1

                    SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, DC  20549

                                 FORM 10-K

(Mark One)
X    Annual report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934
     For the Fiscal year ended December 31, 1999

     or

?    Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934
     For the transition period from __________ to _______________

     Commission file number:  000-23701

     SOUTHWEST ROYALTIES, INC.                  SOUTHWEST ROYALTIES
     (Exact Name of Registrant as               HOLDINGS, INC.
     Specified in Its Charter)                  (Exact Name of Registrant
as
                                                Specified in Its Charter)

     Delaware                                   Delaware
     (State or Other Jurisdiction of            (State or Other
Jurisdiction of
     Incorporation or Organization)             Incorporation or
     Organization)

     75-1917432                                 75-2724264
     (I.R.S. Employer Identification            (I.R.S. Employer
Identification
     Number)                                    Number)

     407 North Big Spring, Suite 300
     Midland, Texas                             79701
     (Address of Principal Executive            (Zip Code)
     Offices)

    Registrants' Telephone Number, Including Area Code:  (915) 686-9927

Securities to be registered pursuant to Section 12(b) of the Act:  None

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

                        10.5% Senior Notes due 2004
                             (Title of Class)

     Indicate  by check whether the registrant:  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the Securities Exchange  Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject  to
such filing requirements for the past 90 days.  Yes X  No
     Indicate  by check mark if disclosure of delinquent files pursuant  to
Item  405  of  Regulation  S-K 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

<PAGE>
     As of December 31, 1999, Southwest Royalties, Inc. had outstanding 100
shares  of common stock, $.10 par value, which is its only class of  stock.
As of December 31, 1999, Southwest Royalties Holdings, Inc. had outstanding
1,075,868  shares of common stock, $.10 par value, which is its only  class
of  stock.  The common stock of Southwest Royalties Holdings, Inc.  is  not
traded  on any exchange and, therefore, its aggregate market value and  the
value  of  shares held by nonaffiliates cannot be determined.  All  of  the
outstanding  shares  of  Southwest Royalties, Inc. are  held  by  Southwest
Royalties Holdings, Inc.

Documents Incorporated by Reference:  None
                             TABLE OF CONTENTS
                                                               Page Number

                                  PART I
Item 1.   Business                                                   3

Item 2.   Properties                                                19

Item 3.   Legal Proceedings                                         25

Item 4.   Submission of Matters to a Vote of Security Holders       25

                                  PART II
Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters                                       26

Item 6.   Selected Financial and Operating Data                     28

Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations                                     30

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk39

Item 8.   Financial Statements and Supplementary Data               41

Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure                                      73

                                 PART III
Item 10.  Directors and Executive Officers of the Registrant        74

Item 11.  Executive Compensation                                    76

Item 12.  Security Ownership of Certain Beneficial Owners and Management
77

Item 13.  Certain Relationships and Related Transactions            77

                                  PART IV
Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K
78


<PAGE>
     Parts  I  and II of this Report contain ''forward-looking statements''
within the meaning of Section 27A of the Securities Act of 1933, as amended
(the  "Securities Act") and Section 21E of the Securities Exchange  Act  of
1934,  as  amended  (the  "Exchange  Act").   All  statements  other   than
statements of historical facts included in this Report, including,  without
limitation, statements in "Item 1. Business" and under "Item 2. Properties"
and  "Item  7. Management's Discussion and Analysis of Financial  Condition
and  Results of Operations" regarding proved reserves, estimated future net
reserves,  present  values,  planned capital  expenditures  (including  the
amount and nature thereof), increases in oil and gas production, the number
of  wells  anticipated to be drilled and the Company's financial  position,
business strategy and other plans and objective for future operations,  are
forward-looking  statements.  Although  the  Company  believes   that   the
expectations  reflected in such forward-looking statements are  reasonable,
there  can be no assurance that the results or developments anticipated  by
the  Company will be realized or, even if substantially realized, that they
will  have  the  expected consequences to or effects  on  its  business  or
operations.  There are numerous risks and uncertainties that can affect the
outcome  and  timing  of  such events, including many  factors  beyond  the
control of the Company.

     All   subsequent   written   and  oral  forward   looking   statements
attributable  to the Company or persons acting on its behalf are  expressly
qualified  in  their  entirety  by such factors.  The  Company  assumes  no
obligation to update any such forward-looking statements.

                                  PART I

     Certain oil and gas terms used in this report are defined under "Item
1. Business - Glossary of Oil and Gas Terms."

ITEM 1.  BUSINESS.

The Company

     Southwest  Royalties  Holdings, Inc. ("SRH"), a Delaware  corporation,
was  formed  in 1997 to serve as a holding company for Southwest Royalties,
Inc.  ("Southwest"), Sierra Well Service, Inc. ("Sierra") and  Midland  Red
Oak  Realty,  Inc. ("Red Oak").  SRH is an independent oil and gas  company
engaged  in  the  acquisition, development and production of  oil  and  gas
properties,  primarily in the Permian Basin of West Texas and  southeastern
New  Mexico, through its wholly-owned subsidiary, Southwest.   Since  1983,
Southwest  has grown primarily through selective acquisitions of  producing
oil  and  gas  properties,  both directly  and  through  the  oil  and  gas
partnerships  it  manages.  SRH also participates  in  the  well  servicing
industry  through its affiliate, Sierra, and owns and manages  real  estate
properties through its subsidiary, Red Oak.  References in this  report  to
the  "Company"  are  to  SRH and its consolidated  subsidiaries,  including
Southwest and Red Oak, and Sierra, an unconsolidated affiliate.

     The  principal  operating subsidiary of SRH is Southwest,  a  Delaware
corporation  that  was formed in 1983 to acquire and develop  oil  and  gas
properties.  Southwest initially financed the acquisition of  oil  and  gas
reserves  and  its exploration and development efforts through  public  and
private  limited partnership offerings.  Southwest is a general partner  of
these  limited  partnerships,  owns interests  in  these  partnerships  and
receives  management  fees  and operating cost  reimbursements  from  these
partnerships.   As of December 31, 1999, Southwest had total estimated  net
proved  reserves  of  24.8  MMBbls of oil and  65.1  Bcf  of  natural  gas,
aggregating  35.7 MMBoe, with a PV-10 Value of $228.7 million.  Southwest's
primary  operations are in the Permian Basin of West Texas and southeastern
New Mexico.

     Red  Oak, a Delaware corporation, was formed in 1992 to own and manage
commercial  real estate properties, including shopping centers  and  office
buildings,  in  secondary  real estate markets in the  southwestern  United
States.   As  of December 31, 1999, Red Oak owned and managed 21 commercial
real estate properties.  SRH owns approximately 81% of the common stock  of
Red Oak on a diluted basis.

<PAGE>
     Sierra,  a Delaware corporation, was formed in 1992 to provide certain
well services for oil and gas companies.  Sierra provides a broad range  of
well  services  to oil and gas companies, including workover rig  services,
liquids  handling and other services.  As of December 31, 1999, the Company
directly  owns  approximately  28%  of  the  common  stock  of  Sierra  and
indirectly owns an additional 11% interest through Southwest, which is  the
general  partner  and 15% interest holder in each of two partnerships  that
own  approximately  69%  of  the  common  stock  of  Sierra.   A  Financial
Institution  owns  preferred stock in Sierra, which  can  be  converted  to
common  stock  at  the  Financial Institutions option.   If  the  Financial
Institution  elects  to convert its preferred stock to  common  stock,  the
Companys  direct ownership would decrease to 20% and its indirect ownership
would  decrease to 7%.  The conversion percentage increases  over  time  as
long  as  the related debt remains outstanding. As of July 1, 1997,  Sierra
was  deconsolidated  from SRH and is currently being accounted  for  as  an
equity investment.

     Southwest  has  three subsidiaries, Midland Southwest  Software,  Inc.
("MSS"),  Threading  Products International, LLC  ("TPI"),  and  Blue  Heel
Company  ("Blue  Heel").  Southwest Software creates and  markets  computer
software  to  the oil and gas industry and provides all information  system
services  as  well  as  hardware  maintenance  and  technical  support  for
Southwest and Sierra through contractual agreements.  TPI produces  inserts
used  to  cut  threads  by manufacturers of threaded  products.   Effective
November  1999, TPI was liquidated. Blue Heel holds a nominal  interest  in
certain oil and gas properties owned by Southwest.

     Red  Oak  has  seven wholly-owned subsidiaries, MRO  Properties,  Inc.
("MROP"),  MRO  Management, Inc. ("MRO Management"), MRO  Commercial,  Inc.
("MRO Commercial"), MRO N Cross, Inc. ("Northcross"), MRO La Placita,  Inc.
("La  Placita"), MRO Madera, Inc. ("Madera") and MRO Southwest, Inc.  ("MRO
Southwest").  MROP, MRO Commercial, Northcross, La Placita, Madera and  MRO
Southwest  each hold titles to certain real estate properties and  are  the
borrowers  under  the credit agreements related to such properties.   These
credit  agreements  are non-recourse to Red Oak.  MRO  Management  performs
real  estate  management  services  for  Red  Oak,  MROP,  MRO  Commercial,
Northcross, La Placita, Madera, MRO Southwest and for third party clients.

     Both  Sierra  and  Red  Oak  are operated separately  from  Southwest;
however,   Southwest  has  historically  provided  both  with   significant
administrative and accounting support. Under the terms of separate  service
agreements,  Southwest  provided Sierra and  Red  Oak  with  administrative
services including accounting, bookkeeping, tax preparation and banking and
disbursement  services. Both agreements had an initial term of  five  years
and  renewed  from  year to year if not terminated. Under  each  agreement,
Southwest  received a fixed fee of $12,000 per month.  These  fees  may  be
adjusted  at any time by agreement of the parties.  The service  agreements
may  be  terminated upon 30 days' notice by either party to the agreements.
As  of  December  31,  1999, both Sierra and Red Oak have  cancelled  these
service agreements.

     The Company's principal executive offices are located at 407 North Big
Spring, Suite 300, Midland, Texas 79701. The Company's telephone number  is
(915) 686-9927.

Operating Strategy

     Funding  for  the Company's business activities has historically  been
provided  by  operating  cash  flows, bank borrowings  and  debt  issuance,
reserve-based   financing  and  sales  of  equity.   Any   future   capital
expenditures  or acquisitions will require additional equity  or  financing
and  will  be dependent upon financing arrangements available at the  time.
The  significant decrease in oil and gas prices experienced during the last
quarter  of 1997 and extending through the first half of 1999, has severely
limited  cash  flow from operations, depleted working capital and  rendered
most  other  financing  sources  unavailable,  or  if  available,  on  very
unattractive  terms  to  the Company.  Based on current  commodity  prices,
production,  rent revenues and its highly leveraged position,  the  Company
probably  will not be able to meet operating and debt obligations  in  2000
and beyond.

<PAGE>
     Management  is constantly monitoring the Company's cash  position  and
its  ability to meet its financial obligations as they become due,  and  in
this effort, is exploring various strategies for addressing its current and
future liquidity needs.  During 1999 and 1998, for instance, Southwest sold
$5.6  million and $5.7 million, respectively, of oil and gas properties  in
an  ongoing  effort to decrease its production costs and improve  its  cash
position  and also negotiated a $50 million revolving line of  credit  with
BankOne Texas, N.A. the proceeds of which were used to purchase in December
1999 and January 2000, approximately $76.3 million of the 10.5% Senior Note
due  2004.   As of December 31, 1999, SRH's consolidated cash  balance  was
$27.0 million, of which $21.4 million was available to Southwest.

     In  response  to the Company's highly leveraged capital structure  and
its  limited  working  capital, the Company  is  tentatively  budgeting  $8
million in capital expenditures in its oil and gas business for 2000.   The
$8  million  capital expenditure budget is for development  projects.   The
final  budget will depend on financial strategies that are currently  being
developed including hedging strategies, divestitures and company structure.
The  budget  will  also be affected by the volatility of the  oil  and  gas
commodity  prices.  Further revisions may be necessary during the  year  in
response to market conditions and any restructuring which can be negotiated
by the Company.

     The  Company  concentrates its oil and gas activities in  the  Permian
Basin  of West Texas and southeastern New Mexico, with properties  in  this
region  representing over 90% of the Company's PV-10 Value at December  31,
1999.   The Company believes that its long-life oil and gas properties  and
large inventory of development projects in the Permian Basin, coupled  with
region-specific geological, engineering and production experience,  provide
it   with   focused   operations.  Company-operated  properties   comprised
approximately  78%  of  its  PV-10 Value at  December  31,  1999,  allowing
substantial control over the incurrence and timing of capital and operating
expenditures.

     The  Company  hopes  to  continue the expansion  of  its  real  estate
business,  primarily  in  the  southwestern United  States.   However,  the
expansion  will  depend,  to  a  large  extent  on  Red  Oak's  ability  to
restructure its current debt, or sell equity to reduce its highly leveraged
capital   structure.    Red   Oak  is  currently   experiencing   financial
difficulties and is having problems meeting its operating and debt  service
obligations  as  they  become due.  Red Oak's financial  difficulties  stem
largely  from lagging rents, non-cash producing leveraged assets,  and  its
highly  leveraged capital structure in general.  The Company  expects  that
Red  Oak's active management practices will lead to consolidation benefits,
cost  savings, more efficient utilization and improved cash flow,  thereby,
lessening its financial difficulties.

Southwest

     General.   Since inception, the Company has focused on increasing  its
reserves  and  average daily production of oil and gas through acquisitions
of producing properties and development drilling and production enhancement
activities.   However, due to the severe depression experienced  throughout
the  oil  and  gas industry which started in the last quarter of  1997  and
extended  through  the  first  half of 1999, the  Company  is  experiencing
financial   difficulties  in  servicing  it's  highly   leveraged   capital
structure, and therefore, is limited in its ability to make acquisitions or
participate   in   developmental  drilling   and   production   enhancement
activities.

     Private  Placement.  On October 14, 1997, Southwest completed  a  $200
million private placement of 10.5% Senior Notes due 2004, Series A ("Series
A  Notes")  pursuant  to  Rule  144A of the Securities  Act  (the  "Private
Placement").  Thereupon, the Series A Notes were offered and  sold  by  the
underwriters only to qualified institutional buyers.  The net proceeds from
the  Private Placement were approximately $190 million.  Proceeds from  the
Offering were used to among other things, provide approximately $72 million
for  an  oil and gas acquisition and approximately $22 million for  working
capital.   The  Series A Notes were issued pursuant to an indenture,  dated
October 14, 1997 (the "Indenture"), by and among Southwest, as Issuer, SRH,
as  the Parent Guarantor, and State Street Bank and Trust Company, N.A., as
Trustee (the "Trustee").

<PAGE>
     Exchange  Offer.  On March 11, 1998, Southwest concluded a  registered
offering to exchange the Series A Notes for 10.5% Series B Senior Notes due
2004,  which  had been registered under the Securities Act ("Notes").   The
form  and terms of the Notes are identical in all material respects to  the
form and terms of the Series A Notes.  The Notes evidence the same debt  as
the  Series A Notes and were issued under and are entitled to the  benefits
of the Indenture governing the Series A Notes.

     An  integral part of Southwest's 1997 business strategy in conjunction
with the 10.5% Senior note issuance, involved the successful investment  of
the  approximately $27 million of additional working capital into both  the
development and exploitation of its existing oil and gas properties and the
possible acquisition of additional producing oil and gas properties. It was
imperative  to  increase production volumes to meet the ongoing  cash  flow
needs  and  requirements of the Company.  Southwest  had  made  substantial
capital  expenditures of $16.7 million and $32.1 million for 1996 and  1995
respectively  and had budgeted additional capital spending of approximately
$45  million for the remainder of 1997 and 1998.  Management believed  that
the  successful  investment of the additional working  capital  would  have
increased production levels thereby supplying additional cash flow  to  the
Company  to  meet  requirements and continue  to  fund  additional  capital
expenditure projects.

     In  the  last  quarter of 1997, oil and gas prices  began  a  dramatic
decrease  that continued throughout the first half of 1999.   In  response,
early  in  1998,  Southwest implemented an alternate  budget  that  limited
capital  investment into the planned developmental and acquisition projects
and  eventually  suspended almost all investment  as  prices  continued  to
decrease and remained depressed.

     Throughout  1998 and 1999, Southwest continually reduced  expenditures
including   corporate  general  and  administrative  and  lease   operating
expenses.  General and administrative expenses decreased 40% from  1998  to
1999  and 26% from 1997 to 1998.  The average oil and gas operating expense
was  $5.22/Boe in 1999, a decrease from $7.03/Boe in 1998.  Southwest  also
initiated and completed $5.6 and $5.7 million in sales of non-strategic and
relatively high cost oil and gas properties in 1999 and 1998, respectively,
to effectively expand margins and increase efficiencies.

     The  harsh  decline in commodity pricing experienced  by  the  Company
throughout  1998  and the first half of 1999, has had a  double  impact  on
Southwest's cash flow by severely reducing proceeds associated with current
production  levels  and  reducing Southwest's investment  into  undeveloped
reserves.   The inability to replace the existing, depleting  reserve  base
ultimately and systematically creates lower revenues and margins.

     As  net  revenues  fell  due  to declining price  and  production,  an
increasingly  larger portion of the Company's cash flow  was  necessary  to
meet  debt  interest expense.  As prices remained depressed,  the  existing
cash  balance  was  depleted  in an effort to meet  current  debt  interest
requirements.

     As   opposed  to  the  originally  budgeted  $45  million  of  capital
investment,  only  approximately $10 million was invested for  development,
exploration, and acquisitions in 1998 with only $3.7 million being invested
in  1999.   Without the ability to follow the original investment  strategy
and  thereby  increase production, Southwest's cash flow will  probably  be
inadequate to meet its needs and requirements in 2000 and beyond.

     Drilling  Activities.  The Company has historically complemented  it's
oil and gas reserves, production and cash flow by concentrating on drilling
low-risk   development  wells  and  by  conducting  additional  development
activities  such  as  recompletions.  During  1999,  the  Company  invested
approximately  $3.2 million on developmental activity as compared  to  $7.9
million in 1998.

     Exploratory  Activities.   The  Company  decreased  its  spending  for
exploratory  activities  from  $834,000  in  1998  to  $76,000   in   1999.
Exploratory drilling involves greater risks of dry holes or failure to find
commercial quantities of hydrocarbons than development drilling or enhanced
recovery activities.  See "Item 1. - Operating Hazards and Risks."


<PAGE>
Red Oak

     Red  Oak  was  formed  by the Company in 1992 to  acquire  and  manage
neighborhood  and community shopping centers, other retail  and  commercial
properties and office buildings. These properties are primarily leased,  on
a long-term basis, to major retail companies, local specialty retailers and
professional and business tenants throughout secondary urban markets in the
southwestern  United States.  As of December 31, 1999, Red  Oak  owned  and
managed  fifteen shopping centers, six office buildings and raw  land  held
for future development.

     Red  Oak's primary objective has historically been to acquire, own and
manage  a  portfolio of commercial properties that provides opportunity  to
increase   net   operating  income  and  results  in  significant   capital
appreciation.   Consistent  with  this  strategy,  Red  Oak   focused   its
activities  primarily  in  secondary markets  in  the  southwestern  United
States,  including San Antonio, Austin, Abilene, Midland  and  San  Angelo,
Texas; Tucson, Arizona; and Tulsa and Oklahoma City, Oklahoma.

     From  December  1993 through December 31, 1999, Red Oak completed  the
acquisition of fifteen regional shopping centers and eight office buildings
for a total acquisition cost of $129.4 million.

     Red Oak is currently experiencing financial difficulties.  Red Oak has
generated losses for the years ended December 31, 1999, 1998 and  1997  and
is  experiencing difficulties in meeting its obligations when  they  become
due.   The  capital  structure  of Red Oak is highly  leveraged  with  $5.2
million  and  $14.8  million  of  principal  and  cash  interest  payments,
respectively,  due  in 2000.  Management is currently  in  the  process  of
renegotiating the terms of Red Oak's various obligations with  its  lenders
and/or  seeking new lenders or equity investors.  Additionally,  management
would   consider  disposing  of  certain  assets  in  order  to  meet   its
obligations.

Employees

     As  of  December 31, 1999, the Company employed 229 people.   Of  this
total,  97  people  were employed by Southwest and 132  by  Red  Oak.   The
Company's  future success will depend partially on its ability to  attract,
retain  and motivate qualified personnel in spite of its current  financial
difficulties.   The  Company  is not a party to any  collective  bargaining
agreements  and  has  not experienced any strikes or work  stoppages.   The
Company considers its relations with its employees to be satisfactory.

Competition

     The  oil and natural gas industry is highly competitive. The Company's
oil  and  gas business competes for the acquisition of oil and natural  gas
properties,  primarily  on  the basis of the price  to  be  paid  for  such
properties,  with  numerous entities including major oil  companies,  other
independent  oil  and  natural gas concerns and  individual  producers  and
operators. Many of these competitors are large, well established  companies
and have financial and other resources substantially greater than those  of
the Company.

     The Company's ability to acquire additional oil and gas properties and
to  discover  reserves  in  the future will  depend  upon  its  ability  to
restructure debt facilities and/or procure non-recourse funding as well  as
its  ability  to evaluate and select suitable properties and to  consummate
transactions  in  a  highly competitive environment.   The  Company's  real
estate  business also competes for the acquisition of desirable  commercial
real estate properties, primarily on the basis of price.

Operating Hazards and Risks

     The  oil  and  natural  gas business involves a variety  of  operating
risks,  including  the risk of fire, explosions, blow outs,  pipe  failure,
abnormally  pressured  formations and environmental  hazards  such  as  oil
spills,  gas  leaks, ruptures or discharges of toxic gases.  Any  of  these
occurrences could result in substantial losses to the Company due to injury
or  loss  of  life,  severe damage to or destruction of  property,  natural
resources  and  equipment, environmental damage, clean-up responsibilities,
regulatory investigation and penalties and suspension of operations.

<PAGE>
     Drilling activities are subject to many risks, including the risk that
no  commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or  that
the Company will recover all or any portion of its investment. Drilling for
oil  and gas may involve unprofitable efforts, not only from dry wells, but
from  wells that are productive but do not produce sufficient net  revenues
to  return a profit after drilling, operating or other costs. The  cost  of
drilling,  completing and operating wells is often uncertain. The Company's
drilling  operations may be curtailed, delayed or canceled as a  result  of
numerous factors, many of which are beyond the Company's control, including
title  problems,  weather conditions, mechanical problems, compliance  with
governmental  requirements  and shortages and delays  in  the  delivery  of
equipment and services. The Company's future drilling activities may not be
successful  and, if unsuccessful, such failure may have a material  adverse
effect  on  the  Company's  future  results  of  operations  and  financial
condition.

     Although  the  Company maintains insurance coverage considered  to  be
customary  in  each  industry in which it participates,  it  is  not  fully
insured against certain risks, either because insurance is not available or
because  of  the  high  premium costs. The Company's real  estate  business
carries business interruption insurance. The Company does maintain physical
damage,  employer's liability, comprehensive commercial  general  liability
and  workers'  compensation insurance. There can be no assurance  that  any
insurance  obtained by the Company will be adequate to cover any losses  or
liabilities,  or  that  such insurance will continue  to  be  available  or
available on terms which are acceptable to the Company.

Regulation

     General.  Various  aspects  of  the  Company's  oil  and  natural  gas
operations are subject to extensive and continually changing regulation, as
legislation  affecting the oil and natural gas industry is  under  constant
review for amendment or expansion. Numerous departments and agencies,  both
federal  and  state, are authorized by statute to issue, and  have  issued,
rules and regulations binding upon the oil and natural gas industry and its
individual  members.  The  Federal Energy  Regulatory  Commission  ("FERC")
regulates  the  transportation  and sale  for  resale  of  natural  gas  in
interstate commerce pursuant to the Natural Gas Act of 1938 ("NGA") and the
Natural  Gas  Policy  Act  of  1978 ("NGPA").  In  the  past,  the  Federal
government has regulated the prices at which oil and natural gas  could  be
sold.  While sales by producers of natural gas and all sales of crude  oil,
condensate  and  natural gas liquids can currently be made at  uncontrolled
market  prices,  Congress  could  reenact price  controls  in  the  future.
Deregulation of wellhead sales in the natural gas industry began  with  the
enactment  of the NGPA in 1978. In 1989, Congress enacted the  Natural  Gas
Wellhead Decontrol Act (the "Decontrol Act"). The Decontrol Act removed all
remaining NGA and NGPA price and nonprice controls affecting wellhead sales
of natural gas effective January 1, 1993.

     Regulation  of Sales and Transportation of Natural Gas. The  Company's
sales  of natural gas are affected by the availability, terms and  cost  of
transportation.  The price and terms for access to pipeline  transportation
are  subject  to  extensive  regulation. In  recent  years,  the  FERC  has
undertaken  various initiatives to increase competition within the  natural
gas industry. As a result of initiatives like FERC Order No. 636, issued in
April  1992, the interstate natural gas transportation and marketing system
has   been  substantially  restructured  to  remove  various  barriers  and
practices  that  historically  limited non-pipeline  natural  gas  sellers,
including  producers, from effectively competing with interstate  pipelines
for  sales  to  local  distribution  companies  and  large  industrial  and
commercial  customers. The most significant provisions  of  Order  No.  636
require   that   interstate  pipelines  provide  firm   and   interruptible
transportation  service  on an open access basis  that  is  equal  for  all
natural  gas supplies. In many instances, the results of Order No. 636  and
related  initiatives  have been to substantially reduce  or  eliminate  the
interstate  pipelines' traditional role as wholesalers of  natural  gas  in
favor  of  providing  only storage and transportation services.  While  the
United  States  Court of Appeals upheld most of Order No.  636  last  year,
certain   related   FERC   orders,  including   the   individual   pipeline
restructuring proceedings, are still subject to judicial review and may  be
reversed  or  remanded  in whole or in part. While  the  outcome  of  these
proceedings  cannot  be  predicted with certainty,  the  Company  does  not
believe   that  it  will  be  affected  materially  differently  than   its
competitors.


<PAGE>
     The  FERC  has also announced several important transportation-related
policy  statements  and  proposed rule changes, including  a  statement  of
policy   and  a  request  for  comments  concerning  alternatives  to   its
traditional cost-of-service rate making methodology to establish the  rates
interstate  pipelines may charge for their services. A number of  pipelines
have  obtained FERC authorization to charge negotiated rates  as  one  such
alternative.  In  February 1997, the FERC announced a  broad  inquiry  into
issues  facing the natural gas industry to assist the FERC in  establishing
regulatory  goals  and  priorities in the post-Order No.  636  environment.
Similarly, the Texas Railroad Commission has been reviewing changes to  its
regulations  governing transportation and gathering  services  provided  by
intrastate  pipelines and gatherers. While the changes being considered  by
these   federal  and  state  regulators  would  affect  the  Company   only
indirectly, they are intended to further enhance competition in natural gas
markets.  The Company cannot predict what further action the FERC or  state
regulators  will  take  on these matters, however,  the  Company  does  not
believe that it will be affected by any action taken materially differently
than other natural gas producers with which it competes.

