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, 2001

                                    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 45.   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                             24

                                 Part III

10.  Directors and Executive Officers of the Registrant                 25

11.  Executive Compensation                                             26

12.  Security Ownership of Certain Beneficial Owners and
     Management                                                         26

13.  Certain Relationships and Related Transactions                     26

                                 Part IV

14.  Exhibits, Financial Statement Schedules, and Reports
     on Form 8-K                                                        27

     Signatures                                                         28

<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
Basic  Energy  Services,  Inc.  ("Basic"), 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  Basic  common
stock.

      Basic  in  March  2000 filed a restated certificate of  incorporation
increasing its authorized common shares to 25,000,000 and completed a  400-
for-1 stock split.  All shares had been restated as if the stock split  had
occurred  at the beginning of 1998.  The 400-for-1 stock split was reversed
during 2000.  Basic on December 21, 2000 completed a 100-for-1 dividend.

      On  May 21, 2001, Basic issued a Notice to Stockholders of Preemptive
Rights.   The Partnership purchased an additional 19,000 shares  of  common
stock at $380,000.  The Partnership as of December 31, 2001 owns a total of
6.32%, or 219,500 shares of Basic'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 General Partner of  the
Partnership,  Southwest  Royalties, Inc. (the "General  Partner")  and  its
staff of 89 individuals, together with certain independent consultants used
on  an  "as  needed"  basis,  perform various services  on  behalf  of  the
Partnership.  The Partnership has no employees.

The Partnership
The   sole  business  of  the  Partnership  is  holding  Basic  stock.  The
Partnership has no employees and has no operations, except through Basic.

Basic Energy Services, Inc.
Basic  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.   Basic
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.  Basic's
well  servicing and fluid service equipment fleets includes well  servicing
rigs and fluid service trucks.

<PAGE>
Formed  in  1992 by the General Partner, Basic has grown primarily  through
selective  acquisitions.  It has completed 21 purchases  of  well  services
companies  as well as purchases of additional equipment.  Basic's  revenues
have  grown from $932,000 in 1992 to approximately $99.7 million  in  2001.
Basic'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.

Basic  uses  its  well  servicing rigs to provide completion,  maintenance,
workover  and plugging and abandonment services.  Basic's related  trucking
services are used to move large equipment to and from the job sites of  its
customers.   Basic  also  provides an integrated mix  of  liquids  handling
services,  including vacuum truck services, frac tank  rentals,  test  tank
rentals and Enviro-Vat system rentals. Basic'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.  Basic  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 remediation 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 General Partner and the Partnership.  The Partnership complies
with  these  guidelines and the 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 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  General
Partner's  staff, the Partnership engages independent consultants  such  as
petroleum  engineers  and geologists as needed.  As of  December  31,  2001
there  were  89  individuals directly employed by the  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.

Basic'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, Basic owns and
leases  field  offices.   Additionally, Basic has field  offices  in  South
Texas, East Texas and Oklahoma.

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

<PAGE>
Basic  uses  its  well  servicing rigs to provide completion,  maintenance,
workover  and plugging and abandonment services.  Basic'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.  Basic'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.

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

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 2001 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 Basic 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
Basic will generate little, if any, current income.

The  General  Partner  has the right, but not the obligation,  to  purchase
limited  partnership units should an investor desire to sell.  The investor
must  give  written notice of intentions to dispose of their units  to  the
General   Partner  along  with  the  nature  and  terms  of  the   proposed
disposition.  The notice shall be deemed to constitute an offer to sell the
units  to  the General Partner.  The General Partner has 15 days  from  the
date of the offer to indicate in writing to the investor its decision as to
whether  it will purchase all or any of the offered units.  As of  December
31,  2001  the  General Partner purchased 0.15 limited  partner  units  for
$13,950.

Number of Limited Partner Interest Holders
As of December 31, 2001, there were 524 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 2001, no distributions were made.

<PAGE>

Item 6.   Selected Financial Data

The  following  selected financial data for the years  ended  December  31,
2001,  2000,  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
                                                                  through
                                  Years ended December 31,      December 31
                           ------------------------------------------------
-

                             2001     2000      1999       1998     1997
                             ----     ----      ----       ----     ----

Revenues              $     4,021   11,403     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   -        -          -(9,460,765)        -

Net loss                  (1,643) (63,169)(2,120,433)(14,702,959)(420,813)

Partners' share of net loss:

 General partner            (246)  (9,475)  (318,065)(2,195,181) (68,107)

 Limited partners         (1,397) (53,694)(1,802,368)(12,507,778)(352,706)

Limited partners' net
 loss per unit                (8)    (314)   (10,545)   (73,177)  (2,054)

Total assets          $   408,120  404,112    392,709  2,386,54517,081,587


<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 Basic Energy Services, 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, 2001, the Partnership owned a 6.32% interest in Basic,  which
is accounted for using the cost method of accounting.

Results of Operations
For the year ended December 31, 2001

Revenues
Revenues  consisted of interest income.  The surplus cash remaining  before
and  after  the  May  21,  2001 additional investment  in  Basic  generated
interest income of $4,021.

Expenses
Direct  expenses  totaled  $5,664 for the year,  relating  to  general  and
administrative.   General and administrative expenses  primarily  represent
independent accounting fees incurred to audit the Partnership.

Results of Operations
For the year ended December 31, 2000

Revenues
Revenues  consisted of interest income.  The surplus cash  remaining  after
the periodic investments in Basic generated interest income of $11,403.

