

 Capital contributions          $1,692,698 17,167,511(106,330) 18,753,879

 Imputed interest on capital
   Contributions receivable        (9,095)   (95,296)        -  (104,391)

 Syndication costs                       -(1,309,439)        -(1,309,439)

 Net loss                         (68,107)  (352,706)        -  (420,813)
                                             -------------------   --------
----------
Balance - December 31, 1997      1,615,496 15,410,070(106,330) 16,919,236

 Capital contributions                   -              31,330     31,330

 Refund of down payment-note
   receivable uncollectible                  (75,000)   75,000          -

 Net loss                       (2,195,181)(12,507,778)      -(14,702,959)
                                             -------------------   --------
----------
Balance - December 31, 1998      (579,685)  2,827,292        -  2,247,607
  Net  loss                        (318,065)(1,802,368)        -(2,120,433)
---------                       ----------   ------------------
Balance - December 31, 1999     $(897,750)  1,024,924        -    127,174
                                             ===================   ========
==========
































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

<PAGE>
                       Southwest Partners III, L.P.
                     (a Delaware limited partnership)
                         Statements of Cash Flows
    Years Ended December 31, 1999, 1998 and Period from March 11, 1997
               (date of inception) through December 31, 1997



                                         1999         1998        1997
                                         ----         ----        ----

Cash flows from operating activities:

 Cash paid to Managing General Partner
  for administrative fees           $         -         (34)    (15,230)
 Interest received                       11,164       11,514      42,965
                                                                 ----------
----------                          -----------
  Net cash provided by operating
                                     activities         11,164       11,480
27,735
                                                                 ----------
----------                          -----------

Cash flows from investing activities:

 Purchase of Sierra investment                -            -(17,054,500)
 Organization costs                           -     (63,514)    (15,427)
                                                                 ----------
----------                          -----------
   Net  cash used in investing activities                    -     (63,514)
(17,069,927)
                                                                 ----------
----------                          -----------

Cash flows from financing activities:

  Capital  contributed by limited partners                   -      (6,250)
11,217,488
 Repayment of notes receivable from limited
  partners                                    -       37,580   5,843,693
  Capital contributed by General Partner                     -            -
67,022
 Repayment of notes receivable from General
  Partner                                     -            -   1,625,676
 Syndication costs                            -     (98,837) (1,210,601)
                                                                 ----------
----------                          -----------
  Net cash provided by (used in)
                                     financing  activities                -
(67,507)                            17,543,278
                                                                 ----------
----------                          -----------

Net increase (decrease) in cash and cash
 equivalents                             11,164    (119,541)     501,086

 Beginning of period                    381,545      501,086           -
                                                                 ----------
----------                          -----------
 End of period                      $   392,709      381,545     501,086
                                                                 ==========
==========                          ===========


(continued)

















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

<PAGE>
                       Southwest Partners III, L.P.
                     (a Delaware limited partnership)
                   Statements of Cash Flows, continued
    Years Ended December 31, 1999, 1998 and Period from March 11, 1997
               (date of inception) through December 31, 1997

                                         1999         1998         1997
                                         ----         ----         ----

Reconciliation of net loss to net cash
 provided by operating activities:

Net loss                            $(2,120,433) (14,702,959)  (420,813)

Adjustments to reconcile net loss to net
 cash provided by operating activities:

  Amortization                                -        68,415     10,525
  Undistributed loss of affiliate     2,005,000     5,046,321    542,414
   Impairment  of equity investment             -     9,460,765           -
Interest  income added to notes receivable                    -           -
(104,391)
  Increase in accounts payable          126,597       138,938          -
                                                                 ----------
-----------                         --------
Net  cash  provided by operating activities     $        11,164      11,480
27,735
==========                          ===========      ========

Supplemental schedule of noncash investing
 and financing activities:

 Note receivable from limited partners for
  capital contributions             $         -             -    106,330
                                                                 ==========
===========                         ========





































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

<PAGE>
                       Southwest Partners III, L.P.
                     (a Delaware limited partnership)

                      Notes to Financial Statements


1.   Organization
     Southwest  Partners III, L.P. (the "Partnership")was  organized  under
     the laws of the state of Delaware on March 11, 1997 for the purpose of
     investing  in  or acquiring oil field service companies  assets.   The
     Partnership  intends  to  wind up its operations  and  distribute  its
     assets  or the proceeds therefrom on or before December 31,  2008,  at
     which  time the Partnership's existence will terminate, unless  sooner
     terminated or extended in accordance with the terms of the Partnership
     Agreement.   Southwest Royalties, Inc., a Delaware corporation  formed
     in  1983, is the General Partner of the Partnership.  Revenues,  costs
     and expenses are allocated as follows:

                                                    Limited   General
                                                    Partners  Partner
                                                    -------   --------
     Interest income on capital contributions        (1)       (1)
     All other revenues                              85%       15%
     Organization and offering costs                100%         -
     Syndication costs                              100%         -
     Amortization of organization costs             100%         -
     Gain or loss on property disposition            85%       15%
     Operating and administrative costs              85%       15%
     All other costs                                 85%       15%

     After  payout, allocations will be seventy-five (75%) to  the  limited
     partners and twenty-five (25%) to the General Partner.  Payout is when
     the  limited partners have received an amount equal to one hundred ten
     percent (110%) of their limited partner capital contributions.

     (1)   Interest   earned  on  promissory  notes  related   to   Capital
     Contributions is allocated to the specific holders of those notes.

     Method of Allocation of Administrative Costs

     For  the  purpose  of  allocating Administrative Costs,  the  Managing
     General  Partner  will  allocate  each  employee's  time  among  three
     divisions:  (1) operating partnerships; (2) corporate activities;  and
     (3)  currently offered or proposed partnerships.  The Managing General
     Partner  determines  a  percentage of total Administrative  Costs  per
     division  based on the total allocated time per division and personnel
     costs  (salaries)  attributable to such time.   Within  the  operating
     partnership  division, Administrative Costs are further  allocated  on
     the  basis  of the total capital of each partnership invested  in  its
     operations.

2.   Summary of Significant Accounting Policies

     Equity investment in subsidiary
     Investment in Sierra Well Service, Inc. in which the Partnership had a
     44.94% and 45.89% interest at December 31, 1999 and 1998, is accounted
     for  by the equity method and the carrying amount is adjusted for  the
     Partnership's  proportionate share of Sierra's undistributed  earnings
     or  losses.   The Partnership continually evaluates the  current  fair
     value of the investment in Sierra for impairment.  The Partnership  at
     December  31,  1998  determined  that  the  carrying  value   of   the
     investment,  including  excess  cost over  equity  interest,  was  not
     recoverable, and recorded a charge to reduce the carrying value of the
     investment  to  its fair value.  An impairment loss of $9,460,765  was
     recorded by the Partnership during 1998.

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


<PAGE>
                       Southwest Partners III, L.P.
                     (a Delaware limited partnership)

                      Notes to Financial Statements


2.   Summary of Significant Accounting Policies - continued

     Syndication Costs
      Syndication  costs  are accounted for as a reduction  of  partnership
equity.

     Environmental
     Hazards  in  the  operation of oil field service  companies,  such  as
     employee  injuries on the job site and accidental petroleum  or  waste
     spills,  are sometimes encountered. Such hazards may cause substantial
     liabilities to third parties or governmental entities, the payment  of
     which  could  reduce ultimately the funds available for  distribution.
     Although  it is anticipated that customary insurance will be obtained,
     the  Partnership may be subject to liability for pollution  and  other
     damages due to hazards, which cannot be insured against or will not be
     insured against due to prohibitive premium costs or for other reasons.
     Environmental regulatory matters also could increase the cost of doing
     business  or require the modification of operations in certain  areas.
     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 recorded when environmental assessment  and/or
     redemption is probable, and the costs can be reasonably estimated.

     Income Taxes
     No  provision  for  income  taxes  is  reflected  in  these  financial
     statements, since the tax effects of the Partnership's income or  loss
     are passed through to the individual partners.

     In   accordance  with  the  requirements  of  Statement  of  Financial
     Accounting  Standards  No. 109, "Accounting  for  Income  Taxes,"  the
     Partnership's  tax basis in its assets is $17,091,339 and  $15,102,127
     more,  as  of  December  31,  1999 and  1998  as  that  shown  on  the
     accompanying  Balance  Sheet  in accordance  with  generally  accepted
     accounting principles.

     Cash and Cash Equivalents
     For purposes of the statement of cash flows, the Partnership considers
     all  highly liquid debt instruments purchased with a maturity of three
     months or less to be cash equivalents.  The Partnership maintains  its
     cash at one financial institution.

     Number of Limited Partner Units
     There  were  170.925 limited partner units outstanding as of  December
     31, 1999, held by 523 partners.

     Concentrations of Credit Risk
     All  partnership revenues are received by the Managing General Partner
     and subsequently remitted to the partnership and all expenses are paid
     by  the  Managing General Partner and subsequently reimbursed  by  the
     partnership.