     Additional proposals and proceedings that might affect the natural gas
industry are pending before Congress, the FERC, state commissions  and  the
courts.  The  natural  gas  industry historically  has  been  very  heavily
regulated;  therefore,  there  is  no assurance  that  the  less  stringent
regulatory  approach  recently  pursued  by  the  FERC  and  Congress  will
continue.

     Oil  Price  Controls  and Transportation Rates. Sales  of  crude  oil,
condensate  and gas liquids by the Company are not currently regulated  and
are made at market prices. The price the Company receives from the sale  of
these products may be affected by the cost of transporting the products  to
market.

     Environmental. Extensive federal, state and local laws regulating  the
discharge  of materials into the environment or otherwise relating  to  the
protection  of  the  environment affect Southwest's  oil  and  natural  gas
operations.   Numerous governmental departments issue rules and regulations
to implement and enforce such laws, which are often difficult and costly to
comply  with and which carry substantial civil and even criminal  penalties
for  failure  to  comply.  Some  laws, rules and  regulations  relating  to
protection of the environment may, in certain circumstances, impose  strict
liability  for environmental contamination, rendering a person  liable  for
environmental  damages and cleanup costs without regard  to  negligence  or
fault  on  the  part of such person. Other laws, rules and regulations  may
restrict  the  rate of oil and natural gas production below the  rate  that
would   otherwise  exist  or  even  prohibit  exploration  and   production
activities  in  sensitive  areas. In addition,  state  laws  often  require
various  forms of remedial action to prevent pollution, such as closure  of
inactive pits and plugging of abandoned wells. The regulatory burden on the
oil and natural gas industry increases the Company's cost of doing business
and consequently affects the Company's profitability.  The Company believes
that  it is in substantial compliance with current applicable environmental
laws   and   regulations  and  that  continued  compliance  with   existing
requirements  will  not  have a material adverse impact  on  the  Company's
operations.  However, environmental laws and regulations have been  subject
to  frequent  changes over the years, and the imposition of more  stringent
requirements  could  have  a  material  adverse  effect  upon  the  capital
expenditures, earnings or competitive position of the Company.

     In  addition, Red Oak's real estate management activities are  subject
to  federal,  state  and  local laws, rules and regulations  pertaining  to
protection  of the environment which may, in certain circumstances,  impose
strict  liability for environmental contamination, thus rendering  Red  Oak
liable  for  environmental damages and clean up  costs  without  regard  to
negligence  or fault on the part of Red Oak. Asbestos-containing  materials
may  be present at Red Oak's real estate holdings, which may dictate costly
remediation to abate asbestos or which may increase the cost of renovations
to  property  when they become necessary. Further, activities  on  adjacent
properties,  such  as  dry  cleaning, gasoline  retailing,  and  automobile
maintenance,  may  result in subsurface soil and groundwater  contamination
that  could impair Red Oak's use or sale of real estate holdings  or  cause
Red  Oak to incur costs to remediate any contamination caused by activities
of lessors or adjacent properties.


<PAGE>
     The  Comprehensive Environmental Response, Compensation and  Liability
Act  ("CERCLA")  imposes  liability, without regard  to  fault  on  certain
classes of persons that are considered to be responsible for the release of
a  "hazardous  substance" into the environment. These persons  include  the
current or former owner or operator of the disposal site or sites where the
release  occurred and companies that disposed or arranged for the  disposal
of  hazardous substances. Under CERCLA such persons may be subject to joint
and  several  liability  for  the costs of investigating  and  cleaning  up
hazardous  substances  that have been released into  the  environment,  for
damages  to natural resources and for the costs of certain health  studies.
In  addition, companies that incur liability frequently also confront third
party  claims  because  it is not uncommon for neighboring  landowners  and
other  third parties to file claims for personal injury and property damage
allegedly caused by hazardous substances or other pollutants released  into
the environment from a polluted site.

     The  Federal  Solid  Waste Disposal Act, as amended  by  the  Resource
Conservation  and Recovery Act of 1976 ("RCRA"), regulates the  generation,
transportation, storage, treatment and disposal of hazardous wastes and can
require  cleanup of hazardous waste disposal sites. RCRA currently excludes
drilling  fluids,  produced  waters and other wastes  associated  with  the
exploration,  development  or  production  of  oil  and  natural  gas  from
regulation  as "hazardous waste."  Disposal of such non-hazardous  oil  and
natural  gas  exploration, development and production  wastes  usually  are
regulated  by state law. Other wastes handled at exploration and production
sites  or used in the course of providing well services may not fall within
this  exclusion.  Moreover,  stricter  standards  for  waste  handling  and
disposal may be imposed on the oil and natural gas industry in the  future.
From time to time legislation is proposed in Congress that would revoke  or
alter  the  current  exclusion of exploration, development  and  production
wastes  from  the RCRA definition of "hazardous wastes" thereby potentially
subjecting  such  wastes to more stringent handling, disposal  and  cleanup
requirements. If such legislation were enacted it could have a  significant
impact  on the operating costs of Southwest and Sierra, as well as the  oil
and natural gas industry and well servicing industry in general. The impact
of  future  revisions  to  environmental laws  and  regulations  cannot  be
predicted.

     The Company's operations are also subject to the Clean Air Act ("CAA")
and  comparable state and local requirements. Amendments to  the  CAA  were
adopted  in  1990  and contain provisions that may result  in  the  gradual
imposition  of certain pollution control requirements with respect  to  air
emissions from operations of Southwest. Southwest may be required to  incur
certain  capital expenditures in the next several years for  air  pollution
control  equipment  in connection with obtaining and maintaining  operating
permits  and  approvals for air emissions. However, Southwest believes  its
operations  will  not  be  materially  adversely  affected  by   any   such
requirements,  and  the  requirements are  not  expected  to  be  any  more
burdensome to Southwest than to other similarly situated companies involved
in  oil  and  natural  gas exploration and production  activities  or  well
servicing activities.

     Southwest   maintains  insurance  against  "sudden   and   accidental"
occurrences,  which  may cover some, but not all, of  the  risks  described
above.  Most significantly, the insurance maintained by Southwest will  not
cover  the  risks  described above which occur over a sustained  period  of
time.  Further, there can be no assurance that such insurance will continue
to  be  available  to cover all such costs or that such insurance  will  be
available at premium levels that justify its purchase.  The occurrence of a
significant  event not fully insured or indemnified against  could  have  a
material adverse effect on Southwest's financial condition and operations.

     Regulation   of  Oil  and  Natural  Gas  Exploration  and  Production.
Exploration and production operations of the Company are subject to various
types  of  regulation  at  the  federal,  state  and  local  levels.   Such
regulations  include requiring permits and drilling bonds for the  drilling
of  wells,  regulating the location of wells, the method  of  drilling  and
casing wells, and the surface use and restoration of properties upon  which
wells are drilled. Many states also have statutes or regulations addressing
conservation matters, including provisions for the utilization  or  pooling
of  oil  and natural gas properties, the establishment of maximum rates  of
production  from oil and natural gas wells and the regulation  of  spacing,
plugging and abandonment of such wells. Some state statutes limit the  rate
at  which  oil and natural gas can be produced from Southwest's properties.
See "Risk Factors-Compliance with Governmental Regulations."

<PAGE>

Risks Associated with Business Activities

     Adverse Financial Condition.  The Company is currently experiencing  a
period of adverse financial conditions and due to cash flow shortfalls, the
Company's  auditors  have added an explanatory paragraph  to  their  report
which  states their concerns about the Company's ability to continue  as  a
going concern.  The Company incurred a net loss for the twelve months ended
December 31, 1999 of $5.4 million compared with a net loss of $96.1 million
during the twelve months ended December 31, 1998.

     The  Company  had  a  stockholders' deficit of $113.2  million  as  of
December  31, 1999. Such deficit will likely seriously impair the Company's
ability  to  raise  additional equity capital in the future.   For  further
information  about financial condition, please read "Item 7.   Management's
Discussion and Analysis of Financial Condition and Results of Operations."

     The  expected shortfalls in cash flow from operating activities  limit
the Company's financial flexibility, including its ability to pay interest,
to  access  capital  markets  and  to  acquire  and  develop  oil  and  gas
properties.   The  expected  cash  flow  shortfalls  may  also  impede  the
Company's  ability to refinance its debt obligations in the event  industry
conditions improve.  For additional information on our financial  condition
please  read  "Item 7.  Management's Discussion and Analysis  of  Financial
Condition and Results of Operations" and "Item 8.  Financial Statements and
Supplementary Data."

     Substantial Leverage.  Because of the Company's substantial  level  of
indebtedness, a significant portion of the Company's cash flow is dedicated
to the payment of interest.  The Company cannot ensure that it will be able
to  make the future payments required by it's indebtedness.  As of December
31, 1999, the Company's total indebtedness was $347.1 million.

     Certain  holders,  who  collectively own approximately  12%  of  SRH's
common  stock,  have an option to cause SRH to redeem such holders'  common
stock at any time beginning December 31, 2001, five years from the date  of
issuance  of  such  common stock, subject to the terms  of  a  subscription
agreement  under  which  SRH  sold  the  common  stock  (the  "Subscription
Agreement")   and  subject  to  any  restrictions  imposed  by   law.   The
Subscription  Agreement provides that this redemption right  terminates  on
the  effective date of any registration statement under the Securities  Act
filed  with the Commission relative to the offer and sale of any amount  of
SRH's  common stock to the public. SRH is unable to predict the  amount  of
money it would be required to pay if the redemption right is exercised.  In
addition,  the  Company is subject to an Indenture pursuant  to  its  10.5%
Senior  Notes  due  2004 (the "Indenture") which may  also  restrict  SRH's
ability to make such payments. In addition, SRH can give no assurance  that
it will be able to cause a registration statement to become effective under
the Securities Act in order to terminate the redemption option.

     During  1994  and  1995, Red Oak sold 102,000 shares of  common  stock
through  a  private  placement  offering for approximately  $2,550,000  and
subsequently  repurchased 4,000 shares at $32 per  share.   This  stock  is
redeemable  at  the stockholder's option at a price equal to  the  purchase
price  of  $25 per share, plus a 6% annual return computed on a cumulative,
but  not  compounded,  basis.  Redemptions are to be  paid  out  of  future
earnings of Red Oak.  If there are no future earnings, redemptions will  be
paid  out  of  Red Oak's additional paid-in-capital. The redemption  rights
expired on 58,384 of the shares at December 1, 1999.  The remaining shares'
redemption  rights will expire in March through June 2000.  As of  December
31, 1999, Red Oak's potential redemption liability for the remaining 39,616
shares  is $1,228,096.  In the event of dissolution, liquidation or winding
up  Red Oak, the holders of common stock are to share ratably in all assets
remaining after payment of liabilities.

     Payment Upon a Change of Control.  Upon the occurrence of a "change of
control", as defined in the Indenture, of the Company, each holder  of  the
Notes  may require Southwest to purchase all or a portion of such  holder's
Notes  at 101% of the principal amount of the Notes, together with  accrued
and  unpaid  interest, if any, to the date of purchase.   If  a  change  of
control  were  to occur, Southwest may not have the financial resources  to
repay all of the Notes and the other indebtedness that might become payable
upon the occurrence of such change of control.

<PAGE>
     Adequacy of Collateral; Risks of Foreclosure.  SRH has pledged to  the
Trustee  (under the Indenture), for the ratable benefit of the  holders  of
the Notes, all of the Sierra common stock and Red Oak common stock directly
owned  by  SRH  as  security  for the Parent Guarantee  (collectively,  the
"Collateral").

     In  the  event  of  a default under the Indenture,  there  can  be  no
assurance that the Trustee would be able to foreclose on or dispose of  any
of  the  Collateral without substantial delays and other risks or that  the
proceeds obtained therefrom would be sufficient to pay all amounts owing to
holders  of  the Notes.  SRH would be required to file a shelf registration
statement and any of SRH's other subsidiaries whose stock is pledged to the
Trustee would be required to grant registration rights with respect to such
stock,  in  each case to allow the Trustee to be able to sell  the  pledged
shares of their common stock publicly.  Circumstances beyond the control of
the  Company, however, may delay the availability of a current  prospectus.
There is currently no public market for the shares of SRH common stock  and
there  can  be  no assurance that there will be any public market  for  the
common stock of any subsidiary of SRH.

     In  addition, if Southwest becomes a debtor in a case under the United
States  Bankruptcy Code ("The Bankruptcy Code"), the automatic stay imposed
by  the Bankruptcy Code would prevent the Trustee from selling or otherwise
disposing  of  the  Collateral without bankruptcy court authorization.   In
that  case,  the foreclosure might be delayed indefinitely.  Moreover,  the
bankruptcy  of any entity related to Southwest might result  in  a  similar
delay  if  Southwest  were "substantively consolidated"  with  the  related
entity.

     Possible  Limitations  on  Enforceability  of  Subsidiary  Guarantees.
Southwest's obligations under the Notes may under certain circumstances  be
guaranteed  on a senior basis by certain subsidiaries of Southwest  as  set
forth  in  the  Indenture.  Various fraudulent conveyance  laws  have  been
enacted  for the protection of creditors and may be utilized by a reviewing
court  to  subordinate or void a subsidiary guaranty.  It is also  possible
that  under  certain  circumstances a court  could  hold  that  the  direct
obligations  of a subsidiary guarantor could be superior to the obligations
under a subsidiary guaranty.

     To  the extent that a court were to find that at the time a subsidiary
guaranty  was entered into either (1) the subsidiary guaranty was  incurred
with  the intent to hinder, delay or defraud any present or future creditor
or  that the subsidiary guarantor contemplated insolvency with a design  to
favor  one or more creditors to the exclusion in whole or in part of others
or  (2)  the  subsidiary  guarantor did not receive fair  consideration  or
reasonably equivalent value for issuing the subsidiary guaranty and, at the
time it issued the guaranty, the subsidiary guarantor (i) was insolvent  or
rendered  insolvent  by reason of the issuance of the subsidiary  guaranty,
(ii)  was engaged or about to engage in a business or transaction for which
the  remaining assets of the subsidiary guarantor constituted  unreasonably
small capital, or (iii) intended to incur, or believed that it would incur,
debts beyond its ability to pay such debts as they matured, the court could
void  or  subordinate the subsidiary in favor of the subsidiary guarantor's
other  creditors.  Among other things, a legal challenge  of  a  subsidiary
guaranty issued on fraudulent conveyance grounds may focus on the benefits,
if any, realized by the subsidiary guarantor as a result of the issuance by
Southwest  of  the  Notes.  To the extent that proceeds  from  the  Private
Placement were used to refinance the indebtedness of the Company,  a  court
might  find that a subsidiary guarantor did not benefit from incurrence  of
the indebtedness represented by the Notes.

     The  measure  of  insolvency for purposes  of  determining  whether  a
transfer is voidable as a fraudulent transfer varies depending upon the law
of  the  jurisdiction that is being applied.  Generally, however, a  debtor
would  be  considered  insolvent if the sum of  all  its  debts,  including
contingent liabilities, was greater than the value of all its assets  at  a
fair valuation or if the present fair saleable value of the debtor's assets
was  less than the amount required to repay its probable liability  on  its
debts,  including  contingent  liabilities, as  they  become  absolute  and
mature.

<PAGE>
     To  the  extent that a subsidiary guaranty is voided as  a  fraudulent
conveyance  or  found unenforceable for any other reason,  holders  of  the
Notes  would  cease  to  have  any  claim  in  respect  to  the  applicable
subsidiary.  In such event, the claims of the holders of the Notes  against
such  subsidiary  would be subject to the prior payment of all  liabilities
and  preferred stock claims of such subsidiary guarantor.  There can be  no
assurance  that,  after providing for all prior claims and  referred  stock
interests,  if any, there would be sufficient assets to satisfy the  claims
of  the  holders  of  the  Notes relating to any  voided  portion  of  such
subsidiary guaranty.

     Voting Control.  As of December 31, 1999, H. H. Wommack, III, Chairman
of  the  Board, President and Chief Executive Officer of SRH and Southwest,
owned  73.2% of the outstanding voting shares of common stock of SRH, which
owns 100% of the common stock of Southwest.  Therefore, Mr. Wommack has the
ability  to  elect all of the directors of SRH and Southwest and,  directly
and indirectly, influence all decisions made by SRH and Southwest.

     Dependence on Key Personnel.  The Company depends to a large extent on
the  services  of  H. H. Wommack, III and certain other  senior  management
personnel.   The  loss  of  the services of Mr. Wommack  and  other  senior
management personnel could have a material adverse effect on the  Company's
operations. The Company does not currently have an employment contract with
any  senior  management  or key personnel. The Company  believes  that  its
success is also dependent upon its ability to continue to employ and retain
skilled  technical  personnel. The inability of the Company  to  employ  or
retain skilled technical personnel could have a material adverse effect  on
the  Company's  operations. Although the Company  maintains  key  man  life
insurance  on  the  life of Mr. Wommack in the amount of $15  million,  the
existence  of such insurance does not mean that the death or disability  of
Mr. Wommack would not have a materially adverse effect upon the Company.

     Volatility  of  Oil  and  Gas  Prices.  Revenues  from  the  Company's
operations  are highly dependent on the price of oil and gas.  The  markets
for oil and gas are volatile and prices for oil and gas are subject to wide
fluctuations in response to relatively minor changes in the supply  of  and
demand  for oil and gas and a variety of additional factors that are beyond
the Company's control.  These factors include the level of consumer demand,
weather  conditions, domestic and foreign governmental regulations,  market
uncertainty,  the  price and availability of alternative  fuels,  political
conditions  in  the Middle East, foreign supply of oil and  gas,  price  of
foreign imports and overall economic conditions.  It is impossible for  the
Company to predict future oil and gas prices with any certainty.

     In  order to reduce the Company's exposure to price risks in the  sale
of  its oil and gas, the Company enters into hedging arrangements from time
to  time.   The hedging arrangements, however, only generally  apply  to  a
portion  of  the  Company's  production  and  provide  only  limited  price
protection   against  fluctuations  in  the  oil  and  gas  markets.    See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "Hedging Activities"  and
"Business."

     Southwest  uses the full cost method of accounting for its  investment
in  oil and gas properties.  Under the full cost method of accounting,  all
costs  of  acquisition, exploration and development of oil and gas reserves
are  capitalized into a "full cost pool" as incurred, and properties in the
pool are depleted and charged to operations using the gross revenues method
based  on the ratio of current gross revenues to total proved future  gross
revenues, computed based on current prices.  Significant downward revisions
of quantity estimates or declines in oil and gas prices that are not offset
by  other factors could result in a writedown for impairment of oil and gas
properties.   Once incurred, a writedown of oil and gas properties  is  not
reversible  at  a  later date, even if oil or natural gas prices  increase.
During 1998, oil prices were drastically lower than prior years causing the
Company  to incur a $64.0 million noncash charge.  As of December 31,  1999
oil  price  had increased significantly over prices received  during  1998,
thus  no  write  down  of capitalized costs of oil and gas  properties  was
deemed necessary for the year ended December 31, 1999.


<PAGE>
     Replacement  of Reserves.  The Company may not be able to replace  its
existing  reserves  as  they  are depleted.   In  general,  the  volume  of
production  from oil and gas properties declines as reserves are  depleted.
Unless   the  Company  acquires  additional  properties  containing  proved
reserves  or conducts successful development and exploration activities  on
existing properties, or both, proved reserves will decline as reserves  are
depleted  and,  as a result, cash flow will correspondingly  decline.   The
Company's  future  oil and gas production is, therefore,  highly  dependent
upon  its  success in finding or acquiring additional reserves.   Exploring
for,  developing or acquiring new reserves requires substantial amounts  of
capital.   Because cash flow from operations has been reduced and  external
sources  of  capital  have  become limited or  unavailable,  the  Company's
ability to make the capital investments necessary to maintain or expand its
reserves  has been impaired.  In addition, the Company cannot  ensure  that
future  development, acquisition and exploration activities will result  in
additional  proved  reserves or that the Company  will  be  able  to  drill
productive wells at acceptable costs.

     Uncertainty  of Reserve Information and Future Net Revenue  Estimates.
There are numerous uncertainties inherent in estimating oil and natural gas
reserves  and  their  estimated values, including many factors  beyond  the
control  of  Southwest.  The reserve data set forth herein  represent  only
estimates.  Reservoir  engineering is a subjective  process  of  estimating
underground accumulations of oil and natural gas that cannot be measured in
an  exact manner. Estimates of economically recoverable oil and natural gas
reserves  and of future net cash flows necessarily depend upon a number  of
variable  factors and assumptions, such as historical production  from  the
area  compared  with  production from other producing  areas,  the  assumed
effects  of regulations by governmental agencies and assumptions concerning
future  oil  and natural gas prices, future operating costs, severance  and
excise  taxes,  development costs and workover and remedial costs,  all  of
which may in fact vary considerably from actual results. For these reasons,
estimates of the economically recoverable quantities of oil and natural gas
attributable to any particular group of properties, classifications of such
reserves based on risk recovery and estimates of the future net cash  flows
expected therefrom prepared by different engineers or by the same engineers
at different times may vary substantially and such reserve estimates may be
subject  to  downward or upward adjustment based upon such factors.  Actual
production, revenues and expenditures with respect to Southwest's  reserves
will  likely  vary from estimates, and such variances may be material.  See
"Item 2.  Properties-Oil and Gas Reserves."

     The  present  values of estimated future net cash  flows  referred  to
herein should not be construed as the current market value of the estimated
oil  and  natural gas reserves attributable to Southwest's  properties.  In
accordance  with applicable requirements of the Commission,  the  estimated
discounted  future net cash flows from proved reserves are generally  based
on  prices and costs as of the date of the estimate, whereas actual  future
prices and costs may be materially higher or lower. Actual future net  cash
flows  also  will be affected by factors such as the amount and  timing  of
actual  production, supply and demand for oil and natural gas, curtailments
or  increases  in consumption by gas purchasers and changes in governmental
regulations  or taxation. The timing of actual future net cash  flows  from
proved  reserves, and their actual present value, will be affected  by  the
timing  of both the production and the incurrence of expenses in connection
with  development  and  production of oil and natural  gas  properties.  In
addition,  the calculation of the present value of the future net  revenues
using a 10% discount, as required by the Commission, is not necessarily the
most  appropriate discount factor based on interest rates  in  effect  from
time to time and risks associated with Southwest's reserves or the oil  and
natural gas industry in general.

     Drilling Risks.  Drilling involves numerous risks, including the  risk
that  no  commercially  productive oil or natural gas  reservoirs  will  be
encountered. The cost of drilling, completing and operating wells is  often
uncertain, and drilling operations may be curtailed, delayed or canceled as
a result of a variety of factors, including unexpected drilling conditions,
pressure  or irregularities in formations, equipment failures or accidents,
adverse weather conditions, title problems and shortages or delays  in  the
delivery  of equipment. Southwest's future drilling activities may  not  be
successful  and, if unsuccessful, such failure will have an adverse  effect
on Southwest's future results of operations and financial condition.


<PAGE>

     Marketability of Production.  The marketability of Southwest's oil and
natural  gas production depends upon the availability and capacity  of  oil
and  gas  gathering systems, pipelines and processing facilities,  and  the
unavailability or lack of capacity thereof could result in the  shut-in  of
producing  wells  or the delay or discontinuance of development  plans  for
properties.  In addition, federal and state regulation of oil  and  natural
gas  production and transportation, general economic conditions and changes
in  supply and demand could adversely affect Southwest's ability to produce
and market its oil and natural gas on a profitable basis.

     Operating  Risks  of  Oil  and Natural Gas Operations.   The  oil  and
natural  gas business involves a variety of operating risks, including  the
risk   of  fire,  explosions,  blowouts,  pipe  failure,  casing  collapse,
abnormally pressured formations and hazards such as oil spills, natural gas
leaks,  ruptures  or discharges of toxic gases. The occurrence  of  any  of
these  operating risks could result in substantial losses to Southwest  due
to  injury or loss of life, severe damage to or destruction of property and
equipment,  pollution or other environmental damage,  including  damage  to
natural  resources, clean-up responsibilities, penalties and suspension  of
operations.  In  accordance  with customary  industry  practice,  Southwest
maintains  insurance  against some, but not all,  of  the  risks  described
above.  There can be no assurance that any insurance obtained by  Southwest
will  be  adequate  to  cover any losses or liabilities.  Southwest  cannot
predict  the  continued availability of insurance or  the  availability  of
insurance at premium levels that justify its purchase.

     Compliance  with  Governmental Regulations.   The  Company's  oil  and
natural  gas  and  well service operations are subject to various  federal,
state and local governmental laws and regulations that may be changed  from
time  to  time  in  response to economic or political  conditions.  Matters
subject  to  regulation include discharge permits for drilling  operations,
drilling   and   abandonment   bonds  or  other  financial   responsibility
requirements,  reports  concerning  operations,  the  spacing   of   wells,
utilization  and  pooling of properties and taxation. From  time  to  time,
regulatory  agencies  have  imposed  price  controls  and  limitations   on
production  by  restricting the rate of flow of oil and natural  gas  wells
below  actual production capacity to conserve supplies of oil  and  natural
gas.  In  addition,  the production, handling, storage, transportation  and
disposal  of oil and natural gas, by-products thereof and other  substances
and  materials  produced or used in connection with  oil  and  natural  gas
operations  are subject to regulation under federal, state and  local  laws
and  regulations primarily relating to protection of human health  and  the
environment.  These  laws  and regulations may impose  increasingly  strict
requirements for water and air pollution control and solid waste management
and can result in the imposition of civil and even criminal penalties.

     The Company's commercial real estate properties are subject to various
federal, state and local regulatory requirements, such as laws with respect
to  access  by  disabled persons and state and local fire and  life  safety
requirements. Failure to comply with these requirements could result in the
imposition  of  fines by governmental authorities or awards of  damages  to
private  litigants. The Company believes that the properties are  currently
in   compliance   in  all  material  respects  with  all  such   regulatory
requirements.  However, there can be no assurance that  these  requirements
will  not  be  changed or that new requirements will not be  imposed  which
would require significant unanticipated expenditures by the Company's  real
estate  business and could have an adverse effect on expected distributions
by the Company's real estate business.

     Substantial  Competition.  The Company experiences intense competition
in  its  markets. Such markets are highly competitive and no one competitor
is  dominant. Southwest competes with major and independent oil and natural
gas  companies  for  the  acquisition of  desirable  oil  and  natural  gas
properties, as well as for the equipment and labor required to develop  and
operate such properties. Southwest also competes with major and independent
oil  and natural gas companies in the marketing and sale of oil and natural
gas  to marketers and end-users. Red Oak competes with other companies  for
the  acquisition  of  desirable real estate properties principally  on  the
basis  of  price.  Although  the  Company  believes  that  it  has  certain
advantages  over these competitors, many of these competitors have  greater
financial   and   other   resources  than  the  Company.   See   "Item   1.
Business-Competition."