Expenses
Direct  expenses  totaled  $74,572 for the year, relating  to  general  and
administrative.   General and administrative expenses represent  management
fees  paid  to  the  General  Partner for costs  incurred  to  operate  the
Partnership.  Effective July 31, 2000, the General Partner ceased to charge
the Partnership management fees.

<PAGE>


Revenue and Distribution Comparison

Partnership loss for the years ended December 31, 2001, 2000 and 1999  were
$1,643,  $63,169  and  $2,120,433, respectively.  Since  inception  of  the
Partnership, no cash distributions have been made to the partners.

Liquidity and Capital Resources

Cash  flows provided by operating activities were approximately  $4,008  in
2001  compared to $11,403 in 2000 and approximately $11,164 in  1999.   The
source of the 2001 cash flow from operating activities was interest income.

Cash  flows  used  in investing activities were approximately  $380,000  in
2001.   There  were no cash flows used in investing activities during  2000
and  1999.  The use of the 2001 cash flow from investing was the additional
investment in May 2001 of Basic stock.

There were no cash flows used in financing activities during 2001, 2000 and
1999.

The  Partnership  as of December 31, 2001 has negative working  capital  of
$317,638 and a payable to the General Partner of $341,643.  The Partnership
does not generate operating income and has no current means of settling the
liability to the General Partner, but believes the fair value of its assets
are sufficient to meet their current obligations if necessary.  The General
Partner,  should  it  become necessary, has agreed  to  either  extend  the
payment terms until the Partnership can comfortably pay the balance or make
other  mutually acceptable arrangements to settle the payable by  transfer,
sale or assignment of Partnership assets.

Liquidity - Investment in Subsidiary

Southwest Partners III consist entirely of an investment in Basic's  common
stock.   The  investment had been accounted for using  the  equity  method.
Based on the December 21, 2000 transaction discussed below, the Partnership
accounted for the investment using the cost method.  Southwest Partners III
no  longer  holds a 20% or more interest in Basic and exerts no significant
influence over Basic's operations.

On December 21, 2000, Basic entered into a refinancing and restructuring of
its  debt and equity.  Upon the signing of the documents, the Partnership's
percentage  of ownership was diluted from 44.94% to 10.57%.  A  new  equity
investor,  in  exchange  for  1,441,730 shares  of  Basic's  common  stock,
purchased  and  retired  $24.5 million of Basic's debt  from  its  previous
lender.  The equity investor received a 76% ownership.  Additionally, $10.5
million of the debt held by the previous lender was refinanced with  a  new
lender.   The  remaining debt held by the previous lender of  approximately
$21.7 million was cancelled.

Basic's new equity investor mentioned in the above paragraphs purchased  an
additional  576,709  shares, during the first part  of  the  year,  thereby
increasing their ownership from 76% to 81.6%.  As a result of the purchase,
the Partnership's ownership decreased at that time from 10.57% to 8.11%.

On  May  21,  2001,  Basic  issued a Notice to Stockholders  of  Preemptive
Rights.   The Partnership purchased an additional 19,000 shares  of  common
stock  at  $380,000.  The Partnership at December 31, 2001 owns a total  of
6.32%, or 219,500 shares of Basic's outstanding common stock.

Liquidity - General Partner

The  General  Partner has a highly leveraged capital structure  with  $50.0
million  and $123.7 million of principal due in August of 2003 and  October
of  2004, respectively.  The General Partner will incur approximately $17.6
million  in interest payments in 2002 on its debt obligations. Due  to  the
depressed commodity prices experienced during the last quarter of 2001, the
General  Partner  is experiencing difficulty in generating sufficient  cash
flow  to  meet  its  obligations and sustain its operations.   The  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  General  Partner  would
consider disposing of certain assets in order to meet its obligations.


<PAGE>
There  can  be  no assurance that the General Partner's debt  restructuring
efforts  will be successful or that the lenders will agree to a  course  of
action  consistent with the 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 General Partner.   Under  current
circumstances, the 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 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.   Upon  the
occurrence of any event of dissolution by the General Partner, the  holders
of  a  majority of limited partnership interests may, by written agreement,
elect  to  continue  the business of the Partnership in  the  Partnership's
name,  with Partnership property, in a reconstituted partnership under  the
terms  of  the  partnership agreement and to designate a successor  General
Partner.

Recent Accounting Pronouncements
In  June  1998,  the Financial Accounting Standards Board  ("FASB")  issued
Statement  of  Financial Accounting Standards ("SFAS") No.133,  "Accounting
for  Derivative  Instruments and Hedging Activities."   SFAS  No.  133,  as
amended by SFAS No. 138, establishes accounting and reporting standards for
derivative  instruments, including certain derivative instruments  embedded
in  other contracts and for hedging activities.  Assessment by the  General
Partner revealed this pronouncement to have no impact on the partnership.

The  FASB  has  issued Statement No. 143 "Accounting for  Asset  Retirement
Obligations" which establishes requirements for the accounting of  removal-
type  costs  associated with asset retirements.  The standard is  effective
for  fiscal  years beginning after June 15, 2002, with earlier  application
encouraged.   Assessment by the General Partner revealed this pronouncement
to have no impact on the partnership.

On  October 3, 2001, the FASB issued Statements No. 144 "Accounting for the
Impairment   or   Disposal  of  Long-Lived  Assets."   This   pronouncement
supercedes FAS 121 "Accounting for the Impairment of Long-Lived Assets  and
for  Long-Lived  Assets to Be Disposed" and eliminates the  requirement  of
Statement  121 to allocate goodwill to long-lived assets to be  tested  for
impairment.   The provisions of this statement are effective for  financial
statements issued for fiscal years beginning after December 15,  2001,  and
interim  periods  within  those  fiscal  years.   The  General  Partner  is
currently assessing the impact to the partnerships financial statements.