     Fair Value of Financial Instruments
     The  carrying amount of cash approximates fair value due to the  short
     maturity of these instruments.

     Net Income (loss) per limited partnership unit
     The  net  income (loss) per limited partnership unit is calculated  by
     using the number of outstanding limited partnership units.

<PAGE>
                       Southwest Partners III, L.P.
                     (a Delaware limited partnership)

                      Notes to Financial Statements

3.   Liquidity - Managing General Partner
     The  Managing General Partner has a highly leveraged capital structure
     with  over $35.1 million principal and $17.5 million interest payments
     due  in  2000  on its debt obligations. Due to the severely  depressed
     commodity  prices  experienced  during  the  last  quarter  of   1997,
     throughout 1998 and continuing through the second quarter of 1999  the
     Managing  General  Partner  is experiencing difficulty  in  generating
     sufficient  cash  flow  to  meet  its  obligations  and  sustain   its
     operations.  The Managing General Partner is currently in the  process
     of  renegotiating  the  terms  of its  various  obligations  with  its
     creditors  and/or attempting to seek new lenders or equity  investors.
     Additionally, the Managing General Partner would consider disposing of
     certain assets in order to meet its obligations.

     There  can  be  no assurance that the Managing General Partner's  debt
     restructuring  efforts  will be successful or that  the  lenders  will
     agree  to  a  course  of action consistent with the  Managing  General
     Partners requirements in restructuring the obligations.  Even if  such
     agreement  is reached, it may require approval of additional  lenders,
     which is not assured.  Furthermore, there can be no assurance that the
     sales  of  assets can be successfully accomplished on terms acceptable
     to  the  Managing  General Partner.  Under current circumstances,  the
     Managing  General  Partner's ability to continue as  a  going  concern
     depends   upon  its  ability  to  (1)  successfully  restructure   its
     obligations  or  obtain additional financing as may be  required,  (2)
     maintain  compliance with all debt covenants, (3) generate  sufficient
     cash  flow to meet its obligations on a timely basis, and (4)  achieve
     satisfactory  levels  of  future earnings.  If  the  Managing  General
     Partner  is unsuccessful in its efforts, it may be unable to meet  its
     obligations making it necessary to undertake such other actions as may
     be appropriate to preserve asset values.

4.   Investments
     Common stock ownership in Sierra Well Service, Inc. was as follows:

     December 31, 1997                                      45.89%
     January 1, to December 31, 1998            45.89%
     January 1, to March 31, 1999                           45.89
     March 31, to December 31, 1999                         44.94%

     At  December  31,  1999, the investment in Sierra Well  Service,  Inc.
     exceeded  the  Partnership's share of the  underlying  net  assets  by
     $7,620,317  and was being amortized on the straight-line method  prior
     to June 30, 1999, at which time the equity method was suspended.  A 10
     year  amortization period for goodwill was used due to the  fact  that
     the  Partnership  intends  to  wind up its  operations  on  or  before
     December 31, 2008.

     Following  is  a  summary  of the financial position  and  results  of
     operations of Sierra Well Service, Inc. as of and for the years  ended
     December 31, 1999, 1998 and 1997 (in thousands):
                                                      1998
                                           1999     Restated     1997

     Current assets             $         8,971      9,882      14,966
      Property  and  equipment, net                     31,186       35,634
46,163
      Other  assets,  net                                6,704        7,811
25,990
                                         ------     ------      ------
     Total assets               $        46,861     53,327      87,119
                                         ======     ======      ======
     Current liabilities        $         7,296      3,599       5,536
     Long-term debt                      50,371     54,664      52,480
     Deferred income taxes                2,224          -       5,743
                                         ------     ------      ------
                                $        59,891     58,263      63,759
                                         ======     ======      ======
     Stockholders' equity       $      (13,030)    (4,936)      23,360
                                         ======     ======      ======
       Sales                                     $      37,331       45,319
26,134
                                         ======     ======      ======
     Net loss                   $      (13,401)   (28,296)       (797)
                                         ======     ======      ======
<PAGE>
                       Southwest Partners III, L.P.
                     (a Delaware limited partnership)

                       Notes to Financial Statements


4.   Investments - continued
     Sierra has a highly leveraged capital structure.  Sierra on March  23,
     2000 filed a Form S-1 "Registration Statement Under the Securities Act
     of 1933" with the Securities and Exchange Commission.  Sierra plans to
     use  the  net  proceeds from this offering to a)repay $25  million  in
     existing  Subordinated  Notes;  b)finalize  $14.5  million   as   cash
     consideration  to acquire businesses; c)redeem $5.3 million  Series  A
     Cumulative Preferred Stock and d)cover expenses in connection with the
     offering and for general corporate purposes.

     Sierra  in  March  2000 filed a restated certificate of  incorporation
     increasing its authorized common shares to 25,000,000 and completed  a
     445-for-1 stock split.  All shares have been restated as if the  stock
     split  had  occurred  at the beginning of 1998.   The  Partnership  at
     December   31,  1999  owns  44.94%  or  892,225  shares  of   Sierra's
     outstanding common stock.

     Sierra  on  March 31, 1999 finalized a restructuring of its debt  with
     the  lender.   The  restructuring of Sierra's  debt  with  its  lender
     provided  for a senior subordinated credit facility and three  classes
     of  preferred  stock.  According to the redemption  and/or  conversion
     features  of the three classes of preferred stock, if Sierra does  not
     meet  repayment  of  scheduled senior subordinated  debt  starting  at
     December 31, 1999 with final payment due June 30, 2004, the lender has
     the right to exercise their conversion features. The conversion amount
     as  a percentage of post-conversion outstanding common stock can range
     from  25% to 100%.  Therefore, the Partnership's investment in  Sierra
     is  subject to possible future dilution and/or elimination as a result
     of  the  convertible  preferred stock held by  Sierra's  lender.   The
     Partnership's  ownership  percentage in Sierra  upon  the  signing  of
     Sierra's  debt  restructuring  at  March  31,  1999  remained  45.89%.
     However,  should  the lender exercise the conversion  feature  of  the
     preferred stock, the Partnership's ownership percentage would decrease
     by 14.11%.

5.   Commitments and Contingent Liabilities
     As  a  marketing  incentive, brokers who sold in excess  of  one  Unit
     received  three  percent (3%) of the Partnership liquidation  proceeds
     which  are  distributed to the General Partner in  proportion  to  the
     dollar  amount  of  Units sold by each such broker; provided,  however
     that no broker shall receive such interest unless the Partnership  has
     returned to the Limited Partners 100% of their Limited Partner Capital
     Contribution plus a 10% cumulative (but not compounded) return at  the
     time  of  liquidation.  As of December 31, 1998, there  were  13  such
     brokers  who  sold in excess of one Unit qualifying  for  the  special
     distribution.

     The  Partnership  is  subject  to various  federal,  state  and  local
     environmental  laws  and  regulations, which establish  standards  and
     requirements  for  protection  of the  environment.   The  Partnership
     cannot  predict the future impact of such standards and  requirements,
     which  are  subject to change and can have retroactive  effectiveness.
     The  Partnership  continues to monitor the status of  these  laws  and
     regulations.

     As  of December 31, 1999, the Partnership has not been fined, cited or
     notified  of any environmental violations and management is not  aware
     of  any  unasserted  violations, which would have a  material  adverse
     effect upon capital expenditures, earnings or the competitive position
     in the oil field service industry.


<PAGE>
                       Southwest Partners III, L.P.
                     (a Delaware limited partnership)

                       Notes to Financial Statements


6.   Related Party Transactions
     Southwest   Royalties,  Inc.,  the  General  Partner,  was   paid   an
     administrative fee of $120,000, $120,000 and $15,000 during 1999, 1998
     and 1997 for indirect general and administrative overhead expenses.

     In addition, a director and officer of the Managing General Partner is
     a  partner  in a law firm, with such firm providing legal services  to
     the  Partnership.  There were approximately $2,500 and $3,400 in legal
     services provided for the years ended December 31, 1999 and 1998.

     Accounts  payable due to the General Partner at December 31, 1999  and
     1998 totaled $265,535 and $138,938 for administrative fees.






<PAGE>

Item 9.   Changes  in and Disagreements With Accountants on Accounting  and
          Financial Disclosure

          None

<PAGE>
                                 Part III

Item 10.  Directors and Executive Officers of the Registrant

Management of the Partnership is provided by Southwest Royalties, Inc.,  as
Managing  General Partner.  The names, ages, offices, positions and  length
of  service of the directors and executive officers of Southwest Royalties,
Inc. are set forth below.  Each director and executive officer serves for a
term of one year.