<PAGE>

     Environmental Risks.  The Company is subject to a variety of  federal,
state  and  local  governmental regulations related to  the  storage,  use,
discharge and disposal of toxic, volatile or otherwise hazardous materials.
The  Company does not currently anticipate any material adverse  effect  on
its  business, financial condition or results of operations as a result  of
the  Company's  required compliance with U.S. federal,  state,  provincial,
local  or  foreign environmental laws or regulations or remediation  costs.
However,  some risk of environmental liability and other costs is  inherent
in  the nature of the Company's business. Moreover, the Company anticipates
that  such laws and regulations will become increasingly stringent  in  the
future, which could lead to material costs for environmental compliance and
remediation by the Company. See "Item 1.  Business-Regulation."

     Any failure by the Company to obtain required permits for, control the
use of, or adequately restrict the discharge of, hazardous substances under
present  or  future  regulations could subject the Company  to  substantial
liability or could cause its operations to be suspended. Such liability  or
suspension  of  operations  could have a material  adverse  effect  on  the
Company's business, financial condition and results of operations.

     Red  Oak  Operations. Real estate property investments are subject  to
varying degrees of risk. The economic performance and values of real estate
can  be  affected  by  many  factors, including changes  in  the  national,
regional  and  local  economic  climates,  local  conditions  such  as   an
oversupply of space or a reduction in demand for real estate in  the  area,
the  attractiveness  of the properties to tenants, competition  from  other
available  space, the ability of the owner to provide adequate  maintenance
and  insurance  and increased operating costs. In recent years,  there  has
been a proliferation of new retailers and a growing consumer preference for
value-oriented  shopping  alternatives  that  have,  among  other  factors,
heightened  competitive pressures. In certain areas of the  country,  there
may also be an oversupply of retail space. As a consequence, many companies
in  all  sectors  of  the  retailing industry have encountered  significant
financial  difficulties.  A substantial portion  of  Red  Oak's  income  is
derived  from rental revenues from retailers in neighborhood and  community
shopping  centers.  Red  Oak's income would  be  adversely  affected  if  a
significant  number  of  Red  Oak's  tenants  were  unable  to  meet  their
obligations  to  Red Oak or if Red Oak were unable to lease  a  significant
amount  of  space in its properties on economically favorable lease  terms.
Accordingly,  no  assurance can be given that Red Oak's  financial  results
will  not  be  adversely  affected  by these  developments  in  the  retail
industry.

     Removal as General Partner.  The limited partners have the ability  to
remove  the  Company  as  the general partner of approximately  32  limited
partnerships  and such removal would decrease the Company's cash  flow  and
proved  reserves.   The  Company  is the  general  partner  of  32  limited
partnerships.   Most of the limited partnership agreements provide  that  a
majority in interest of the limited partners may remove the Company as  the
general  partner and elect a replacement general partner.   However,  under
three of the limited partnership agreements the Company may only be removed
with  the  Company's consent.  As the general partner, the Company receives
management  and  administrative  fees from the  partnerships,  totaling  an
aggregate  of approximately $3.5 million and has an ownership  interest  in
each   partnership.   The  Company's  portion  of  partnership   properties
contribute  5.1%  of its proved non-producing reserves and  3.9%  of  PV-10
value.   Therefore, the Companys removal as the general partner of some  or
all  of  the  limited partnerships would decrease its cash flow and  proved
reserves.  However, any losses in cash flow would be offset to some  degree
by decreasing administrative and operating expense.

<PAGE>

Glossary of Oil and Gas Terms

     The  following are abbreviates and definitions of terms commonly  used
in  the oil and gas industry that are used in this Report.  All volumes  of
natural gas referred to herein are stated at the legal pressure base to the
state  or area where the reserves exit and at 60 degrees Fahrenheit and  in
most instances are rounded to the nearest major multiple.

     Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume.

     Bcf. Billion cubic feet.

     Boe.  Barrel of oil equivalent, determined using the ratio of one  Bbl
of crude oil, condensate or natural gas liquids to six Mcf of natural gas.

     Boepd. Barrels of oil per day.

     Completion. The installation of permanent equipment for the production
of  oil  and  natural gas, or in the case of a dry hole, the  reporting  of
abandonment to the appropriate agency.

     Development well. A well drilled within the proved area of an  oil  or
natural gas reservoir to the depth of a stratigraphic horizon known  to  be
productive.

     Dry  hole  or  well.  A  well  found  to  be  incapable  of  producing
hydrocarbons in sufficient quantities such that proceeds from the  sale  of
such production exceed production expenses and taxes.

     Exploratory  well. A well drilled to find and produce oil  or  natural
gas  reserves not classified as proved, to find a new reservoir in a  field
previously  found  to  be  productive of oil  or  natural  gas  in  another
reservoir or to extend a known reservoir.

     Field. An area consisting of a single reservoir or multiple reservoirs
all  grouped  on  or  related to the same individual geological  structural
feature and/or stratigraphic condition.

     Gross acres or gross wells. The total acres or wells, as the case  may
be, in which a working interest is owned.

     Horizontal drilling. A drilling technique that permits the operator to
contact  and  intersect  a  larger portion of the  producing  horizon  than
conventional vertical drilling techniques and can result in both  increased
production rates and greater ultimate recoveries of hydrocarbons.

     MBbls. One thousand barrels.

     MBoe.  One  thousand barrels of oil equivalent, determined  using  the
ratio of one Bbl of crude oil, condensate or natural gas liquids to six Mcf
of natural gas.

     Mcf. One thousand cubic feet.

     Mcfd. One thousand cubic feet per day.

     Mcfe.  One thousand cubic feet equivalent, determined using the  ratio
of  six  Mcf of natural gas to one Bbl of crude oil, condensate or  natural
gas liquids.

     MMBbls. One million barrels of crude oil or other liquid hydrocarbons.

     MMBoe.  One  million barrels of oil equivalent, determined  using  the
ratio of one Bbl of crude oil, condensate or natural gas liquids to six Mcf
of natural gas.


<PAGE>

     MMcf. One million cubic feet.

     Net  acres  or net wells. The sum of the fractional working  interests
owned in gross acres or gross wells, as the case may be.

     Oil. Crude oil, condensate and natural gas liquids.

     Present  value  and  PV-10 Value. When used with respect  to  oil  and
natural gas reserves, the estimated future net revenue to be generated from
the  production of proved reserves, determined in all material respects  in
accordance  with the rules and regulations of the Securities  and  Exchange
Commission  (generally  using prices and costs in effect  as  of  the  date
indicated) without giving effect to non-property related expenses  such  as
general  and  administrative expenses, debt service and future  income  tax
expenses  or to depreciation, depletion and amortization, discounted  using
an annual discount rate of 10%.

     Productive  well.  A  well that is found to be  capable  of  producing
hydrocarbons in sufficient quantities such that proceeds from the  sale  of
such production exceed production expenses and taxes.

     Proved  developed producing reserves. Proved developed  reserves  that
are  expected to be recovered from completion intervals currently  open  in
existing wells and capable of production.

     Proved  developed reserves. Proved reserves that are  expected  to  be
recovered  from  existing  wellbores, whether or not  currently  producing,
without  drilling additional wells. Production of such reserves may require
a recompletion.

     Proved  reserves. The estimated quantities of crude oil, natural  gas,
and  natural  gas liquids that geological and engineering data  demonstrate
with  reasonable  certainty to be recoverable in future  years  from  known
reservoirs under existing economic and operating conditions.

     Proved undeveloped location. A site on which a development well can be
drilled  consistent  with spacing rules for purposes of  recovering  proved
undeveloped reserves.

     Proved undeveloped reserves. Proved reserves that are expected  to  be
recovered from new wells on undrilled acreage.

     Recompletion. The completion for production of an existing wellbore in
another  formation  from  that  in  which  the  well  has  been  previously
completed.

     Reserve life. A ratio determined by dividing the existing reserves  by
production from such reserves for the prior twelve month period.

     Reservoir.  A porous and permeable underground formation containing  a
natural  accumulation of producible oil and/or natural gas that is confined
by  impermeable rock or water barriers and is individual and separate  from
other reserves.

     Royalty  interest.  An  interest in an oil and  natural  gas  property
entitling  the  owner to a share of oil or natural gas production  free  of
costs of production.

     Undeveloped  acreage.  Lease acreage on  which  wells  have  not  been
drilled  or  completed  to  a point that would  permit  the  production  of
commercial  quantities of oil and natural gas regardless  of  whether  such
acreage contains proved reserves.

     Wellbore. The hole drilled by the bit.

     Working  interest.  The operating interest that gives  the  owner  the
right  to  drill, produce and conduct operating activities on the  property
and a share of production.

     Workover.  Operations  on  a producing well  to  restore  or  increase
production.


<PAGE>
ITEM 2.  PROPERTIES.

Facilities

     The  principal  offices of SRH, Southwest and Red Oak are  located  in
Midland, Texas.  SRH, Southwest, and Red Oak believe that their leased  and
owned  properties, none of which individually is material  to  any  of  the
companies, are adequate for current needs.

Title to Properties

     The  Company  believes  it  has  satisfactory  title  to  all  of  its
properties in accordance with standards generally accepted in the  oil  and
gas, well servicing and real estate industries. As is customary in the  oil
and natural gas industry, Southwest makes only a cursory review of title to
farmout  acreage  and  to  undeveloped oil  and  natural  gas  leases  upon
execution  of  any  contracts.  Prior  to  the  commencement  of   drilling
operations, a thorough title examination is conducted and curative work  is
performed with respect to significant defects. To the extent title opinions
or  other investigations reflect title defects, Southwest, rather than  the
seller  of the undeveloped property, is typically responsible to  cure  any
such  title defects at its expense. If Southwest were unable to  remedy  or
cure  any  title defect of a nature such that it would not  be  prudent  to
commence drilling operations on the property, Southwest could suffer a loss
of  its  entire  investment in the property. Southwest has  obtained  title
opinions on substantially all of its producing properties and believes that
it  has  satisfactory title to such properties in accordance with standards
generally accepted in the oil and natural gas industry. Prior to completing
an  acquisition of producing oil and natural gas leases, Southwest  obtains
title opinions on a majority of all leases. Southwest's oil and natural gas
properties  are subject to customary royalty interests, liens  for  current
taxes and other burdens that Southwest believes do not materially interfere
with the use of or affect the value of such properties.

Oil and Gas Properties

Southwest's Principal Oil and Gas Properties

     The  Company's  oil and gas properties are primarily  located  in  the
Permian Basin of West Texas and southeastern New Mexico.  Over 90%  of  the
Company's  PV-10  Value  is  concentrated in this  region.  The  region  is
characterized  by numerous known producing horizons, providing  significant
opportunities  to  increase reserves, production  and  ultimate  recoveries
through   additional   development,  horizontal  drilling,   recompletions,
enhanced  recovery  methods, and the use of 3-D  seismic,  reprocessed  2-D
seismic data and other advanced technologies. As of December 31, 1999,  the
Company  operated  properties comprising approximately  78%  of  its  PV-10
Value.   The  following table provides information for  the  Company's  ten
largest  fields which contribute 66% of its reserves and 70% of  its  PV-10
Value as of December 31, 1999.

                                              As of December 31, 1999
                                       --------------------------------------
                                          Net Proved   PV-10    % of Total
                                           Reserves    Value      PV-10
  Field                                     (Mboe) (in thousands) Value
  -----                                   ---------------------- --------
  Foster                                    4,700     $41,698      18.23%
  Huntley                                   3,102     $26,199      11.45%
  Huntley East                              2,205     $17,345       7.58%
  Flying M                                  3,269     $16,541       7.23%
  Jo-Mill                                   2,074     $12,810       5.60%
  Halley                                    3,167     $12,489       5.46%
  Magnolia Sealy                            1,960     $12,312       5.38%
  Ackerly                                   1,220      $9,114       3.98%
  Rhoda Walker                              1,026      $6,723       2.94%
  Ward-Estes North                            777      $5,744       2.51%
                                           ------      ------     ----
    Total Top Ten Fields                   23,500     $160,975     70.36%

<PAGE>
     Foster Field. The Foster Field is located in Ector County, Texas.  The
field  was  discovered  in 1936 and produces from the  Grayburg  and  Queen
formations in the Gist Unit.  Southwest owns working interests ranging from
59.5%  to  100% and operates 60 producing and 31 injection wells.  Numerous
workover and development drilling opportunities exist.

     Huntley  Field.  The Huntley Field is located in Garza County,  Texas.
The  field  was  discovered in 1953 and produces from the  San  Andres  and
Glorieta  reservoirs.  Southwest owns an 87% working interest and  operates
34 producing and 21 injection wells.

     Huntley East Field. The Huntley East Field is located in Garza County,
Texas.   The  field was discovered in 1956 and produces from  a  low-relief
anticline which covers approximately 1,400 surface acres. Southwest  has  a
100%  working interest in the Huntley East San Andres Unit, which comprises
substantially all of the field, and a 100% working interest in  the  Harold
L. Davies lease, and operates 38 producing and 21 injection wells.

     Flying  M Field. The Flying M Field is located in northern Lea County,
New  Mexico and produces from the San Andres oil reservoir. The  field  was
discovered in 1964 and was unitized in 1967 when water injection commenced.
In  1997, Southwest acquired working interests ranging from 83% to 100%  in
6,160  gross  acres  of  the field area, of which  2,240  gross  acres  are
undeveloped.  Southwest operates all 46 producing  wells  and  nine  active
water  injection wells, including wells that are not contained  within  the
unitized portion of the field. Development plans for this field include the
drilling of ten 40-acre proved undeveloped locations and the conversion  of
ten  wells  to water injection. Further development of the field, including
the  reduction  to  20-acre spacing from the current  40-acre  spacing,  is
presently under evaluation.

     Jo-Mill  Field. The Jo-Mill Field is located in Borden County,  Texas.
The  field was discovered in 1954, unitized in 1969, and produces from  the
Upper Spraberry, Lower Spraberry and Dean Sand reservoirs. Southwest owns a
6%  working  interest  in  the Jo-Mill Unit.   Texaco,  Inc.  operates  172
producing and 73 injection wells.

     Halley Field. The Halley Field is located in Winkler County, Texas and
consists  of  two leases totaling 7,608 gross acres, of which  3,190  gross
acres  have  been developed.  Southwest acquired working interests  ranging
from  43%  to 70% in this field in 1995 and currently operates  110  active
producing wells and 32 water injection wells.  The field was discovered  in
1937  and produces from multiple zones ranging from 2,400 to 3,000 feet  in
depth.   Development plans, which have commenced, include the  drilling  of
several proved undeveloped locations and numerous workovers.

     Magnolia  Sealy  Field.  The Magnolia Sealy Field is located  in  Ward
County, Texas and produces primarily form the Yates formation.  Pay  depths
range from 2,400' to 3,100'.  The field was discovered in 1940 and sparsely
developed  throughout  the late 1940's.  Southwest, which  has  an  average
working interest of 90%, purchased the properties in 1988 and has drilled 9
wells  to date.  Results of the drilling indicate primary reserve additions
of  45  to  55  MBO  per  well.  Additional potential exists  both  through
development drilling prospects and initiation of a waterflood.

     Ackerly  (Dean) Field. The Ackerly (Dean) Field is located  in  Dawson
County, Texas and produces from the Dean Sand oil reservoir.  The field was
discovered  in  1954 with the drilling and completion of the  Pan  American
Graves  "A" No. 1 well.  Southwest owns a 60% working interest in the  East
Ackerly  Dean Unit-Phase II, along with interests in two additional leases.
Henry Petroleum operates 70 producing and 30 injection wells.

     Rhoda  Walker Field. The Rhoda Walker Field is located in Ward County,
Texas and produces from 18 different reservoirs ranging in depth from 4,700
to  7,000  feet.  Southwest acquired its working interests in  this  field,
ranging from 1% to 34%, in 1990. Southwest operates 37 producing wells  and
five water disposal wells and also owns non-operated interests in 46 wells.
The  field was discovered in 1971 and contains significant proved developed
locations and infill drilling.

<PAGE>
     Ward-Estes North Field.  The Ward-Estes North Field is located in Ward
County,  Texas and produces from the Yates, Seven Rivers, Queen  and  Dense
zones,  which range in depth from 2,400' to 3,100'.  Southwest has  working
interests  ranging from 52% to 98% in the field.  The field was  discovered
in  1933  and  developed  in  the  late 1950's.   Southwest  purchased  the
properties  in  1988  and  has drilled several  infill  wells  as  well  as
performing recompletions on existing wells.  Several infill drill locations
remain to be exploited.

     Oil and Gas Reserves.  The following table summarizes the estimates of
Southwest's  historical net proved reserves and the related present  values
of such reserves at the dates shown. The reserve and present value data for
the  Company's existing properties as of December 31, 1999, 1998  and  1997
have been prepared by Ryder Scott Petroleum Engineers.

                                                As of December 31,
                                          -----------------------------
                                             1999      1998      1997
                                             ----      ----      ----
  Proved Reserves:
    Oil and Condensate (MBbls)             24,828    20,944    29,666
    Natural Gas (MMcf)                     65,079    58,273    64,725
       Total (MBoe)                         35,675    30,656    40,453
  Proved Developed Reserves:
    Oil and Condensate (MBbls)             16,618    12,006    18,472
    Natural Gas (MMcf)                     43,023    37,481    46,585
       Total (MBoe)                         23,789    18,253    26,236

  PV-10 Value (in thousands)(1)          $228,748  $ 71,900  $172,304

  Discounted Future Cash Flows (2)
    Future cash inflows                  $727,615  $315,709  $620,418
     Future  production  and development costs         (284,354)  (181,627)
(303,406)
                                           -------   -------   -------
     Future  net  cash  flows before income taxes        443,261    134,082
317,012
    Future income tax expense           (103,067)         -  (59,764)
                                           -------   -------   -------
    Future net cash flows, net of tax     340,194   134,082   257,248
       10% annual discount for estimated
       timing of cash flows              (164,634)  (62,182) (117,427)
                                           -------   -------   -------
    Standardized measure of discounted future
       net cash flows, net of tax         $175,560  $ 71,900  $139,821
                                           =======   =======    ======

     (1)   The  present  value  of  future  net  revenues  attributable  to
Southwest's reserves was prepared using prices in effect at the end of  the
respective  periods  presented, discounted at 10% per annum  on  a  pre-tax
basis.

     (2)   Discounted future cash flows, including taxes, are not  intended
to  represent  estimates  of  the fair value of  oil  and  gas  properties.
Estimates of fair value should also consider probable reserves, anticipated
future  oil  and  gas  prices, interest rate, changes  in  development  and
production  costs  and  production costs and risks associated  with  future
production.  Because of these considerations, any estimate of fair value is
necessarily subjective and imprecise.

     In  accordance with applicable requirements, estimates of  Southwest's
proved reserves and future net revenues are made using oil and natural  gas
sales  prices  estimated to be in effect as of the  date  of  such  reserve
estimates  and  are  held constant throughout the life  of  the  properties
(except  to  the  extent a contract specifically provides for  escalation.)
The  average prices used in the reserve report were $23.90/Bbl of  oil  and
$2.06/Mcf  of natural gas, $10.25/Bbl of oil and $1.73/Mcf of  natural  gas
and $16.30/Bbl of oil and $2.11/Mcf of natural gas as of December 31, 1999,
1998 and 1997, respectively.

<PAGE>
     Estimated  quantities  of  proved reserves  and  future  net  revenues
therefrom are affected by oil and natural gas prices, which have fluctuated
widely  in  recent  years.  There are numerous  uncertainties  inherent  in
estimating  oil  and natural gas reserves and their values, including  many
factors  beyond  the control of the producer. Reservoir  engineering  is  a
subjective  process  of  estimating underground accumulations  of  oil  and
natural gas that cannot be measured in an exact manner. The accuracy of any
reserve  estimate  is a function of the quality of available  data  and  of
engineering  and  geological  interpretation and  judgment.  As  a  result,
estimates  of  different engineers, including those used by Southwest,  may
vary. In addition, estimates of reserves are subject to revision based upon
actual   production,   results  of  future  development   and   exploration
activities,  prevailing  oil and natural gas prices,  operating  costs  and
other  factors,  which  revisions  may be  material.  Accordingly,  reserve
estimates  are often different from the quantities of oil and  natural  gas
that are ultimately recovered and are highly dependent upon the accuracy of
the assumptions upon which they are based.

     In  general,  the  volume  of production  from  oil  and  natural  gas
properties  declines  as  reserves  are  depleted.  Except  to  the  extent
Southwest  acquires  properties  containing  proved  reserves  or  conducts
successful  exploration and development activities,  or  both,  the  proved
reserves  of  Southwest will decline as reserves are produced.  Southwest's
future oil and natural gas production is, therefore, highly dependent  upon
its   level  of  success  in  finding  or  acquiring  additional  reserves.
Exploring  for,  developing or acquiring new reserves requires  substantial
amounts of capital.  Because cash flow from operations has been reduced and
external  sources  of  capital  have become  limited  or  unavailable,  the
Company's ability to make the capital investments necessary to maintain  or
expand its reserves has been impaired.

     Net  Production, Unit Prices and Costs.  The following table  presents
certain  information  with respect to oil and gas  production,  prices  and
costs attributable to all oil and gas property interests owned by Southwest
for the years ended December 31, 1999, 1998 and 1997:
                                                As of December 31,
                                          -----------------------------
                                             1999      1998      1997
                                             ----      ----      ----
  Production Volumes:
     Oil and condensate (MBbls)              1,306     1,689     1,308
     Natural gas (MMcf)                      4,627     5,556     5,639
       Total (MBoe)                          2,077     2,615     2,248

  Average Daily Production:
     Oil and condensate (Bbls)               3,578     4,628     3,584
     Natural Gas (Mcf)                      12,677    15,222    15,449
       Total (Boe)                           5,691     7,165     6,159

  Average Realized Prices:
     Oil and condensate (per Bbl)         $  16.23 $   12.73 $   19.12
     Natural gas (per Mcf)                    2.19      1.85      2.24
       Per Boe                               15.09     12.16     16.75

  Expenses (per Boe):
     Lease  operating (including production taxes)$  5.22     $  7.03     $
8.23
     Oil and gas depletion                    2.36      5.97      5.52
     General and administrative, net           .78      1.04      1.63

<PAGE>
     Producing  Wells.   The  following table  sets  forth  the  number  of
productive  wells in which Southwest owned an interest as of  December  31,
1999:
                                               Gross        Net
                                               Wells       Wells
                                               ------      ------
     Oil                                          6,650       513
     Natural Gas                                    681        66
                                                  -----       ---
       Total                                      7,331       579

     Productive  wells  consist of producing wells  and  wells  capable  of
production, including gas wells awaiting pipeline connections and oil wells
awaiting  connection to production facilities. Wells that are completed  in
more than one producing horizon are counted as one well.  A gross well is a
well  in  which an interest is owned.  A net well is the fractional working
interest  in  a  gross well.  The number of net wells is  the  sum  of  the
fractional interest owned in gross wells.

     Acreage.   The  following table sets forth Southwest's  developed  and
undeveloped gross and net leasehold acreage as of December 31, 1999:
                                               Gross      Net
                                               ------    ------
     Developed                                1,703,000   200,000
     Undeveloped                                546,000    59,000
                                              ---------   -------
       Total                                 2,249,000   259,000

     Undeveloped acreage includes leased acres on which wells have not been
drilled  or  completed  to  a point that would  permit  the  production  of
commercial  quantities of oil and gas, regardless of whether  or  not  such
acreage  contains  proved reserves. A gross acre is an  acre  in  which  an
interest is owned. A net acre is the fractional working interest in a gross
acre.  The number of net acres is the sum of the fractional interests owned
in gross acres.

     Drilling Activities.  The table below sets forth the drilling activity
of  Southwest on its properties for the periods ending December  31,  1999,
1998 and 1997.

                                           Year Ended December 31,
                                    -----------------------------------
                                          1999      1998       1997
                                       -------------------- ----------
                                       Gross Net Gross Net   GrossNet
                                       -------------------- ----------
  Development wells:
    Productive                          12    5.1 15    5.7 53   27.3
    Non-productive                       1     .9  1     .5  3    2.4
                                        --   ---- --    --- --    ---
       Total                            13    6.0 16    6.2 56   29.7

  Exploratory wells:
    Productive                           -      -  7    2.5 10    3.3
    Non-productive                       -      -  1    1.0  4    1.4
                                        --   ---- --    --- --    ---
      Total                              -      -  8    3.5 14    4.7

<PAGE>
     Oil and Natural Gas Marketing and Hedging.  The revenues generated  by
Southwest's operations are highly dependent upon the prices of  and  demand
for  oil  and natural gas. The price received by Southwest for its oil  and
natural  gas  production  depends on numerous  factors  beyond  Southwest's
control.  Historically  the  markets for oil  and  natural  gas  have  been
volatile  and  are likely to continue to be volatile in the future.  Prices
for  oil  and  natural gas are subject to wide fluctuation in  response  to
relatively minor changes in the supply and demand for oil and natural  gas,
market  uncertainty  and  a variety of additional  factors.  These  factors
include  the level of consumer product demand, weather conditions, domestic
and  foreign  governmental  regulations,  the  price  and  availability  of
alternative fuels, political conditions in the Middle East, the actions  of
OPEC,  the  foreign  supply  of oil and natural gas  and  overall  economic
conditions.  It is impossible to predict future oil and natural  gas  price
movements with any certainty.

     During 1999, the Company did not have any significant customers.   The
Company  does not believe the loss of any purchaser would have  a  material
adverse effect on its operations, revenues or cash flow.

     Southwest,  from time to time, uses option contracts to  mitigate  the
volatility of price changes on commodities Southwest produces and sells  as
well  as  to  lock  in prices to protect the economics related  to  certain
capital projects.

     On  July 9, 1999, Southwest entered into a commodity swap agreement to
hedge  a  portion of its crude oil sales.  The agreement is for a  notional
amount  of 1,000 BBls of oil a day with a strike price of $20.22, based  on
West Texas Intermediate - NYMEX.  The contract is for the period August  1,
1999  through  October  31, 1999.  At the option of the  counter-party  the
contract has been extended to January 31, 2000.