<PAGE>
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

The  Partnership  is  not a party to any derivative or embedded  derivative
instruments.


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

Basic Energy Services, Inc.

General
Basic 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.  Basic 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, 2001

Revenues
Basic's  revenues increased to $99.7 million, or 77%, for  the  year  ended
December 31, 2001 as compared to $56.5 million for the same period in 2000.
The  increase  was  primarily attributable to acquisitions  made  by  Basic
during 2001.

Expenses
Operating  expenses  increased $26.3 million, or 56%, for  the  year  ended
December  31, 2001 as compared to the same period for 2000.  The components
of  operating expenses consisted of increases in cost of revenues of  $22.2
million  and  general  and administrative increases of  $4.1  million.  The
increase  in operating and general and administrative expenses is a  result
of  the  acquisitions made by Basic during 2001.  Interest expense for  the
year  ended  December 31, 2001 decreased to $3.4 million from $6.9  million
for  the same period in 2000. The decrease for the year 2001 is due to  the
early extinguishment of debt.

In  addition the Company recorded stock based compensation in 2001 of  $1.4
million in relation to their EBITDA contingent warrants.

Results of Operations
For the year ended December 31, 2000

Revenues
Basic's  revenues increased to $56.5 million, or 52%, for  the  year  ended
December 31, 2000 as compared to $37.3 million for the same period in 1999.
The  increase  was primarily attributable to the increase in  oil  and  gas
prices, resulting in a rise in oilfield service activity.

Expenses
Operating  expenses  increased $11.8 million, or 34%, for  the  year  ended
December  31, 2000 as compared to the same period for 1999.  The components
of  operating expenses consisted of increases in cost of revenues of  $10.3
million  and  general  and administrative increases of  $1.5  million.  The
increase  in operating and general and administrative expenses is a  direct
reflection of the increase in oilfield service activity.  Interest  expense
for  the  year ended December 31, 2000 increased to $6.9 million from  $6.1
million for the same period in 1999.  The increase for the year 2000 is due
to  quarterly  escalating interest rates in effect per the credit  facility
with the previous lender.

<PAGE>
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 $14.1 million.

Net  Cash  Used  in  Investing Activities.  Cash flows  used  in  investing
activities totaled $60.2 million for the period, and consisted primarily of
payments for businesses and the purchase of property and equipment.

Net  Cash  Provided  by  Financing  Activities.   Cash  flows  provided  by
financing  activities  totaled $50.7 million for the period  and  consisted
primarily  of  borrowing under long-term debt and issuance of common  stock
largely offset by payments of long-term debt.

Liquidity - Investment by Investors

Southwest Partners III consist entirely of an investment in Basic's  common
stock.   The  investment had been accounted for using  the  equity  method.
Based on the December 21, 2000 transaction discussed below, the Partnership
accounted for the investment using the cost method.  Southwest Partners III
no  longer  holds a 20% or more interest in Basic and exerts no significant
influence over Basic's operations.

On December 21, 2000, Basic entered into a refinancing and restructuring of
its  debt and equity.  Upon the signing of the documents, the Partnership's
percentage  of ownership was diluted from 44.94% to 10.57%.  A  new  equity
investor,  in  exchange  for  1,441,730 shares  of  Basic's  common  stock,
purchased  and  retired  $24.5 million of Basic's debt  from  its  previous
lender.  The equity investor received a 76% ownership.  Additionally, $10.5
million of the debt held by the previous lender was refinanced with  a  new
lender.   The  remaining debt held by the previous lender of  approximately
$21.7 million was cancelled.

Basic's new equity investor mentioned in the above paragraphs purchased  an
additional  576,709  shares, during the first part  of  the  year,  thereby
increasing their ownership from 76% to 81.6%.  As a result of the purchase,
the Partnership's ownership decreased at that time from 10.57% to 8.11%.

On  May  21,  2001,  Basic  issued a Notice to Stockholders  of  Preemptive
Rights.   The Partnership purchased an additional 19,000 shares  of  common
stock  at  $380,000.  The Partnership at December 31, 2001 owns a total  of
6.32%, or 219,500 shares of Basic's outstanding common stock.

Critical Accounting Policies

The  Partnership used the cost method of accounting for its  investment  in
Basic  since December 21, 2000.  Prior to December 21, 2000 the Partnership
used  the  equity method of accounting for the investment.  Under the  cost
method  of  accounting  the  Partnership  recognizes  as  income  dividends
received  that are distributed from net accumulated earnings of an investee
subsequent  to the date of acquisition of the investment.  The  Partnership
would  recognize  a loss when there is a loss in value in  the  investment,
which  is  other than a temporary decline.  In its assessment of value  the
Partnership considers future cash flows either in the form of dividends  or
other distributions from the investee or from selling it's investment to an
unrelated party.

<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                                           19

<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, 2001 and 2000, 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, 2001.  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 auditing standards  generally
accepted in the United States of America.  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, 2001 and 2000 and the results of its operations and
its  cash  flows  for  each  of the years in the three  year  period  ended
December  31,  2001  in  conformity  with accounting  principles  generally
accepted in the United States of America.