Name                        Age         Position
--------------------        ---         -----------------------------------
--
H. H. Wommack, III                      44
                                        Chairman of the Board, President,
                                        Chief Executive Officer, Treasurer
                                        and Director

H. Allen Corey              43          Secretary and Director

Bill E. Coggin                          45
                                        Vice  President and Chief Financial
                                        Officer

J. Steven Person            41          Vice President, Marketing

Paul L. Morris              58          Director

H.  H.  Wommack, III, is Chairman of the Board, President, Chief  Executive
Officer,  Treasurer, principal stockholder and a director of  the  Managing
General  Partner,  and  has  served as its President  since  the  Company's
organization  in August, 1983.  Prior to the formation of the Company,  Mr.
Wommack  was  a  self-employed  independent oil  producer  engaged  in  the
purchase  and sale of royalty and working interests in oil and gas  leases,
and  the drilling of exploratory and developmental oil and gas wells.   Mr.
Wommack  holds  a J.D. degree from the University of Texas  from  which  he
graduated  in  1980, and a B.A. from the University of  North  Carolina  in
1977.

H.  Allen  Corey, a founder of the Managing General Partner, has served  as
the   Managing  General  Partner's  secretary  and  a  director  since  its
inception.   Mr. Corey is President of Trolley Barn Brewery, Inc.,  a  brew
pub restaurant chain based in the Southeast.  Prior to his involvement with
Trolley Barn, Mr. Corey was a partner at the law firm of Miller & Martin in
Chattanooga,  Tennessee.  He is currently of counsel to  the  law  firm  of
Baker,  Donelson,  Bearman  & Caldwell, with the  offices  in  Chattanooga,
Tennessee.  Mr. Corey received a J.D. degree from the Vanderbilt University
Law  School and B.A. degree from the University of North Carolina at Chapel
Hill.

Bill  E. Coggin, Vice President and Chief Financial Officer, has been  with
the Managing General Partner since 1985.  Mr. Coggin was Controller for Rod
Ric  Corporation of Midland, Texas, an oil and gas drilling company, during
the latter part of 1984.  He was Controller for C.F. Lawrence & Associates,
Inc., an independent oil and gas operator also of Midland, Texas during the
early  part of 1984.  Mr. Coggin taught public school for four years  prior
to his business experience.  Mr. Coggin received a B.S. in Education and  a
B.B.A. in Accounting from Angelo State University.

J.  Steven  Person, Vice President, Marketing, assumed his responsibilities
with  the Managing General Partner as National Marketing Director in  1989.
Prior  to joining the Managing General Partner, Mr. Person served  as  Vice
President  of  Marketing  for CRI, Inc., and was  associated  with  Capital
Financial  Group and Dean Witter (1983).  He received a B.B.A. from  Baylor
University in 1982 and an M.D.A. from Houston Baptist University in 1987.

Paul  L.  Morris has served as a Director of Southwest Royalties  Holdings,
Inc.  since August 1998 and Southwest Royalties, Inc. since September 1998.
Mr. Morris is President and CEO of Wagner & Brown, Ltd., one of the largest
independently owned oil and gas companies in the United States.   Prior  to
his  position with Wagner & Brown, Mr. Morris served as President of Banner
Energy and in various managerial positions with Columbia Gas System, Inc.

<PAGE>

Key Employees

Jon  P.  Tate,  Vice President, Land and Assistant Secretary,  assumed  his
responsibilities  with  the Managing General Partner  in  1989.   Prior  to
joining  the  Managing  General Partner, Mr.  Tate  was  employed  by  C.F.
Lawrence  & Associates, Inc., an independent oil and gas company,  as  Land
Manager from 1981 through 1989.  Mr. Tate is a member of the Permian  Basin
Landman's  Association and received his B.B.S. degree  from  Hardin-Simmons
University.

R.    Douglas   Keathley,   Vice   President,   Operations,   assumed   his
responsibilities with the Managing General Partner as a Production Engineer
in  October,  1992.   Prior to joining the Managing  General  Partner,  Mr.
Keathley  was  employed for four (4) years by ARCO Oil  &  Gas  Company  as
senior  drilling  engineer working in all phases of well production  (1988-
1992),  eight  (8)  years by Reading & Bates Petroleum  Company  as  senior
petroleum  engineer responsible for drilling (1980-1988) and two (2)  years
by  Tenneco Oil Company as drilling engineer responsible for all phases  of
drilling   (1978-1980).   Mr.  Keathley  received  his  B.S.  in  Petroleum
Engineering in 1977 from the University of Oklahoma.

Item 11.  Executive Compensation

The  Partnership  does not have any directors or executive  officers.   The
executive officers of the Managing General Partner do not receive any  cash
compensation,  bonuses, deferred compensation or compensation  pursuant  to
any  type  of  plan,  from the Partnership.  The Managing  General  Partner
billed  $120,000 during 1999 and 1998 and $15,000 during 1997, as an annual
administrative fee.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

There  are  no  limited partners who own of record, or  are  known  by  the
Managing General Partner to beneficially own, more than five percent of the
Partnership's limited partnership interests.

The   Managing  General  Partner  owns  a  nine  percent  interest  in  the
Partnership as a general partner.

No  officer or director of the Managing General Partner owns Units  in  the
Partnership.  H. H. Wommack, III, as the individual general partner of  the
Partnership, owns a one percent interest as a general partner.   There  are
no  arrangements  known  to the Managing General Partner  which  may  at  a
subsequent date result in a change of control of the Partnership.

Item 13.  Certain Relationships and Related Transactions

The  General Partner contributed $1,692,698, which entitled it  to  receive
100%  of  the Partnership's general partner interest.  The general  partner
interest  entitles the General Partner to 15% interest in the  Partnership.
See "Item 5."

In   1999,   the   Managing  General  Partner  received  $120,000   as   an
administrative  fee.  This amount is part of the general and administrative
expenses incurred by the Partnership.

The  Partnership  originally invested all of the proceeds  of  the  Private
Placement  in  2,005  shares  45.9% of Sierra common  stock.   The  General
Partner at December 31, 1999 directly owns 28.24% of Sierra's common stock.
Sierra  in  March  2000  filed  a  restated  certificate  of  incorporation
increasing its authorized common shares to 25,000,000 and completed a  445-
for-1 stock split.  All shares have been restated as if the stock split had
occurred  at the beginning of 1998.  The Partnership at December  31,  1999
now owns 44.94% or 892,225 shares of Sierra's outstanding common stock.

H.  Allen Corey, who is an officer and director of the General Partner,  is
of  counsel  with  Baker, Donelson, Bearman & Caldwell, a law  firm,  which
provides  legal  services to the General Partner and the Partnership.   The
Partnership paid approximately $2,500 in legal services for 1999.

In  the  opinion  of  management, the terms of the above  transactions  are
similar to ones with unaffiliated third parties.

<PAGE>
                                 Part IV


Item 14.  Exhibits, Financial Statements Schedules and Reports on Form 8-K

          (a)(1)  Financial Statements:

                  Southwest Partners III, L.P. Financial Statements

                  Included in Part II Item 8 of this report -
                  Independent Auditors Report
                  Balance Sheets
                  Statements of Operations
                  Statement of Changes in Partners' Equity
                  Statements of Cash Flows
                  Notes to Financial Statements

                    Index   to   Financial  Statements  of   Unconsolidated
Subsidiary

                  Independent Auditors' Report              30
                                        Balance                      Sheets
31
                  Statements of Operations                  32
                  Statements of Stockholders' Equity        33
                  Statements of Cash Flows                  34
                  Notes to Financial Statements             35

                     (2)  Schedules required by Article 12 of Regulation S-
                  X  are either omitted because they are not applicable  or
                  because  the  required  information  is  shown   in   the
                  financial statements or the notes thereto.

             (3)  Exhibits:


4  (a)
                          Certificate  of Limited Partnership of  Southwest
                          Partners   III,  L.P.,  dated  March  11,   1997.
                          (Incorporated  by  reference  from  Partnership's
                          Form 10-K for the fiscal year ended December  31,
                          1998).


(b)   Agreement of Limited                  Partnership                  of
                          Southwest  Partners III, L.P.,  dated  March  11,
                          1997.    (Incorporated    by    reference    from
                          Partnership's Form 10-K for the fiscal year ended
                          December 31, 1998).

                  27 Financial Data Schedule

          (b)     Reports on Form 8-K

                  There  were  no  reports filed on  Form  8-K  during  the
              quarter ended December 31, 1999.

<PAGE>
                                Signatures


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


                          Southwest Partners III, L.P.
                          a Delaware limited partnership



By:
                                 Southwest Royalties, Inc.,

Managing General Partner


                          By:    /s/ H. H. Wommack, III
                                 -----------------------------

H. H. Wommack, III, President


                          Date:  April 14, 2000


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


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


Date:  April 14, 2000


By:    /s/ H. Allen Corey
       -----------------------------
       H. Allen Corey, Secretary and
       Director


Date:  April 14, 2000

<PAGE>
When  the transaction referred to in the third paragraph of Note 1  of  the
Notes  to  Financial  Statements has been consummated,  we  will  be  in  a
position to render the following report.