     On  December  30,  1999,  Southwest  entered  into  a  basket  revenue
protection  agreement,  which provides the Company  with  an  oil  and  gas
revenue  floor.   The contract is for the period January  1,  2000  through
December  31,  2000.  The agreement is to be calculated on a calendar  year
quarter as disclosed in the following table based on NYMEX Natural Gas  and
NYMEX Crude Oil:

            Notional Volumes              Strike Prices
       -------------------------  -----------------------------
           Crude      Natural        Crude    Natural              Minimum
         Oil (bbl)  Gas (MMBtu)       Oil       Gas       Boe      Revenue
         ---------- -----------      -----    -------     ----     --------
Quarter 1 269,254      976,676     $  21.12  $   1.91  $  28.76  $7,552,096
Quarter 2 263,058      910,325     $  18.80  $   1.92  $  26.56  $6,714,359
Quarter 3 257,206      857,728     $  18.00  $   1.97  $  25.88  $6,319,432
Quarter 4 251,914      813,400     $  18.00  $   2.20  $  26.80  $6,323,932

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


<PAGE>
Red Oak Properties

     As  of  December 31, 1999, Red Oak owned and managed fifteen  shopping
centers,  six  office  buildings and raw land held for future  development.
Red  Oak's  holdings  are  located primarily in secondary  markets  in  the
southwestern United States.  Red Oak's existing property portfolio is shown
in the table below.
                                                       Gross Leasable
                                                            Area
   Shopping Centers                 Location           (Square Feet)
  -----------------             ---------------       ---------------
     Plaza Oaks                    Midland, TX             94,779
     Southwest Plaza               San Angelo, TX         198,983
     Town & Country                Odessa, TX             120,855
     State Bank Plaza              Tulsa, OK               35,748
     The Plaza                     Tulsa, OK              116,889
     Madera Village                Tucson, AZ              96,702
     Bear Canyon                   Tucson, AZ              70,941
     Bears Path                    Tucson, AZ              40,728
     Plaza Palomino                Tucson, AZ              98,634
     River Oaks                    Abilene, TX            140,899
     San Miguel Square             Midland, TX             77,582
     Colonnade at Polo Park        Midland, TX            105,749
     Crossroads                    San Antonio, TX        710,724
     Northcross Mall               Austin, TX             298,762
     Victoria Mall                 Victoria, TX           632,466

  Office Building
   ----------------
     Independence Plaza            Midland, TX            148,417
     50 Penn Place                 Oklahoma City, OK      311,363
     La Placita Village            Tucson, AZ             216,446
     Reunion Center                Tulsa, OK               89,265
     Century Plaza                 Midland, TX             95,443
     405 N. Marienfeld             Midland, TX             20,750

        Land                                               Acres
        ------                                             --------
     Red Oak (residential)         Midland, TX              398.3
     Lewisville (residential)      Lewisville, TX            95.3

ITEM 3.  LEGAL PROCEEDINGS.

     From  time to time, the Company is party to litigation or other  legal
proceedings that each company considers to be a part of the ordinary course
of  its business. The Company is not involved in any legal proceedings  nor
is  it  party to any pending or threatened claims that could reasonably  be
expected  to  have a materially adverse effect on its financial  condition,
cash flow or results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     None.

<PAGE>
                                  PART II

ITEM  5.   MARKET  FOR  REGISTRANT'S COMMON EQUITY AND RELATED  STOCKHOLDER
MATTERS.

Holders

     Southwest  has one class of common equity securities outstanding,  its
Common Stock, par value $.10 per share.

     On December 31, 1999, all 100 outstanding shares of Southwest's Common
Stock were held by SRH.  SRH has one class of common equity securities, its
Common  Stock,  par value $.10 per share.  On December 31, 1999,  1,075,868
shares of SRH's Common Stock were held by 382 holders of record.  SRH's and
Southwest's  Common  Stock are collectively referred to  hereafter  as  the
"Common Stock."

Market

     There  is  currently  no public market for the Common  Stock  and  the
Company does not anticipate that any such market will develop.  The  Common
Stock  has  not been registered under the Securities Act.  The stockholders
have  no  rights  to  require registration of the Common  Stock  under  the
Securities Act or other applicable securities laws.  The Common  Stock  may
not  be  sold, transferred or otherwise disposed of except in a transaction
that  is either registered or exempt from registration under the Securities
Act  and  all  applicable state securities laws.  In addition,  the  Common
Stock   is  subject  to  transfer  restrictions  contained  in  SRH's   and
Southwest's  By-Laws.   Both  SRH's and Southwest's  By-Laws  prohibit  the
transfer of its Common Stock except to a spouse, family member or affiliate
of  a  stockholder.  Any other transfer by a stockholder requires the prior
written  consent  of the Company.  In addition, SRH and H.H.  Wommack,  III
have  the option to purchase the shares in the event of a third party offer
to purchase any of the Common Stock.

Dividends

     Southwest  and SRH have never paid cash dividends on the Common  Stock
and do not anticipate paying cash dividends in the foreseeable future.  The
Company intends to retain any future earnings to finance the expansion  and
continuing  development of the Company's business.  The future  payment  of
dividends,  if  any, on the common Stock is within the  discretion  of  the
Company's  Board of Directors and will depend upon the Company's  earnings,
capital  requirements,  and  financial  position,  future  loan  covenants,
general  economic  conditions  and other  relevant  factors.  There  is  no
assurance that the Company will pay any dividends.

     There  are  several  restrictions on  the  Company's  ability  to  pay
dividends,  including (i) the provisions of the Delaware Corporation  Laws,
(ii) certain restrictive provisions in the Indenture executed in connection
with Southwest's 10.5% Senior Notes due 2004 (the "Indenture"), and (iii) a
restrictive  covenant  in the Company's Revolving Loan  Facility  Agreement
dated  December  29, 1999 with Bank One, Texas, N.A. (the  "Revolving  Loan
Facility").   Under the Indenture, the Company must meet several  financial
tests  before it can pay cash dividends.  These requirements work  together
to  effectively prohibit the payment of cash dividends.  In  addition,  the
Revolving  Loan Facility expressly prohibits the payment of cash  dividends
on Southwest's common stock.


<PAGE>
Recent Sales of Unregistered Securities

     On  October  14,  1997,  Southwest completed a  $200  million  private
placement  sale  of 10.5% Senior Notes due 2004, Series A  (the  "Series  A
Notes")  to  Jefferies & Company, Inc., Banc One Capital  Corporation,  and
Paribas  Corporation (the "Underwriters").   The Underwriters then  offered
and  sold the Series A Notes to qualified institutional buyers.  The  offer
and  sale  of  the  Series A Notes was exempt from registration  under  the
Securities Act pursuant to Section 4(2) and Rule 144A.

     Southwest concluded an offer to exchange the Series A Notes for  10.5%
Series  B,  Senior  Notes  due 2004, which had been  registered  under  the
Securities  Act  on  March  11,  1998.  The Exchange  Offer  was  conducted
pursuant  to  Securities Act Registration Statement  No.  333-41915,  which
became  effective  February  9, 1998.  All  of  the  Series  A  Notes  were
exchanged  for Notes prior to the termination of the Exchange  Offer.   The
Company did not receive any cash proceeds from the issuance of the Notes.

     In 1996, Southwest issued 45,628 warrants, to purchase common stock of
Southwest,  to  Joint  Energy Development Investments  Limited  Partnership
pursuant  to  an  $8 million loan to Southwest which was  repaid  with  the
issuance of the Series A Notes.  The issue of the warrants was exempt  from
registration pursuant to Section 4(2) of the Securities Act.  The  warrants
are presently exercisable upon payment of a prescribed purchase price.   In
connection  with the reorganization in 1997, these warrants were  exchanged
for warrants in SRH.

     In  1996,  Southwest issued 129,046 shares of its  Common  Stock,  par
value  $.10, solely to accredited investors for $68 a share.  The aggregate
offering  price of the shares was $8,624,000 and the aggregate  commissions
for the offering were $333,000.  The offer and sale of the stock was exempt
from  registration  under  the  Securities Act  pursuant  to  Regulation  D
thereunder.  Such stock was exchanged for SRH stock in conjunction with the
reorganization in July 1997.

<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA.

     The   following   tables  set  forth  selected  historical   financial
information of the Company for the periods shown. The following information
should  be  read  in conjunction with "Item 7. Management's Discussion  and
Analysis  of  Financial  Condition  and Results  of  Operations,"  and  the
Company's  Financial  Statements and Notes thereto  included  in  "Item  8.
Financial Statements and Supplementary Data."

                                        Year Ended December 31,
                             1999      1998    1997 (a)    1996      1995
                           -------  ---------  -------   -------   -------
                                 (in thousands, except per share data)
Consolidated Income Statement Data:
Operating revenues:
  Oil and gas             $  31,425 $  32,467 $  38,500 $  33,787 $  21,211
  Well service                    -         -     7,789     8,013     4,218
  Real estate                31,301    25,650     9,338     4,487     3,213
  Other                       1,206     1,392     1,227       614       344
                             ------    ------    ------    ------    ------
   Total operating revenue   63,932    59,509    56,854    46,901    28,986
                             ------    ------    ------    ------    ------
Operating expenses:
  Oil and gas                10,833    18,395    18,500    14,846    11,511
  Well service                    -         -     5,600     6,145     3,315
  Real estate                18,374    13,242     4,138     1,887     1,414
  General and administrative  3,109     4,450     5,745     5,436     3,504
  Depreciation, depletion and
   amortization               9,987    19,240    15,034     8,430     6,719
  Impairment of oil and gas
   properties                     -    64,000         -         -         -
  Other                         798     1,235     1,342       554       228
                            -------    ------    ------    ------    ------
   Total operating expenses  43,101   120,562    50,359    37,298    26,691
                            -------    ------    ------    ------    ------
Operating income (loss)      20,831  (61,053)     6,495     9,603     2,295
                            -------    ------    ------    ------    ------
Other income (expense):
  Interest expense         (41,910)  (36,490)  (18,894)  (10,016)   (5,635)
  Interest income               954     1,478     1,002       441       269
  Other                         952       370       145       561      (78)
                            -------    ------    ------    ------    ------
                           (40,004)  (34,642)  (17,747)   (9,014)   (5,444)
                            -------    ------    ------    ------    ------
Income (loss) before income
 taxes, minority interest,
 equity loss and
 extraordinary item        (19,173)  (95,695)  (11,252)       589   (3,149)
Income tax benefit (provision)   -     2,348     2,641     (365)     1,044
Minority interest in
 subsidiaries, net of tax     1,820     913       430       181        (15)
Equity in loss of subsidiary and
  partnerships, net of tax     (931)   (3,620)     (203)         -        -
Extraordinary item, net of tax 12,875    -       (3,109)   -           -
                            -------    ------    ------    ------    ------
Net income (loss)         $ (5,409) $(96,054) $(11,493) $     405 $ (2,120)
                            =======    ======    ======    ======    ======
Income (loss) per common share
 before extraordinary item $ (17.00) $ (89.28) $  (7.78) $    0.42 $  (2.19)

<PAGE>
                                        Year Ended December 31,
                             1999      1998    1997 (a)    1996      1995
                           -------  ---------  -------   -------   -------
                                 (in thousands, except per share data)
Consolidated Balance Sheet Data:
  Cash and cash equivalents $  16,983 $  13,801 $  27,365 $ 8,284 $  3,364
  Net property and equipment  206,146   213,493   237,675   100,176 78,231
  Total assets              262,167   257,550   305,443   130,284    95,434
  Long-term debt, including
   current portion          347,083   335,084   283,642    93,805    73,486

Consolidated Cash Flow Statement
 Data:
  Net cash provided by (used in)
   operating activities    (10,772)   (5,976)     6,034    10,280     5,634
  Net cash used in investing
   activities               (1,124)  (56,283) (173,902)  (33,225)  (44,532)
  Net cash provided by
   financing activities      15,078    48,695   186,949    27,865    39,166

(a)  Sierra  was  deconsolidated on July 1, 1997.   Earnings  for  the  six
     months  ended June 30, 1997 are included in the Company's consolidated
     statement of operations.  Subsequent to June 30, 1997, any earnings (loss)
     associated with Sierra are reflected in equity in loss of subsidiary.

Selected Operating Data

     The following table sets forth selected information with respect to
the Company's operating data for the periods shown.
                                        Year Ended December 31,
                             1999      1998      1997      1996      1995
                           -------   --------  -------   -------   -------
Production volumes:
  Oil and condensate (Mbbls)  1,306     1,689     1,308     1,001       814
  Natural gas (MMcf)          4,627     5,556     5,639     5,403     4,639
   Total (MBoe)               2,077     2,615     2,248     1,901     1,587
Average daily production:
  Oil and condensate (Bbls)   3,578     4,628     3,584     2,735     2,230
  Natural gas (Mcf)          12,677    15,222    15,449    14,762    12,709
   Total (Boe)                5,691     7,165     6,159     5,194     4,348
Average realized prices (a):
  Oil and gas condensate
   (per Bbl)              $   16.23 $   12.73 $   19.12 $   20.44 $   16.40
  Natural gas (per Mcf)        2.19      1.85      2.24      2.22      1.51
   Per Boe                    15.09     12.16     16.75     17.07     12.83
Expenses (per Boe):
  Lease operating(including
   production taxes)      $    5.22 $    7.03 $    8.23 $    7.81 $    7.25
  Oil and gas depletion        2.36      5.97      5.52      3.38      3.19
  Oil and gas general and
   administrative, net (b)      .78      1.04      1.63      1.28      1.20

(a)  Reflects the actual realized prices received by the Company, including
     the  results  of  the  Company's hedging  activities.   See  "Item  7.
     Management's  Discussion  and  Analysis  of  Financial  Condition  and
     Results of Operations."
(b)  Certain  related  party  management fees received  from  oil  and  gas
     partnerships  have  been reclassified as a reduction  of  general  and
     administrative expenses for all periods presented.

<PAGE>
ITEM  7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND
RESULTS OF OPERATIONS.

General

     Southwest Royalties Holdings, Inc., a Delaware corporation, was formed
in 1997 to serve as a holding company for Southwest Royalties, Inc., Sierra
Well  Service, Inc. and Midland Red Oak Realty, Inc.  SRH is an independent
oil  and gas company engaged in the acquisition, development and production
of oil and gas properties, primarily in the Permian Basin of West Texas and
southeastern  New  Mexico, through its wholly-owned subsidiary,  Southwest.
Since 1983, Southwest has grown primarily through selective acquisitions of
producing oil and gas properties, both directly and through the oil and gas
partnerships  it  manages.  SRH also participates  in  the  well  servicing
industry  through its affiliate, Sierra, and owns and manages  real  estate
properties  through its subsidiary, Red Oak.  SRH has grown over  the  last
several years primarily through acquisitions in each of its businesses.

     On  October  14,  1997,  Southwest completed a  $200  million  private
placement  of  10.5% Senior Notes due 2004, to among other things,  provide
approximately $72 million for acquisitions and approximately $22 million of
working  capital.  An integral part of the Southwest business  strategy  in
conjunction  with the 10.5% Senior Note issuance, involved  the  successful
investment of the additional working capital into both the development  and
exploitation of its existing oil and gas properties and the acquisition  of
additional producing oil and gas properties.  It was imperative to increase
production  volumes  to  meet the necessary ongoing  cash  flow  needs  and
requirements  of  Southwest.  The successful investment of  the  additional
working  capital  would  dramatically increase  production  levels  thereby
supplying  additional  cash  flow to Southwest  to  meet  requirements  and
continue to fund additional capital expenditure projects.

     In  the  last  quarter of 1997, oil and gas commodity prices  began  a
dramatic decrease that continued throughout 1998 and into the first half of
1999.   In  response,  early in 1998, Southwest implemented  its  alternate
budget  that limited capital investment into the planned developmental  and
acquisition  projects  and eventually suspended almost  all  investment  as
prices  continued to decrease and remained depressed.  As  opposed  to  the
originally  budgeted $45 million of capital investment, only  approximately
$10  million was invested for development, exploration and acquisitions  in
1998, with only $3.7 million being invested in 1999.

     Throughout  1998, as oil and gas prices remained depressed,  Southwest
continually   reduced   expenditures  including   corporate   general   and
administrative and lease operating expenses.  On a per unit  of  production
basis, Southwest has reduced lease operating expenses to $5.22/Boe in  1999
from $7.03/Boe in 1998, due primarily to management efforts to cut expenses
through  more  efficient  operations and by  selectively  eliminating  high
operating  expense  properties from its oil and gas  portfolio.   Southwest
also  reduced general and administrative expenses to $.78/Boe in 1999  from
$1.04/Boe in 1998, primarily due to staff reductions initiated by Southwest
early  in  the oil price downturn.  Southwest also initiated and  completed
$5.6 million and $5.7 million in sales of non-strategic and relatively high
cost  oil and gas properties in 1999 and 1998, respectively, to effectively
expand  margins,  increase  efficiencies,  and  supply  additional  working
capital.

     The  harsh  decline in commodity pricing experienced  by  the  Company
throughout  1998  and the first half of 1999, has had a  double  impact  on
Southwest's cash flow by severely reducing proceeds associated with current
production  levels  and  reducing Southwest's investment  into  undeveloped
reserves.   The inability to replace the existing, depleting  reserve  base
ultimately and systematically creates lower revenues and margins.


<PAGE>
     As net revenues fell due to these circumstances of declining price and
production,  an increasingly larger portion of cash flow was  necessary  to
meet debt interest expense.

     Southwest  uses the full cost method of accounting for its  investment
in  oil and gas properties.  Under the full cost method of accounting,  all
costs  of  acquisition, exploration and development of oil and gas reserves
are  capitalized into a "full cost pool" as incurred, and properties in the
pool are depleted and charged to operations using the gross revenues method
based  on the ratio of current gross revenues to total proved future  gross
revenues, computed based on current prices.  Significant downward revisions
of quantity estimates or declines in oil and gas prices that are not offset
by  other factors could result in a writedown for impairment of oil and gas
properties.   Once incurred, a writedown of oil and gas properties  is  not
reversible  at  a  later date, even if oil or natural gas prices  increase.
During 1998, oil prices were drastically lower than prior years causing the
Company  to incur a $64.0 million noncash charge.  As of December 31,  1999
oil  price  had increased significantly over prices received  during  1998,
thus  no  write  down  of capitalized costs of oil and gas  properties  was
deemed necessary for the year ended December 31, 1999.

     The  severe decrease in the commodity prices has drastically  affected
revenue  and  cash  flows  from  operations  received  by  Southwest.   The
resulting  inability  to  successfully  employ  the  initial  business  and
investment  plan of Southwest, which was to be initiated immediately  after
the  $200 million 10.5% Senior Note issuance, and the necessary use of cash
balances  and  operating  cash  flows to  meet  debt  interest  obligations
therefrom,  makes  it  probable Southwest will not  be  able  to  meet  its
operating  and  debt obligations in 2000 and beyond, unless  Southwest  can
successfully restructure its debt obligations.

     Southwest   has   a   highly   leveraged   capital   structure   with,
approximately,  $16.2  million  of  cash  interest  and  $35.1  million  of
principal due at December 31, 1999.  Subsequent to year end, Southwest drew
down  the  remaining  $15.0 million on the Revolving Loan  Facility,  as  a
result,  $17.5  million  of cash interest payments  and  $50.1  million  of
principal  will  be due in 2000 (See Note 18).  The majority  of  the  cash
interest relates to the 10.5% Senior Notes and the Revolving Loan Facility.
Due  to severely depressed commodity prices experienced throughout 1998 and
the  first half of 1999, Southwest is experiencing difficulty in generating
sufficient  cash  flow to meet its obligations and sustain its  operations.
Management   is   attempting  to  renegotiate  the  terms  of   Southwest's
obligations with its note holders and/or attempting to seek new lenders  or
equity  investors.   Additionally, management would consider  disposing  of
certain assets in order to meet its obligations.

     Red  Oak.  Red  Oak  acquires and manages neighborhood  and  community
shopping  centers,  other  retail  and  commercial  properties  and  office
buildings.  These properties are primarily leased, on a long-term basis, to
major  retail  companies, local specialty retailers  and  professional  and
business  tenants throughout secondary urban markets.  As of  December  31,
1999,  Red  Oak  owned  and managed fifteen shopping  centers,  six  office
buildings  and  raw land held for future development.  Red  Oak's  revenue,
profitability and cash flows are substantially dependent upon  the  ability
of Red Oak to lease its properties on economically favorable lease terms.

     Red Oak is currently experiencing financial difficulties.  Red Oak has
generated losses for the years ended December 31, 1999, 1998 and  1997  and
is  experiencing difficulties in meeting its obligations when  they  become
due.   The  capital  structure  of Red Oak is highly  leveraged  with  $5.2
million  and  $14.8  million  of  principal  and  cash  interest  payments,
respectively,  due  in 2000.  Management is currently  in  the  process  of
renegotiating the terms of Red Oak's various obligations with  its  lenders
and  /or seeking new lenders or equity investors.  Additionally, management
would   consider  disposing  of  certain  assets  in  order  to  meet   its
obligations.

     Sierra.  Effective July 1, 1997 Sierra was deconsolidated  from  SRH's
financial  statements and SRH has subsequently accounted for its  ownership
in Sierra as an investment in an unconsolidated subsidiary, consistent with
the  equity  method  of  accounting under GAAP.  As  such,  comparisons  of
Sierra's  revenue and expenses for the years ended December 31, 1999,  1998
and 1997 are not relevant, and therefore, no discussion of such results  of
operations are provided herein.


<PAGE>
Results of Operations

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

     The  following  table summarizes production volumes and average  sales
prices  for SRH's oil and gas operations, including the effect on revenues,
for the periods indicated:

                                      Year Ended        1999 Compared
                                     December 31,          to 1998
                                  ----------------- ---------------------
                                                         %      Revenue
                                                      Increase  Increase
                                   1999      1998    (Decrease)(Decrease)
                                  ------    ------   --------- ---------
                                                            (in thousands)
Production volumes:
  Oil and condensate (MBbls)       1,306     1,689   (23%)     $(6,220)
  Natural gas (MMcf)               4,627     5,556   (17%)     (2,034)
Average sales prices:
  Oil and condensate (per Bbl)         $   16.23 $      12.73  27%   $
5,912
  Natural gas (per Mcf)             2.19      1.85     18%       1,889

     Revenues. Revenues for SRH increased 7% to $63.9 million in 1999  from
$ 59.5 million in 1998.

     Oil  and gas revenue decreased 3% to $31.4 million in 1999 from  $32.5
million  in  1998. The decrease in oil and gas revenue is due primarily  to
decreases in oil and gas production which were offset by increases  in  oil
and gas sales prices during 1999.  Increases in oil and gas prices resulted
in  increased oil and gas revenues of approximately $7.8 million which were
offset by decreased oil and gas production of $8.3 million and a decline of
other oil and gas partnership distributions of approximately $584,000.

     Oil and gas production decreased 21% or approximately 1,500 BOEPD,  to
5,700  BOEPD in 1999 from approximately 7,200 BOEPD in 1998.  In an ongoing
effort  to  increase the Company's cash position and reduce the  number  of
high  operating expense properties in its oil and gas portfolio, management
has sold oil and gas properties for approximately $5.6 and $5.7 million  in
1999 and 1998, respectively.  The production decline resulting from oil and
gas  property sales was approximately 1,000 BOEPD, or approximately 14%  of
the   total   decline.   The  remainder  of  the  production   decline   of
approximately  7% is mostly results of natural decline. The  average  sales
price  per barrel of oil was $16.23 and the average sales price of  natural
gas   was   $2.19/Mcf  in  1999,  representing  a  27%  and  18%  increase,
respectively, compared to 1998 sales price levels.

     Real estate revenues increased 22% to $31.3 million in 1999 from $25.6
million  in 1998. The increase in real estate revenues is due primarily  to
several  acquisitions  made  late  in  the  second  quarter  of  1998   and
subsequent.  Other operating revenues decreased 13% to $1.2 million in 1999
from $1.4 million in 1998.

     Operating   Expenses.    Operating  expenses,   before   general   and
administrative expense, impairment of oil and gas properties, depreciation,
depletion  and  amortization, decreased 9% to $30.0 million  in  1999  from
$32.9 million in 1998.

<PAGE>
     Oil  and  gas operating expense decreased approximately 41%  to  $10.8
million  in 1999 from $18.4 million in 1998.  The decrease is due primarily
to  management's efforts to cut expenses through more efficient operations,
and  by selectively eliminating high operating expense properties from  its
oil  and  gas  portfolio. Property sales accounted for  approximately  $4.0
million  of  the decline.  The average operating expense decreased  26%  to
$5.22/Boe in 1999, from $7.03/Boe 1998.

     Real  estate  operating expense increased approximately 39%  to  $18.4
million  in  1999 from $13.2 million in 1998.  The increase in real  estate
operating  expenses is due primarily to several acquisitions made  late  in
the  second  quarter  of  1998 and subsequent.   Other  operating  expenses
decreased 35% to $798,000 in 1999 from $1.2 million in 1998.

     General  and  Administrative ("G&A") Expense.   G&A  expense  for  the
Company  decreased 30% to $3.1 million in 1999 from $4.4 million  in  1998.
Oil  and  gas G&A expense decreased 40% to $1.6 million in 1999  from  $2.7
million in 1998, and averaged $.76/Boe in 1999, a 27% decrease compared  to
$1.04/Boe in 1998.  The oil and gas G&A decline is predominately due to the
reduction in salary expense because of property sales and restructuring  of
duties. Real estate G&A expense decreased 12% to $1.6 million in 1999  from
$1.8 million in 1998.  The decrease in real estate G&A relates primarily to
charges  incurred  during  the later part of  1998  for  travel  and  other
professional services associated with a non consummated refinance.

     Depreciation,  Depletion  and  Amortization  ("DD&A")  Expense.   DD&A
expense  for SRH decreased 48% to $10.0 million in 1999 from $19.2  million
in  1998.  Oil and gas DD&A expense decreased 67% to $5.4 million  in  1999
from 16.1 million in 1998 and on a Boe basis, decreased 58% to $2.60/Boe in
1999  from  $6.16/Boe in 1998.  The decrease in DD&A expense on an  overall
basis  and/Boe is due primarily to the reduction in the carrying  value  of
SRH's  oil  and  gas properties because of the impairment of  approximately
$64.0  million, which was recorded during 1998.  Real estate  DD&A  expense
increased 53% to $4.5 million in 1999 from $2.9 million in 1998 due to  the
impact of acquisitions.

     Interest  Expense.  Interest expense for SRH increased  15%  to  $41.9
million  in 1999 from $36.5 in 1998.  Oil and gas interest expense remained
relatively  constant at $22.4 million in 1999 as compared to $22.5  million
in  1998.  Real estate interest expense increased 41% to $19.7 million  for
1999  from  $14.0  million  in  1998.  The  Real  estate  interest  expense
increases  were  due  to additional debt used to finance  acquisitions  and
operations.

     Equity  in Loss of Subsidiary.  Equity in Loss of Subsidiary  resulted
in  a  charge of $931,000 of which, $744,000 was a non-cash charge for  the
impairment  of  the equity investment in Sierra recognized in  1999.   This
amount relates to SRH's 39% direct and indirect investment in Sierra.

     Net  Income (Loss).  Due to the factors described above, net loss  for
SRH  decreased 94% to $5.4 million in 1999 from $96.1 in 1998.  Oil and gas
net income was approximately $7.3 million in 1999 as compared to a net loss
of  $88.4 million in 1998.  Included in the oil and gas net income for 1999
is  an  extraordinary gain associated with the repurchase of  approximately
19%  of the original issue, $200 million face 10.5% senior notes issued  in
October  of  1997, of approximately $14.5 million.  Real estate net  losses
increased  122%  to  $13.0  million in 1999  from  $5.9  million  in  1998.
Included in the Real estate net loss for 1999 is an extraordinary  loss  of
$1.6  million associated with the write off of deferred debt costs  related
to a portion of MROR's debt which was refinanced in 1999.