                                                  KPMG LLP



Midland, Texas
March 10, 2002





<PAGE>



                       Southwest Partners III, L.P.
                     (a Delaware limited partnership)
                              Balance Sheets
                        December 31, 2001 and 2000


                                              2001              2000
                                              ----              ----
  Assets

Current asset:
 Cash and cash equivalents              $     28,120           404,112
                                                                 ----------
----------
                                         Total current assets           28,
120                                          404,112
                                                                 ----------
----------
Investment                                   380,000                 -
                                                                 ----------
----------
                                          Total  assets      $      408,120
404,112
                                                                 ==========
==========

  Liabilities and Partners' Equity

Current liabilities:
 Payable to General Partner             $    345,758           340,107
                                                                 ----------
----------

Partners' equity:
 General Partner                           (907,471)         (907,225)
 Limited partners                            969,833           971,230
                                                                 ----------
----------
                                         Total partners' equity         62,
362                                           64,005
                                                                 ----------
----------
                                                            $       408,120
404,112
                                                                 ==========
==========






























                  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, 2001, 2000 and 1999

                                         2001         2000          1999
                                         ----         ----          ----

  Revenues

Interest income                  $       4,021        11,403       11,164
                                                   ----------    ----------
----------
                                                        4,021        11,403
11,164
                                                   ----------    ----------
----------
  Expenses

General and administrative               5,664        74,572      126,597
Equity   loss   in   unconsolidated  subsidiary            -              -
2,005,000
                                                   ----------    ----------
----------
                                                        5,664        74,572
2,131,597
                                                   ----------    ----------
----------
Net loss                         $     (1,643)      (63,169)   (2,120,433)
                                                   ==========    ==========
==========
Net loss allocated to:

 General Partner                 $       (246)       (9,475)    (318,065)
                                                   ==========    ==========
==========
 Limited partners                $     (1,397)      (53,694)  (1,802,368)
                                                   ==========    ==========
==========
  Per limited partner unit       $         (8)         (314)     (10,545)
                                                   ==========    ==========
==========

































                  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, 2001, 2000 and 1999




                                  General     Limited
                                  Partner     Partners   Total
                                  --------    --------   -----

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

 Net loss                          (9,475)   (53,694)    (63,169)
                                            ---------  --------------------
Balance - December 31, 2000      (907,225)    971,230      64,005

 Net loss                            (246)    (1,397)     (1,643)
                                            ---------  --------------------
Balance - December 31, 2001     $(907,471)    969,833      62,362
                                            =========  ====================






































                  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, 2001, 2000 and 1999



                                         2001         2000        1999
                                         ----         ----        ----

Cash flows from operating activities:

  Paid to suppliers                 $      (13)            -           -
  Interest received                       4,021       11,403      11,164
                                                                 ----------
----------                          -----------
  Net cash provided by operating
                                     activities          4,008       11,403
11,164
                                                                 ----------
----------                          -----------

Cash flows from investing activities:

  Purchase of Basic Investment        (380,000)            -           -
                                                                 ----------
----------                          -----------

Net (decrease) increase in cash and cash
 equivalents                          (375,992)       11,403      11,164

 Beginning of period                    404,112      392,709     381,545
                                                                 ----------
----------                          -----------
 End of period                      $    28,120      404,112     392,709
                                                                 ==========
==========                          ===========

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

Net loss                            $   (1,643)     (63,169) (2,120,433)

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

  Undistributed loss of affiliate             -            -   2,005,000
  Increase in accounts payable            5,651       74,572     126,597
                                                                 ----------
-----------                         ----------
Net  cash  provided by operating activities     $        4,008       11,403
11,164
                                                                 ==========
===========                         ==========



















                  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  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 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

     Investment
     Investment in Basic Energy Services, Inc. in which the Partnership had
     a  6.32%  and  10.57%  interest at December  31,  2001  and  2000,  is
     accounted  for by the cost method.  Southwest Partners III  no  longer
     holds  a  20%  or  more  interest in Basic and exerts  no  significant
     influence   over  Basic's  operations.   Under  the  cost  method   of
     accounting  the  Partnership recognizes as income  dividends  received
     that  are  distributed from net accumulated earnings  of  an  investee
     subsequent  to  the  date  of  acquisition  of  the  investment.   The
     Partnership  would recognize a loss when there is a loss in  value  in
     the  investment,  which  is other than a temporary  decline.   In  its
     assessment of value the Partnership considers future cash flows either
     in  the form of dividends or other distributions from the investee  or
     from selling it's investment to an unrelated party.  Prior to December
     2000,  the  Partnership  accounted for the investment  on  the  equity
     method.

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

                      Notes to Financial Statements


2.   Summary of Significant Accounting Policies - continued

     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.

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

     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 $17,059,762 and  $17,075,550
     more,  as  of  December  31,  2001 and  2000  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, 2001, held by 524 partners.

     Concentrations of Credit Risk
     All  partnership  revenues are received by  the  General  Partner  and
     subsequently remitted to the partnership and all expenses are paid  by
     the 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 loss per limited partnership unit
     The  net loss per limited partnership unit is calculated by using  the
     number of outstanding limited partnership units.

     Recent Accounting Pronouncements
     In June 1998, the Financial Accounting Standards Board ("FASB") issued
     Statement   of   Financial  Accounting  Standards   ("SFAS")   No.133,
     "Accounting for Derivative Instruments and Hedging Activities."   SFAS
     No.  133,  as  amended  by  SFAS No. 138, establishes  accounting  and
     reporting  standards  for  derivative instruments,  including  certain
     derivative  instruments embedded in other contracts  and  for  hedging
     activities.    Assessment  by  the  General  Partner   revealed   this
     pronouncement to have no impact on the partnership.

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

                      Notes to Financial Statements

     Recent Accounting Pronouncements - continued
     The FASB has issued Statement No. 143 "Accounting for Asset Retirement
     Obligations"  which  establishes requirements for  the  accounting  of
     removal-type costs associated with asset retirements.  The standard is
     effective for fiscal years beginning after June 15, 2002, with earlier
     application  encouraged.  Assessment by the General  Partner  revealed
     this pronouncement to have no impact on the partnership.