                                 KPMG LLP

                       INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Sierra Well Service, Inc.:

We  have  audited the accompanying balance sheets of Sierra  Well  Service,
Inc.  of  December  31,  1999  and  1998, and  the  related  statements  of
operations,  stockholders' equity and cash flows for each of the  years  in
the  three-year period ended December 31, 1999. These financial  statements
are the responsibility of the Company's management.

We  conducted  our  audits in accordance with generally  accepted  auditing
standards.  Those standards require that we plan and perform the  audit  to
obtain reasonable assurance about whether the financial statements are free
of  material  misstatement. An audit includes examining, on a  test  basis,
evidence   supporting  the  amounts  and  disclosures  in   the   financial
statements. An audit also includes assessing the accounting principles used
and  significant  estimates made by management, as well as  evaluating  the
overall  financial  statement presentation.  We  believe  that  our  audits
provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present
fairly,  in  all material respects, the financial position of  Sierra  Well
Service,  Inc.  as of December 31, 1999 and 1998, and the  results  of  its
operations  and  its  cash flows for each of the years  in  the  three-year
period  ended  December  31, 1999, in conformity  with  generally  accepted
accounting principles.

                                   KPMG LLP

Midland, Texas
March 11, 2000, except as to the
 third paragraph of Note 1
 which is as of           , 2000.

<PAGE>


                         SIERRA WELL SERVICE, INC.

                              BALANCE SHEETS
                     As of December 31, 1998 and 1999

                                  ASSETS
                     (in thousands, except share data)

                                                   1998
                                                          1999
 Current assets
   Cash and cash equivalents                       $2,84  $
                                                   6      1,062
   Trade accounts receivable, net of allowance of
 $1,238 and                                        6,534
      $271, respectively                                  7,477
   Accounts receivable-related party                 89
                                                          73
   Inventories                                      158
                                                          144
   Other current assets                             255
                                                          215
           Total current assets                    9,882
                                                          8,971
 Property and equipment, net                       35,63
                                                   4      31,18
                                                          6
 Other assets
   Deferred loan costs, net of amortization of
 $1,318 and                                         317
      $2,198, respectively                                494
   Goodwill, net of amortization of $16,660 and
 $17,024,                                          4,998
      respectively                                        4,633
   Other                                           2,496
                                                          1,577
           Total other assets                      7,811
                                                          6,704
 Total assets                                      $53,3  $
                                                   27     46,86
                                                          1

       LIABILITIES AND STOCKHOLDERS' EQUITY

 Current liabilities
   Current portion of long-term debt               $403   $
                                                          1,164
   Accounts payable                                1,772
                                                          4,281
   Accounts payable-related party                    40
                                                          49
   Accrued expenses                                1,384
                                                          1,698
   Deferred income tax                                -
                                                          104
           Total current liabilities               3,599
                                                          7,296
 Long-term debt                                    54,66
                                                   4      50,37
                                                          1

 Deferred income tax                                  -
                                                          2,224
 Commitments & contingencies                          -
                                                          -

 Stockholders' equity
   Series A Redeemable 10% Preferred Stock,
 $10,000 par,                                         -
      1,000 shares authorized, 530.45 shares              5,305
 issued
   Series B Convertible Preferred Stock, $1 par,
 1,000 shares                                         -
      authorized, 1,000 issued                            1
   Series C Convertible Preferred Stock, $1,000
 par, 1 share                                         -
      authorized, one issued                              1
   Common stock - $.01 par; $1 stated value;
 25,000,000
      shares authorized; 1,944,966 and 1,985,488
 shares                                              19
      issued and outstanding at December 31, 1998         20
 and 1999,
      respectively
   Additional paid-in capital                      24,83
                                                   0      24,82
                                                          9
   Accumulated deficit                             (29,7
                                                   85)    (43,1
                                                          86)
           Total stockholders' deficit             (4,93
                                                   6)     (13,0
                                                          30)
 Total liabilities and stockholders' deficit       $53,3  $
                                                   27     46,86
                                                          1

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

<PAGE>


                         SIERRA WELL SERVICE, INC.

                         STATEMENTS OF OPERATIONS
           For the years ended December 31, 1997, 1998 and 1999
              (in thousands, except per share and share data)

                                            1997
                                                   1998   1999
 Revenues
   Well Servicing                           $20,920$      $
                                                   26,687 24,453
   Fluid Services                           5,214
                                                   18,632 12,878
                                            26,134
                                                   45,319 37,331
 Expenses
   Well Servicing                           16,534
                                                   21,640 20,164
   Fluid Services                           3,469
                                                   13,009 9,613
   General and administration, including
 management fees
      and computer services from related    2,785
 parties of $136,                                  5,471  5,229
      $241, and $234, respectively
   Depreciation and amortization            2,931
                                                   8,624  6,747
   Impairment of long lived assets (Note        -
 4)                                                22,671 -
                                            25,719
                                                   71,415 41,753
 Operating income (loss)                      415
                                                   (26,09 (4,422
                                                   6)     )
 Other income (expense)
   Interest income                             85
                                                   263    100
   Interest expense                         (1,508)
                                                   (7,166 (6,065
                                                   )      )
   Loss on sale of assets                    (30)
                                                   (93)   (301)
   Other, net                                  11
                                                   (974)  45
                                            (1,442)
                                                   (7,970 (6,221
                                                   )      )
 Loss before income taxes                   (1,027)
                                                   (34,06 (10,64
                                                   6)     3)
   Deferred income tax (expense) benefit      230
                                                   5,770  (2,328
                                                          )
 Net loss                                   $(797) $      $
                                                   (28,29 (12,97
                                                   6)     1)
   Preferred stock dividend                     -
                                                   -      430
 Net loss to common stockholders' interest  $(797) $      $
                                                   (28,29 (13,40
                                                   6)     1)
 Loss per share                             $      $(14   $
                                            (0.65) .55)   (6.78)
 Weighted   average   number   of    shares 1,224,195
 outstanding                                       1,945, 1,975,
                                                   095    358

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

<PAGE>


                           SIERRA WELL SERVICE, INC.

                      STATEMENTS OF STOCKHOLDERS' EQUITY
             For the years ended December 31, 1997, 1998 and 1999


                Series A Series B    Series C
               RedeemableConvertible Convertible             Additional
               PreferredPreferred   Preferred   Common      Paid-In       Accum
                                                 Stock                ulated
               Stoc Stock       Stock
               k
               Shar                                                   Deficit
               es   Amou  Share Amou  Shar Amou  Shares Amou  Capita
                    nt    s     nt    es   nt           nt    l
               (in
               thou
               sand
               s,
               exce
               pt
               shar
               e
               data
               )

 Balance -       -    -          -               867,7   8       $    $(692)
  January 1,              -           -    -     50           5,145
 1997
   Stock         -    -          -               8,900   -       -       -
 compensatio              -           -    -
 n
    granted
   Common        -    -          -               1,068  11    19,209     -
 stock                    -           -    -     ,316
    issued
   Issuance
 of              -    -          -                  -    -     476       -
    common                -           -    -
 stock

 Warrants
   Net loss      -    -          -                       -            (797)
                          -           -    -     -            -
 Balance -
  December       -    -          -               1,944  19    24,830  (1,489)
 31, 1997                 -           -    -     ,966
   Net loss      -    -          -                       -            (28,2
                          -           -    -     -            -       96)

 Balance -       -    -          -               1,944  19    24,830  (29,7
  December                -           -    -     ,966                 85)
 31, 1998
   Stock         -    -          -               40,522  1     (1)       -
 compensatio              -           -    -
 n
    granted
   Preferred   500  5,00         1                  -    -       -       -
 stock              0     1,000       1    1
    issued
   Preferred
 stock          30  305          -                  -    -       -    (305)
                          -           -    -
 dividend -
 stock
   Preferred
 stock           -    -          -                  -    -       -    (125)
                          -           -    -
 dividend -
 cash
   Net loss      -    -          -                       -            (12,9
                          -           -    -     -            -       71)

 Balance -      530 5,305 1,0    1                       20      $    $(43,
  December                00          1    1     1,985,       24,829  186)
 31, 1999                                        488

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

<PAGE>



                         SIERRA WELL SERVICE, INC.