<PAGE>
Results of Operations

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

     The  following  table summarizes production volumes and average  sales
prices  for SRH's oil and gas operations, including the effect on revenues,
for the periods indicated:

                                      Year Ended        1998 Compared
                                     December 31,          to 1997
                                  ----------------- ---------------------
                                                         %      Revenue
                                                      Increase  Increase
                                   1998      1997    (Decrease)(Decrease)
                                  ------    ------   --------- ---------
                                                            (in thousands)
Production volumes:
  Oil and condensate (MBbls)       1,689     1,308     29%     $ 7,285
  Natural gas (MMcf)               5,556     5,639    (1%)       (186)
Average sales prices:
  Oil and condensate (per Bbl)         $   12.73 $      19.12  (33%) $
(10,793)
  Natural gas (per Mcf)             1.85      2.24   (17%)     (2,167)

     Revenues.   Consolidated revenues for SRH increased $2.7  million,  or
5%,  for the year ended December 31, 1998.  An increase in revenues at  Red
Oak was partially offset by a decrease in revenues at Southwest and Sierra,
which was deconsolidated July 1, 1997.


     Oil  and  gas  revenues decreased $6.0 million, or 16%, from  1997  to
1998,  due primarily to decreases in oil and gas sales prices during  1998.
Oil  production  increased 29% for the year while gas production  decreased
1%.   The  increase in oil production is due principally to  the  full-year
effect in 1998 of a large oil and gas acquisition in October 1997.  Changes
in  production  added  $7.1 million to Southwest's revenues.   The  average
sales  price  per barrel of oil was $12.73 and the average sales  price  of
natural  gas  was $1.85/Mcf in 1998, representing a 33% and  17%  decrease,
respectively,  compared to prior year sales price levels. These  lower  oil
and  gas  prices  resulted  in  a  $13.0 million  decrease  in  Southwest's
revenues, offsetting the revenue increase due to increased production.

     Real  estate  revenues  increased $16.3  million,  or  175%,  in  1998
compared to the prior year, due primarily to acquisitions completed in  the
last  half  of  1997  and  in  1998.  Other  operating  revenues  increased
$165,000.

     Operating   Expenses.   Operating   expenses,   before   general   and
administrative expense, impairment of oil and gas properties, depreciation,
depletion  and amortization increased $3.3 million, or 11%, in  1998.   The
increase  is  due  primarily to acquisition-related growth  in  SRH's  real
estate  business,  and is partially offset by lower  expenses  due  to  the
deconsolidation of Sierra from SRH on July 1, 1997.

     Oil  and gas operating expense decreased $105,000, or 1%, in 1998, due
primarily  to  management efforts to cut expenses  through  more  efficient
operations,   and   by  selectively  eliminating  high  operating   expense
properties  from its oil and gas portfolio.  The average operating  expense
was $7.03/Boe in 1998, a decrease of 15% from $8.23/Boe for the same period
in 1997.

     Real  estate  operating expense increased $9.1 million, or  220%,  for
1998,  due  primarily to acquisitions. Other operating  expenses  decreased
$107,000.

<PAGE>
     General  and Administrative ("G&A") Expense.  Consolidated G&A expense
for  SRH  decreased $1.3 million, or 23%, for 1998.  The  decrease  is  due
primarily to the deconsolidation of Sierra from SRH, which contributed $1.3
million  of G&A expense in the first half of 1997. Oil and gas G&A  expense
decreased  approximately $942,000, or 26%, in 1998 compared  to  1997,  and
averaged  $1.04/Boe in 1998, a 36% decrease compared to 1997, due primarily
to reductions in oil and gas technical and administrative staff in response
to  significant  decreases in oil and gas prices experienced  in  the  last
quarter  of 1997 and in 1998.  Real estate G&A expense increased  $533,000,
or   41%,   in  1998  due  primarily  to  administrative  staff   increases
necessitated by Red Oak's growth during the year.

     Depreciation,    Depletion   and   Amortization   ("DD&A")    Expense.
Consolidated DD&A expense for SRH increased $4.2 million, or 28%,  for  the
year  ended  December 31, 1998 due to growth in each of  SRH's  businesses.
Oil  and gas DD&A expense increased approximately $3.3 million, or 26%,  in
1998,  compared to the prior year.  Oil and gas depletion was $5.97/Boe  in
1998, an increase of 8% compared to 1997. The increase in oil and gas  DD&A
expense  on an overall basis and per Boe is due primarily to a decrease  in
oil and gas price used in the year-end reserve reports for 1998 compared to
1997,  which resulted in a higher depletion rate under the units of revenue
method.  Real estate DD&A expense increased approximately $2.1 million,  or
261%,  in  1998 compared to 1997, attributable primarily to the  impact  of
acquisitions.

     Impairment  of Oil and Gas Properties.  As of December 31,  1998,  the
net  capitalized cost exceeded the estimated present value  of  Southwest's
oil  and gas reserves, thus SRH incurred a non-cash charge of $64.0 million
in 1998.

     Interest  Expense.   Consolidated interest expense for  SRH  increased
$17.6  million,  or  93%,  in 1998, primarily  as  a  result  of  increased
borrowings incurred to fund a portion of SRH's acquisitions and oil and gas
development.  Oil  and gas interest expense increased  approximately  $10.2
million,  or  83%,  as  a  result of increased borrowings  for  development
drilling  and acquisitions made in the fourth quarter of 1997 and in  1998.
Real  estate  interest  expense increased $7.6 million,  or  121%,  due  to
increased borrowing with proceeds used to finance acquisitions as  compared
to  the prior years.  As evidenced by the 93% increase in interest expense,
SRH  is  extremely leveraged with approximately 61% of its total  operating
revenues  being  used  to  service  interest  expense.   Based  on  current
commodity  prices,  production, rent revenues and  current  structure,  SRH
probably  will not be able to make interest payments and meet its operating
and capital needs as they become due beyond 1999.

     Other Income (Expense).  Other income (expense) increased $225,000, or
155%, due primarily to the sale of land held for investment by Red Oak.

     Equity  in  Loss of Subsidiary and Partnerships.  Equity  in  Loss  of
Subsidiary and Partnerships resulted in a net charge $3.6 million for 1998.

     Net  Income.  Due  to  the factors described above,  consolidated  net
income  for SRH decreased $84.6 million to a loss of $96.1 million for  the
year  ended December 31, 1998.  Included in the $96.1 million loss for  the
year ended December 31, 1998 was a non-cash charge of $64.0 million for the
writedown of oil and gas properties.

<PAGE>
Liquidity and Capital Resources

     Funding  for  the Company's business activities has historically  been
provided  by  operating  cash  flows, bank borrowings  and  debt  issuance,
reserve-based   financing  and  sales  of  equity.   Any   future   capital
expenditures  or acquisitions will require additional equity  or  financing
and  will  be dependent upon financing arrangements available at the  time.
The  significant decrease in oil and gas prices experienced during the last
quarter  of 1997 and extending through the first half of 1999, has severely
limited  cash  flow from operations, depleted working capital and  rendered
most  other  financing  sources  unavailable,  or  if  available,  on  very
unattractive  terms  to  the Company.  Based on current  commodity  prices,
production,  rent revenues and its highly leveraged position,  the  Company
probably  will not be able to meet operating and debt obligations  in  2000
and beyond.

     Management  is constantly monitoring the Company's cash  position  and
its  ability to meet its financial obligations as they become due,  and  in
this effort, is exploring various strategies for addressing its current and
future liquidity needs.  During 1999 and 1998, for instance, Southwest sold
$5.6  million and $5.7 million, respectively, of oil and gas properties  in
an  ongoing  effort to decrease its production costs and improve  its  cash
position  and also negotiated a $50 million revolving line of  credit  with
BankOne Texas, N.A. the proceeds of which were used to purchase in December
1999  and  January  2000, approximately $76.3 million of the  10.5%  Senior
Notes  due 2004.  As of December 31, 1999, SRH's consolidated cash  balance
was $27.0 million, of which $21.4 million was available to Southwest.

     SRH  financial statements have been prepared on a going concern basis,
which  contemplates  the  realization of assets  and  the  satisfaction  of
liabilities  in the normal course of business.  The consolidated  financial
statements  do  not include any adjustments relating to the  recoverability
and  classification of liabilities that might be necessary  should  SRH  be
unable to continue as a going concern.

     SRH  has  a  highly  leveraged capital structure with,  approximately,
$30.8  million  of  cash interest and $40.3 million  of  principal  due  at
December  31,  1999.  Subsequent to year end, SRH drew down  the  remaining
$15.0  million on the Revolving Loan Facility.  As a result, $32.1  million
of  cash  interest payments and $55.3 million of principal will be  due  in
2000 (See Note 18).  Due to severely depressed commodity prices experienced
throughout  1998  and  into  the first half of  1999,  and  lagging  rental
property   utilization,  SRH  is  experiencing  difficulty  in   generating
sufficient  cash  flow to meet its obligations and sustain its  operations.
Management is currently in the process of renegotiating the terms of  SRH's
various  obligations with its note holders and/or attempting  to  seek  new
lenders  or  equity  investors.  Additionally,  management  would  consider
disposing of certain assets in order to meet its obligations.

     There  can be no assurance that SRH's debt restructuring efforts  will
be  successful  or that the note holders will agree to a course  of  action
consistent with SRH's requirements in restructuring the obligations.   Even
if  such  agreement is reached, it may require approval of additional  note
holders,  or possibly, agreements of other creditors of SRH, none of  which
is  assured.   Furthermore, there can be no assurance  that  the  sales  of
assets can be successfully accomplished on terms acceptable to SRH.   Under
current circumstances, SRH's ability to continue as a going concern depends
upon  its  ability  to  (1)  successfully restructure  its  Revolving  Loan
Facility, the 10.5% Senior Notes and other obligations or obtain additional
financing  as  may  be  required, (2) maintain  compliance  with  all  debt
covenants, (3) generate sufficient cash flow to meet its obligations  on  a
timely  basis, and (4) achieve satisfactory levels of future earnings.   If
SRH  is  unsuccessful  in  its  efforts, it  may  be  unable  to  meet  its
obligations on the Revolving Loan Facility, the 10.5% Senior Notes, as well
as  other obligations, making it necessary to undertake such other  actions
as may be appropriate to preserve asset values.

     Cash  flow  information for Sierra is reported through June 30,  1997,
the date prior to its deconsolidation from SRH, but for periods thereafter,
cash  flow  information  has  been reported  using  the  equity  method  of
accounting under GAAP.


<PAGE>
     Net  Cash Provided By (Used By) Operating Activities.  SRH's operating
activities used cash flow of $10.4 million, $6.0 million and provided  cash
flow  of  $6.0 million in 1999, 1998 and 1997, respectively.  SRH's ability
to  generate cash flow from operating activities is severely restricted due
to its highly leveraged capital structure.

     Net  Cash  Used  in Investing Activities.  Cash flows  used  in  SRH's
investing  activities were $1.1 million, $56.3 million and  $173.9  million
for  1999,  1998  and 1997, respectively. Oil and gas and  commercial  real
estate  acquisitions and development activities were the  primary  uses  of
funds in each year.

     The   following  table  sets  forth  capital  expenditures,  including
acquisitions, made by SRH during the periods indicated.
                                            Year Ended December 31,
                                      -----------------------------------
                                            1999      1998      1997
                                           -----     -----     -----
                                                 (in thousands)
Oil and gas properties
     Development                          $  3,195  $  7,897  $ 19,639
     Exploration                                76       834     2,769
     Acquisitions                              417     1,315    80,797
Oil and gas other                              233       618     1,135
Real estate                                  6,723    53,411    53,626
Other                                               306       433
236
                                            ------   -------   -------
       Total                              $ 10,950  $ 64,508  $158,202
                                            ======   =======   =======
     In  response  to  SRH's  highly leveraged capital  structure  and  its
limited  working capital, SRH has initiated a short-term alternate business
plan that delays certain development and exploratory projects until oil and
gas  industry conditions improve.  Based on this plan, SRH has  tentatively
budgeted  $8 million in capital expenditures at Southwest for oil  and  gas
development projects.  This budget is subject to change based on  financial
strategies   currently  being  developed,  including  hedging   strategies,
divestitures and debt restructuring, as well as the level of  oil  and  gas
prices in the future.

     Net  Cash  Provided by Financing Activities.  Cash provided  by  SRH's
financing activities, on a consolidated basis, was $14.8 million (including
additional  net  borrowings  of $14.9 million),  $48.7  million  (including
additional  net borrowings of $49.1 million) and $186.9 million  (including
additional net borrowings of $185.0 million and $1.0 million from  issuance
of  additional  equity securities) for 1999, 1998 and  1997,  respectively.
Net  cash  provided by financing activities was primarily used to fund  the
purchase  of a portion of the 10.5% Senior Notes due 2004 and to  refinance
and fund real estate activities.  Net cash provided by financing activities
was primarily used to fund real estate activities in 1998.

     Senior  Notes due 2004.  In October 1997, Southwest completed  a  $200
million  private placement of 10.5% Senior Notes due 2004.   Proceeds  from
the  Offering were used primarily for acquisitions, repayment of  debt,  an
equity  investment by SRH in Red Oak and for working capital.   The  Senior
Notes bear interest at 10.5% per annum and mature on October 15, 2004.

     Revolving Loan Facility.  In December 1999, Southwest entered  into  a
Revolving  Loan  Facility  with  Bank One Texas,  N.A.,  which  provided  a
borrowing  base of $50 million with a maturity date of December  29,  2000.
Funds from the Revolving Loan Facility may be used for working capital  and
other general corporate purposes, including the repurchase of a portion  of
Southwest's  outstanding  10.5% Senior Notes  due  2004.  Advances  on  the
Revolving Loan Facility bear interest at the option of Southwest, based  on
the prime rate of Bank One Texas, N.A. (8.5% at December 31, 1999) plus one
fourth of one percent (.25%), when the borrowing base usage is equal to  or
greater than 80% or zero percent (0%) when the borrowing base usage is less
than 80% or, a Eurodollar rate (substantially equal to the London InterBank
Offered  Rate ("LIBOR")) plus 1.25% up to 2.0% based on the borrowing  base
usage  percentage.  The Revolving Loan Facility is secured by no less  than
85%  of  Southwest's oil and gas properties.  As of December 31, 1999,  the
company has drawn $35.0 million.  The remaining $15.0 million was drawn  in
January 2000(See Note 18).

<PAGE>
     The Revolving Loan Facility imposes certain limitations on the ability
of Southwest to, among other things, incur additional indebtedness or issue
disqualified  capital  stock, make payments in respect  to  capital  stock,
enter  into transactions with affiliates, incur liens, sell assets,  change
the  nature of its business, merge or consolidate with any other person and
sell,  lease,  transfer or otherwise dispose of substantially  all  of  its
properties  or assets.  The Revolving Loan Facility required  Southwest  to
establish  a sinking fund account with an initial deposit of $3.5  million.
Southwest  is  to  transfer  monthly one-twelfth  of  the  annual  interest
payments  on the 10.5% Senior Notes beginning December 31, 1999  into  this
sinking  fund  account for the purpose of making interest payments  on  the
10.5% Senior Notes.

     In  June 1999, MRO Southwest, Inc., a wholly owned subsidiary  of  Red
Oak  negotiated two notes payable in the amount of $97.5 million  and  $8.0
million, net of discounts of $5.3 million. Borrowings for both notes accrue
interest  in arrears at a rate per annum equal to the greater  of  8.6%  or
LIBOR plus 360 basis points.  The interest rate includes a servicing fee of
 .10%.  Approximately $91.4 million of the $97.5 million note  was  used  to
retire existing debt on properties contributed to MRO Southwest by Red Oak,
$1.5  million was deposited into various restricted cash accounts  and  the
remaining  proceeds  were  used for general corporate  purposes.  The  $8.0
million  note  is  for  capital improvements to rental  property  and  $3.4
million  has  not  been utilized as of December 31, 1999.   The  notes  are
collateralized by the properties owned by MRO Southwest.  The notes  impose
certain  restrictive covenants including restrictions on the incurrence  of
additional indebtedness, dissolution, termination or liquidation of all  or
substantially  all  of the assets, changes in the legal  structure  of  the
assets, making any loans or advances to any third party and commingling its
assets  with the assets of any of its affiliates or of any other person  or
entity.

     Hedging  Activities.   Southwest,  from  time  to  time,  uses  option
contracts  to  mitigate  the  volatility of price  changes  on  commodities
Southwest  produces and sells as well as to lock in prices to  protect  the
economics related to certain capital projects.

     On  July 9, 1999, Southwest entered into a commodity swap agreement to
hedge  a  portion of its crude oil sales.  The agreement is for a  notional
amount  of 1,000 BBls of oil a day with a strike price of $20.22, based  on
West Texas Intermediate - NYMEX.  The contract is for the period August  1,
1999  through  October  31, 1999.  At the option of the  counter-party  the
contract has been extended to January 31, 2000.

     On  December  30,  1999,  Southwest  entered  into  a  basket  revenue
protection  agreement,  which provides the Company  with  an  oil  and  gas
revenue  floor.   The contract is for the period January  1,  2000  through
December  31,  2000.  The agreement is to be calculated on a calendar  year
quarter as disclosed in the following table based on NYMEX Natural Gas  and
NYMEX Crude Oil:

            Notional Volumes              Strike Prices
       -------------------------  -----------------------------
           Crude      Natural        Crude    Natural              Minimum
         Oil (bbl)  Gas (MMBtu)       Oil       Gas       BOE      Revenue
         ---------- -----------      -----    -------     ----     --------
Quarter 1 269,254      976,676     $  21.12  $   1.91  $  28.76  $7,552,096
Quarter 2 263,058      910,325     $  18.80  $   1.92  $  26.56  $6,714,359
Quarter 3 257,206      857,728     $  18.00  $   1.97  $  25.88  $6,319,432
Quarter 4 251,914      813,400     $  18.00  $   2.20  $  26.80  $6,323,932

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

Other Issues

Year 2000 Issues

     SRH has initially incurred no significant problems related to the Year
2000  issue.   However, SRH has not yet fully utilized  all  functions  and
processes  of  its  systems and accordingly cannot be  sure  that  all  its
systems will be free of Year 2000 issues.  Also, SRH has no assurance  that
its  "critical business partners", or governmental agencies  or  other  key
third parties, have not incurred Year 2000 issues that may affect SRH.

<PAGE>
Derivative Instruments and Hedging Activities.

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

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The  following  quantitative and qualitative information  is  provided
about  financial instruments to which the Company is a party as of December
31,  1999,  and from which the Company may incur future earnings  gains  or
losses from changes in market interest rates or commodity prices.

Quantitative Disclosures

     Interest  rate sensitivity.  The following table provides  information
about  the  Company's debt obligations which are sensitive  to  changes  in
interest  rates.   The table presents cash maturities by expected  maturity
dates together with the weighted average interest rates expected to be paid
on  the  debt, given current contractual terms and market conditions.   For
fixed  rate  debt,  the  weighted  average  interest  rate  represents  the
contractual  fixed rates that the Company is obligated to periodically  pay
on  the  debt; for variable rate debt, the average interest rate represents
the average rates being paid on the debt at December 31, 1999.


                                      As of December 31, 1999
                        2000   2001    2002   2003 2004Thereafter     Total
Fair Value
                        ----   ----    ----   ---- --------------     -----
----------
Total Debt
  maturities           $40,277    $ 41,412$ 101,926   $ 391 $ 160,680     $
2,397               $ 347,083    $ 276,420
Fixed  rate debt       $3,741     $ 42    $ 28 $ 19   $ 160,615   $  873  $
165,318             $ 94,655
Weighted average
  interest rate        10.49%         10.49%      10.49%      10.49% 10.49%
8.04%
Variable rate debt    $36,536    $ 41,370$ 101,898   $ 372 $ 65   $   1,524
$             181,765 $181,765
Average  interest rate         8.96%        10.06%      9.39%  9.37%  9.37%
9.37%

      Commodity  price  sensitivity.  See  Notes  1  and  13  of  Notes  to
Consolidated   Financial  Statements  included  in  "Item   8.    Financial
Statements  and  Supplementary Data" for a description  of  the  accounting
procedures   followed  by  SRH  relative  to  hedge  derivative   financial
instruments  and  for  specific information  regarding  the  terms  of  the
Company's derivative financial instrument which is sensitive to changes  in
natural gas and crude oil commodity prices.

<PAGE>
     On  July 9, 1999, Southwest entered into a commodity swap agreement to
hedge  a  portion of its crude oil sales.  The agreement is for a  notional
amount  of 1,000 BBls of oil a day with a strike price of $20.22, based  on
West Texas Intermediate - NYMEX.  The contract is for the period August  1,
1999  through  October  31, 1999.  At the option of the  counter-party  the
contract has been extended to January 31, 2000.

     On  December  30,  1999,  Southwest  entered  into  a  basket  revenue
protection  agreement,  which provides the Company  with  an  oil  and  gas
revenue  floor.   The contract is for the period January  1,  2000  through
December  31,  2000.  The agreement is to be calculated on a calendar  year
quarter as disclosed in the following table based on NYMEX Natural Gas  and
NYMEX Crude Oil:

            Notional Volumes              Strike Prices
       -------------------------  -----------------------------
           Crude      Natural        Crude    Natural              Minimum
         Oil (bbl)  Gas (MMBtu)       Oil       Gas       BOE      Revenue
         ---------- -----------      -----    -------     ----     --------
Quarter 1 269,254      976,676     $  21.12  $   1.91  $  28.76  $7,552,096
Quarter 2 263,058      910,325     $  18.80  $   1.92  $  26.56  $6,714,359
Quarter 3 257,206      857,728     $  18.00  $   1.97  $  25.88  $6,319,432
Quarter 4 251,914      813,400     $  18.00  $   2.20  $  26.80  $6,323,932

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

Qualitative Disclosures

     Non-derivative financial instruments.  The Company is a borrower under
fixed  rate  and variable rate debt instruments that give rise to  interest
rate  risk.   The Company's objective in borrowing under fixed or  variable
rate debt is to satisfy capital requirements while minimizing the Company's
costs  of  capital.  To realize its objectives, the Company  borrows  under
fixed  and  variable  rate debt instruments, based on the  availability  of
capital  and  market  conditions.  See Note  7  of  Notes  to  Consolidated
Financial  Statement  included  in  "Item  8.   Financial  Statements   and
Supplementary  Date"  for  a  discussion relative  to  the  Company's  debt
instruments.

     Derivative   financial  instruments.   Revenues  from  the   Company's
operations  are highly dependent on the price of oil and gas.  The  markets
for oil and natural gas are volatile and prices for oil and gas are subject
to  wide fluctuations in response to relatively minor changes in the supply
of  and demand for oil and gas and a variety of additional factors that are
beyond  SRH's control.  These factors include the level of consumer demand,
weather  conditions, domestic and foreign governmental regulations,  market
uncertainty,  the  price and availability of alternative  fuels,  political
conditions  in  the  Middle  East, foreign  imports  and  overall  economic
conditions.  It is impossible for SRH to predict future oil and gas  prices
with  any certainty.  In order to reduce the Company's exposure to oil  and
gas  price risks, from time to time the Company enters into commodity price
derivative contracts to hedge commodity price risks.

     As  of  December  31,  1999,  the  Company's  primary  risk  exposures
associated  with  financial instruments to which  it  is  a  party  include
natural  gas  and crude oil price volatility and interest rate  volatility.
The  Company's primary risk exposures associated with financial instruments
have not changed significantly since December 31, 1999.

<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                Index to Consolidated Financial Statements

                                                              Page
                                                             -----

Consolidated Financial Statements of Southwest Royalties
  Holdings, Inc. and Subsidiaries
Independent Auditors' Report                                   42
Consolidated Balance Sheets as of December 31, 1999 and 1998          43
Consolidated Statements of Operations for the Years Ended
  December 31, 1999, 1998 and 1997                             45
Consolidated Statements of Stockholders' Equity for the Years
  Ended December 31, 1999, 1998 and 1997                       47
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1999, 1998 and 1997                             48
Notes to Consolidated Financial Statements                     50




<PAGE>
                       INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Southwest Royalties Holdings, Inc.:


     We  have  audited  the  accompanying consolidated  balance  sheets  of
Southwest Royalties Holdings, Inc. and subsidiaries as of December 31, 1999
and   1998,   and  the  related  consolidated  statements  of   operations,
stockholders' equity and cash flows for each of the years in the three-year
period  ended  December 31, 1999.  These consolidated financial  statements
are the responsibility of the Company's management.  Our responsibility  is
to express an opinion on these financial statements based on our audits.

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

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

     The  accompanying consolidated financial statements have been prepared
assuming  that the Company will continue as a going concern.  As  discussed
in  Note  2  to  the  consolidated financial  statements,  the  Company  is
experiencing  difficulty in generating sufficient cash  flow  to  meet  its
obligations and sustain its operations which raises substantial doubt about
its  ability to continue as a going concern.  Management's plans in  regard
to  these matters are also described in Note 2.  The consolidated financial
statements  do  not  include any adjustments that  might  result  from  the
outcome of this uncertainty.