     On October 3, 2001, the FASB issued Statements No. 144 "Accounting for
     the  Impairment or Disposal of Long-Lived Assets."  This pronouncement
     supercedes FAS 121 "Accounting for the Impairment of Long-Lived Assets
     and   for  Long-Lived  Assets  to  Be  Disposed"  and  eliminates  the
     requirement of Statement 121 to allocate goodwill to long-lived assets
     to  be  tested  for impairment.  The provisions of this statement  are
     effective  for financial statements issued for fiscal years  beginning
     after  December  15,  2001, and interim periods  within  those  fiscal
     years.   The General Partner is currently assessing the impact to  the
     partnerships financial statements.

3.   Liquidity - Partnership
     The  Partnership as of December 31, 2001 has negative working  capital
     of  $317,638  and a payable to the General Partner of  $341,643.   The
     Partnership  does  not generate operating income and  has  no  current
     means  of  settling the liability to the General Partner, but believes
     the  fair  value  of its assets are sufficient to meet  their  current
     obligations  if  necessary.   The General Partner,  should  it  become
     necessary,  has  agreed to either extend the payment terms  until  the
     Partnership  can  comfortably pay the balance or make  other  mutually
     acceptable  arrangements to settle the payable by  transfer,  sale  or
     assignment of Partnership assets.

4.   Liquidity - General Partner
     The  General  Partner  has a highly leveraged capital  structure  with
     $50.0  million and $123.7 million of principal due in August  of  2003
     and  October  of  2004, respectively. The General Partner  will  incur
     approximately $17.6 million in interest payments in 2002 on  its  debt
     obligations. Due to the depressed commodity prices experienced  during
     the  last  quarter  of  2001,  the  General  Partner  is  experiencing
     difficulty  in generating sufficient cash flow to meet its obligations
     and  sustain its operations. The 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 General Partner would consider disposing of  certain
     assets in order to meet its obligations.

     There   can   be   no  assurance  that  the  General  Partner's   debt
     restructuring  efforts  will be successful or that  the  lenders  will
     agree  to  a  course  of action consistent with the  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
     General  Partner.  Under current circumstances, the 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 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.
     Upon  the  occurrence  of  any  event of dissolution  by  the  General
     Partner,  the  holders of a majority of limited partnership  interests
     may,  by  written  agreement, elect to continue the  business  of  the
     Partnership in the Partnership's name, with Partnership property, in a
     reconstituted partnership under the terms of the partnership agreement
     and to designate a successor General Partner.

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

                      Notes to Financial Statements

5.   Investment
     Common stock ownership in Basic Energy Services, Inc. was as follows:

     December 31, 1997 to March 31, 1999                    45.89%
     March 31, to December 21, 2000                         44.94%
     December 21, 2000 to December 31, 2000                 10.57%
     January 1, 2001 to May 20, 2001             8.11%
     May 21, 2001 to December 31, 2001           6.32%

     Southwest  Partners III consist entirely of an investment  in  Basic's
     common  stock.  The investment had been accounted for using the equity
     method.   Based on the December 21, 2000 transaction discussed  below,
     the  Partnership accounted for the investment using the  cost  method.
     Southwest Partners III no longer holds a 20% or more interest in Basic
     and exerts no significant influence over Basic's operations.

     On   December   21,  2000,  Basic  entered  into  a  refinancing   and
     restructuring  of  its  debt and equity.   Upon  the  signing  of  the
     documents, the Partnership's percentage of ownership was diluted  from
     44.94%  to  10.57%.  A new equity investor, in exchange for  1,441,730
     shares of Basic's common stock, purchased and retired $24.5 million of
     Basic's debt from its previous lender.  The equity investor received a
     76%  ownership. Additionally, $10.5 million of the debt  held  by  the
     previous lender was refinanced with a new lender.  The remaining  debt
     held  by  the  previous  lender  of approximately  $21.7  million  was
     cancelled.

     Basic's   new  equity  investor  mentioned  in  the  above  paragraphs
     purchased an additional 576,709 shares, during the first part of 2001,
     thereby increasing their ownership from 76% to 81.6%.  As a result  of
     the  purchase, the Partnership's ownership decreased at that time from
     10.57% to 8.11%.

     On  May  21, 2001, Basic issued a Notice to Stockholders of Preemptive
     Rights.   The  Partnership purchased an additional  19,000  shares  of
     common stock at $380,000.  The Partnership at December 31, 2001 owns a
     total of 6.32%, or 219,500 shares of Basic's outstanding common stock.

     Following  is  a  summary  of the financial position  and  results  of
     operations  of  Basic Energy Services, Inc. as of and  for  the  years
     ended December 31, 2001, 2000 and 1999 (in thousands):
                                           2001       2000       1999

     Current assets                   $  28,872     13,283       8,971
     Property and equipment, net         78,019     32,780      31,186
      Other  assets,  net                               18,733        6,955
6,704
                                        -------     ------      ------
     Total assets                     $ 125,624     53,018      46,861
                                        =======     ======      ======
     Current liabilities              $  13,414     11,322       7,296
     Long-term debt                      45,258     15,390      50,371
     Deferred income taxes                8,186      5,052       2,224
                                        -------     ------      ------
                                      $  66,858     31,764      59,891
                                        =======     ======      ======
     Stockholders' equity             $  58,766     21,254    (13,030)
                                        =======     ======      ======
       Sales                                     $      99,709       56,466
37,331
                                        =======     ======      ======
      Net  income  (loss)                        $       6,311       13,849
(12,971)
                                        =======     ======      ======


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

                      Notes to Financial Statements

6.   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, 2001, 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.