                         STATEMENTS OF CASH FLOWS
           For the years ended December 31, 1997, 1998 and 1999
                              (In thousands)

                                              1997
                                                     1998  1999
     Cash flows from operating activities
   Net loss                                   $(797  $     $
                                              )      (28,2 (12,9
                                                     96)   71)
   Depreciation                               2,459
                                                     6,322 5,494
   Amortization                                472
                                                     2,302 1,253
   Impairment of long lived assets               -
                                                     22,67 -
                                                     1
   Bad debt expense                            475
                                                     442   125
   Noncash interest expense                    281
                                                     1,435 2,494
   Write-off of deferred loan costs              -
                                                     655   -
   Loss on sale of assets                       30
                                                     93    301
   Deferred income tax expense (benefit)      (230)
                                                     (5,77 2,328
                                                     0)
   Changes in operating assets and
 liabilities, net of
      acquisitions -                          (6,48
      Accounts receivable                     9)     1,011 (1,05
                                                           1)
      Inventories                               15
                                                     92    14
      Income tax receivable                     15
                                                     -     -
      Other current assets                      33
                                                     (152) 46
      Accounts payable                        2,586
                                                     (1,33 2,518
                                                     3)
      Accrued expenses                        1,095
                                                     (468) 314
 Net cash provided by (used in) operating     (55)
 activities                                          (996) 865
     Cash flows from investing activities
   Purchase of property and equipment         (6,58
                                              5)     (2,43 (2,28
                                                     5)    7)
   Proceeds from sale of property and           86
 equipment                                           309   1,210
   Collections of notes receivable               -
                                                     -     3
   Proceeds from sale of other long-term         -
 assets                                              85    205
   Payments for other long-term assets        (247)
                                                     (92)  (101)
   Payments for businesses, net of cash       (56,0
 acquired                                     76)    (1,80 -
                                                     0)
           Net cash used in investing         (62,8
 activities                                   22)    (3,93 (970)
                                                     3)
     Cash flows from financing activities
   Borrowings under long-term debt            58,79
                                              1      2,100 -
   Payments of long-term debt                 (7,12
                                              1)     (595) (497)
   Dividends paid                                -
                                                     -     (125)
   Deferred loan costs                        (2,03
                                              7)     (267) (1,05
                                                           7)
   Proceeds from issuance of common stock     19,22
                                              0      -     -
           Net cash provided by financing     68,85
 activities                                   3      1,238 (1,67
                                                           9)
 Net increase (decrease) in cash and cash     5,976
 equivalents                                         (3,69 (1,78
                                                     1)    4)
   Cash and cash equivalents - beginning of    561
 year                                                6,537 2,846
 Cash and cash equivalents - end of year      $6,53  $     $
                                              7      2,846 1,062
 Supplemental disclosures of cash flow
 information -                                $1,22  $     $
   Interest paid                              7      5,732 5,106
   Income taxes received                         -
                                                     -     -
 Supplemental schedule of noncash investing
 and financing
   activities -                               $476   $     $
   Common stock warrants issued as debt              -     -
 discount
   Capital leases issued for equipment         462
                                                     252   353
   Notes receivable-non cash                     -
                                                     -     83

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

<PAGE>

                         SIERRA WELL SERVICE, INC.

                       NOTES TO FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Organization  &  Business - Sierra Well Service, Inc.  (the  "Company"),  a
Delaware  corporation,  was  formed in 1992 as a  subsidiary  of  Southwest
Royalties,  Inc. ("SWR"). In June 1997, Southwest Royalties  Holding,  Inc.
("SRH")  was formed to serve as a holding company for SWR, the Company  and
other  subsidiaries of SWR. At that time, SWR's investment in  the  Company
was  transferred by dividend to SRH and the Company became a subsidiary  of
SRH.  Due to sales of the Company's common stock to Southwest Partners  II,
L.P.  and Southwest Partners III, L.P. (limited partnerships for which  SWR
serves  as  general partner) in 1996 and 1997, SRH's ownership interest  in
the  Company was reduced to a point where the Company's financial  position
and  results of operations were no longer consolidated with SRH,  effective
July 1, 1997.

The  Company provides a range of well site services to oil and gas drilling
and  producing companies through the Company's fleet of well servicing rigs
and fluid handling assets. The Company's operations are concentrated in the
major  United  States oil and gas producing regions of Texas,  New  Mexico,
Oklahoma and Louisiana.

Common Stock Split

On             ,  2000,  the  Company  filed  a  restated  certificate   of
incorporation  increasing its authorized common shares  to  25,000,000  and
completed  a  445-for-1 stock split. All share and per share  amounts  have
been  restated as if the stock split had occurred at the beginning  of  the
earliest period presented.

Estimates and Uncertainties - The preparation of these financial statements
in  conformity  with  generally  accepted  accounting  principles  requires
management  to  make  estimates and assumptions that  affect  the  reported
amounts of assets and liabilities and disclosures of contingent assets  and
liabilities  at  the  date  of the financial statements  and  the  reported
amounts  of  revenues  and  expenses during the  reporting  period.  Actual
results could differ from these estimates.

Cash  and  Cash  Equivalents  -  The Company considers  all  highly  liquid
instruments purchased with a maturity of three months or less  to  be  cash
equivalents.  The  Company maintains its excess cash in  various  financial
institutions, where deposits may exceed federally insured amounts at times.

Inventories - Inventories mainly consist of pipe, are held for use  in  the
operations  of the Company and are stated at the lower of cost  or  market,
with cost being determined on the first-in, first-out (FIFO) method.

Property  and  Equipment  -  Property and equipment  are  stated  at  cost.
Expenditures for repairs and maintenance are charged to expense as incurred
and  additions and improvements that significantly extend the lives of  the
assets  are  capitalized.  Upon  sale or other  retirement  of  depreciable
property,  the  cost  and accumulated depreciation  are  removed  from  the
related  accounts  and  any gain or loss is reflected  in  operations.  All
assets are depreciated on the straight-line method and the estimated useful
lives of the assets are as follows:

Buildings and improvements                              20-30
                                                        years
Well servicing rigs and equipment                        5-15
                                                        years
Fluid service equipment                                  5-10
                                                        years
Brine/fresh water stations                                 15
                                                        years
Enviro-Vat units and fluid service                         10
                                                        years
Disposal facilities                                        10
                                                        years
Vehicles                                                  3-5
                                                        years

The  Company  reviews  property  and  equipment  and  certain  identifiable
intangibles  for  impairment whenever events or  changes  in  circumstances
indicate  that  the carrying amount of an asset may not be recoverable.  An
impairment loss is indicated if the sum of the expected undiscounted future
cash  flows  is  less  than  the  carrying amount,  including  any  related
goodwill,  of  such assets. Expected future cash flows and carrying  values
are aggregated at their lowest identifiable level, which is on a rig-by-rig
basis  for  the Company's well service rigs and by region for the Company's
truck  fleets and water stations. The Company would recognize an impairment
loss  for  the difference between the asset's, or group of assets, carrying
value and estimated fair value, if the carrying value exceeded the expected
future cash flows.

<PAGE>
Deferred  Debt Costs - The Company capitalizes certain costs in  connection
with obtaining its borrowings, such as lender's fees and related attorney's
fees.  These costs are being amortized to interest expense on the straight-
line method over the terms of the related debt.

Goodwill  - The Company classifies as goodwill the cost in excess  of  fair
value  of  the  net  tangible  assets acquired  in  purchase  transactions.
Goodwill  is  being amortized on a straight-line basis over fifteen  years.
Management  continually  evaluates whether  events  or  circumstances  have
occurred  that indicate the remaining useful life of goodwill  may  warrant
revision or the remaining balance of goodwill may not be recoverable.

Income   Taxes  -  Deferred  income  taxes  are  recognized  for  the   tax
consequences of temporary differences between financial statement  carrying
amounts  and  the  tax  basis  of  existing  assets  and  liabilities.  The
measurement of current and deferred tax assets and liabilities is based  on
enacted  tax  law. The effect on deferred tax assets and liabilities  of  a
change  in  tax  rate is recognized in income in the period  of  change.  A
valuation allowance for deferred tax assets is recognized when it is  "more
likely  than  not"  that the benefit of deferred tax  assets  will  not  be
realized.

Concentrations  of  Credit Risk - Financial instruments, which  potentially
subject  the Company to concentration risk, consist primarily of  temporary
cash investments and trade receivables. The Company restricts investment of
temporary  cash  investments  to financial institutions  with  high  credit
standing.  The Company's customer base consists primarily of multi-national
and independent oil and natural gas producers. The Company performs ongoing
credit  evaluations  of  its  customers  but  generally  does  not  require
collateral  on  its  trade  receivables.  Credit  risk  is  considered   by
management  to  be limited due to the large number of customers  comprising
the  Company's customer base. The Company maintains reserves for  potential
credit losses, and such losses have been within management's expectations.

Loss  Per  Share  -  The  Company accounts for loss per  share  based  upon
Statement  of Financial Accounting Standards No. 128, "Earnings per  Share"
(SFAS  128).  Under SFAS 128, basic earnings or loss per common  share  are
determined by dividing net earnings or loss applicable to common  stock  by
the  weighted  average number of common shares actually outstanding  during
the  year.  Diluted  earnings per common share is based  on  the  increased
number  of shares that would be outstanding assuming conversion of dilutive
outstanding convertible securities using the "as if converted" method.  The
share  effect related to outstanding common stock warrants is  omitted  for
1998  and 1997 because they are antidilutive to the periods presented. Such
warrants are no longer outstanding.