                                     KPMG LLP

Midland, Texas
March 15, 1999




<PAGE>

            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

                        CONSOLIDATED BALANCE SHEETS

                              (in thousands)

                                                        December 31,
                                                  ------------------------
ASSETS                                                1999      1998
----------------------------------------------------------     -----  -----
Current assets
  Cash and cash equivalents                         $ 16,983  $ 13,801
  Restricted cash                                     10,003     5,050
  Accounts receivable, net of allowance of
   $440 and $342, respectively                         7,134     5,248
  Receivables from related parties                       836     1,594
  Other current assets                                 1,179     1,624
                                                     -------   -------
     Total current assets                             36,135    27,317
                                                     -------   -------

Oil and gas properties, using the full cost
 method of accounting
  Proved                                             193,319   194,096
  Unproved                                             2,059     3,230
                                                     -------   -------
                                                     195,378   197,326
  Less accumulated depletion, depreciation
   and amortization                                  126,742   121,841
                                                     -------   -------
     Oil and gas properties, net                      68,636    75,485
                                                     -------   -------
Rental property, net                                 128,685   132,120
                                                     -------   -------
Rental property - construction in progress             3,984         -
                                                     -------   -------
Other property and equipment, net                      4,841     5,888
                                                     -------   -------
Other assets
    Equity   investment   in  subsidiary  and   partnerships              -
931
  Real estate investments                              3,644     4,019
  Deferred debt costs, net of accumulated
    amortization  of  $5,681  and  $3,136,  respectively             13,816
8,725
  Noncompete covenants, net of accumulated
   amortization of $563 and $269, respectively         1,041     1,335
  Other, net                                           1,385     1,730
                                                     -------   -------
  Total other assets                                  19,886    16,740
                                                     -------   -------
Total assets                                        $262,167  $257,550
                                                     =======   =======
                                                           (continued)








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

<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

                 CONSOLIDATED BALANCE SHEETS - (continued)

                   (in thousands, except per share data)

                                                        December 31,
LIABILITIES, MINORITY INTEREST, REDEEMABLE        ------------------------
 COMMON STOCK AND STOCKHOLDERS' EQUITY                1999      1998
----------------------------------------------------------     -----  -----
Current liabilities
  Current maturities of long-term debt              $ 40,277  $ 12,716
  Accounts payable                                     6,011     7,116
  Accounts payable to related parties                    867       173
  Accrued expenses                                    10,670     9,737
                                                     -------   -------
     Total current liabilities                        57,825    29,742
                                                     -------   -------
Long-term debt                                       306,806   322,368
                                                     -------   -------
Other long-term liabilities                            1,220     1,797
                                                     -------   -------
Minority interest                                          8       206
                                                     -------   -------
Redeemable common stock of subsidiary                  1,228     2,979
                                                     -------   -------
Redeemable common stock                                8,290     8,290
                                                     -------   -------
Stockholders' equity
  Preferred stock - $1 par value; 5,000,000 shares
  authorized; none issued                                  -         -
  Common stock - $.10 par value; 5,000,000 shares
   authorized; 1,161,037 issued at December 31, 1999
   and 1998                                              116       116
  Additional paid-in capital                           2,196     2,196
  Accumulated deficit                               (110,784) (105,375)
   Note  receivable  from  an officer and  stockholder              (1,648)
(1,679)
  Less:  treasury stock - at cost; 214,215 shares at
   December 31, 1999 and 1998                        (3,090)   (3,090)
                                                     -------   -------
     Total stockholders' deficit                    (113,210) (107,832)
                                                     -------   -------
Total liabilities, minority interest, redeemable
  common stock and stockholders' equity             $262,167  $257,550
                                                     =======   =======















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

<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF OPERATIONS

                   (in thousands, except per share data)

                                        For the years ended December 31,
                                       ----------------------------------
                                           1999       1998      1997
                                          -----      -----     -----
Operating revenues
  Oil and gas                           $ 31,425   $  32,467 $  38,500
  Well servicing, including related party
     revenues of $0, $0 and $8,
     respectively                              -           -     7,789
  Real estate                             31,301      25,650     9,338
  Other                                    1,206       1,392     1,227
                                        ---------  ---------  ---------
  Total operating revenues                63,932      59,509    56,854
                                        ---------  ---------  ---------
Operating expenses
  Oil and gas production                  10,833      18,395    18,500
  Well servicing                               -           -     5,600
  Real estate                             18,374      13,242     4,138
  General and administrative, net of
     related party management and
     administrative fees of $3,515, $3,789
     and $3,538, respectively              3,109       4,450     5,745
   Depreciation,  depletion  and amortization              9,987     19,240
15,034
   Impairment  of  oil  and gas  properties              -           64,000
-
  Other                                      798       1,235     1,342
                                        ---------  ---------  ---------
  Total operating expenses                43,101     120,562    50,359
                                        ---------  ---------  ---------
Operating income (loss)                   20,831    (61,053)     6,495
                                        ---------  ---------  ---------
Other income (expense)
  Interest and dividend income               954       1,478     1,002
  Interest expense                      (41,910)    (36,490)  (18,894)
  Other                                      952         370       145
                                        ---------  ---------  ---------
                                        (40,004)    (34,642)  (17,747)
                                        ---------  ---------  ---------
                                                           (continued)

<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF OPERATIONS - (continued)

                   (in thousands, except per share data)

                                        For the years ended December 31,
                                       ----------------------------------
                                           1999       1998      1997
                                          -----      -----     -----

Loss before income taxes, minority
  interest, equity loss and extraordinary
  item                                  (19,173)    (95,695)  (11,252)
  Income tax benefit                           -       2,348     2,641
                                        ---------  ---------  ---------
Loss before minority interest,
  equity loss and extraordinary item    (19,173)    (93,347)   (8,611)
  Minority interest in subsidiaries,
   net of tax                              1,820         913       430
  Equity loss in subsidiary and
   partnerships, net of tax                (931)     (3,620)     (203)
                                        ---------  ---------  ---------
Loss before extraordinary item          (18,284)    (96,054)   (8,384)
  Extraordinary gain (loss) from early
     extinguishment  of  debt,  net  of   tax                12,875       -
(3,109)
                                        ---------  ---------  ---------
Net Loss                                $(5,409)   $(96,054) $(11,493)
                                        =========  =========  =========
Loss per common share
  Loss per common share before
   extraordinary item                   $ (17.00)  $ (89.28) $  (7.78)
  Extraordinary gain (loss) from early
     extinguishment  of  debt,  net  of   tax                11.97        -
(2.88)
                                        ---------  ---------  ---------
Loss per common share                   $  (5.03)  $ (89.28) $ (10.66)
                                        =========  =========  =========
Weighted average shares outstanding     1,075,868  1,075,868  1,077,808
                                        =========  =========  =========





















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

<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

           For the years ended December 31, 1999, 1998 and 1997

                     (in thousands, except share data)

                                                     Note
                    Common StockAdditional        ReceivableTreasury Stock
                   --------------Paid-InAccumulated  from   ---------------
                    Shares AmountCapital  DeficitStockholderShares  Amount
                   ------- -------------  ---------------------------------
-
Balance -
  January 1, 19971,160,537 $116   $2,196  $ 2,172  $(1,735)204,575 $(2,508)

Stock option exercised 500    -        -        -       -       -       -
Payments received on
  note receivable        -    -        -        -      28       -       -
Purchase  of treasury stock -      -       -        -             -   9,640
(582)
Net loss                 -    -        -  (11,493)      -       -       -
                 --------- ----    -----  -------  ------ -------  ------
Balance -
   December 31, 19971,161,037      116     2,196    (9,321)         (1,707)
214,215                    (3,090)

Payments received on
  note receivable        -    -        -        -      28       -       -
Net loss                 -    -        -  (96,054)      -       -       -
                 --------- ----    -----  -------  ------ -------  ------
Balance -
   December 31, 19981,161,037      116     2,196    (105,375)       (1,679)
214,215                    (3,090)

Payments received on
  note receivable        -    -        -        -      31       -       -
Net loss                 -    -        -  (5,409)       -       -       -
                 --------- ----    -----  -------  ------ -------  ------
Balance -
   December 31, 19991,161,037  $   116  $  2,196 $  (110,784)    $  (1,648)
214,215                  $ (3,090)
                 ========= ====    =====  =======  ====== =======  ======

























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

<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF CASH FLOWS

                              (in thousands)

                                         For the years ended December 31,
                                        ----------------------------------
                                             1999      1998      1997
                                            -----     -----     -----
Cash flows from operating activities
  Net loss                               $ (5,409)  $(96,054)  $(11,493)
  Adjustments to reconcile net
   loss to net cash provided by (used in)
   operating activities:
   Depreciation,  depletion  and amortization               9,987    19,240
15,034
   Impairment  of  oil  and gas properties               -           64,000
-
  Noncash interest expense                   6,344      2,963    1,311
  Extraordinary (gain) loss from early
   extinguishment of debt                 (12,875)          -    1,411
  Gain (Loss) on sale of assets              (167)      (275)       84
  Equity in loss of subsidiary and
   partnerships                                187      3,620      203
  Impairment of equity investment              744          -        -
  Other noncash items                          329          3    (176)
  Amortization of lease commissions            525        184        -
  Bad debt expense                             438        501      241
  Deferred income taxes                          -    (2,348)  (2,606)
   Minority  interest  in loss of subsidiary              (1,820)     (913)
(430)
  Changes in operating assets and liabilities-
   Accounts receivable                     (1,704)      3,709  (6,029)
   Other current assets                         60      (226)    (594)
   Deferred lease costs                      (398)      (773)    (402)
     Accounts  payable  and  accrued  expenses             (512)        166
6,612
   Accrued interest payable                  (853)        227    2,898
   Income taxes payable                          -          -     (30)
  Change in restricted cash                (5,284)          -        -
                                           -------    -------  -------
Net cash provided by (used in) operating
  activities                              (10,408)    (5,976)    6,034
                                           -------    -------  -------
Cash flows from investing activities
   Proceeds  from  sale  of  oil and gas properties       5,575       5,706
1,538
  Purchase of oil and gas properties       (3,688)   (10,046)  (103,205)
  Purchase of other property and equipment
   and rental property                     (3,277)   (54,462)  (61,645)
  Purchase of other assets                   (733)      (712)  (3,121)
  Purchase of noncompete covenants               -    (1,604)        -
    Increase   in  construction  in  progress                (3,984)      -
-
  Proceeds from sale of other assets           515      1,317      219
  Proceeds from sale of other property,
   equipment and rental property             3,446         50      209
  Purchase of real estate investments            -      (333)     (91)
   Proceeds  from  sale  of  real  estate  investment       660         765
-
  Change in restricted cash                    331      3,014  (8,064)
  Other                                         31         22      258
                                           -------    -------  -------
Net cash used in investing activities      (1,124)   (56,283)  (173,902)
                                           -------    -------  -------
                                                           (continued)
<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)

                              (in thousands)

                                         For the years ended December 31,
                                        ----------------------------------
                                             1999      1998      1997
                                            -----     -----     -----
Cash flows from financing activities
  Proceeds from borrowings                 144,740     54,589  309,870
  Payments on debt                       (120,388)    (3,877)  (113,381)
   Decrease  in  other long-term liabilities                 (52)      (12)
(1,325)
   Cash  received  on subscriptions receivable                  -         -
2,807
  Purchase of treasury stock                     -          -    (582)
  Deferred debt costs                      (8,546)    (1,576)  (9,842)
  Issuance of redeemable common stock, net
  of issue costs                                 -          -       32
  Net proceeds from sale of subsidiaries
   common stock                                  -          -    1,007
  Prepayment penalty on early
   extinguishment of debt                    (887)          -    (341)
   Dividends  paid  to minority interest owners             (121)     (120)
(122)
   Purchase  of  minority interest in subsidiary                -     (309)
-
   Purchase  of  treasury stock by subsidiary                (32)         -
(1,174)
                                           -------    -------  -------
Net  cash  provided  by financing activities               14,714    48,695
186,949
                                           -------    -------  -------
Net increase (decrease) in unrestricted
  cash and cash equivalents                  3,182   (13,564)   19,081
  Unrestricted cash and cash equivalents -
  beginning of period                       13,801     27,365    8,284
                                           -------    -------  -------
Unrestricted cash and cash equivalents -
  end of period                          $  16,983  $  13,801  $27,365
                                           =======    =======  =======
Supplemental disclosures of cash flow
 information
  Interest paid                          $  36,419  $  31,695  $14,802




















           The accompanying notes are and integral part of these
                    consolidated financial statements.

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

1.   Organization and Summary of Significant Accounting Policies

Business

     Southwest Royalties Holdings, Inc. ("SRH"), a Delaware corporation was
formed  in  June 1997 to serve as a holding company for Southwest Royalties
Inc. ("Southwest"), Sierra Well Service Inc. ("Sierra") and Midland Red Oak
Realty,  Inc. ("Red Oak") (collectively, the "Company").  Each  shareholder
of  Southwest was issued one share in SRH for each share of Southwest stock
held.   Prior to the formation of SRH, Red Oak and Sierra were subsidiaries
of  Southwest.  Southwest paid a dividend of the shares it owned in Red Oak
and Sierra to SRH. After the formation of SRH, Southwest and Red Oak became
subsidiaries of SRH and, as of July 1, 1997, Sierra was deconsolidated.

     Southwest  is  principally involved in the business  of  oil  and  gas
development  and production, as well as organizing and serving as  managing
general partner for various public and private limited partnerships engaged
in  oil  and  gas  acquisitions, exploration, development  and  production.
Southwest  is also the general partner of Southwest Partners  II  and  III,
which  own  common  stock  in Sierra.  Southwest  sells  its  oil  and  gas
production  to  a variety of purchasers, with the prices it receives  being
dependent  upon  the oil and gas commodity prices.  Red Oak is  principally
involved  in  real estate investment and development. Sierra is principally
involved in the business of oil and gas well services.

Principles of Consolidation

     The  consolidated financial statements include the accounts of SRH and
its  subsidiaries.  As  of December 31, 1999 and 1998,  the  Company  owned
approximately 81% of Red Oak, 39% of Sierra, 100% of Blue Heel, 99% of  MSS
and  100%  and  98%,  respectively, of TPI.  Blue Heel,  MSS  and  TPI  are
subsidiaries   of   Southwest.  Effective  July   1,   1997,   Sierra   was
deconsolidated and is accounted for using the equity method (see  Note  4).
Effective  November  1999, TPI was liquidated. The  consolidated  financial
statements  include  the  Company's  proportionate  share  of  the  assets,
liabilities,  income and expenses of oil and gas limited  partnerships  for
which it serves as managing general partner.  The Company accounts for  its
investments  in Southwest Partners II and III using the equity  method,  as
the  Company exercises significant influence over the operations  of  these
partnerships.    All  significant  intercompany  transactions   have   been
eliminated.

Estimates and Uncertainties

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

Cash and Cash Equivalents

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

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

Restricted Cash

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

     Restricted  cash  accounts  have been established  for  the  following
purposes (in thousands):
                                                          1999     1998
                                                          ----     ----
     Cash bonds                                        $    35        -
     Certificate of Deposits                               112      105
     Tenant security deposits                              512      412
     Interest reserves                                       -      707
     Capital expenditures account                          552    1,229
     Tax and insurance reserve                           2,465    1,009
     Tenant bankruptcy reserve                               -      767
     Lockbox                                               439      217
     Customer service reserve                               10       10
     Escrow fund                                           627      594
     Interest sinking fund                               5,251        -
                                                        ------    -----
                                                       $10,003    5,050
                                                        ======    =====
Real Estate Revenue Recognition

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

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

Concentrations of Credit Risk

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

Commodity Hedging and Derivative Financial Instruments

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


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

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

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

Oil and Gas Properties

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

     Net  capitalized  costs  of  oil  and gas  properties,  including  the
estimated future costs to develop proved reserves, are amortized using  the
units of revenue method, whereby the provision is computed on the basis  of
current  gross  revenues  from  production  in  relation  to  future  gross
revenues, based on current prices, from estimated production of proved  oil
and gas reserves.  Should the net capitalized costs net of related deferred
income  taxes  exceed the estimated present value of oil and  gas  reserves
discounted at 10% and adjusted for related income taxes, such excess  costs
would  be  charged to expense in the Consolidated Statements of Operations.
As  of December 31, 1999, no write down of the capitalized costs of oil and
gas  properties  was deemed necessary.  As of December 31,  1998,  the  net
capitalized  cost  exceeded the estimated present  value  of  oil  and  gas
reserves  resulting in a noncash charge of $64.0 million. Once incurred,  a
writedown of oil and gas properties is not reversible at a later date, even
if oil or natural gas prices increase.

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

Property and Equipment

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

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

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

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

Rental Property - Construction in Progress

     All costs associated with construction in progress are capitalized and
subject  to  depreciation  when each project  is  completed.   Interest  is
capitalized  for  construction in progress.  The  capitalized  interest  is
recorded as part of the asset to which it relates and is amortized over the
assets useful life.  In 1999 and 1998, no interest costs were capitalized.

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

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

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

Gas Balancing

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

Income Taxes

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

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

Reclassifications

     Certain  reclassifications have been made to the 1998 and 1997 amounts
to conform to the 1999 presentation.


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

Derivative Instruments and Hedging Activities

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

Income (loss) per share

     Basic  net  income  (loss) per share is computed  by  dividing  income
available  to common stockholders by the weighted average number of  common
shares  outstanding for the period.  The computation of diluted net  income
(loss)  per  share  reflects the potential dilution  that  could  occur  if
securities  or  other  contracts to issue common stock  were  exercised  or
converted  into  common stock or resulted in the issuance of  common  stock
that  would then share in the earnings of the entity.  For 1999,  1998  and
1997,  the  computation  of diluted net loss per  share  was  antidilutive;
therefore, the amounts reported for basic and diluted net income (loss) per
share were the same.

Noncompete covenants

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


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

2.   Liquidity

     The  accompanying consolidated financial statements have been prepared
on  a going concern basis, which contemplates the realization of assets and
the  satisfaction  of liabilities in the normal course  of  business.   The
consolidated  financial statements do not include any adjustments  relating
to  the  recoverability  and classification of liabilities  that  might  be
necessary should the Company be unable to continue as a going concern.

     SRH  has  a  highly  leveraged capital structure with,  approximately,
$30.8  million  of  cash interest and $40.3 million  of  principal  due  at
December  31,  1999.  Subsequent to year end, SRH drew down  the  remaining
$15.0  million on the Revolving Loan Facility.  As a result, $32.1  million
of  cash  interest payments and $55.3 million of principal will be  due  in
2000 (See Note 18).  Due to severely depressed commodity prices experienced
throughout  1998  and  into  the first half of  1999,  and  lagging  rental
property   utilization,  SRH  is  experiencing  difficulty  in   generating
sufficient  cash  flow to meet its obligations and sustain its  operations.
Management is currently in the process of renegotiating the terms of  SRH's
various  obligations with its note holders and/or attempting  to  seek  new
lenders  or  equity  investors.  Additionally,  management  would  consider
disposing of certain assets in order to meet its obligations.

     There  can be no assurance that SRH's debt restructuring efforts  will
be  successful  or that the note holders will agree to a course  of  action
consistent with SRH's requirements in restructuring the obligations.   Even
if  such  agreement is reached, it may require approval of additional  note
holders,  or possibly, agreements of other creditors of SRH, none of  which
is  assured.   Furthermore, there can be no assurance  that  the  sales  of
assets can be successfully accomplished on terms acceptable to SRH.   Under
current circumstances, SRH's ability to continue as a going concern depends
upon  its  ability  to  (1)  successfully restructure  its  Revolving  Loan
Facility, the 10.5% Senior Notes and other obligations or obtain additional
financing  as  may  be  required, (2) maintain  compliance  with  all  debt
covenants, (3) generate sufficient cash flow to meet its obligations  on  a
timely  basis, and (4) achieve satisfactory levels of future earnings.   If
SRH  is  unsuccessful  in  its  efforts, it  may  be  unable  to  meet  its
obligations on the Revolving Loan Facility, the 10.5% Senior Notes, as well
as  other obligations, making it necessary to undertake such other  actions
as may be appropriate to preserve asset values.

3. Subsidiaries, Acquisitions and Dispositions

     During 1994, Red Oak sold 62,384 shares of redeemable common stock for
approximately  $1,560,000  million through a  private  placement  offering.
During  1995, Red Oak sold an additional 39,616 shares of redeemable common
stock  for  approximately  $990,000 and  34,611  shares  of  its  Series  A
cumulative  convertible preferred stock, for approximately $1,731,000.  The
redeemable  common  stock is redeemable at the stockholder's  option  at  a
price  equal  to the purchase price plus a 6% annual return computed  on  a
cumulative,  but not compounded basis. Redemptions are to be  paid  out  of
future  earnings of Red Oak.  If there are no future earnings,  redemptions
will  be  paid  out  of additional paid-in capital.  The redemption  rights
expired on 58,384 of the redeemable common shares on December 1, 1999.  The
remaining  shares' redemption rights will expire in March through  June  of
2000.

     On  September 26, 1996, Red Oak formed a subsidiary with an  unrelated
third  party.  On October 15, 1996, the subsidiary acquired three  shopping
centers  for a total purchase price of $12.5 million.  The transaction  was
funded  through a $2.3 million contribution from Red Oak and a $1.2 million
contribution  from  the  unrelated third party.   In  April  1997  Red  Oak
purchased  the  interest  of  the unrelated  third  party  and  merged  the
subsidiary into Red Oak.

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

     On  October 14, 1997, Southwest acquired various working interests  in
431 producing oil and gas wells, located in seven oil and gas fields in the
Permian  Basin of West Texas and southeastern New Mexico for $72.3 million.
Southwest  operates 133 of these wells.  Southwest funded this  acquisition
through  the issuance of 10.5% Senior Notes (see Note 7).  The  results  of
operations  of  the  properties acquired are included in  the  Consolidated
Statement of Operations beginning October 14, 1997.

     In  1997,  Red  Oak  acquired five shopping  centers  and  two  office
buildings in Texas, Oklahoma and Arizona for a total cost of $50.9 million.
The transactions were accounted for using the purchase method.  The results
of  operations of the properties acquired are included in the  Consolidated
Statements of Operations as of the close of each acquisition.

     In  June 1998, Red Oak acquired a retail shopping center in Texas  for
$13.5  million.  The acquisition was financed by the variable note  payable
due  July  2001 described in Note 7.  The operations of the retail shopping
center  from  the date of acquisition through December 31, 1998  have  been
included  in  the Consolidated Statement of Operations for the  year  ended
December 31, 1998.

     In  December 1998, Red Oak acquired a retail shopping center in  Texas
for  $21.0  million.  The acquisition was financed  by  the  variable  note
payable  due  December  2001 described in Note 7.  The  operations  of  the
retail  shopping center from the date of acquisition through  December  31,
1998 have been included in the Consolidated Statement of Operations for the
year ended December 31, 1998.

4.  Equity Investment in Subsidiary and Partnerships

     As  of  December 31, 1999, the investment in subsidiary  held  by  the
Company consists of a 28% direct ownership interest in Sierra as well as an
additional  11%  indirect  interest the Company  obtained  through  limited
partnerships, Southwest Partners II and Southwest Partners III,  for  which
Southwest  serves  as  the  managing general partner.   The  investment  is
accounted  for  using  the  equity method.  A  Financial  Institution  owns
preferred  stock in Sierra, which can be converted to common stock  at  the
Financial  Institutions  option.  If the Financial  Institution  elects  to
convert  its preferred stock to common stock, the Companys direct ownership
would  decrease  to 20% and its indirect ownership would  decrease  to  7%.
Effective  July 1, 1997, Southwest Partner III purchased additional  shares
of Sierra stock, decreasing Southwest's total direct and indirect ownership
percentage below 50%.  Therefore, with the change of Southwest's  ownership
percentage   from   a   majority  to  a  minority  interest,   Sierra   was
deconsolidated.   The deconsolidation of Sierra required an  adjustment  to
the  investment  account  to  reflect the change  in  accounting  from  the
consolidation method to the equity method.

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

     Pertinent  financial information for Sierra Well Service, Inc.  as  of
December  31, 1999 and 1998 and for the years ended December 31,  1999  and
1998  and  for  the six months ended December 31, 1997 is  as  follows  (in
thousands):

                                               December 31,  December 31,
                                                   1999          1998
                                                   ----          ----
  Balance Sheets
     Assets                                    $  53,327    $   46,861
                                                  ======        ======
     Liabilities                               $  58,263    $   59,891
     Stockholders' deficit                       (4,936)      (13,030)
                                                  ------        ------
     Total  liabilities  and stockholders'  deficit             $    53,327
$    46,861
                                                  ======        ======

                                 For the year  For the year  Six months
                                    ended         ended        ended
                                 December 31,  December 31, December 31,
                                     1999          1998         1997
                                     ----          ----         ----
  Statements of Operations
    Revenues                   $   37,331     $  45,319      $ 18,370
    Expenses                       50,732        50,944        19,163
     Impairment  of  long lived  assets                    -         22,671
-
                                   ------        ------        ------
      Net Income/(Loss)          (13,401)      (28,296)         (793)
                                   ======        ======        ======
  Company's share of net loss  $    (931)     $ (3,620)      $  (203)
                                   ======        ======        ======

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

5.  Property and Equipment

  Property and equipment, including rental property and other, consists  of
the following (in thousands):
                                                 Years Ended December 31,
                                                 ------------------------
                                                       1999      1998
                                                      -----     -----

     Land                                           $  2,352  $  2,287
     Building and improvements                         1,051     1,419
     Machinery and equipment                           2,896     3,048
     Furniture and fixtures                            1,536     2,367
     Equipment under capital lease                        56        93
     Rental property                                 137,535   137,059
                                                     -------    ------
                                                     145,426   146,273
     Less accumulated depreciation                    11,900     8,265
                                                     -------    ------
                                                    $133,526  $138,008
                                                     =======    ======
6.  Future Lease Receivables

     Red  Oak leases office and retail shopping centers under noncancelable
operating  leases that expire at various dates through 2035.  The following
is  a  summary  of  minimum future rentals expected to  be  received  under
noncancelable operating leases as of December 31, 1999 (in thousands):

     2000                                           $ 19,407
     2001                                             15,279
     2002                                             12,145
     2003                                              9,207
     2004                                              6,886
     Thereafter                                       24,262
                                                      ------
                                                    $ 87,186
                                                      ======

     The  preceding future minimum rentals do not include percentage  rents
or reimbursements.

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

7.  Long-term Debt

     Long-term debt consists of the following (in thousands):
                                                       December 31,
                                                   -------------------
                                                       1999      1998
                                                      -----     -----
     10.5% Senior Notes, interest payable semi-annually due
      October 15, 2004, net of discount of $1,487 and $2,116,
      respectively                                  $160,598  $197,884
     13.5% Notes payable, due April 2000.  Cash interest of
      10.5% payable monthly with additional interest payable
      based on excess cash flow or through the issuance of
       additional  notes.  Collateralized by  real  estate.               -
72,273
     Revolving Loan Facility with variable rate interest,
      due December 2000.  Collateralized by oil and
      gas properties.                                 35,000         -
     Variable Rate Notes Payables:
     Notes payable due July 2001, accrued interest due and
      payable monthly at 7.1%, per annum with additional
      1% payable in cash or additional notes.
       Net  of  discount  of $944 and $1,611, respectively           15,883
13,891
     Notes payable due December 2001, accrued interest due and
      payable monthly at 7.1%, per annum with additional
      1.5% payable in cash or additional notes.
       Net  of  discount  of $2,556 and $3,889, respectively         25,298
21,806
     Notes payable due July 2002, interest at 8.5% minimum
      per annum, accrued interest due and payable monthly.
      Net of discount of $4,229, respectively        101,835         -
     Other                                             8,469    29,230
                                                     -------   -------
                                                     347,083   335,084
     Less current maturities                          40,277    12,716
                                                     -------   -------
                                                    $306,806  $322,368
                                                     =======   =======
10.5% Senior Notes

     In  October 1997, the Company issued $200 million aggregate  principal
amount of 10.5% Senior Notes due October 15, 2004 (the "Notes").  The Notes
were sold at a discount and interest is payable April 15 and October 15  of
each  year,  commencing  April 15, 1998.  The Notes are  general  unsecured
senior obligations of the Company and rank equally in right of payment with
all other senior indebtedness of the Company and senior in right of payment
of  all  existing  future subordinated indebtedness  of  the  issuer.   Net
proceeds  from  the  issuance of the Notes were  used  primarily  to  repay
existing debt of approximately $84 million, purchase oil and gas properties
for  approximately $72 million, purchase additional stock in  Red  Oak  for
approximately  $10 million, invest $1.7 million in an affiliate,  with  the
remaining balance used for working capital.