7.   Related Party Transactions
     Southwest  Royalties, Inc., the General Partner, was paid a management
     fee  of $70,000 and $120,000 during 2000 and 1999 for indirect general
     and administrative expenses.  Effective July 2000, the General Partner
     ceased to charge the Partnership management fees.

     In  addition,  a  director and officer of the  General  Partner  is  a
     partner in a law firm, with such firm providing legal services to  the
     Partnership.   There  were approximately $1,000, none  and  $2,500  in
     legal  services provided for the years ended December 31,  2001,  2000
     and 1999.

     Accounts payable to the General Partner at December 31, 2001 and  2000
     totaled $345,758 and $340,107 and primarily represents management fees
     billed in previous years.

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

                      Notes to Financial Statements

7.  Selected Quarterly Financial Results - (unaudited)

                                                 Quarter
                              ----------------------------------------------
                                 First       Second    Third       Fourth
                                 ------     -------    ------      ------
  2001:
     Total revenues           $    2,425      1,419       104          73
     Total expenses                1,292      2,136     1,000       1,236
     Net income (loss)             1,133      (717)     (896)     (1,163)
     Net income (loss) per
      limited partner unit             6        (4)       (4)         (6)

  2000:
     Total revenues           $    2,805      2,825     2,876       2,897
     Total expenses               31,326     31,046    10,904       1,296
     Net income (loss)          (28,521)   (28,221)   (8,028)       1,601
     Net income (loss) per
      limited partner unit         (142)      (140)      (40)           8



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
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                      46
                                        Chairman of the Board, President,
                                        Chief Executive Officer, Treasurer
                                        and Director

H. Allen Corey              45          Secretary and Director

Bill E. Coggin                          47
                                        Vice  President and Chief Financial
                                        Officer

J. Steven Person            43          Vice President, Marketing

Paul L. Morris              60          Director

H.  H.  Wommack, III, is Chairman of the Board, President, Chief  Executive
Officer,  Treasurer, principal stockholder and a director  of  the  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 General Partner, has served as the 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  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 General Partner as National Marketing Director in 1989. Prior  to
joining  the  eneral  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 the Columbia Gas  System,
Inc.

<PAGE>

Key Employees

Jon  P. Tate, Vice President, Land and Assistant Secretary, age 44, assumed
his  responsibilities with the General Partner in 1989.  Prior  to  joining
the  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
American  Association of Petroleum Landmen.  Mr. Tate received  his  B.B.S.
degree from Hardin-Simmons University.

R.  Douglas  Keathley,  Vice President, Operations,  age  46,  assumed  his
responsibilities  with  the General Partner as  a  Production  Engineer  in
October  1992.   Prior  to joining the 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  General  Partner  do  not  receive  any  cash
compensation,  bonuses, deferred compensation or compensation  pursuant  to
any type of plan, from the Partnership.  The General Partner billed $70,000
during  2000  and  $120,000 during 1999, as an annual  administrative  fee.
Effective July 31, 2000, the General Partner ceased billing management fees
to the Partnership.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

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

Through  repurchase,  the General Partner also owns  0.15  limited  partner
units,  a  0.09% limited partner interest.  The General Partner owns  a  15
percent interest in the Partnership as a general partner.

No   officer  or  director  of  the  General  Partner  owns  Units  in  the
Partnership.  There are no arrangements known to the 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  2001, the General Partner received no administrative fees.  The General
Partner  ceased to charge the Partnership for administrative fees effective
July 31, 2000.

The  Partnership originally invested primarily all of the proceeds  of  the
Private Placement in 2,005 shares 45.9% of Basic common stock.  On May  21,
2001,  Basic  issued  a Notice to Stockholders of Preemptive  Rights.   The
Partnership  purchased  an  additional 19,000 shares  of  common  stock  at
$380,000.   The Partnership at December 31, 2001 owns a total of 6.32%,  or
219,500 shares of Basic'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 $1,000 legal fees for 2001.

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 Basic Energy Services,
                  Inc.

                  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).


          (b)     Reports on Form 8-K

                  There  were  no  reports filed on  Form  8-K  during  the
              quarter ended December 31, 2001.

<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.,

General Partner


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

H. H. Wommack, III, President


                          Date:  April 15, 2002


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 15, 2002


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


Date:  April 15, 2002

<PAGE>






















                        BASIC ENERGY SERVICES, INC.

                           Financial Statements

                        December 31, 2001 and 2000

                (With Independent Auditors' Report Thereon)

<PAGE>










                       INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Basic Energy Services, Inc.:

We  have  audited the accompanying balance sheets of Basic Energy Services,
Inc.  as  of  December  31, 2001 and 2000, and the  related  statements  of
operations,  stockholders' equity and cash flows for each of the  years  in
the  three-year period ended December 31, 2001. These financial  statements
are the responsibility of the Company's management.

We  conducted  our  audits in accordance with auditing standards  generally
accepted in the United States of America. 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 Basic Energy Services,
Inc.  as  of  December 31, 2001 and 2000, and the results of its operations
and  its  cash  flows for each of the years in the three-year period  ended
December  31,  2001,  in  conformity with accounting  principles  generally
accepted in the United States of America.

As described in Note 1 to the financial statements, effective July 1, 2001,
the  Company  adopted  the provisions of Statement of Financial  Accounting
Standards  ("SFAS") No. 141, Business Combinations, and certain  provisions
of SFAS No. 142, Goodwill and Other Intangible Assets.