Recent  Accounting Pronouncements - In June 1998, the Financial  Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
No.  133  "Accounting  for Derivative Instruments and  Hedging  Activities"
("FAS   133")  which  establishes  standards  for  derivative  instruments,
including  certain derivative instruments embedded in other contracts,  and
for   hedging  activities.  It  requires  that  an  entity  recognize   all
derivatives  as either assets or liabilities in the statement of  financial
position  and  measure  those  instruments at fair  value.  It  establishes
conditions  under  which a derivative may be designated  as  a  hedge,  and
establishes  standards  for  reporting changes  in  the  fair  value  of  a
derivative.  FAS 133, as amended by FAS 137, is required to be  implemented
for  all fiscal quarters of all fiscal years beginning after June 15, 2000.
Early  adoption is permitted. The Company has not completed the  evaluation
of the potential effects of implementing FAS 133.

<PAGE>

2. Acquisitions

In 1997 and 1998, Sierra acquired either substantially all of the assets or
all  of  the outstanding capital stock of each of the following businesses,
which were accounted for using the purchase method of accounting:

                                            Closing  Purchase
                                            Date     Price
                                                        (in
                                                     thousands)
  East Texas Vac. Service, L.C                  June  $3,080
                                                1997
  S&N Well Servicing, Ltd                       July  5,400
                                                1997
  Lonnies Well Service Co                     August    714
                                                1997
  Harrison Rig Service, inc                   August    475
                                                1997
  DKB Enterprises, Inc                       October  5,600
                                                1997
  Diamond Rental, Inc                        October  3,500
                                                1997
  Larry O'Connor, Inc                        October  3,600
                                                1997
  Aries Well Service, Inc                    October  1,500
                                                1997
  Trans-Texas Operating, Inc                 October  5,500
                                                1997
  Smith Brothers Casing Pullers, Inc         October  1,300
                                                1997
  Mansell Brine Sales, Inc                  November  7,000
                                                1997
  Bobby Herricks Trucking, Inc              December 11,750
                                                1997
  Ackerly Service Company, Inc. and Enviro- December  5,000
  Vat, Inc                                      1997
  Accurate Petroleum Services, Inc             April  2,100
                                                1998

The  Company  sold  2,401  shares of common stock totaling  $19,219,500  to
Southwest Partners II, Southwest Partners III and Southwest Royalties, Inc.
and  borrowed $49,408,000 from Joint Energy Development Investments Limited
Partnership  II  in order to fund the acquisitions and purchase  additional
well  servicing  equipment.  The remainder of the  proceeds  was  used  for
working  capital. The operations of each of the aforementioned acquisitions
are included in the Company's statement of operations as of each respective
closing date.

In  1998,  the  Company expensed previously deferred  costs  from  foregone
acquisitions  and costs associated with an equity offering not consummated,
totaling approximately $990,000.

3. Property and Equipment

  Property and equipment consists of the following as of December 31 (in
thousands):

                                                     1998
                                                          1999
  Land                                               $831 $
                                                          236
  Buildings and improvements                         1,97
                                                     3    1,67
                                                          3
  Well service units and equipment                   21,5
                                                     23   22,5
                                                          07
  Water hauling equipment                            7,04
                                                     9    7,05
                                                          2
  Brine/fresh water stations                         8,42
                                                     9    8,62
                                                          0
  Enviro-Vat units and frac/test tanks               3,21
                                                     1    3,21
                                                          1
  Disposal facilities                                5,34
                                                     8    5,34
                                                          8
  Vehicles                                           4,42
                                                     9    4,38
                                                          9
  Other                                              631
                                                          672
                                                     53,4
                                                     24   53,7
                                                          08
  Less accumulated depreciation                      17,7
                                                     90   22,5
                                                          22
  Property and equipment, net                        $35, $
                                                     634  31,1
                                                          86

4. Impairment

At  December 31, 1998, the Company recorded an impairment loss on its  well
service  rigs  and  equipment,  water  stations  and  related  goodwill  of
approximately  $378,000, $7,372,000 and $14,922,000,  respectively,  for  a
total  impairment  of  approximately  $22,672,000.  In  determining  if  an
impairment  loss  was  indicated, management projected  future  cash  flows
through  the  estimated life of each asset, for each of the Company's  well
service  rigs  and by region for the Company's trucks and  water  stations,
based  on  estimated  utilization  rates,  hours,  revenues  and  expenses,
generally  increasing utilization rates based on managements  expectations,
but  using  constant hourly rates charged to customers. Where an impairment
was  indicated,  the carrying value of the asset plus the related  goodwill
was  reduced  to  the  estimated fair market value,  based  upon  a  recent
appraisal.

<PAGE>

5. Long-Term Debt

Long-term debt consists of the following as of December 31 (in thousands):

                                                     1998
                                                          1999
  Credit Facility                                    $54, $
                                                     331  -
  New Credit Facility
    Senior Notes                                       -
                                                          24,4
                                                          08
    Subordinated Notes                                 -
                                                          26,5
                                                          35
  Capital leases and equipment notes                 736
                                                          592
                                                     55,0
                                                     67   51,5
                                                          35
  Less current portion, determined based on the
  terms of the                                       403
    New Credit Facility (see discussion below)            1,16
                                                          4
                                                     $54, $
                                                     664  50,3
                                                          71

On  September  30, 1997, the Company signed a loan agreement  (the  "Credit
Facility") that provided up to $60,000,000 for acquisitions and refinancing
existing  debt. The agreement required monthly interest payments  with  the
outstanding principal balance and accrued interest due on March  31,  1999.
The  loan  consisted  of two tranches (Tranche A and  Tranche  B)  totaling
$30,000,000  each.  As of December 31, 1998, Tranche A had  an  outstanding
balance  of  $30,000,000  and  Tranche B  had  an  outstanding  balance  of
$24,410,000. The initial interest rates for Tranche A and B were prime plus
1%  and 3%, respectively. Interest on Tranche B, if not retired in whole by
October  1998,  increased  by 1% at the end of  each  subsequent  two-month
period.  The Credit Facility contained various restrictive covenants  which
included  restrictions  on  the incurrence of additional  indebtedness  and
limitations  on the amount of capital lease obligations. Certain  covenants
also  placed restrictions on dividends, stock redemptions, investments  and
sales of assets.

As  part of the agreement, the Company issued common stock warrants to  the
lender which were exercisable in whole or in part any time prior to October
2002.  As of December 31, 1998, the lender was entitled to 457 warrants  at
exercise  prices ranging from $8,500 to $11,500 per share.  These  warrants
had  estimated  fair value of $476,400 at time of issuance and  a  carrying
value  of  $79,400 as of December 31, 1998. The fair value of the  warrants
were  calculated using the Black-Scholes option model assuming no  expected
volatility  and  a  risk free interest rate of 5%. On March  31,  1999  the
outstanding warrants associated with the Credit Facility were cancelled.

In  October 1997, the Company repaid approximately $6,000,000 of short-term
debt, including accrued interest, with proceeds from the Credit Facility.

On  March  31,  1999,  the  Company entered into  three  security  purchase
agreements  (collectively, the "New Credit Facility") that provides  up  to
$54,410,000, the proceeds of which were used to retire the Credit Facility.
The  Company has accounted for this restructuring under FAS 15, "Accounting
by  Debtors  and  Creditors for Troubled Debt Restructuring".  The  Company
issued  preferred stock with an estimated fair value of $5 million  to  the
lender  on March 31, 1999, as partial settlement of the outstanding balance
of  the  Credit Facility. In accordance with FAS 15, no gain  or  loss  was
recognized on the restructuring.

The  New  Credit  Facility is comprised of a senior  credit  facility  (the
"Senior  Notes"), a senior subordinated credit facility (the  "Subordinated
Notes") and three classes of preferred stock, as follows:

The  Senior  Notes have a principal balance of $24,408,000  with  quarterly
interest  payable  at a rate per annum of 250 basis points  above  the  six
month  London  Interbank  Offered  Rate  beginning  March  31,  1999.   All
outstanding principal and accrued and unpaid interest is due and payable in
full  on  June  30,  2004.  The  principal is payable  quarterly  beginning
September  30,  2000,  based  on  a seven year  amortization  of  principal
beginning  June 30, 2000 and a final balloon payment due on June  30,  2004
for the unpaid balance.

The  Subordinated  Notes  have  a principal  balance  of  $25,000,000  with
quarterly  interest payable at a rate of 10% per annum beginning March  31,
1999.  The  Company may defer interest payments due prior to September  30,
2001, at a rate of 12% per annum. All accrued and unpaid interest is due on
September  30, 2001. The Company chose to defer the interest  payments  due
September  30 and December 31, 1999. All principal and accrued  and  unpaid
interest is due and payable in full on June 30, 2004.