     The  Indenture  imposes  certain limitations on  the  ability  of  the
Company  and  its  restricted subsidiaries to, among  other  things,  incur
additional indebtedness or issue disqualified capital stock, make  payments
in respect to capital stock, enter into transactions with affiliates, incur
liens, sell assets, change the nature of its business, merge or consolidate
with  any  other person and sell, lease, transfer or otherwise  dispose  of
substantially all of its properties or assets.  The indenture requires  the
issuer to repurchase notes under certain circumstances with the excess cash
of  certain  asset  sales.  The limitations are  subject  to  a  number  of
important  qualifications and exceptions.  The issuer must  report  to  the
Trustee on compliance with such limitations on a quarterly basis.

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

13.5% Note Payable

     In April 1997 MRO Properties Inc. ("MROP"), a 100% owned subsidiary of
Red  Oak entered into a $42 million credit facility maturing in April  2000
with an institutional lender (the "MROP Facility").  The MROP Facility  was
executed  in order to consolidate nine mortgage loans, originally  incurred
to  complete the acquisition of certain Red Oak properties and  to  finance
the  acquisition  of an additional real estate property.  Borrowings  under
the  facility bear interest at a rate of 13%, with 10% payable in cash  and
the  remaining  3%  payable  in  cash or additional  notes.   The  facility
contains  a  number  of  covenants that, among other things,  restrict  the
ability  of  MROP to incur additional indebtedness and dispose  of  assets.
The  facility  is secured by a first lien on substantially  all  of  MROP's
properties.  In September 1997, the Company negotiated an additional  $30.5
million in loan proceeds which was used to acquire a retail shopping center
and office building in Oklahoma City, Oklahoma and a retail shopping center
in  San  Antonio,  Texas.   The loan is collateralized  by  the  properties
purchased, and by properties contributed by Red Oak.  This note was  repaid
with  a  portion  of  the proceeds from the June 1999  Variable  Rate  Note
Payable.

Revolving Loan Facility

     In  December  1999, Southwest entered into a Revolving  Loan  Facility
with  Bank One Texas, N.A., which provided a borrowing base of $50  million
with  a maturity date of December 29, 2000.  Funds from the Revolving  Loan
Facility  may  be  used  for working capital and  other  general  corporate
purposes,  including the repurchase of a portion of Southwest's outstanding
10.5%  Senior Notes due 2004. Advances on the Revolving Loan Facility  bear
interest  at the option of Southwest, based on the prime rate of  Bank  One
Texas,  N.A.  (8.5% at December 31, 1999) plus one fourth  of  one  percent
(.25%),  when the borrowing base usage is equal to or greater than  80%  or
zero  percent  (0%) when the borrowing base usage is less than  80%  or,  a
Eurodollar  rate (substantially equal to the London InterBank Offered  Rate
("LIBOR"))  plus  1.25%  up  to  2.0% based on  the  borrowing  base  usage
percentage.  The Revolving Loan Facility is secured by no less than 85%  of
Southwest's  oil and gas properties.  As of December 31, 1999, the  company
has  drawn $35.0 million.  The remaining $15.0 million was drawn in January
2000(See Note 18).

     The Revolving Loan Facility imposes certain limitations on the ability
of Southwest to, among other things, incur additional indebtedness or issue
disqualified  capital  stock, make payments in respect  to  capital  stock,
enter  into transactions with affiliates, incur liens, sell assets,  change
the  nature of its business, merge or consolidate with any other person and
sell,  lease,  transfer or otherwise dispose of substantially  all  of  its
properties  or assets.  The Revolving Loan Facility required  Southwest  to
establish  a sinking fund account with an initial deposit of $3.5  million.
Southwest  is  to  transfer  monthly one-twelfth  of  the  annual  interest
payments  on the 10.5% Senior Notes beginning December 31, 1999  into  this
sinking  fund  account for the purpose of making interest payments  on  the
10.5% Senior Notes.

Variable Rate Notes Payable

     In  June 1998, MRO N Cross, Inc., a wholly owned subsidiary of Red Oak
negotiated two notes payable in the amount of $13.5 million, net  of  a  $2
million discount, and $2.5 million. The $13.5 million note was used for the
acquisition  of  rental property in the amount of $12.9  million  with  the
remaining  $600,000  to  be  used for capital improvements  to  the  rental
property  purchased.   The  $2.5  million  note  is  reserved  for  capital
improvements  to  the rental property purchased of which $1.3  million  has
been utilized as of December 31, 1999.  The notes are collateralized by the
property purchased.

     In  December 1998, MRO Commercial, Inc., a wholly owned subsidiary  of
Red Oak negotiated two notes payable in the amount of $21.7 million, net of
a  $4  million discount, and $9.7 million.  The $21.7 million note was used
for  the acquisition of a retail shopping center and the funding of various
escrow balances.  The $9.7 million note is for capital improvements to  the
rental  property purchased of which $1.9 million has been  utilized  as  of
December 31, 1999.  The notes are collateralized by the property purchased.

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

     In  June 1999, MRO Southwest, Inc., a wholly owned subsidiary  of  Red
Oak  negotiated two notes payable in the amount of $97.5 million  and  $8.0
million, net of discounts of $5.3 million. Borrowings for both notes accrue
interest  in arrears at a rate per annum equal to the greater  of  8.6%  or
LIBOR plus 360 basis points.  The interest rate includes a servicing fee of
 .10%.  Approximately $91.4 million of the $97.5 million note  was  used  to
retire existing debt on properties contributed to MRO Southwest by Red Oak,
$1.5  million was deposited into various restricted cash accounts  and  the
remaining  proceeds  were  used for general corporate  purposes.  The  $8.0
million  note  is  for  capital improvements to rental  property  and  $3.4
million  has  been  utilized  as  of December  31,  1999.   The  notes  are
collateralized by the properties owned by MRO Southwest.  The notes  impose
certain  restrictive covenants including restrictions on the incurrence  of
additional indebtedness, dissolution, termination or liquidation of all  or
substantially  all  of the assets, changes in the legal  structure  of  the
assets, making any loans or advances to any third party and commingling its
assets  with the assets of any of its affiliates or of any other person  or
entity.

Extinguishment of Debt

     In  1997, the Company repaid certain notes payable with proceeds  from
the  10.5%  Senior  Notes.  The remaining unamortized deferred  debt  costs
associated  with  these  notes  resulted  in  an  extraordinary  charge  of
$3,109,000, net of $1,241,000 of tax benefit, or $2.88 per share.

     In June 1999, MRO Southwest repaid certain notes payable with proceeds
from  the  aforementioned Variable Note Payable issued  in  June  of  1999.
Prepayment  penalties  and the remaining unamortized  deferred  debt  costs
associated  with  these  notes  resulted in  an  extraordinary  charge  of,
approximately, $1,598,000 or $(1.49) per share.  Since there is no recorded
income  tax  benefits  on  continuing operations there  is  no  income  tax
benefits recorded on the extraordinary loss.

     In  December  of  1999,  Southwest  purchased  approximately  19%,  or
approximately $37.9 million original face amount, of its 10.5% Senior Notes
with   the  proceeds  from  the  aforementioned  Revolving  Loan  facility.
Southwest paid approximately $22.0 million, including all fees, to purchase
the  10.5%  Senior Notes and wrote off approximately $349,000  of  deferred
loan  issue costs and approximately $980,000 of the original issue discount
to  recognize  a  $14.5 million extraordinary gain on the purchase  of  the
Notes.   Southwest has not recorded any income tax benefits  on  continuing
operations and therefore there is no income tax expense recognized  on  the
extraordinary  gain.   The extraordinary gain per  share  is  approximately
$13.48.   Southwest  purchased an additional  19%  or  approximately  $38.4
million  original face amount of its 10.5% Senior Notes in January of  2000
(See Note 18).

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

     2000                                           $ 40,277
     2001                                             41,412
     2002                                            101,926
     2003                                                391
     2004                                            160,680
     Thereafter                                        2,397
                                                     -------
                                                    $347,083
                                                     =======
<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

8.  Income Taxes

     Income  tax provision (benefit) and amounts separately allocated  were
as follows (in thousands):
                                                      December 31,
                                              ----------------------------
                                                 1999     1998     1997
                                                -----    -----    -----
     Loss before minority interest, equity loss
       and  extraordinary item                    $     -   $(2,348)      $
(2,641)
     Equity loss in subsidiary                        -       -    (106)
     Extraordinary  loss from early extinguishment              -         -
(1,241)
                                                 ------   ------   -----
                                                 $      -   $(2,348)      $
(3,988)
                                                 ======   ======   =====

     The  U.S. Federal tax provision (benefit) attributable to loss  before
income  taxes,  minority interest and extraordinary item  consists  of  the
following (in thousands):
                                                      December 31,
                                              ----------------------------
                                                 1999     1998     1997
                                                -----    -----    -----
     Current                                    $     -  $    -   $ (35)
     Benefit   of   net  operating  loss  carryforward             (11,307)
(14,165)                                        (7,340)
     Deferred                                          9,266       (20,237)
3,341
     Valuation allowance                          2,041   32,054   1,393
                                                 ------   ------   -----
                                                $     -  $(2,348) $(2,641)
                                                 ======   ======   =====

     Reconciliation's  between the amount determined by applying  the  U.S.
federal  statutory rate to loss before income taxes, minority interest  and
extraordinary  item with the income tax provision (benefit) is  as  follows
(in thousands):
                                                      December 31,
                                              ----------------------------
                                                 1999     1998     1997
                                                -----    -----    -----
     Computed "expected" tax expense using the
       U.S.  federal statutory rate               $(6,488) $(34,510)      $
(3,826)
     Reduction in available net operating loss
      carryforwards                               4,944       -        -
     Meals and entertainment                         16      16       16
     Change in valuation allowance                2,041   32,054   1,156
     Other                                        (513)      92       13
                                                 ------   ------   -----
     Provision (benefit) for income taxes       $     -  $(2,348) $(2,641)
                                                 ======   ======   =====

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

     The tax effects of temporary differences that give rise to significant
portions  of the deferred tax assets and deferred tax liabilities  were  as
follows (in thousands):
                                                       December 31,
                                                   -------------------
                                                       1999      1998
   Deferred tax assets:                              -----     -----
     Net operating loss carry forwards              $ 28,226    21,862
     Alternative minimum tax credit carryforwards        170       170
     Receivables                                         278       152
     Oil and gas properties, principally due to differences in
      the tax and book basis and depletion methods and the
       deduction  of  intangible drilling costs for tax  purposes     2,356
7,833
     Equity investment in subsidiary                   1,081     1,103
     Other long term assets                            2,192     1,817
     Other long term liabilities                         286       463
     Covenant not to complete                             64        57
     Other                                               243        29
                                                      ------   -------
     Total gross deferred tax assets                  34,896    33,486
                                                      ------   -------
     Less valuation allowance                       (34,727)  (32,686)
                                                      ------   -------
     Total gross deferred tax assets                     169       800
                                                      ------   -------
  Deferred tax liabilities:
     Other property and equipment                      (158)     (663)
     Real estate investments                               -      (21)
     Accounts payable and accrued expenses              (11)       (7)
     Other                                                 -     (109)
                                                      ------   -------
     Total gross deferred tax liabilities              (169)     (800)
                                                      ------   -------
     Net deferred tax asset (liability)             $      -  $      -
                                                      ======   =======

     A valuation allowance is provided when it is more likely than not that
some  portion  of the deferred tax assets will not be realized.   Based  on
expectations for the future, management has determined that taxable  income
of  Southwest  will  likely not be sufficient to  fully  utilize  available
carryforwards  prior to their ultimate expiration. As such,  Southwest  has
recorded  a valuation allowance of $27,598,000 to reflect the realizability
of  its  net  deferred  tax assets.  The amount of the valuation  allowance
could  be  reduced  if  estimates  of  future  taxable  income  during  the
carryforward period are increased.

     As   of   December   31,  1999,  Southwest  had  net  operating   loss
carryforwards  for  U.S.  federal  income  tax  purposes  of  approximately
$65,180,000,  which are available to offset future regular taxable  income,
if  any.   The  net operating loss carryforwards expire in various  periods
from  2012  through  2017.  Southwest has alternative  minimum  tax  credit
carryforwards totaling $170,000 to offset regular income tax, which have no
scheduled expiration date.
<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

     Red Oak files an independent return exclusive of Southwest and has net
operating  loss  carryforwards of $17,836,000 expiring in  various  periods
through  2017.  Based  on  expectations  for  the  future,  management  has
determined  that taxable income of Southwest will likely not be  sufficient
to   fully   utilize  available  carryforwards  prior  to  their   ultimate
expiration.   Approximately $7,129,000 of the valuation  allowance  relates
primarily   to   the  uncertainty  of  the  realizability  of   Red   Oak's
carryforwards, the amount of the valuation allowance could  be  reduced  if
estimates  of  future  taxable income during the  carryforward  period  are
increased.

9.  Profit Sharing Plan

     On  January  1,  1991, the Company adopted an employee profit  sharing
plan  that  is intended to provide participating employees with  additional
income  upon retirement.  Employees may contribute between 1%  and  15%  of
their  base salary up to a maximum of $10,000 for the years ended  December
31, 1999 and 1998 and $9,500 for the year ended December 31, 1997.  For the
years  ended December 31, 1999, 1998 and 1997, the Company matched  20%  of
the  employees' contributions.  For the year ended December 31,  2000,  the
Company  will  match 20% of the employees' contributions.   For  subsequent
years,  the  Company will make contributions to the plan on a discretionary
basis.

     Employee  contributions  are  fully vested  at  all  times.   Employer
contributions  are  fully vested upon retirement or  after  five  years  of
service.  For the years ended December 31, 1999, 1998 and 1997, the Company
contributed  approximately $72,000, $61,000 and $66,000,  respectively,  to
the plan.

10.  Redeemable Common Stock

     In August 1996, the Company issued 129,046 shares of redeemable common
stock through a private placement offering for $68 per share.  The stock is
redeemable  at  the stockholder's option at any time beginning  five  years
from  the  issuance of the stock (December 31, 2001) at  a  purchase  price
determined as follows:

     (i)   The Company shall review no less than five and no more than
     ten  publicly  traded oil and gas companies each  with  a  market
     capitalization  between  $50 million and  $150  million  ("Public
     Company").  The Company shall determine the ratio of each  Public
     Company's  market capitalization to EBITDA for  the  most  recent
     fiscal  year.  The Company shall then average such multiples  and
     take  this averaged multiple and apply it to the Company's EBITDA
     for  the  most  recent fiscal year, to estimate a value  for  the
     Company's common stock.

     (ii)  The  Company  will  determine the multiple  of  the  market
     capitalization  of each Public Company relating  to  the  present
     value  of  such  Public Company's oil and gas reserves.   Present
     value  will  be determined by discounting the expected  net  cash
     flow from the oil and gas reserves by 10%.  The Company will then
     take the average multiple based on this methodology and apply  it
     to  the  present  value  of the Company's oil  and  gas  reserves
     discounted by 10% to determine a value for the expected net  cash
     flow from the Company's common stock.

     The  Company  will  then take the average  of  (i)  and  (ii)  to
     determine   the  value  of  the  Company's  common  stock.    The
     redemption  right  terminates  on  the  effective  date  of   any
     registration  statement  filed with the Securities  and  Exchange
     Commission relative to the offer and sale of the Company's common
     stock to the public.

11.  Stockholders' Equity

     During 1994, the Company issued a 6% note to a stockholder.  The  note
requires  semi-monthly  payments of $5,500 and  is  collateralized  by  the
Company's common stock held by the stockholder.

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

12.  Commitments and Contingencies

     The  partnership  agreements relating to certain limited  partnerships
for  which  Southwest  serves  as  managing  general  partner  provide  for
Southwest  to  offer to repurchase such limited partner units.   Under  the
terms  of  three of the partnership agreements, Southwest is  obligated  to
repurchase  a  maximum  of  $100,000  annually  of  the  units  of  limited
partnerships'  interests originally outstanding.  Under the terms  of  nine
other partnership agreements, Southwest's obligation to repurchase units in
any  one  year is limited to 10% of the capital contributed by all  of  the
respective  limited  partners.   The  repurchase  price  is  based  on  the
discounted  future  revenues from oil and gas reserves  of  the  respective
partnership  and  the  value  of other partnership  assets.   Such  amounts
required  for repurchase in connection with the acceptance by a portion  of
the limited partners is approximately $2,447,000 at December 31, 1999.  The
total  amount  of  limited partner unit repurchases  for  the  years  ended
December  31,  1999  and  1998  was  approximately  $71,000  and  $287,000,
respectively.

     The   Company  is  subject  to  extensive  federal,  state  and  local
environmental  laws  and  regulations.  These laws,  which  are  constantly
changing, regulate the discharge of materials into the environment and  may
require the Company to remove or mitigate the environmental effects of  the
disposal  or release of petroleum or chemical substances at various  sites.
Environmental expenditures are expensed or capitalized depending  on  their
future economic benefit.  Expenditures that relate to an existing condition
caused  by  past operations and that have no future economic  benefits  are
expensed.  Liabilities for expenditures of a noncapital nature are expensed
when  environmental assessment and/or remediation is probable and the costs
can be reasonably estimated.

     Management  recognizes a financial exposure that  may  require  future
expenditures  presently  existing for oil  and  gas  properties  and  other
operations.   Other  long-term liabilities at December  31,  1999  includes
$663,000  for estimated future remedial actions and cleanup costs.   As  of
December 31, 1999, the Company has not been fined, cited or notified of any
environmental  violations which would have a material adverse  effect  upon
capital  expenditures, earnings or the competitive position in the oil  and
gas industry. However, management does recognize that by the very nature of
its business, significant costs could be incurred to bring the Company into
total  compliance.  The amount of such future expenditures is  not  readily
determinable  due  to several factors, including the unknown  magnitude  of
possible  contaminations, the unknown timing and extent of  the  corrective
actions which may be required, the determination of the Company's liability
in  proportion  to other responsible parties and the extent to  which  such
expenditures are recoverable from insurance or indemnifications from  prior
owners  of  the  Company's  properties.  It  is  reasonably  possible  this
estimate could change materially in the near term.

     In  the  normal  course  of its business, the Company  is  subject  to
pending or threatened legal actions; in the opinion of management, any such
matters   will  be  resolved  without  material  effect  on  the  Company's
operations, cash flow or financial position.

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

13.  Commodity Hedging and Derivative Financial Instruments

     The  Company, from time to time, uses option contracts to mitigate the
volatility of price changes on commodities the Company produces  and  sells
as  well  as to lock in prices to protect the economics related to  certain
capital projects.

     On  July 9, 1999, Southwest entered into a commodity swap agreement to
hedge  a  portion of its crude oil sales.  The agreement is for a  notional
amount  of 1,000 BBls of oil a day with a strike price of $20.22, based  on
West Texas Intermediate - NYMEX.  The contract is for the period August  1,
1999  through  October  31, 1999.  At the option of the  counter-party  the
contract has been extended to January 31, 2000.

     On  December  30,  1999,  Southwest  entered  into  a  basket  revenue
protection  agreement,  which provides the Company  with  an  oil  and  gas
revenue  floor.   The contract is for the period January  1,  2000  through
December  31,  2000.  The agreement is to be calculated on a calendar  year
quarter as disclosed in the following table based on NYMEX Natural Gas  and
NYMEX Crude Oil:

            Notional Volumes              Strike Prices
       -------------------------  -----------------------------
           Crude      Natural        Crude    Natural              Minimum
         Oil (bbl)  Gas (MMBtu)       Oil       Gas       Boe      Revenue
         ---------- -----------      -----    -------     ----     --------
Quarter 1 269,254      976,676     $  21.12  $   1.91  $  28.76  $7,552,096
Quarter 2 263,058      910,325     $  18.80  $   1.92  $  26.56  $6,714,359
Quarter 3 257,206      857,728     $  18.00  $   1.97  $  25.88  $6,319,432
Quarter 4 251,914      813,400     $  18.00  $   2.20  $  26.80  $6,323,932

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

14.  Related Party Transactions

     Southwest  is  the  managing general partner for  several  public  and
private oil and gas limited partnerships, with an officer of Southwest also
serving  as a general partner for certain of the limited partnerships.   As
is  usual  in the oil and gas industry, the operator is paid an amount  for
administrative  overhead  attributable to  operating  such  properties  and
management  fees attributable to serving as managing general  partner.   As
provided  for  in  the  partnership agreements, such amounts  paid  by  the
partnerships   to   Southwest  approximated  $3,515,000,   $3,789,000   and
$3,538,000  for  the  years  ended  December  31,  1999,  1998  and   1997,
respectively.   Included in these amounts, an affiliate of  Southwest  paid
management fees of approximately $136,000 and $147,000, for the years ended
December  31, 1999 and 1998, and approximately $54,000, for the six  months
ended  December 31, 1997.  In addition, Southwest and certain officers  and
employees may have an interest in some of the partnership properties.

     An  affiliate  of the company performs various oilfield  services  for
limited  partnerships  managed  by  Southwest.   Such  services  aggregated
$365,000, $115,000 and $155,000 for the years ended December 31, 1999, 1998
and  1997.   The  same  affiliate performed  services  for  Southwest  that
aggregated  approximately  $313,000  and  $131,000,  for  the  years  ended
December  31, 1999 and 1998 and approximately $47,000, for the  six  months
ended December 31, 1997.

15.  Disclosures About Fair Value of Financial Instruments

     The carrying amount of cash and cash equivalents, accounts receivable,
accounts  payable  and  accrued expenses, other current  assets  and  other
current  liabilities approximates fair value because of the short  maturity
of these instruments.

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

     The  fair value of the Company's 10.5% Senior Notes is estimated based
on the quoted market price for the notes.
                                            1999               1998
                                           -----              -----
                                      Carrying  Fair    Carrying   Fair
                                       Amount  Value     Amount   Value
                                      -------  ------   -------   ------
     10.5% Senior notes, net discount of
      $1,487 and 2,116, respectively  $160,598  $89,935 $197,884  $79,154

     The  fair  value of all other long-term debt approximates the carrying
amount  as  of  December 31, 1999 and 1998, based on  the  borrowing  rates
currently  estimated to be available to the Company for loans with  similar
terms.

     The  Company  purchased  the Basket Revenue  Protection  Agreement  on
December  31, 1999, and therefore deems the carrying value of  $638,000  to
equate to fair market value at December 31, 1999.

     The  carrying amount of investment in subsidiary at December 31,  1999
is  recorded  at  zero because the investor's proportionate  share  of  the
investee's  net loss exceeded the original investment.  The fair  value  of
SRH's  investment  in  Sierra is undeterminable at December  31,  1999,  as
Sierra  is  highly  leveraged  and  is  not  publicly  traded.   If  Sierra
subsequently  begins to report net income, Southwest will  resume  applying
the  equity method only after its share of net income equals the  share  of
net losses not recognized during the period the equity method is suspended.

16.  Lines of Business

     The  Company operates in three major segments: Oil and Gas  Activities
(oil  and gas acquisition, development, exploration and production, as well
as  organizing  and serving as managing general partner for various  public
and  private  limited partnerships engaged in oil and gas  development  and
production),  Oil  and  Gas  Well  Servicing  (provides  well   completion,
recompletion and production equipment, transportation services, tank supply
rental  services  and  other  support  and  well  maintenance  services  to
operating  oil and gas companies) and Real Estate Investment and Management
(owns  and  manages  retail shopping centers and office buildings).   Other
items include eliminations, manufacturing, computer service and the holding
Company.   Effective July 1, 1997, Sierra, the oil and gas  well  servicing
business, was deconsolidated, therefore only six months of income statement
information is displayed in the tables and no balance sheet information  is
displayed as of December 31, 1998 (see Note 4.)
                                                 1999     1998     1997
                                                -----    -----    -----
                                                     (in thousands)
     Operating Revenue
      Oil and gas                               $31,998 $ 32,599  $38,662
      Well service                                    -        -    7,833
      Real estate                                31,301   25,650    9,338
      Other and eliminations                        633    1,260    1,021
                                                 ------   ------   ------
                                                $63,932 $ 59,509  $56,854
                                                 ======   ======   ======
     Operating profit (loss)
      Oil and gas                               $14,146 $(68,633) $ 3,654
      Well service                                    -        -      184
      Real estate                                 6,812    7,605    3,074
      Other and eliminations                      (127)     (25)    (417)
                                                 ------   ------   ------
                                                $20,831 $(61,053) $ 6,495
                                                 ======   ======   ======
<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

                                                 1999     1998     1997
                                                -----    -----    -----
                                                     (in thousands)
     Interest Expense
      Oil and gas                               $22,381 $ 22,536  $12,329
      Well Service                                    -        -      184
      Real Estate                                19,664   13,969    6,320
      Other and eliminations                      (135)     (15)       61
                                                 ------  -------  -------
                                                $41,910 $ 36,490  $18,894
                                                 ======  =======  =======
     Depreciation, depletion and amortization
      Oil and gas                               $ 5,392 $ 16,118  $12,803
      Well Service                                    -        -      747
      Real Estate                                 4,485    2,935    1,313
      Other and eliminations                        110      187      171
                                                -------  -------  -------
                                                $ 9,987 $ 19,240  $15,034
                                                =======  =======  =======
     Identifiable assets
       Oil  and gas                               $115,520       $  111,876
$     205,054
      Well service                                    -        -        -
      Real estate                               150,269  148,340   98,890
      Other and eliminations                    (3,622)  (2,666)    1,499
                                                -------  -------  -------
                                                 $262,167       $   257,550
$     305,443
                                                =======  =======  =======
     Capital expenditures
      Oil and gas properties                    $ 3,688 $ 10,046  $103,205
      Oil and gas, other                            233      618    1,135
      Real estate                                 6,723   53,411   53,626
      Other                                         306      433      236
                                                -------  -------  -------
                                                $10,950 $ 64,508  $158,202
                                                =======  =======  =======
17.  Condensed Issuer Financial Data

     Summarized  consolidated financial information  for  Southwest  is  as
follows (in thousands):
                                                      December 31,
                                           ---------------------------------
                                                 1999      1998     1997
                                                -----     -----    -----
     Consolidated Balance Sheet Data:
      Current assets                            $28,276 $ 20,486  $35,545
      Net property and equipment                 73,477   81,373  156,302
      Other assets, net                          10,814    8,417   11,789
                                                -------  -------  -------
                                                 $112,567       $   110,276
$     203,636
                                                =======  =======  =======
      Current liabilities                       $46,597 $ 12,299  $14,614
      Long-term debt                            161,553  199,058  198,938
      Other liabilities                             841    1,361    1,412
      Deferred income taxes                           -        -    2,522
      Minority interest                               8        7      202
      Stockholders deficit                      (96,432)          (102,449)
(14,052)
                                                -------  -------  -------
                                                 $112,567       $   110,276
$     203,636
                                                =======  =======  =======
<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

                                                     December 31,
                                          ---------------------------------
                                                1999      1998      1997
                                               -----     -----     -----
     Consolidated Cash Flow Data:
       Net cash provided by (used in) operating
        activities                         $ (8,412)   $(5,309)  $ 4,920
       Net cash provided by (used in) investing
        activities                             3,022   (5,803)   (104,912)
       Net cash provided by (used in) financing
        activities                             8,543     (770)   116,680
                                             -------   -------   -------
       Net increase (decrease) in unrestricted
        cash and cash equivalents          $   3,153   $(11,882) $16,688
                                             =======   =======   =======

     Consolidated Statement of Operations Data (in thousands):
                               SRH  SouthwestSierraRed Oak ElimConsolidated
                               ---- ---------------------------------------
For the year ended December 31, 1999:
   Operating revenues           $   - $32,637 $    - $31,301     $  (6)   $
63,932
  Depreciation, depletion
   and amortization                -  5,502       - 4,485      -  9,987
  Operating income (loss)       (55) 14,074       - 6,812      - 20,831
   Interest  expense                 - 22,382        -  19,664        (136)
41,910
  Loss before taxes, minority interest,
     equity  loss  and  extraordinary  item           (39)  (7,623)       -
(11,419)                       (92)  (19,173)
   Net  income  (loss)             (39)  5,986       -  (13,017)      1,661
(5,409)

For the year ended December 31, 1998:
   Operating revenues           $   - $33,879 $    - $25,650     $  20    $
59,509
  Depreciation, depletion
   and amortization                - 16,305       - 2,935      - 19,240
  Impairment of properties         - 64,000       -     -      - 64,000
    Operating  income  (loss)        (44)  (68,614)        -      7,605   -
(61,053)
    Interest  expense                  -  22,544        -  13,969        23
36,490
  Loss before taxes, minority interest,
     equity  loss  and  extraordinary  item           (28)  (89,769)      -
(5,806)                        92    (95,695)
   Net  loss                     (2,645)       (88,425)     -       (5,858)
(874)                          (96,054)

For the year ending December 31, 1997:
   Operating revenues           $   - $39,727 $7,833 $9,338      $  (44)  $
56,854
  Depreciation, depletion
   and amortization                - 12,974     747 1,313      - 15,034
  Operating income                 -  3,237     184 3,074      -  6,495
  Interest expense                 - 12,372     184 6,320     18 18,894
  Income (loss) before taxes, minority
   interest, equity loss and
    extraordinary item          15,249        (8,097)       (5)     (3,125)
(15,274)                       (11,252)
   Net  income (loss)            15,046        (7,733)      (4)     (3,987)
(14,815)                       (11,493)

18.  Subsequent Events

     In January of 2000, Southwest drew down the remaining $15.0 million on
the  Revolving Loan Facility and applied the proceeds towards the  purchase
of an additional 19% or approximately $38.4 million original face amount of
its  10.5%  Senior  Notes.   Southwest paid  approximately  $23.0  million,
including  all fees, to purchase the 10.5% Senior Notes and  wrote  off  an
additional $349,000 of deferred loan issue costs and an additional $980,000
of  the  original issue discount to recognize an additional  $14.0  million
extraordinary  gain  on  the  purchase of the  notes.   Southwest  has  not
recorded any income tax benefits on the continuing operations and therefore
there is no income tax expense recognized on the extraordinary gain.