                                        KPMG LLP


March 10, 2002

<PAGE>

                         BASIC ENERGY SERVICES, INC.
                         BALANCE SHEETS
                As of December 31, 2001 and 2000

                (in thousands, except share data)

                   ASSETS
                                              2001     2000
 Current assets
  Cash and cash equivalents                  $       $
                                             7,645   3,118
  Trade accounts receivable, net of
 allowance of    $565 and $531,
 respectively                                17,233  9,675
  Accounts receivable-related party
                                             82      14
  Income tax refund receivable
                                             2,471
  Inventories
                                             448     104
  Prepaids and other
                                             993     372
           Total current assets
                                             28,872  13,283
 Property and equipment, net
                                             78,019  32,780
 Other assets
  Deferred debt costs, net of amortization
 of $188   and $8 in 2001 and 2000,          2,054   1,151
 respectively
  Goodwill, net of amortization of $18,207
 and       $17,399 in 2001 and 2000,         14,905  4,873
 respectively
  Other                                        1,774     931
           Total other assets                          6,955
                                             18,733
 Total assets                                $125,62 $53,018
                                             4

                          LIABILITIES AND
            STOCKHOLDERS' EQUITY

 Current liabilities
   Current portion of long-term debt         $ 5,420 $
                                                     4,226
   Accounts payable                          3,197   3,594
   Accrued expenses                          4,616   2,390
   Deferred income                                   728
   Income tax payable                        181     200
   Deferred income tax                                   184
           Total current liabilities          13,414
                                                     11,322
 Long-term debt                              45,258  15,390

 Deferred income tax                         8,186   5,052
 Commitments & contingencies

 Stockholders' equity
   Common stock - $.01 par; 5,000,000
    shares authorized; 3,473,722 and
 1,897,013 and    shares issued and
 outstanding at December 31,     2001 and    35      19
 2000, respectively
   Additional paid-in capital                86,307  51,217
   Accumulated deficit                       (27,576 (29,982
                                             )       )
           Total stockholders' equity
                                             58,766  21,254
 Total liabilities and stockholders'         $       $ 53,01
 equity                                      125,624 8

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

<PAGE>


                   BASIC ENERGY SERVICES, INC.

                    STATEMENTS OF OPERATIONS
      For the years ended December 31, 2001, 2000 and 1999
                         (in thousands)

                                       2001
                                                2000     1999
 Revenues
   Well servicing                      $62,858  $37,784  $24,453
   Fluid servicing                     36,851   18,682   12,878
                                       99,709   56,466   37,331
 Expenses
   Operating expenses                  62,269   40,114   29,777
   General and administration,
 including         management fees
 and computer services from            10,813   6,683    5,229
 related parties of $43, $138, and
 $234,      respectively
   Depreciation and amortization       10,182   6,795    6,747
   Unsuccessful offering and                    2,073
 acquisition costs
  Stock-based compensation expense      1,401       _
                                                         _
                                       84,665   55,665   41,753
 Operating income (loss)               15,044     801    (4,422)
 Other income (expense)
   Interest income                        123      93      100
   Interest expense                    (3,426)  (6,930)  (6,065)
   Other, net                              26     167    (256)
                                       (3,277)  (6,670)  (6,221)
 Income (loss) before income taxes
 and extraordinary item                11,767   (5,869)  (10,643
                                                         )
  Provision for income tax (expense)            2,037    (2,328)
 benefit                               (4,491)
 Income (loss) before extraordinary    $  7,27  $(3,83   $(12,9
 item                                  6        2)       71)
  Extraordinary gain (loss) from
 early          extinguishments of
 debt, net of tax of $497   and            (96  17,681       -
 $4,434 in 2001 and 2000,              5)
 respectively
 Net income (loss)                     $6,311   $13,849  $(12,9
                                                         71)
   Preferred stock dividend                       645      430
 Net income (loss) to common
 stockholders' interest                $6,311   $13,204  $(13,4
         01)
1942:    1943:
 The accompanying notes are an integral part of these financial
                           statements.

<PAGE>
                           BASIC ENERGY SERVICES, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

              For the years ended December 31, 2001, 2000 and 1999
                        (in thousands, except share data)

  Series A                    Total
Series B   Series C
                                Addit            Stockhold
   Convertibl Convertib               ional              ers'
     le
  Paid-In Accum     Equity
   Preferred  Preferred  Common               ulated
 Stock      Stock
 Amo                                  Deficit  (deficit)
    s     Amou  Share unt  Sha  Amou  Shares Amou  Capita
       nt    s          res  nt           nt    l

 Balance
       -     -          -                     $4    $24,84  $(29,7   $
 December 31,1998
      -          -    -     437,07       5       85)      (4,936)
 1
 Stock
           -     -          -              9,106   -
 compensation
              -          -    -                                   _
 granted

   $1                      -
 issued
             00    1,000      1    $1    _                             5,002
 Preferred stock
     -                      -            (305)        _
 dividend _stock                -          -    -     _
 Preferred stock
 -     -          -                      -            (125)    (125)
 dividend _ cash                -          -    -     _
 Net loss
        -     -          -                      -            (12,971   (12,971)
 -    -     _  )
 Balance -
  530  $5,3  1,000 $     1   $            $4    $24,8   $(43,1   $
 December 31, 1999
 05          1         1     446,17       45      86)      (13,030)
 7

 Stock
          -     -    -          -    -           $1    $  -    $        $
 compensation
                 -               9,106                         1
 granted
 Preferred stock
 (1)  $(1)     -    _
 retired            )     50)   0)    (1)
                  4,001            (1,951)
 Exchange debt for
 common     stock       1,441,  14
  Costs related to
                730          24,486           24,500
  issuance of
  common stock
 Preferred stock     65   645         (2,115  (645)    (2,115)
  dividend - stock      )
    _
   Net income
  -     -          -                 -    -       -    13,849
 -          -    -    13,849