<PAGE>
The   Senior  and  Subordinated  Notes  contain  covenants  which  restrict
dividends, investments, and the sale of assets. At December 31,  1999,  the
Company was not in compliance with certain debt covenants of the Senior and
Subordinated Notes. The Company has obtained an amendment to the New Credit
Facility  to  cure  those  events  of  non-compliance.  Additionally,   the
covenants require the Company to maintain a fixed charge coverage ratio (as
defined) of at least 1.00:1 for each quarter beginning June 30, 2000.

As  of  December  31,  1999, the aggregate maturities  of  debt,  including
capital leases, for each of the five years subsequent to December 31, 1999,
are as follows (in thousands):

  Year Ending
  December 31,
  2000                                                    $1,16
                                                          5
  2001                                                    6,070
  2002                                                    3,608
  2003                                                    3,488
  2004                                                    37,20
                                                          4
                                                          $51,5
                                                          35

500 shares of Series A Cumulative Preferred Stock ("Series A"), $10,000 per
share liquidation preference ($5,000,000) with a dividend payable quarterly
at 10% per annum. The Company may choose to pay dividends in-kind at a rate
of  12%  per annum. The Company paid dividends in-kind on the September  30
and December 31, 1999 payment dates.

The  Company  may redeem all of the shares of Series A at any  time,  at  a
redemption  price  of $10,000 per share, together with accrued  and  unpaid
dividends  to the date of redemption; provided, however, that in accordance
with the Company's Senior Subordinated Credit Facility, the Company is  not
entitled  to  redeem  shares of Series A unless and until  all  outstanding
principal and accrued and unpaid interest under the Subordinated  Note  has
been paid in full.

Series  A ranks senior to all other classes and series of the stock in  all
respects,  including  as  to  redemption  and  payment  of  dividends   and
distributions (including upon liquidation or winding up). Series A  may  be
redeemed  by the Issuer at any time after the Subordinated Notes have  been
paid  in  full  for  an  amount equal to par plus all  accrued  and  unpaid
dividends.  Upon  redemption, all conversion, voting, and other  rights  of
Series A shall terminate.

1,000  shares of Series B Convertible Preferred Stock ("Series B"), $1  per
share  liquidation value ($1000), with dividends payable only if  dividends
are  paid on the Company's common stock. The number of shares of the common
stock  into which Series B is convertible varies based upon the  timing  of
the  repayment  of  Series A, but represents, at  a  minimum,  25%  of  the
Company's  outstanding  common stock. Series B may  be  converted,  at  the
holders  option,  into the number of shares of the Company's  common  stock
necessary  to  equal  the  following percentages of total,  post-conversion
common shares calculated on a fully diluted basis:

                                               Conversion
  Timing of repayment                          Amount as
  of Series A Issue                            a percentage
  on or before                                 of post-
                                               conversion
                                               outstanding
                                                       Common
                                               Stock
  December 31, 1999                                25%
  June 30, 2000                                    30%
  After June 30, 2000                              35%

Series  B  ranks  senior to all other classes and series of  the  Company's
stock  except  Series A, in all respects, including as  to  redemption  and
payment  of  dividends  and distributions (including  upon  liquidation  or
winding up).

<PAGE>

One  share of Series C Convertible Preferred Stock ("Series C"), $1,000 per
share liquidation preference, with dividends payable only if dividends  are
paid  on  the Company's common stock. The number of shares of the Company's
common  stock  into  which Series C is convertible varies  based  upon  the
timing  of  the redemption of Series A. Series C may be converted,  at  the
option  of  the holder, into the number of shares of common stock necessary
to  equal the following percentages of total, post-conversion common shares
calculated on a fully diluted basis:

                                                 Conversion A
  Timing of repayment                            mount as
  of Series A Issue                              a percentage
  on or before                                   of post-
                                                 conversion o
                                                 utstanding
                                                          Common
                                                 Stock
  June 30, 2000                                     0%
  June 30, 2001                                    10%
  June 30, 2002                                    20%
  June 30, 2003                                    30%
  June 30, 2004                                    40%
  After June 30, 2004                              65%

Series  C  ranks  senior to all other classes and series of  the  Company's
stock  except for Series A and Series B, in all respects, including  as  to
redemption  and  payment  of  dividends and distributions  (including  upon
liquidation or winding up).

6. Income Taxes

The  provision (benefit) for income taxes consists of the following  as  of
December 31 (in thousands):

                                                  1997
                                                       1998  1999
  Current                                         $  - $     $
                                                       -     -
  Deferred                                        1,20
                                                  4    (2,9  5,39
                                                       24)   2
  Benefit of net operating loss carryforward      (1,4
                                                  34)  (3,3  (2,5
                                                       55)   55)
  Change in valuation allowance                      -
                                                       509   (509
                                                             )
                                                  $(23 $     $
                                                  0)   (5,7  2,32
                                                       70)   8

A  reconciliation  between the amount determined by  applying  the  federal
statutory rate with the provision (benefit) for income taxes is as  follows
as of December 31 (in thousands):

                                                  19  1998   1999
                                                  97
  Statutory federal income tax                    $(3 $(11,  $(3,
                                                  50) 582)   619)
  Amortization of non-deductible goodwill and      74 5,195  227
  property
  Meals and entertainment                          46   95    75
  Change in valuation allowance                     -  509   (509
                                                             )
  Reduction in net operating loss carryforwards     -    -   6,10
                                                             1
  Other                                             -   13    53
                                                  $(2 $(5,7  $2,3
                                                  30) 70)    28

As  a result of issuing preferred stock and convertible preferred stock  to
its  primary  lender  on March 31, 1999, the Company's net  operating  loss
carryforwards  accumulated prior to that date were effectively  reduced  to
zero  under  Section 382 of the Internal Revenue Code. Deferred tax  assets
related to operating loss carryforwards existing at December 31, 1999 arose
from losses occurring subsequent to March 31, 1999.

<PAGE>

The  tax  effects  of temporary differences that give rise  to  significant
portions  of the deferred tax assets and liabilities are as follows  as  of
December 31 (in thousands):

                                                     1998
                                                           1999
  Deferred tax assets:
    Operating loss carryforwards                     $5,0  $
                                                     82    2,55
                                                           5
    Receivables                                      148
                                                           -
    Other                                              1
                                                           202
    Valuation allowance                              (509
                                                     )     -
    Total deferred tax assets                        4,72
                                                     2     2,75
                                                           7
  Deferred tax liabilities:
    Property and equipment                           (4,5
                                                     05)   (4,7
                                                           94)
    Real estate investments                          (23)
                                                           -
    Goodwill                                         (157
                                                     )     (145
                                                           )
    Other intangibles                                (37)
                                                           (42)
    Receivables                                        -
                                                           (104
                                                           )
    Total deferred tax liabilities                   (4,7
                                                     22)   (5,0
                                                           85)
            Net deferred tax liability               $ -   $
                                                           (2,3
                                                           28)

A valuation allowance is provided when it is more likely than not that some
portion  of  the  deferred tax assets will not be realized.  The  valuation
allowance relates primarily to the uncertainty of the realizability of  the
Company's  carryforwards. The amount of the valuation  allowance  could  be
reduced  if  estimates  of  future taxable income during  the  carryforward
period are increased.

As  of  December 31, 1999, the Company had net operating loss carryforwards
for U.S. federal income tax purposes of approximately $7,514,107, which are
available  to  offset  future  regular taxable  income,  if  any.  The  net
operating  loss  carryforwards expire in various periods through  2020.  As
described  above, this amount relates only to tax losses  since  March  31,
1999.

7. Commitments and Contingencies

Environmental

The  Company  is subject to various federal, state and local  environmental
laws  and  regulations  which  establish  standards  and  requirements  for
protection of the environment. The Company cannot predict the future impact
of such standards and requirements which are subject to change and can have
retroactive effectiveness. The Company continues to monitor the  status  of
these   laws  and  regulations.  Management  does  not  believe  that   the
disposition of any of these items will result in a material adverse  impact
to  the  financial position, liquidity, capital resources or future results
of operations of the Company.

Currently,  the  Company  has not been fined,  cited  or  notified  of  any
environmental  violations which would have a material adverse  effect  upon
the  financial  position, liquidity or capital resources  of  the  Company.
However, management does recognize that by the very nature of its business,
material costs could be incurred in the near term to bring the Company into
total   compliance.  The  amount  of  such  future  expenditures   is   not
determinable  due  to  several factors including the unknown  magnitude  of
possible  contamination, 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 indemnification.

Litigation

From  time  to  time, the Company is a party to litigation or  other  legal
proceedings that the Company considers to be a part of the ordinary  course
of business. The Company is not currently involved in any legal proceedings
that could reasonably be expected to have a material adverse effect on  the
Company's financial condition or results of operations.

<PAGE>

Leases

The  Company leases certain equipment under non-cancelable operating leases
which  expire  at  various dates through December 2001.  The  term  of  the
operating  leases generally run from 36 to 60 months with  varying  payment
dates throughout each month.

As  of  December  31,  1999, the future minimum lease payments  under  non-
cancelable operating leases are as follows (in thousands):

  Year Ending
  December 31,                                       Lease P
                                                     ayments
  2000                                                 $291
  2001                                                 176
  2002                                                 142
  2003                                                 142
  2004                                                 118
  Total                                                $869

Rent  expense  approximated  $962,000 for  1997,  $979,000  for  1998,  and
$942,000  for  1999.  The  Company rents various equipment  for  short-term
periods in order to assist day-to-day operations.

8. Stock Compensation

The  Company granted an officer 40,520 shares with nominal value, at  March
31, 1999. The Company granted two employees 10 shares of common stock each,
effective  January  1,  1997.  Compensation expense  related  to  the  1997
issuances  was  determined at the date of the grant based on the  estimated
fair  value  of  the  Company  as determined by an  independent  investment
advisor.

9. Related Party Transactions

The  Company  provided services and products for workover, maintenance  and
plugging  of  existing oil and gas wells to a related party  for  $508,000,
$906,000  and $1,010,000 in 1997, 1998 and 1999 respectively.  The  Company
has  receivables  from this related party, of $89,000  and  $73,000  as  of
December 31, 1998 and 1999, respectively.

The   Company   paid  a  related  party  management  fees  for  accounting,
bookkeeping,  tax preparation, banking and computer services in  1999.  All
services,  except for computer services, were terminated by the Company  as
of  December 31, 1999. Since January 1996, this related party has performed
computer services for the Company for $7,500 per month.

The  Company leases three well service rigs from a related party  under  an
operating  lease  entered into in October 1999. The lease requires  monthly
payments of approximately $11,000 and expires in October 2004. Rent expense
related to this lease approximated $24,000 for 1999.

A  director  of the Company is a partner in a law firm that provides  legal
services   to  the  Company.  During  1998  and  1999,  the  Company   paid
approximately $112,000 and $64,000, respectively in fees for legal services
performed.

10. Profit Sharing Plan

The  Company  has a contributory retirement plan that covers  substantially
all employees. Employees may contribute up to 15% of their base salary with
the  maximum  amount  determined by law. Employee contributions  are  fully
vested  at  all  times and discretionary employer contributions  are  fully
vested  upon  the first to occur of retirement and five years  of  service.
Employer  contributions to the 401(k) plan approximated $13,000  for  1997,
$18,000 for 1998 and $56,000 for 1999.

11. Major Customers

No  customers  accounted  for over 10% sales in 1997,  1998  or  1999.  The
Company  performs ongoing evaluations of its customers' financial condition
and generally requires no collateral to secure outstanding receivables.

<PAGE>
12. Business Segment Information

Information  about  the Company's operations by business  segment  for  the
years ended December 31, 1997, 1998 and 1999, is as follows:

                                     1997  1998
                                                  1999
  Revenues:
    Well servicing                   $20,9 $26,6  $
                                     20    87     24,45
                                                  3
    Fluid services                   5,214 18,63
                                           2      12,87
                                                  8
                                     $26,1 $45,3  $
                                     34    19     37,33
                                                  1
  Income (loss) before income taxes:
    Well servicing                   $4,38 $5,74  $
                                     8     1      4,553
    Fluid services                   1,744 5,943
                                                  3,382
    Interest expense                 (1,50 (7,16
                                     8)    6)     (6,06
                                                  5)
    General corporate                (5,65 (38,5
                                     1)    84)    (12,5
                                                  13)
                                     $(1,0 $(34,  $
                                     27)   066)   (10,6
                                                  43)
  Identifiable assets:
    Well servicing                   $28,6 $25,5  $
                                     13    31     23,85
                                                  5
    Fluid services                   46,28 20,88
                                     7     8      18,89
                                                  3
    General corporate                12,21 6,908
                                     9            4,113
                                     $87,1 $53,3  $
                                     19    27     46,86
                                                  1
  Capital expenditures:
    Well servicing                   $5,88 $1,74  $
                                     3     7      1,715
    Fluid services                    338   536
                                                  469
    General corporate                 364   152
                                                  103
                                     $6,58 $2,43  $
                                     5     5      2,287
  Depreciation:
    Well servicing                   $1,94 $3,84  $
                                     1     9      3,829
    Fluid services                    907  4,593
                                                  2,721
    General corporate                  83   182
                                                  197
                                     $2,93 $8,62  $
                                     1     4      6,747

The Company's well servicing business line offers a broad range of services
including   well  maintenance,  workover  of  existing  wells,   new   well
completions and plug and abandonment services. The Company's fluid services
business line complements the well service operations by providing  liquids
handling, water supply and disposal services.

13. Subsequent Events

The  Company entered into definitive agreements to acquire five  businesses
and  the  stock  purchase of a sixth corporation with  four  inactive  rigs
during  the last quarter of 1999 and the first quarter of 2000. Funding  of
each  of  these  acquisitions is contingent upon the  consummation  of  the
Company's  initial  public offering. The following  described  acquisitions
were  not  completed as of December 31, 1999 and are not  included  in  the
Company's  results of operations for the twelve months ended  December  31,
1999. Other than Trinity Services, which is an asset purchase rather than a
stock  purchase, the cash portion of each acquisition will be  adjusted  to
reflect  the  net  financial  assets of the  acquired  company  as  of  the
acquisition  date. Net financial assets is defined as net  working  capital
minus long-term debt, including leases.

TAT (Turn Around Trucking), Inc.

The Company has entered into a definitive agreement for the acquisition  of
TAT  (Turn Around Trucking), Inc. ("TAT") for cash and a note with an total
estimated  value of approximately $6.5 million. The note will be  converted
within  45  days after the completion of the offering into  shares  of  the
Company's  common  stock valued at the initial public offering  price;  the
note  accrues  interest at a floating rate equal to  the  prime  rate.  TAT
operates 32 fluid service trucks, 2 support trucks, 38 fluid service tanks,
2 salt water disposal wells and related equipment in south Texas.

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Sundown Operating Company, Inc.

The Company has entered into a definitive agreement for the acquisition  of
Sundown  Operating Company, Inc. ("Sundown") for cash and a  note  with  an
estimated   value  of  approximately  $5.2  million.  The  note   will   be
convertible,  at  the holder's option, into shares of the Company's  common
stock valued at the initial public offering price; the note matures on  the
one year anniversary of the closing of the proposed initial public offering
and  accrues  interest at a floating rate equal to the prime rate.  Sundown
operates  26  well  servicing rigs and related equipment  in  the  northern
Permian Basin.

Eunice Well Service Company

The Company has entered into a definitive agreement for the acquisition  of
Eunice  Well  Service  Company ("Eunice") for  cash  and  a  note  with  an
estimated   value  of  approximately  $2.1  million.  The  note   will   be
convertible,  at  the holder's option, into shares of the Company's  common
stock valued at the initial public offering price; the note matures on  the
one  year  anniversary of the closing of this offering and accrues interest
at  a  floating  rate  equal to the prime rate.  Eunice  operates  10  well
servicing rigs and related equipment in the western Permian Basin.

Gold Star Service Company, Inc.

The Company has entered into a definitive agreement for the acquisition  of
Gold  Star Service Company, Inc. ("Gold Star") for cash and a note with  an
estimated  value of approximately $1.80 million. The note will be converted
into shares of our common stock valued at the initial public offering price
within  45  days  after  the  completion of  the  proposed  initial  public
offering;  the note accrues interest at a floating rate equal to the  prime
rate. Gold Star operates 19 fluid service trucks, 4 support trucks, 1  salt
water disposal well, 2 fresh and brine water stations and related equipment
in the western Permian Basin.

Trinity Services

The Company has entered into a definitive agreement for the acquisition  of
Trinity  Services  ("Trinity")  for cash,  a  note  and  warrants  with  an
estimated  value  of  approximately $1.94 million.  The  warrants  will  be
exercisable,  at  the holder's option, into shares of the Company's  common
stock  valued  at  the initial public offering price. The  holder  has  the
option to offset any indebtedness under the note against the exercise price
of  the  warrant.  The  note matures 15 months after the  closing  of  this
offering  and accrues interest at a floating rate equal to the prime  rate.
The  warrant expires on the later of (1) 18 months after the closing of the
proposed offering or (2) one year after the note is repaid in full. Trinity
operates 10 well servicing rigs and related equipment in south Texas.

Harrison Well Service, Inc.

The Company has entered into a definitive agreement for the acquisition  of
Harrison  Well  Service, Inc. ("Harrison") for cash  and  a  note  with  an
estimated value of approximately $1.225 million. The note will be converted
into  shares  of the Company's common stock at the initial public  offering
price  within  45 days after the completion of the proposed  offering;  the
note  accrues interest at a floating rate equal to the prime rate. Harrison
operates  4  well  servicing  rigs and related equipment  in  the  northern
Permian Basin.

<PAGE>