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

19.   Supplemental  Financial  Data  - Oil  and  Gas  Producing  Activities
(unaudited):

     The following information is presented in accordance with Statement of
Financial  Accounting  Standards No. 69,  "Disclosure  about  Oil  and  Gas
Producing Activities," (SFAS No. 69), except as noted.

Costs  incurred in connection with oil and gas producing activities are  as
follows (in thousands):

                                      Years ended December 31,
                                  --------------------------------
                                       1999      1998      1997
                                      -----     -----     -----
     Acquisition of properties       $    417  $  1,315  $ 80,797
     Exploration costs                     76       834     2,769
     Development costs                  3,195     7,897    19,639
                                       ------    ------   -------
       Total costs incurred          $  3,688  $ 10,046  $103,205
                                       ======    ======   =======

Results  of operations for oil and gas producing activities are as  follows
(in thousands):

                                      Years ended December 31,
                                  --------------------------------
                                       1999      1998      1997
                                      -----     -----     -----

     Revenues                        $ 31,425  $ 32,467  $ 38,500
                                       ------   -------    ------
     Production costs                  10,833    18,395    18,500
     Depletion                          4,901    15,601    12,419
     Impairment of oil and gas
      properties                            -    64,000         -
                                       ------   -------    ------
                                       15,691  (65,529)     7,581
     Income tax provision               5,335         -     2,578
                                      -------   -------    ------
     Results of operations from oil and
      gas producing activities
      (excluding corporate overhead)        $  10,356 $  (65,529)     $
5,003
                                      =======   =======    ======
<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

Reserve Quantity Information

     The  estimates of the Company's proved oil and gas reserves, which are
located  in  the  United  States,  are based  on  evaluations  reviewed  by
independent  petroleum  engineers.  Reserves were estimated  in  accordance
with guidelines established by the U. S. Securities and Exchange Commission
and  the  Financial Accounting Standards Board, which require that  reserve
estimates be prepared under existing economic and operating conditions with
no   provision  for  price  and  cost  escalations  except  by  contractual
arrangements.  The reserve estimates at December 31, 1999 assume an average
oil  price  of  $23.90/Bbl  (reflecting adjustments  for  oil  quality  and
gathering  and transportation costs) and an average gas price of  $2.06/Mcf
(reflecting adjustments for BTU content, gathering and transportation costs
and gas processing and shrinkage).

     Oil  and  gas  reserve  quantity estimates  are  subject  to  numerous
uncertainties  inherent in the estimation of quantities of proved  reserves
and  the  projection  of  future  rates of production  and  the  timing  of
development expenditures.  The accuracy of such estimates is a function  of
the  quality  of  available data, engineering and geological interpretation
and  judgement.  Results of subsequent drilling, testing and production may
cause  either upward or downward revision of previous estimates.   Further,
the  volumes considered to be commercially recoverable fluctuate  with  the
changes in prices and operating costs.  The Company emphasizes that reserve
estimates  are  inherently imprecise and that estimates of new  discoveries
are   more  imprecise  than  those  of  currently  producing  oil  and  gas
properties.   Accordingly,  these estimates  are  expected  to  change,  as
additional information becomes available in the future.

                                      Oil and   Natural  Barrels of
                                     Condensate   Gas  Oil Equivalent
                                      (MBbls)    (MMcf)    (Mboe)
                                       ------    ------   -------
    Total Proved Reserves:
     Balance, January 1, 1997          18,806    76,776    31,602
       Extensions and discoveries         474     1,230       679
       Purchase of minerals-in-place   16,419     7,274    17,631
       Sales of minerals-in-place        (83)      (91)      (98)
         Revisions   of   previous  estimates           (4,642)    (14,825)
(7,113)
       Production                     (1,308)   (5,639)   (2,248)
                                       ------    ------    ------
     Balance, December 31, 1997        29,666    64,725    40,453
       Extensions and discoveries          27     1,526       282
       Purchase of minerals-in-place      288       895       437
       Sales of minerals-in-place     (1,024)   (6,132)   (2,046)
         Revisions   of   previous  estimates           (6,324)       2,815
(5,855)
       Production                     (1,689)   (5,556)   (2,615)
                                       ------    ------    ------
     Balance, December 31, 1998        20,944    58,273    30,656
       Purchase of minerals-in-place      261     1,329       483
       Sales of minerals-in-place     (1,704)   (2,751)   (2,163)
       Revisions of previous estimates            6,633    12,855     8,776
       Production                     (1,306)   (4,627)   (2,077)
                                       ------    ------    ------
     Balance, December 31, 1999        24,828    65,079    35,675
                                       ======    ======    ======
    Total proved developed reserves
       January 1, 1997                 10,302    58,961    20,129
       December 31, 1997               18,472    46,585    26,236
       December 31, 1998               12,006    37,481    18,253
       December 31, 1999               16,618    43,023    23,789

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

Standardized Measure of Discounted Future Net Cash Flows

     The  standardized  measure  of discounted future  net  cash  flows  is
computed by applying year-end prices of oil and gas (with consideration  of
price  changes only to the extent provided by contractual arrangements)  to
the  estimated  future  production of proved  oil  and  gas  reserves  less
estimated  future expenditures (based on year-end costs) to be incurred  in
developing and producing the proved reserves, discounted using  a  rate  of
10%  per  year  to reflect the estimated timing of the future  cash  flows.
Future  income  taxes  are calculated by comparing discounted  future  cash
flows   to  the  tax  basis  of  oil  and  gas  properties  plus  available
carryforwards  and  credits  and applying the  current  tax  rates  to  the
difference.

     Discounted future cash flow estimates like those shown below  are  not
intended  to  represent  estimates  of  the  fair  value  of  oil  and  gas
properties.   Estimates  of  fair  value  should  also  consider   probable
reserves, anticipated future oil and gas prices, interest rates, changes in
development   and  production  costs  and  risks  associated  with   future
production.   Because of these and other considerations,  any  estimate  of
fair value is necessarily subjective and imprecise.

     During  most of 1996 and 1997, the Company benefited from  higher  oil
and  gas prices as compared to previous years.  However, during the  fourth
quarter  of 1997 and the year 1998, oil prices began a downward trend  that
has  continued throughout 1998 and the first half of 1999.  A  continuation
of the oil price environment experienced throughout 1998 and the first half
of 1999 will have an adverse affect on the Company's revenues and operating
cash flow, and may result in a downward adjustment to the Company's current
2000 capital budget.

                                                  December 31,
                                    ---------------------------------------
                                           1999       1998       1997
                                          -----      -----      -----
                                                (in thousands)
     Future cash inflows              $ 727,615   $315,709   $ 620,418
     Future production and development
      costs                           (284,354)   (181,627)  (303,406)
                                       --------   --------    --------
     Future net cash flows before
      income taxes                      443,261    134,082     317,012
     Future income tax expense        (103,067)          -    (59,764)
                                       --------   --------    --------
     Future net cash flows              340,194    134,082     257,248
     10% annual discount for estimated
      timing of cash flows            (164,634)   (62,182)   (117,427)
                                       --------   --------    --------
     Standardized measure of discounted
      future net cash flows           $ 175,560   $ 71,900   $ 139,821
                                       ========   ========    ========

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

     The  principal  sources  of  change in  the  standardized  measure  of
discounted future net cash flows are as follows:

                                                  December 31,
                                    ---------------------------------------
                                           1999       1998       1997
                                          -----      -----      -----
                                                (in thousands)
Sales of oil and gas produced,
  net of production costs             $(20,592)   $(14,072)  $(20,000)
Net change in sales prices net of production
  costs                                 116,644   (76,234)   (119,553)
Extensions and discoveries, net of future
  production and development costs            -      1,195       3,540
Revisions to estimated future development
  costs                                 (4,059)      3,103     (4,833)
Purchases of minerals-in-place            1,866      1,334      80,690
Revisions  of  previous  quantity estimates             60,317     (18,054)
(37,403)
Accretion of discount                     7,190     17,230      25,217
Net change in income taxes             (53,188)     32,483      46,887
Sales of minerals-in-place              (5,685)    (5,899)       (384)
Changes in production rates, timing
  and other                               1,167    (9,007)    (12,881)
                                        -------    -------     -------
                                        103,660   (67,921)    (38,720)
Discounted future net cash flows -
  Beginning of period                    71,900    139,821     178,541
                                        -------    -------     -------

  End of period                       $ 175,560   $ 71,900   $ 139,821
                                        =======    =======     =======

ITEM  9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING  AND
FINANCIAL DISCLOSURE.

     None

<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES


                                 PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The  directors  and  executive officers of SRH and  Southwest  are  as
follows:

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

H. Allen Corey            43          Secretary and Director

Bill  E.  Coggin            45          Vice President and Chief  Financial
Officer

J. Steven Person          41          Vice President, Marketing

Paul L. Morris            58          Director

     Set  forth  below is a description of the backgrounds of the directors
and executive officers of SRH and Southwest.

     H.  H.  Wommack,  III has served as Chairman of the Board,  President,
Chief  Executive Officer and a director of SRH since it was formed in  July
1997  and of Southwest since its founding in 1983.  Mr. Wommack has  served
as  a  director of Red Oak since 1992. Prior to the formation of Southwest,
Mr. Wommack was a self-employed independent oil and gas producer engaged in
the  purchase  and sale of royalty and working interests  in  oil  and  gas
leases and the drilling of wells.

     H.  Allen Corey has served as Secretary and a director of SRH since it
was  formed in July 1997 and of Southwest since its founding in  1983.  Mr.
Corey  has  served as a director and Assistant Secretary of Red  Oak  since
1992.  Since  January 1997, Mr. Corey has been president  of  Trolley  Barn
Brewery, Inc., a brew pub restaurant chain based in the southeastern United
States  and  of  counsel  to  the law firm of Baker,  Donelson,  Bearman  &
Caldwell, P.C. From 1986 to 1997, Mr. Corey was a partner at the  law  firm
of Miller & Martin in Chattanooga, Tennessee.

     Bill  E.  Coggin  has  served as Vice President  and  Chief  Financial
Officer  of SRH since it was formed in July 1997. Mr. Coggin has served  as
Vice  President and Chief Financial Officer of Southwest since  1985.   Mr.
Coggin  has  served as a director and Vice President, Finance  of  Red  Oak
since  1995.  Previously, Mr. Coggin was controller  for  an  oil  and  gas
drilling company and an independent oil and gas operator.

     J.  Steven Person has served as Vice President, Marketing of SRH since
it  was  formed  in  July 1997. Mr. Person has served  as  Vice  President,
Marketing for Southwest since 1989 and as Vice President, Marketing of  Red
Oak  since 1996. Prior to joining Southwest, Mr. Person was involved in the
syndication of mortgage-based securities.

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

<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES


Other key employees of Southwest and Red Oak include:

Southwest.

     Jon  P. Tate, age 42, has served as Vice President, Land and Assistant
Secretary of Southwest since 1989. From 1981 to 1989, Mr. Tate was employed
by C.F. Lawrence & Associates, Inc., an independent oil and gas company, as
land  manager.  Mr.  Tate  is  a  member of  the  Permian  Basin  Landman's
Association.

     R.  Douglas Keathley, age 44, has served as Vice President, Operations
of Southwest since 1992. Before joining Southwest, Mr. Keathley worked as a
senior  drilling  engineer  for ARCO Oil and Gas  Company  and  in  similar
capacities for Reading & Bates Petroleum Co. and Tenneco Oil Co.

Red Oak.

     W. Neil McClung, age 49, has served as President and a director of Red
Oak  since  1994.  Prior to his involvement with Red Oak, Mr.  McClung  was
senior  vice  president of Heitman Properties, Ltd. from 1989 through  1993
where he was responsible for marketing, budget development and leasing  for
three  million  square  feet of high-rise office  building  and  industrial
center space in several metropolitan and secondary markets. Mr. McClung has
also  served  as  a  property and leasing manager for Heitman  in  Midland,
Texas.

     J.  Wesley Tune, age 40, has served as Vice President and Secretary of
Red  Oak  since 1994. Mr. Tune was employed by Heitman Properties, Ltd.  as
property and leasing manager from 1992 until 1994 in Midland, Texas.  Prior
to  his involvement with Heitman, Mr. Tune was a property manager for  Mike
Lewis  &  Associates in Midland, Texas, from 1990 to 1992, and manager  and
controller for Mission Country Club from 1988 to 1990.

<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES


Item 11.  Executive Compensation.

     The  following table sets forth certain information for  fiscal  years
1998  and  1999 with respect to the compensation paid to Mr.  Wommack,  the
Chairman  and  President,  and  the  four  other  most  highly  compensated
executive  officers of Southwest.  No other executive officers of Southwest
received  annual  compensation (including salary and bonuses  earned)  that
exceeded  $100,000  for the years ended December 31, 1999  and  1998.   Mr.
Wommack determines the compensation of Southwest's executive officers.   No
compensation  has  been paid to the executive officers  of  SRH  for  their
services to SRH.
                                                               All Other
Name and Principal Position               Year  Salary Bonus(2)Compensati
on(1)
--------------------------------------------------------------------  -----
---------------
H. H. Wommack, III, President and Treasurer (3)        1999   $ 671,750
$ 182,303                                $51,934
                                          1998         667,026  130,006
27,345
                                          ----         -------  -------
-------
Bill E. Coggin, Vice President and Chief  1999         175,000   67,667
4,750
  Financial Officer                       1998         188,219   30,387
7,180
                                          ----         -------  -------
-------
J. Steven Person, Vice President, Marketing   1999     141,083   58,476
6,550
                                          1998         163,589   14,540
8,036
                                          ----         -------  -------
-------
R. Douglas Keathley, Vice President,      1999         106,800    7,257
5,511
  Operations                              1998         106,800    2,764
7,316
                                          ----         -------  -------
-------
Jon Tate, Vice President, Land            1999         98,000    14,041
4,369
                                          1998         98,719     3,514
5,343
                                          ----         -------  -------
-------
                                                                Carried
                                                    Profit    Interest in
                                      Insurance Sharing/401(k)Oil and Gas
Name                         Year      Premiums  ContributionProperties(3)
------                       ----     -----------------------------------
H. H. Wommack, III            1999     $ 4,550     $2,000      $ 45,384
                              1998       6,599      2,000        18,746
                              ----       -----      -----       -------
Bill E. Coggin                1999       2,750      2,000             -
                              1998       5,180      2,000             -
                              ----       -----      -----       -------
J. Steven Person              1999       4,550      2,000             -
                              1998       6,244      1,612             -
                              ----       -----      -----       -------
R. Douglas Keathley           1999       4,550        961             -
                              1998       6,355        961             -
                              ----       -----      -----       -------
Jon Tate                      1999       2,690      1,679             -
                              1998       4,109      1,234             -
                              ----       -----      -----       -------

       (1)    Reflects  (i)  Southwest's  contributions  to  the  Southwest
Royalties,  Inc.  Employee  Profit Sharing  and  401(k)  Plan  and  premium
payments  made  by  Southwest  for health, disability  and  life  insurance
policies  for  the referenced individuals and (ii) net cash  received  from
carried interests in Oil and Gas Properties.
     (2)  Amount includes club dues and automobiles furnished by Southwest.
     (3)   Mr.  Wommack has acted as a general partner of the income  funds
and  certain  of  the  drilling funds sponsored by  Southwest  since  1983,
holding a 1% interest in these partnerships.

     In 1999 there were two non-employee directors who received $4,000 each
for  their services as directors of Southwest.  In 1998 there were two non-
employee  directors  who  received  $10,000  each  for  their  services  as
directors of Southwest.

<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES


Item 12.  Security Ownership of Certain Beneficial Owners and Management.

     The  following  table  sets  forth information  with  respect  to  the
beneficial ownership of the common stock, excluding treasury shares, of SRH
by  each person who is known by the Company to own beneficially 5% or  more
of  the  common  stock of SRH, by each director, and by  all  officers  and
directors of SRH as a group. Southwest is a wholly-owned subsidiary of SRH.

                                          Number of
Name and Address of                         Shares          Percentage
     Beneficial Owner                       Owned            of Class
---------------------                     ---------         ----------

H. Allen Corey                              48,968              4.6%
c/o Southwest Royalties Holdings, Inc.
Southwest Royalties Building
407 N. Big Spring
Midland, TX 79701-4326

George H. Jewell                            61,855              5.7%
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002

H. H. Wommack, III                         787,977             73.2%
c/o Southwest Royalties Holdings, Inc.
Southwest Royalties Building
407 N. Big Spring
Midland, TX 79701-4326

Paul L. Morris                                   -               -
c/o Southwest Royalties Holdings, Inc.
Southwest Royalties Building
407 N. Big Spring
Midland, TX 79701-4326

Directors and officers as a group (five persons)848,925        78.9%

Item 13.  Certain Relationships and Related Transactions.

     The descriptions set forth below do not purport to be complete and are
qualified in their entirety by reference to the applicable agreements.

     On  December 15, 1994, H. H. Wommack, III borrowed approximately  $1.7
million  on an unsecured basis from Southwest for the purpose of purchasing
the Southwest common stock held by a certain stockholder. The note held  by
Southwest  was amended on March 15, 1995 to include $35,225 of accrued  but
unpaid interest. The note carries a 6% interest rate and is being amortized
over  30  years  with payments of $5,500 semi-monthly. As of  December  31,
1999,  the  outstanding balance of this loan was $1.6 million. Mr.  Wommack
serves as a general partner of substantially all of the oil and gas limited
partnerships sponsored by Southwest since 1983, and he holds an interest in
these partnerships of approximately 1%.


<PAGE>
            SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES



                                  PART IV

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

Financial Statements

     The  following  financial statements of the Company  are  included  in
"Item 8.  Financial Statements and Supplementary Data":

     Independent Auditors' Report
     Consolidated Balance Sheets as of December 31, 1999 and 1998
     Consolidated  Statements of Operations from the years  ended  December
     31, 1999, 1998 and 1997
     Consolidated  Statements of Stockholders' Equity for the  years  ended
     December 31, 1999, 1998 and 1997
     Consolidated Statements of Cash Flows for the years ended December 31,
     1999, 1998 and 1997
     Notes to Consolidated Financial Statements

     All  other statements and schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission
have  been omitted because they are not required under related instructions
or  are  inapplicable,  or  the  information  is  shown  in  the  financial
statements.

Reports on Form 8-K

     The  Company  filed an 8-K on December 31, 1999 under  Item  5  "Other
Events."

<PAGE>
Exhibits

     The  following instruments and documents are included as  Exhibits  to
this  Report.   Exhibits  incorporated by reference  are  so  indicated  by
parenthetical information.


Exhibit Number                     Description
--------------                     -------------

          3.1   Certificate of Incorporation for Southwest Royalties,  Inc.
          dated  as  of  August  18, 1983, as amended March  30,  1987  and
          November 20, 1989, incorporated by reference to Exhibit 3.1 to S-
          4 Registration Statement No. 333-41915 filed December 10, 1997.

          3.2    Certificate  of  Incorporation  for  Southwest   Royalties
          Holdings,  Inc.  dated  as  of  July  1,  1997,  incorporated  by
          reference to Exhibit 3.2 to S-4 Registration Statement  No.  333-
          41915 filed December 10, 1997.

          3.3   By-Laws of Southwest Royalties, Inc. dated as of August 12,
          1996 as amended, incorporated by reference to Exhibit 3.3 to  S-4
          Registration Statement No. 333-41915 filed December 10, 1997.

          3.4  By-Laws of Southwest Royalties Holdings, Inc. adopted as  of
          July  1,  1997, incorporated by reference to Exhibit 3.4  to  S-4
          Registration Statement No. 333-41915 filed December 10, 1997.

          4.1   Indenture  dated  as of October 14,  1997  among  Southwest
          Royalties,  Inc., as Issuer, Southwest Royalties Holdings,  Inc.,
          as  Guarantor, and State Street Bank and Trust Co.,  as  Trustee,
          incorporated  by  reference to Exhibit 4.1  to  S-4  Registration
          Statement No. 333-41915 filed December 10, 1997.

          4.2   Registration Rights Agreement dated as of October 14,  1997
          by  and  between  Southwest Royalties, Inc., Southwest  Royalties
          Holdings,  Inc.,  Jefferies & Company,  Inc.,  Banc  One  Capital
          Corporation and Paribas Corporation, incorporated by reference to
          Exhibit  4.2  to  S-4 Registration Statement No. 333-41915  filed
          December 10, 1997.

          4.3   Warrant  issued by Southwest Royalties  Holdings,  Inc.  to
          Joint Energy Development Investments Limited Partnership dated as
          of  October 14, 1997, incorporated by reference to Exhibit 4.3 to
          S-4 Registration Statement No. 333-41915 filed December 10, 1997.

          4.4    Registration  Rights  Agreement  by  Southwest   Royalties
          Holdings,  Inc. and Joint Energy Development Investments  Limited
          Partnership  dated  as  of  October  14,  1997,  incorporated  by
          reference to Exhibit 4.4 to S-4 Registration Statement  No.  333-
          41915 filed December 10, 1997.

          10.1  Purchase and Sale Agreement dated as of September 10,  1997
          between  Conoco, Inc. and Southwest Royalties, Inc., incorporated
          by  reference  to Exhibit 10.1 to S-4 Registration Statement  No.
          333-41915 filed December 10, 1997.

          10.2 Securities Purchase Agreement dated October 14, 1997 between
          Southwest  Royalties Holdings, Inc. and Joint Energy  Development
          Investments  Limited Partnership, incorporated  by  reference  to
          Exhibit  10.2  to S-4 Registration Statement No. 333-41915  filed
          December 10, 1997.

          10.3  Credit  Agreement  among  Southwest  Royalties,  Inc.,   as
          borrower  and  Bank  One, Texas, N.A. and the Institutions  named
          herein  as  Banks,  and  Bank One, Texas as Administrative  Agent
          dated December 29, 1999, incorporated by reference to Exhibit 4.0
          to Form 8-K/A filed December 30, 1999.

          21    List  of Subsidiaries, incorporated by reference to Exhibit
          21 to Amendment No. 1 to S-4 Registration Statement No. 333-41915
          filed January 30, 1997.

          27*  Financial Data Schedule.

* Filed herewith.


<PAGE>


                                SIGNATURES
                         SOUTHWEST ROYALTIES, INC.

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

                            SOUTHWEST ROYALTIES, INC.

                      By:   /s/ H. H. Wommack, III
                            ----------------------------------------
                            H.H. Wommack, III, Chairman, President,
                            and Chief Executive Officer

                      Date: April 14, 2000

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

  SIGNATURE                TITLE                 DATE
  ---------                -----                 -----

  /s/ H. H. Wommack, III
  ------------------------ Chairman/President/   April 14, 2000
  H. H. Wommack, III       Chief Executive Officer

  /s/ Bill E. Coggin
  -------------------------Vice President/Chief  April 14, 2000
  Bill E. Coggin           Financial Officer

  /s/ H. Allen Corey
  -------------------------
  H. Allen Corey           Director/Secretary    April 14, 2000

<PAGE>



                                SIGNATURES
                    SOUTHWEST ROYALTIES HOLDINGS, INC.

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

                            SOUTHWEST ROYALTIES HOLDINGS, INC.

                      By:   /s/ H. H. Wommack, III
                            ----------------------------------------
                            H.H. Wommack, III, Chairman, President,
                            and Chief Executive Officer

                      Date: April 14, 2000

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

  SIGNATURE                TITLE                 DATE
  ---------                -----                 -----

  /s/ H. H. Wommack, III
  ------------------------ Chairman/President/   April 14, 2000
  H. H. Wommack, III       Chief Executive Officer

  /s/ Bill E. Coggin
  ------------------------ Vice President/Chief  April 14, 2000
  Bill E. Coggin           Financial Officer

  /s/ H. Allen Corey
  ------------------------
  H. Allen Corey           Director/Secretary    April 14, 1999

<PAGE>