 Balance
           $           $         $     1,897, $19   $51,2   $(29,9   $
 December 31, 2000
     17      82)        21,254

  Common stock
  -   $ -         $-        $     1,576, $16   $29,78  $        $
 issued     -          -    -     709          4        29,800
  EBITDA

 contingent
    -     -          -                      -            (3,905)
 warrants
              -          -    -                  5,306            1,401
  (See Note 9)
  Net income
  -     -          -                      -            6,311
  -          -    -               6,311
2015:
 Balance -            -   $ -         $-        $     3,473  $35   $86,3
$(27,5   $
 December 31, 2001
     -    -     ,722         07      76)        58,766

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

                   BASIC ENERGY SERVICES, INC.

                    STATEMENTS OF CASH FLOWS
      For the years ended December 31, 2001, 2000 and 1999
                         (In thousands)

                                       2001
                                              2000     1999
 Cash flows from operating activities
   Net income (loss)                   $6,311 $13,84   $(12
                                              9        ,971)
   Depreciation                        8,933           5,494
                                              5,676
   Amortization                        1,249           1,253
                                              1,119
   Bad debt expense                       6             125
                                              113
   Noncash interest expense             584            2,494
                                              6,657
   Noncash compensation expense        1,401
   Gain (loss) on retirement of debt    767
   Write-off of unsuccessful offering         (22,11      -
 and             acquisition costs            5)

                                              2,073
   (Gain) loss on sale of assets       (10)             301
                                              (91)
   Deferred income tax expense         2,126           2,328
 (benefit)                                    2,397
   Changes in operating assets and
 liabilities, net    of acquisitions
 -                                     (7,33           (1,051)
      Accounts receivable              6)     (2,314
                                              )
      Inventories                       201              14
                                              40
      Other current assets             (606)             46
                                              (157)
      Accounts payable                 (630)           2,518
                                              (1,061
                                              )
      Deferred income                  (728)
                                              728
     Accrued expenses                  1,612            314
                                              442
     Deposits                           180
                                              (38)
 Net cash provided by operating        14,060           865
 activities                                   7,318
 Cash flows from investing activities
   Purchase of property and equipment  (15,2           (2,287)
                                       08)    (4,255
                                              )
   Proceeds from sale of property and                  1,210
 equipment                                    435
   Collections of notes receivable       56               3
                                              118
   Proceeds from sale of other long-                    205
 term assets
   Payments for other long-term        (167)           (101)
 assets
   Payments for businesses, net of     (44,9              -
 cash acquired                         28)    (80)
 Net cash used in investing            (60,2           (970)
 activities                            47)    (3,782
                                              )
 Cash flows from financing activities
   Borrowings under long-term debt     99,752             -
                                              15,988
   Payments of long-term debt          (76,5           (497)
                                       24)    (12,81
                                              6)
   Costs related to

 common stock                                 (1,540
                                              )
   Proceeds from common stock          29,800
 issuance

   Dividends paid                                      (125)
   Deferred loan costs and
 unsuccessful offering      and        (2,314          (1,057)
 acquisition costs                     )      (3,112
                                              )
 Net cash provided by (used in)
 financing            activities       50,714          (1,679)
                                              (1,480
                                              )
 Net increase (decrease) in cash and
 cash equivalents                      4,527           (1,784)
                                              2,056
   Cash and cash equivalents -         3,118           2,846
 beginning of year                            1,062
 Cash and cash
   $1,062
 year                                         3,118
 Supplemental disclosures of cash
 flow information                      $2,795 $        $5,106
   Interest paid                              273
 Supplemental schedule of noncash
 investing and financing activities -
   Capital leases issued for           3,894
 equipment                                    2,170    353
   Notes receivable-non cash              7
                                              138      83
   Preferred stock dividend
                                              645      305
   Transfer of debt for preferred
 stock                                                 5,002
   Accrued interest capitalized into
 long-term debt
1,614
   Common stock issued to retire debt
                                              24,500
   Note issued to retire all
 preferred stock                              2,500
   EBITDA common stock warrants         5,306
 issued
   Costs related to issuance of
 common stock                                 575

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

<PAGE>
1. Summary of Significant Accounting Policies

Organization  &  Business - Basic Energy Services,  Inc.  ("Basic"  or  the
"Company"),  a  Delaware  corporation, was formed  in  1992.   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 and Change of Name - On May 23, 2000, the Company  filed
a  restated certificate of incorporation changing its name to Basic  Energy
Services,  Inc. from Sierra Well Service, Inc.  On December 21,  2000,  the
Company  filed  a  restated  certificate  of  incorporation,  changing  its
authorized common shares to 5,000,000 and issuing a 100-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.

Fair  Value  of Financial Instruments- The carrying value amount  of  cash,
accounts receivable, accounts payable, and accrued liabilities approximates
fair value because the short maturity of these instruments.

The  carrying amount of long-term debt approximates fair value because  the
Company's  current  borrowing rate is based on a variable  market  rate  of
interest.

Inventories - Inventories, mainly consisting of rig supplies, 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.

Stock-Based   Compensation   -  The  Company   accounts   for   stock-based
compensation  using  the  intrinsic value method prescribed  by  Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB  25").  Accordingly, the Company has adopted the disclosure provision
of  Statement  of  Financial Accounting Standards No. 123, "Accounting  for
Stock-Based Compensation" ("SFAS 123").

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: