UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D. C. 20549

                                      FORM 10-K

         / x /      Annual Report Pursuant to Section 13 or 15(d)
                of the Securities Exchange Act of 1934 (Fee Required)
                     For the fiscal year ended December 31, 1995
                                          or
        /   /     Transition Report Pursuant to Section 13 or 15(d)
               of the Securities Exchange Act of 1934 (No Fee Required)

                           Commission File No. 33-12244-02

                             PARKER & PARSLEY 87-B, LTD.
                (Exact name of Registrant as specified in its charter)
                  Texas                                      75-2185706
       (State or other jurisdiction of                     (I.R.S. Employer
       incorporation or organization)                  Identification Number)

  303 West Wall, Suite 101, Midland, Texas                       79701
  (Address of principal executive offices)                    (Zip code)

         Registrant's Telephone Number, including area code : (915) 683-4768

         Securities  registered  pursuant  to Section  12(b) of the Act:  None
           Securities registered pursuant to Section 12(g) of the Act:
                 Limited partnership interests ($1,000 per unit)

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

 Indicate by check mark if disclosure of delinquent  filers 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 /

 No  market  currently  exists  for the  limited  partnership  interests  of the
 Registrant.  Based on original  purchase  price the  aggregate  market value of
 limited  partnership  interests  owned by  non-affiliates  of the Registrant is
 $20,044,000.

 As of March 8, 1996, the number of outstanding  limited  partnership  interests
 was 20,089.  The following  documents are incorporated by reference into the
 indicated parts of this Annual Report on Form 10-K: None

                                 Page 1 of 31 pages.
                              -Exhibit index on page 31-


<PAGE>



                                     PART I


 ITEM 1.    Business

     Parker & Parsley 87-B,  Ltd. (the  "Registrant")  is a limited  partnership
organized  in 1987 under the laws of the State of Texas.  The  managing  general
partner is Parker & Parsley Development L.P. ("PPDLP").  PPDLP's general partner
is Parker & Parsley Petroleum USA, Inc. ("PPUSA").  The managing general partner
during the year ended December 31, 1994 was Parker & Parsley Development Company
("PPDC"). PPDC was merged into PPDLP on January 1, 1995. See Item 12 (c).

 A Registration  Statement,  as amended, filed pursuant to the Securities Act of
 1933,  registering limited partnership interests  aggregating  $40,000,000 in a
 series of Texas  limited  partnerships  formed  under the  Parker & Parsley  87
 Development  Drilling  Program,  was declared  effective by the  Securities and
 Exchange  Commission on April 28, 1987.  On November 25, 1987,  the offering of
 limited partnership interests in the Registrant,  the second partnership formed
 under such statement,  was closed, with interests aggregating $20,089,000 being
 sold to 1,603 subscribers.

 The Registrant  engages primarily in oil and gas development and production and
 is not  involved in any industry  segment  other than oil and gas. See "Item 6.
 Selected  Financial Data" and "Item 8. Financial  Statements and  Supplementary
 Data" of this  report for a summary  of the  Registrant's  revenue,  income and
 identifiable assets.

 The principal  markets during 1995 for the oil produced by the Registrant  were
 refineries  and oil  transmission  companies  that  have  facilities  near  the
 Registrant's  oil  producing   properties.   The  principal   markets  for  the
 Registrant's   gas  were  companies  that  have  pipelines   located  near  the
 Registrant's gas producing properties. Of the Registrant's oil and gas revenues
 for 1995,  approximately  60% and 18% were attributable to sales made to Phibro
 Energy, Inc. and Western Gas Resources, Inc., respectively.

 Because of the demand for oil and gas, the Registrant does not believe that the
 termination  of the sales of its  products  to any one  customer  would  have a
 material  adverse impact on its operations.  The loss of a particular  customer
 for gas may  have an  effect  if that  particular  customer  has the  only  gas
 pipeline located in the areas of the Registrant's gas producing properties. The
 Registrant  believes,  however,  that  the  effect  would be  temporary,  until
 alternative arrangements could be made.

 Federal and state regulation of oil and gas operations  generally  includes the
 fixing  of  maximum  prices  for  regulated  categories  of  natural  gas,  the
 imposition of maximum  allowable  production  rates, the taxation of income and
 other items,  and the  protection of the  environment.  Although the Registrant
 believes that its business operations do not impair  environmental  quality and
 that its costs of complying with any applicable  environmental  regulations are
 not currently  significant,  the Registrant cannot predict what, if any, effect
 these environmental regulations may have on its current or future operations.

                                       2

<PAGE>



 The  Registrant  does not have any  employees  of its own.  PPUSA  employs  623
 persons,  many of whom  dedicated  a part of their  time to the  conduct of the
 Registrant's  business  during the period for which this  report is filed.  The
 Registrant's  managing  general  partner,  PPDLP  through  PPUSA,  supplies all
 management functions.

 No material part of the  Registrant's  business is seasonal and the  Registrant
 conducts no foreign operations.

 ITEM 2.    Properties

 The  Registrant's  properties  consist  primarily  of  leasehold  interests  in
 properties on which oil and gas wells are located.  Such property interests are
 often subject to landowner  royalties,  overriding  royalties and other oil and
 gas leasehold interests.

 Fractional  working interests in developmental oil and gas prospects located in
 Texas  and  Colorado  were  acquired  by  the  Registrant,   resulting  in  the
 Registrant's participation in the drilling of 64 oil and gas wells. At December
 31,  1995,  56 wells  were  producing;  one well was a dry hole from a previous
 year; four wells have been plugged and abandoned,  one in 1990, one in 1994 and
 two in 1995; and three wells were sold, one in 1994 and two in 1995.

 For  information  relating  to the  Registrant's  estimated  proved oil and gas
 reserves at December 31, 1995, 1994 and 1993 and changes in such quantities for
 the years then ended, see Note 8 of Notes to Financial  Statements  included in
 "Item 8. Financial Statements and Supplementary Data" below. Such reserves have
 been  estimated  by  the  engineering  staff  of  PPUSA  with  a  review  by an
 independent petroleum consultant.

 ITEM 3.    Legal Proceedings

 The Registrant is a party to material  litigation which is described in Note 10
 of Notes to Financial  Statements included in "Item 8. Financial Statements and
 Supplementary Data" below.

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

 There were no matters submitted to a vote of security holders during the fourth
 quarter of 1995.










                                       3

<PAGE>
                                    PART II

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

 At March 8, 1996,  the Registrant had 20,089  outstanding  limited  partnership
 interests held of record by 1,649  subscribers.  There is no established public
 trading  market  for the  limited  partnership  interests.  Under  the  limited
 partnership  agreement,  PPDLP  has  made  certain  commit  ments  to  purchase
 partnership interests at a computed value.

 Revenues which, in the sole judgement of the managing general partner,  are not
 required to meet the  Registrant's  obligations are distributed to the partners
 at least quarterly in accordance with the limited partnership agreement. During
 the years ended  December  31,  1995 and 1994,  distributions  of $767,219  and
 $683,161 respectively, were made to the limited partners.

 ITEM 6.    Selected Financial Data

 The  following  table sets forth  selected  financial  data for the years ended
 December 31:
                         1995        1994       1993         1992       1991
                     -----------  ---------- ----------   ---------- -----------
Operating results:
 Oil and gas sales   $ 1,606,406  $1,628,722 $2,106,549   $2,599,691 $ 3,074,212
                      ==========   =========  =========    =========  ==========
 Litigation settle-
  ment, net          $        -   $       -  $6,274,839   $       -  $        -
                      ==========   =========  =========    =========  ==========
 Impairment of oil
  and gas properties $ 1,135,838  $       -  $       -    $       -  $        -
                      ==========   =========  =========    =========  ==========
 Net income (loss)   $(1,079,723) $  131,520 $6,195,055   $  413,652 $   417,616
                      ==========   =========  =========    =========  ==========
 Allocation of net
  income (loss):
   Managing general
    partner          $   (10,797) $    1,315 $   61,913   $    4,874 $     4,980
                      ==========   =========  =========    =========  ==========
   Limited partners  $(1,068,926) $  130,205 $6,133,142   $  408,778 $   412,636
                      ==========   =========  =========    =========  ==========
 Limited partners'
  net income (loss)
  per limited part-
  nership interest   $    (53.21) $     6.48 $   305.30   $    20.35 $     20.54
                      ==========   =========  =========    =========  ==========
 Limited partners'
  cash distributions
  per limited part-
  nership interest   $     38.19  $    34.01 $   334.61(a)$    69.52 $     98.38
                      ==========   =========  =========    =========  ==========
 At year end:
  Total assets       $ 5,453,881  $7,332,796 $7,941,237   $9,112,527 $10,343,563
                      ==========   =========  =========    =========  ==========
Note payable-bank, net
 of current portion  $        -   $       -  $       -    $   18,562 $   121,687
 ---------------      ==========   =========  =========    =========  ==========
(a) Including litigation settlement per limited partnership interest of $285.83
    in 1993.                            4

<PAGE>



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

 Results of operations

 1995 compared to 1994

 The  Registrant's  1995  oil and gas  revenues  decreased  to  $1,606,406  from
 $1,628,722  in 1994.  The decrease in revenues  resulted  from a 12% decline in
 barrels  of oil  produced  and  sold,  offset  by a 5%  increase  in mcf of gas
 produced and sold and increases in the average price received per barrel of oil
 and mcf of gas. In 1995,  69,753 barrels of oil were sold compared to 79,101 in
 1994,  a  decrease  of 9,348  barrels.  In 1995,  247,984  mcf of gas were sold
 compared to 235,557 in 1994,  an increase  of 12,427 mcf.  The  decrease in oil
 volumes was primarily due to the decline  characteristics  of the  Registrant's
 oil  and gas  properties.  The  increase  in gas  volumes  was  the  result  of
 operational  changes on several wells.  Management  expects a certain amount of
 decline  in  production  in the  future  until  the  Registrant's  economically
 recoverable reserves are fully depleted.(1)

 The average  price  received  per barrel of oil  increased  $1.24,  or 8%, from
 $15.89 in 1994 to $17.13 in 1995.  The average  price  received  per mcf of gas
 increased  from $1.58 in 1994 to $1.66 in 1995.  The market price  received for
 oil and gas has been  extremely  volatile in the past  decade,  and  management
 expects  a  certain  amount  of  volatility  to  continue  in  the  foreseeable
 future.(1)  The Registrant may therefore sell its future oil and gas production
 at average prices lower or higher than that received in 1995.(1)

 Salvage income of $5,575 was derived from  equipment  credits  received  during
 1995 on a well that was  abandoned in a prior year. A loss on sale of assets of
 $16,319 was  recognized in 1995.  This loss resulted from proceeds  received of
 $58, less the write-off of remaining  capitalized  well costs of $16,377 on two
 wells  sold in 1995.  In 1994,  a gain of $25,619  was the  result of  proceeds
 received from the sale of one fully depleted well.

 Total  costs and  expenses  increased  in 1995 to  $2,687,776  as  compared  to
 $1,529,787  in 1994,  an increase  of  $1,157,989,  or 76%.  The  increase  was
 attributable  to the  impairment  of oil and gas  properties  and  increases in
 depletion and loss on abandoned  properties,  offset by decreases in production
 costs,  general and administrative  expenses ("G&A"),  abandoned property costs
 and interest expense.

 Production  costs were  $746,667 in 1995 and  $871,702 in 1994,  resulting in a
 $125,035  decrease,  or 14%. The decrease was due to reductions in well repair,
 maintenance and workover costs.

 G&A's  components are  independent  accounting and engineering  fees,  computer
 services,  postage and managing general partner  personnel  costs.  During this
 period,  G&A  decreased,  in  aggregate,  3% from $48,918 in 1994 to $47,268 in
 1995.  The Registrant  paid the managing  general  partner  $37,973 in 1995 and
 $37,201 in 1994 for G&A incurred on behalf of the Registrant. G&A is allocated,
 in part, to the Registrant by the managing  general  partner.  The  Partnership
 agreement  limits  allocated  G&A to 3% of  gross  oil and gas  revenues.  Such
 allocated expenses are  determined by  the managing  general partner based upon
                                       5

<PAGE>



 its  judgement  of the  level of activity of  the Registrant  relative  to  the
 managing general partner's activities and other entities it manages. The method
 of allocation has varied in certain  years and may do so again depending on the
 activities of the managed entities.(1)

 A loss on  abandoned  properties  of  $112,005  was the result of  proceeds  of
 $10,558 received from the salvage of equipment on two oil and gas wells plugged
 and abandoned  during 1995,  less the write-off of remaining  capitalized  well
 costs of $122,563.  This  compares to a gain on  abandoned  property of $24,152
 during 1994,  due to the salvage of equipment from one fully depleted well that
 was  abandoned  in  1994.   Abandoned  property  costs  associated  with  these
 abandonments were $3,780 and $11,254 in 1995 and 1994, respectively.

 Interest  expense was $324 in 1994.  There was no interest  expense during 1995
 due to the note payable being paid off during the first quarter of 1994.

 Depletion was $642,218 in 1995 compared to $621,741 in 1994.  This  represented
 an increase of $20,477,  or 3%.  Depletion  was  computed  property-by-property
 utilizing  the  unit-of-production  method  based  upon  the  dominant  mineral
 produced,  generally oil. Oil production  decreased  9,348 barrels in 1995 from
 1994, while oil reserves of barrels were revised downward by 12,813 barrels, or
 1%.

 Effective for the fourth  quarter of 1995 the Registrant  adopted  Statement of
 Financial  Accounting  Standards  No. 121 - Accounting  for the  Impairment  of
 Long-Lived  Assets and for  Long-Lived  Assets to be Disposed  Of ("SFAS  121")
 which requires that long-lived assets held and used by an entity, including oil
 and gas  properties  accounted  for  under  the  successful  efforts  method of
 accounting,   be  reviewed  for  impairment   whenever  events  or  changes  in
 circumstances  indicate  that  the  carrying  amount  of an  asset  may  not be
 recoverable.  In  performing  the review of  recoverability,  the entity should
 estimate the future cash flows expected to result from the use of the asset and
 its eventual disposition.  If the sum of the expected future cash flows is less
 than the carrying  amount of the assets,  an impairment is recognized  based on
 the asset's fair value as determined  for oil and gas properties by discounting
 their expected future cash flows at a discount rate commensurate with the risks
 involved in the industry.  As a result of the natural gas price environment and
 the  Registrant's  expectation  of  future  cash  flows  from  its  oil and gas
 properties at the time of review,  the Registrant  recognized a non-cash charge
 of $1,135,838 associated with the adoption of SFAS 121.

 1994 compared to 1993

 The  Registrant's  1994  oil and gas  revenues  decreased  to  $1,628,722  from
 $2,106,549 in 1993, a decrease of 23%. The decrease in revenues resulted from a
 7% decrease in the average price  received per barrel of oil, a 15% decrease in
 barrels of oil  produced  and sold,  a 13%  decrease in mcf of gas produced and
 sold and a 17% decrease in the average price  received per mcf of gas. In 1994,
 79,101  barrels of oil were sold  compared  to 92,614 in 1993,  a  decrease  of
 13,513  barrels.  In 1994,  235,557 mcf of gas were sold compared to 271,007 in
 1993,  a decrease of 35,450 mcf.  The  decreases  in  production  volumes  were
 primarily due to the decline  characteristics  of the  Registrant's oil and gas
 properties.

                                       6

<PAGE>



 The average  price  received per barrel of oil  decreased  $1.28 from $17.17 in
 1993 to $15.89 in 1994.  The average  price  received per mcf of gas  decreased
 from $1.90 in 1993 to $1.58 in 1994.

 Interest  income  decreased  to $6,966 in 1994 as compared to $18,143 for 1993.
 This  decrease was due to interest  earned in 1993 on the  litigation  proceeds
 until it was disbursed to the limited partners in September 1993.

 A gain on abandoned  property of $24,152 was recognized  during 1994 due to the
 salvage of equipment  from the plugging of one well.  Abandoned  property costs
 associated with this abandonment were $11,254. Additionally, a gain on the sale
 of assets of $25,619 in 1994 resulted from proceeds received on the sale of one
 fully depleted oil and gas well.

 Total  costs and  expenses  decreased  in 1994 to  $1,529,787  as  compared  to
 $2,204,476 in 1993, a decrease of $674,689, or 31%. The decrease was the result
 of a decline in production costs, G&A,  depletion and interest expense,  offset
 by an increase in abandoned property costs and gain on abandoned properties.

 Production  costs were  $871,702 in 1994 and  $990,580 in 1993,  resulting in a
 $118,878  decrease,  or 12%.  The  decrease was due to declines in well repair,
 maintenance and workover costs and ad valorem taxes and production taxes due to
 the decrease in oil and gas sales.

 G&A's  components are  independent  accounting and engineering  fees,  computer
 services,  postage and managing general partner  personnel  costs.  During this
 period,  G&A  decreased,  in aggregate,  22% from $62,732 in 1993 to $48,918 in
 1994.  The Registrant  paid the managing  general  partner  $37,201 in 1994 and
 $52,122 in 1993 for G&A incurred on behalf of the Registrant.

 Interest expense was $324 in 1994 compared to $15,941 in 1993. The decrease was
 due to the note  payable  being paid off  during the first  quarter of 1994 and
 there was no interest expense charged on legal expenses in 1994 as in 1993.

 Depletion was $621,741 in 1994 compared to $1,135,223 in 1993. This represented
 a decrease of $513,482, or 45%. Oil production decreased 13,513 barrels in 1994
 from 1993,  while oil  reserves  of barrels  were  revised  downward  by 54,404
 barrels, or 5%.

 On May 25, 1993,  a final  settlement  agreement  was  negotiated,  drafted and
 finally executed,  ending litigation which had begun on September 5, 1989, when
 the Registrant filed suit along with other parties against Dresser  Industries,
 Inc.;  Titan Services,  Inc.;  BJ-Titan  Services  Company;  BJ-Hughes  Holding
 Company;  Hughes Tool Company;  Baker Hughes Production Tools,  Inc.; and Baker
 Hughes  Incorporated  alleging that the defendants had intentionally  failed to
 provide the materials and services  ordered and paid for by the  Registrant and
 other parties in connection with the fracturing and acidizing of 523 wells, and
 then fraudulently  concealed the shorting practice from PPDLP. The May 25, 1993
 settlement  agreement  called  for a  payment  of $115  million  in cash by the
 defendants, and Southmark, the Registrant, and the other plaintiffs indemnified
 the  defendants  against  the claims of Jack N.  Price.  The  managing  general
 partner received the funds, deducted incurred legal expenses, accrued interest,
 determined  the  general  partner's  portion  of the funds and  calculated  any
 inter-partnership  allocations.   A distribution of $91,000,000 was made to the
                                       7

<PAGE>



 working interest owners,  including  the  Registrant,  on  July  30, 1993.  The
 limited  partners  received  their  distribution  of $5,741,966, or $285.83 per
 limited partnership interest, in September 1993.

 On May 3, 1993,  Jack N. Price,  the  attorney who  represented  Gary G. "Zeke"
 Lancaster in the Federal Court  lawsuit,  filed suit in State Court in Beaumont
 against all of the plaintiff partnerships, including the Registrant and others,
 alleging his  entitlement to 12% of the settlement  proceeds.  Price's  lawsuit
 claim for  approximately  $13.8 million is  predicated on a purported  contract
 entered into with  Southmark  Corporation  in August 1988 in which he allegedly
 binds the Registrant and the other defendants,  as well as Southmark.  Although
 PPDLP  believes the lawsuit is without merit and intends to  vigorously  defend
 it,  PPDLP is holding in reserve  approximately  12.5% of the total  settlement
 (the "Reserve") pending final resolution of the litigation by the court.

 On September  20, 1995,  the Beaumont  trial judge  entered a summary  judgment
 against Southmark for the $13,790,000  contingent fee sought by Price, together
 with prejudgment  interest,  and also awarded Price an additional $5,498,525 in
 attorneys'  fees. On January 22, 1996, the trial judge entered an interlocutory
 summary judgment against Dresser  Industries and Baker Hughes for an amount yet
 to be determined.  Pursuant to their  indemnity  obligations,  the  Registrant,
 Southmark,  PPDLP and other original  plaintiffs will vigorously  pursue appeal
 when the final judgment is entered. Southmark is vigorously pursuing its appeal
 of the  judgment,  and has  posted a  supersedeas  bond  using the  Reserve  as
 collateral.  Trial against the Registrant is currently  scheduled for April 29,
 1996.

 Legal  expenses were incurred  during 1989,  1990,  1991,  1992 and 1993 by the
 Registrant and other joint  property  owners for  participating  in the lawsuit
 pursuant to the joint  operating  agree ment.  Litigation  settlement  proceeds
 received by the Registrant,  less legal expenses incurred in 1993, are recorded
 as litigation  settlement,  net in the accompanying statement of operations for
 the year ended  December 31, 1993.  Interest  charged on legal expenses paid on
 behalf of the Registrant by the managing general partner was $9,917 in 1993 and
 $24,730 in 1992.

 Impact of inflation and changing prices on sales and net income

 Inflation  impacts  the fixed  overhead  rate  charges  of the lease  operating
 expenses for the  Registrant.  During 1993,  the annual  change in the index of
 average weekly earnings of crude petroleum and gas production workers issued by
 the U.S.  Department of Labor,  Bureau of Labor Statistics,  decreased by 1.1%.
 The 1994 annual change in average weekly  earnings  increased by 4.8%. The 1995
 index  (effective  April 1, 1995)  increased  4.4%. The impact of inflation for
 other lease operating  expenses is small due to the current economic  condition
 of the oil industry.

 The oil and gas industry experienced  volatility during the past decade because
 of the  fluctuation  of the supply of most fossil fuels  relative to the demand
 for such products and other  uncertainties  in the world energy markets causing
 significant fluctuations in oil and gas prices. Since December 31, 1994, prices

                                       8

<PAGE>



 for oil production  have  fluctuated  throughout the year. The price per barrel
 for oil production similar to the Registrant's ranged from approximately $16.00
 to $19.00.  For February 1996, the average price for the  Registrant's  oil was
 approximately $18.00.

 Prices for natural gas are subject to ordinary seasonal fluctuations,  and this
 volatility of natural gas prices may result in production  being curtailed and,
 in some cases, wells being completely shut-in.(1)

 Liquidity and capital resources

 Net Cash Provided by Operating Activities

 Net cash provided by operating activities increased to $807,759 during the year
 ended  December 31, 1995, a $159,280  increase from the year ended December 31,
 1994. The increase was the result of a decline in production  costs,  resulting
 from reductions in well repair and maintenance costs during 1995.

 Net Cash Provided by (Used in) Investing Activities

 The Registrant's investing activities during 1995 resulted in proceeds received
 of $6,629 from the disposal of equipment on active oil and gas properties.

 Proceeds of $10,558 were  received from the salvage of equipment on two oil and
 gas wells abandoned during 1995. In addition, proceeds from the sale of oil and
 gas equipment on  properties  abandoned in prior years netted $5,575 in salvage
 income in 1995.

 Proceeds  from the sale of assets in the amount of $58 were  received  from the
 sale of two oil and gas wells during 1995.

 Net Cash Used in Financing Activities

 Cash was  sufficient in 1995 for  distributions  to the partners of $774,992 of
 which  $767,219  was  distributed  to the  limited  partners  and $7,773 to the
 managing general partner. In 1994, cash was sufficient for distributions to the
 partners of $690,060 of which $683,161 was distributed to the limited  partners
 and $6,899 to the managing general partner.

 It is expected that future net cash  provided by operations  will be sufficient
 for any capital  expenditures and any  distributions.(1) As the production from
 the properties declines, distributions are also expected to decrease.(1)
 ---------------

 (1) This  statement is a forward  looking  statement  that  involves  risks and
     uncertainties.  Accordingly,  no  assurances  can be given  that the actual
     events and results will not be materially  different  than the  anticipated
     results described in the forward looking statement.


                                       9

<PAGE>



 ITEM 8.   Financial Statements and Supplementary Data

 The Registrant's audited financial statements are included elsewhere herein.

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

 None.
































                                      10

<PAGE>



                                    PART III


 ITEM 10.   Directors and Executive Officers of the Registrant

 The  Registrant  does not have any  officers  or  directors.  Under the limited
 partnership  agreement,  the Registrant's  managing general partner,  PPDLP, is
 granted  the  exclusive  right  and  full  authority  to  manage,  control  and
 administer the Registrant's business. PPUSA, the sole general partner of PPDLP,
 is a  wholly-owned  subsidiary  of  Parker &  Parsley  Petroleum  Company  (the
 "Company"), a publicly-traded corporation on the New York Stock Exchange.

 Set  forth  below  are the  names,  ages and  positions  of the  directors  and
 executive officers of PPUSA.  Directors of PPUSA are elected to serve until the
 next annual meeting of stockholders  or until their  successors are elected and
 qualified.

                            Age at
                         December 31,
      Name                  1995                 Position

 Scott D. Sheffield          43         Chairman of the Board and Director

 James D. Moring (a)         59         President, Chief Executive Officer and
                                         Director

 Timothy A. Leach            36         Executive Vice President and Director

 Steven L. Beal              36         Senior Vice President, Treasurer and
                                         Chief Financial Officer

 Mark L. Withrow             48         Senior Vice President and Secretary

 ---------------
(a)  Mr. Moring  retired from the Company and subsidiaries  effective January 1,
     1996. Mr. Sheffield  assumed the positions of President and Chief Executive
     Officer of PPUSA effective January 1, 1996.

     Scott D. Sheffield.  Mr.  Sheffield,  a graduate of The University of Texas
with a  Bachelor  of  Science  degree  in  Petroleum  Engineering,  has been the
President and a Director of the Company since May 1990 and has been the Chairman
of the Board and Chief  Executive  Officer  since October  1990.  Mr.  Sheffield
joined PPDC, the principal  operating  subsidiary of the Company, as a petroleum
engineer in 1979. Mr.  Sheffield  served as Vice President - Engineering of PPDC
from  September  1981  until  April  1985 when he was  elected  President  and a
Director of PPDC. In March 1989, Mr. Sheffield was elected Chairman of the Board
and Chief Executive Officer of PPDC. On January 1, 1995, Mr. Sheffield  resigned
as President and Chief Executive  Officer of PPUSA, but remained Chairman of the
Board and a Director of PPUSA. On January 1, 1996, Mr.  Sheffield  reassumed the
positions of President  and Chief  Executive  Officer of PPUSA.  Before  joining
PPDC,  Mr.  Sheffield  was  principally  occupied for more than three years as a
production and reservoir engineer for Amoco Production Company.

                                      11

<PAGE>



     James D. Moring.  Mr. Moring,  a graduate of Texas Tech  University  with a
Bachelor of Science degree in Petroleum  Engineering  has been a Director of the
Company  since  October 1990 and was Senior Vice  President - Operations  of the
Company from October 1990 until May 1993,  when he was appointed  Executive Vice
President - Operations. Mr. Moring has been principally occupied since July 1982
as the supervisor of the drilling, completion, and production operations of PPDC
and its  affiliates and has served as an officer of PPDC since January 1983. Mr.
Moring has been Senior Vice  President - Operations and a Director of PPDC since
June 1989 and in May 1993,  Mr. Moring was appointed  Executive Vice President -
Operations.  Mr. Moring was elected  President and Director and appointed  Chief
Executive  Officer of PPUSA on January 1, 1995.  Effective  January 1, 1996, Mr.
Moring  retired  from the Company  and  subsidiaries.  In the five years  before
joining  PPDC,  Mr.  Moring was employed as a Division  Operations  Manager with
Moran Exploration, Inc. and its predecessor.

      Timothy A. Leach.  Mr. Leach,  a graduate of Texas A&M  University  with a
 Bachelor of Science degree in Petroleum Engineering and the University of Texas
 of the  Permian  Basin with a Master of  Business  Administration  degree,  was
 elected  Executive  Vice  President -  Engineering  of the Company on March 21,
 1995.  Mr. Leach had been serving as Senior Vice  President  Engineering  since
 March 1993 and served as Vice  President  -  Engineering  of the  Company  from
 October 1990 to March 1993.  Mr. Leach was elected  Executive Vice President of
 PPUSA on December 1, 1995.  He had joined PPDC as Vice  President - Engineering
 in September 1989. Prior to joining PPDC, Mr. Leach was employed as Senior Vice
 President and Director of First City Texas - Midland, N.A.

     Steven L. Beal.  Mr.  Beal,  a graduate of the  University  of Texas with a
Bachelor of Business  Administration degree in Accounting and a certified public
accountant,  was  elected  Senior  Vice  President  - Finance of the  Company in
January 1995 and Chief  Financial  Officer of the Company on March 21, 1995.  On
January 1, 1995, Mr. Beal was elected Senior Vice President, Treasurer and Chief
Financial  Officer of PPUSA.  Mr. Beal has been the Company's  Chief  Accounting
Officer since November 1992 and been the Company's Treasurer since October 1990.
Mr. Beal joined PPDC as Treasurer in March 1988 and was elected Vice President -
Finance in October  1991.  Prior to joining  PPDC,  Mr. Beal was  employed as an
audit manager of Price Waterhouse.

     Mark L. Withrow.  Mr. Withrow,  a graduate of Abilene Christian  University
with Bachelor of Science degree in Accounting and Texas Tech  University  with a
Juris Doctorate degree, was Vice President - General Counsel of the Company from
February 1991 to January 1995,  when he was  appointed  Senior Vice  President -
General  Counsel,  and has been the  Company's  Secretary  since August 1992. On
January 1, 1995,  Mr. Withrow was elected Senior Vice President and Secretary of
PPUSA.  Mr.  Withrow  joined PPDC in January  1991.  Prior to joining PPDC , Mr.
Withrow was the managing partner of the law firm of Turpin,  Smith, Dyer, Saxe &
MacDonald, Midland, Texas.

 ITEM 11.    Executive Compensation

     The Registrant  does not have any directors or officers.  Management of the
Registrant is vested in PPDLP,  the managing  general  partner.  The  Registrant

                                      12

<PAGE>



 participates in oil and gas activities through an income tax  partnership  (the
 "Program")  pursuant  to the  Program agreement.  Under the Program  agreement,
 PPDLP pays  approximately 10% of  the  Registrant's  acquisition,  drilling and
 completion  costs  and  approximately  25%  of its  operating  and  general and
 administrative  expenses.  In return, PPDLP is  allocated  approximately 25% of
 the Registrant's revenues. See Notes 7 and 11 of Notes to Financial  Statements
 included in "Item 8.  Financial  Statements and  Supplementary  Data" below for
 information  regarding fees and  reimbursements  paid  to  the managing general
 partner or its affiliates by the Registrant.

 The Registrant does not directly pay any salaries of the executive  officers of
 PPUSA, but does pay a portion of PPUSA's general and administrative expenses of
 which these  salaries are a part.  See Note 7 of Notes to Financial  Statements
 included in "Item 8. Financial Statements and Supplementary Data" below.

 ITEM 12.    Security Ownership of Certain Beneficial Owners and Management

 (a)  Beneficial owners of more than five percent

 The Registrant is not aware of any person who  beneficially  owns 5% or more of
 the outstanding limited partnership interests of the Registrant. PPDLP owned 45
 limited partner interests at January 1, 1996.

 (b)  Security ownership of management

 The Registrant  does not have any officers or directors.  The managing  general
 partner of the Registrant, PPDLP, has the exclusive right and full authority to
 manage,  control and administer the  Registrant's  business.  Under the limited
 partnership  agreement,  limited partners holding a majority of the outstanding
 limited partnership interests have the right to take certain actions, including
 the removal of the managing general partner or any other general  partner.  The
 Registrant is not aware of any current  arrangement  or activity which may lead
 to such  removal.  The  Registrant  is not aware of any  officer or director of
 PPUSA who beneficially owns limited partnership interests in the Registrant.

 (c) Changes in control

 On  January  1,  1995,  PPDLP,  a Texas  limited  partnership,  became the sole
 managing  general  partner of Parker & Parsley  87-B,  Ltd., as a result of the
 merger into it of PPDC, a Delaware  corporation,  and an affiliate of PPDLP and
 the Company,  which  previously  served as the managing  general partner of the
 Registrant.  PPDLP  has,  therefore,   succeeded  to  all  of  the  rights  and
 obligations  of PPDC and will  manage and conduct the  property,  business  and
 affairs of the Registrant,  including the development drilling program in which
 the Registrant participates.





                                      13

<PAGE>



 ITEM 13.    Certain Relationships and Related Transactions

 Transactions with the managing general partner or its affiliates

 Pursuant to the limited partnership agreement, the Registrant had the following
 related party  transactions with the managing general partner or its affiliates
 during the years ended December 31:

                                              1995         1994         1993
                                            ---------    ---------    ---------
   Payment of lease operating and
     supervision charges in accordance
     with standard industry operating
     agreements                             $ 306,266    $ 329,525    $ 345,783

   Reimbursement of general and
     administrative expenses                $  37,973    $  37,201    $  52,122

   Receipt of proceeds for the salvage
     value of retired oil and gas
     equipment                              $  30,506    $      -     $  15,813

   Purchase of oil and gas properties and
     related equipment                      $      -     $   5,807    $      -

   Interest expense charged on legal
     expenses paid on behalf of the
     Registrant by the managing
     general partner                        $      -     $      -     $   9,917

 Under the limited partnership  agreement,  the managing general partner pays 1%
 of the  Registrant's  acquisition,  drilling and completion costs and 1% of its
 operating and general and administrative  expenses.  In return, it is allocated
 1% of the Registrant's revenues. Also, see Notes 7 and 11 of Notes to Financial
 Statements  included in "Item 8. Financial  Statements and Supplementary  Data"
 below,  regarding  the  Registrant's  participation  with the managing  general
 partner in oil and gas activities of the Program.













                                      14

<PAGE>



                                    PART IV


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

 (a) 1.  Financial statements

         The following are filed as part of this annual report:

               Independent Auditors' Report

               Balance sheets as of December 31, 1995 and 1995

               Statements of operations for the years ended December 31, 1995,
                1994 and 1993

               Statements of partners' capital for the years ended December 31,
                1995, 1994 and 1993

               Statements of cash flows for the years ended December 31, 1995,
                1994 and 1993

               Notes to financial statements

     2.  Financial statement schedules

         All financial  statement schedules have been omitted since the required
         information is in the financial  statements or notes thereto, or is not
         applicable nor required.

 (b) Reports on Form 8-K

     None.

 (c) Exhibits

     The  exhibits  listed on the  accompanying  index to exhibits  are filed or
     incorporated by reference as part of this annual report.








                                      15

<PAGE>



                                S I G N A T U R E S

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
 Registrant  has duly  caused  this  report to be  signed  on its  behalf by the
 undersigned, thereunto duly authorized.

                                  PARKER & PARSLEY 87-B, LTD.

 Dated: March 26, 1996            By:  Parker & Parsley Development L.P.,
                                        Managing General Partner

                                        By: Parker & Parsley Petroleum USA, Inc.
                                            ("PPUSA"), General Partner


                                        By:  /s/ Scott D. Sheffield
                                           ------------------------------
                                           Scott D. Sheffield, President

     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 date indicated.



 /s/ Scott D. Sheffield      President, Chairman of the Board,   March 26, 1996
--------------------------   Chief Executive Officer and
 Scott D. Sheffield          Director of PPUSA



 /s/ Timothy A. Leach        Executive Vice President            March 26, 1996
--------------------------   and Director of PPUSA
 Timothy A. Leach



 /s/ Steven L. Beal          Senior Vice President,              March 26, 1996
 -------------------------   Treasurer and Chief
teven L. Beal                Financial Officer of PPUSA



 /s/ Mark L. Withrow         Senior Vice President and           March 26, 1996
 -------------------------   Secretary of PPUSA
 Mark L. Withrow




                                        16

<PAGE>





                           INDEPENDENT AUDITORS' REPORT




 The Partners
 Parker & Parsley 87-B, Ltd.
   (A Texas Limited Partnership):

 We have audited the  financial  statements  of Parker & Parsley  87-B,  Ltd. as
 listed in the accompanying index under Item 14(a).  These financial  statements
 are the responsibility of the Partnership's  management.  Our responsibility is
 to express an opinion on these financial statements based on our audits.

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

 In our opinion,  the financial  statements referred to above present fairly, in
 all material respects, the financial position of Parker & Parsley 87-B, Ltd. as
 of December 31, 1995 and 1994,  and the results of its  operations and its cash
 flows for each of the years in the  three-year  period ended December 31, 1995,
 in conformity with generally accepted accounting principles.

 As  discussed in Notes 2 and 3 to the  financial  statements,  the  Partnership
 changed its method of accounting  for the  impairment of long-lived  assets and
 for long-lived  assets to be disposed of in 1995 to adopt the provisions of the
 Financial  Accounting  Standards  Board's  Statement  of  Financial  Accounting
 Standards No. 121,  "Accounting for the Impairment of Long-Lived Assets and for
 Long- Lived Assets to Be Disposed Of."



                                          KPMG Peat Marwick LLP


 Midland, Texas
 March 8, 1996




                                        17

<PAGE>



                            PARKER & PARSLEY 87-B, LTD.
                           (A Texas Limited Partnership)

                                  BALANCE SHEETS
                                    December 31


                                                       1995            1994
                                                   ------------    ------------
           ASSETS

 Current assets:
  Cash and cash equivalents, including interest
   bearing deposits of $184,717 in 1995 and
   $130,556 in 1994                                $    186,643    $    131,056
  Accounts receivable - oil and gas sales               164,219         172,678
                                                    -----------     -----------

      Total current assets                              350,862         303,734

 Oil and gas properties - at cost, based on the
  successful efforts accounting method               15,255,391      16,079,533
   Accumulated depletion                            (10,152,372)     (9,050,471)
                                                    -----------     -----------

      Net oil and gas properties                      5,103,019       7,029,062
                                                    -----------     -----------

                                                   $  5,453,881    $  7,332,796
                                                    ===========     ===========
 LIABILITIES AND PARTNERS' CAPITAL

 Current liabilities:
  Accounts payable - affiliate                     $     82,627    $    106,827

 Partners' capital:
  Limited partners (20,089 interests)                 5,317,608       7,153,753
  Managing general partner                               53,646          72,216
                                                    -----------     -----------

                                                      5,371,254       7,225,969
                                                    -----------     -----------

                                                   $  5,453,881    $  7,332,796
                                                    ===========     ===========






         The accompanying notes are an integral part of these statements.

                                        18

<PAGE>





                            PARKER & PARSLEY 87-B, LTD.
                           (A Texas Limited Partnership)

                             STATEMENTS OF OPERATIONS
                          For the years ended December 31


                                            1995          1994          1993
                                        -----------    ----------    ----------
 Revenues:
  Oil and gas sales                     $ 1,606,406    $1,628,722    $2,106,549
  Interest income                            12,391         6,966        18,143
  Salvage income from equipment
   disposals                                  5,575            -             -
  Gain (loss) on sale of assets             (16,319)       25,619            -
  Litigation settlement, net                     -             -      6,274,839
                                         ----------     ---------     ---------

     Total revenues                       1,608,053     1,661,307     8,399,531

 Costs and expenses:
  Production costs                          746,667       871,702       990,580
  General and administrative expenses        47,268        48,918        62,732
  Depletion                                 642,218       621,741     1,135,223
  Impairment of oil and gas properties    1,135,838            -             -
  Abandoned property costs                    3,780        11,254            -
  (Gain) loss on abandoned properties       112,005       (24,152)           -
  Interest expense                               -            324        15,941
                                         ----------     ---------     ---------

     Total costs and expenses             2,687,776     1,529,787     2,204,476
                                         ----------     ---------     ---------

 Net income (loss)                      $(1,079,723)   $  131,520    $6,195,055
                                         ==========     =========     =========

 Allocation of net income (loss):
  Managing general partner              $   (10,797)   $    1,315    $   61,913
                                         ==========     =========     =========

  Limited partners                      $(1,068,926)   $  130,205    $6,133,142
                                         ==========     =========     =========

 Net income (loss) per limited
  partnership interest                  $    (53.21)   $     6.48    $   305.30
                                         ==========     =========     =========


         The accompanying notes are an integral part of these statements.

                                        19

<PAGE>



                            PARKER & PARSLEY 87-B, LTD.
                           (A Texas Limited Partnership)

                          STATEMENTS OF PARTNERS' CAPITAL




                                           Managing
                                           general      Limited
                                           partner      partners       Total
                                          ---------   -----------   -----------

 Partners' capital at January 1, 1993     $  83,749   $ 8,295,534   $ 8,379,283

   Distributions                            (67,862)   (6,721,967)   (6,789,829)

   Net income                                61,913     6,133,142     6,195,055
                                           --------    ----------    ----------

 Partners' capital at December 31, 1993      77,800     7,706,709     7,784,509

   Distributions                             (6,899)     (683,161)     (690,060)

   Net income                                 1,315       130,205       131,520
                                           --------    ----------    ----------

 Partners' capital at December 31, 1994      72,216     7,153,753     7,225,969

   Distributions                             (7,773)     (767,219)     (774,992)

   Net loss                                 (10,797)   (1,068,926)   (1,079,723)
                                           --------    ----------    ----------

 Partners' capital at December 31, 1995   $  53,646   $ 5,317,608   $ 5,371,254
                                           ========    ==========    ==========










         The accompanying notes are an integral part of these statements.

                                        20

<PAGE>



                            PARKER & PARSLEY 87-B, LTD.
                           (A Texas Limited Partnership)

                             STATEMENTS OF CASH FLOWS
                          For the years ended December 31

                                            1995           1994         1993
                                         -----------    ---------   -----------
 Cash flows from operating activities:
  Net income (loss)                      $(1,079,723)   $ 131,520   $ 6,195,055
  Adjustments to reconcile net income
   (loss) to net cash provided by
   operating activities:
    Depletion                                642,218      621,741     1,135,223
    Impairment of oil and gas properties   1,135,838           -             -
    Salvage income from equipment
     disposals                                (5,575)     (24,152)           -
    (Gain) loss on sale of assets             16,319      (25,619)           -
    Loss on abandoned property               112,005           -             -
   Changes in assets and liabilities:
    (Increase) decrease in accounts
     receivable                                8,459      (17,870)       69,611
    Decrease in accounts payable             (21,782)     (37,141)     (469,751)
                                          ----------     --------    ----------
      Net cash provided by operating
       activities                            807,759      648,479     6,930,138
 Cash flows from investing activities:
  (Additions) deletions to oil and gas
   properties                                  6,629       (3,344)       (5,051)
  Proceeds from equipment salvage on
   abandoned property                         10,558       12,715            -
  Proceeds from the sale of assets                58       25,619            -
  Proceeds from salvage income on equipment
   disposals                                   5,575           -             -
                                          ----------     --------    ----------
      Net cash provided (used in)
        investing activities                  22,820       34,990        (5,051)
 Cash flows from financing activities:
  Principal payments on note payable              -       (27,937)     (103,125)
  Cash distributions to partners            (774,992)    (690,060)   (6,789,829)
                                          ----------     --------    ----------
      Net cash used in financing
       activities                           (774,992)    (717,997)   (6,892,954)
                                          ----------     --------    ----------
 Net increase (decrease) in cash and
  cash equivalents                            55,587      (34,528)       32,133
 Cash and cash equivalents at
  beginning of year                          131,056      165,584       133,451
                                          ----------     --------    ----------
 Cash and cash equivalents at
  end of year                            $   186,643    $ 131,056   $   165,584
                                          ==========     ========    ==========
         The accompanying notes are an integral part of these statements.
                                        21

<PAGE>



                            PARKER & PARSLEY 87-B, LTD.
                           (A Texas Limited Partnership)

                           NOTES TO FINANCIAL STATEMENTS
                         December 31, 1995, 1994 and 1993


 Note 1.    Organization and nature of operations

     Parker & Parsley 87-B, Ltd. (the  "Partnership")  is a limited  partnership
organized in 1987 under the laws of the State of Texas.

     The Partnership engages primarily in oil and gas development and production
 in Texas and Colorado and is not  involved in any industry  segment  other than
 oil and gas.

 Note 2.    Summary of significant accounting policies

     A summary of the significant  accounting policies  consistently  applied in
 the preparation of the accompanying financial statements follows:

     Impairment of long-lived  assets - Effective for the fourth quarter of 1995
 the  Partnership  adopted the  provisions of Statement of Financial  Accounting
 Standards No. 121 - Accounting for the Impairment of Long-Lived  Assets and for
 Long-Lived Assets to be Disposed Of ("SFAS 121"). Consequently, the Partnership
 reviews  its  long-lived  assets  to be held and  used,  including  oil and gas
 properties  accounted for under the  successful  efforts  method of accounting,
 whenever  events or  circumstances  indicate  that the carrying  value of those
 assets may not be  recoverable.  An impairment  loss is indicated if the sum of
 the expected  future cash flows is less than the carrying amount of the assets.
 In this  circumstance,  the  Partnership  recognizes an impairment loss for the
 amount by which the carrying  value of the asset  exceeds the fair value of the
 asset.

     The  Partnership  accounts for  long-lived  assets to be disposed of at the
 lower of their carrying amount or fair value less costs to sell once management
 has committed to a plan to dispose of the assets.

     Oil and gas properties - The  Partnership  utilizes the successful  efforts
 method of accounting for its oil and gas  properties and equipment.  Under this
 method,   all  costs  associated  with  productive   wells  and   nonproductive
 development  wells are capitalized  while  nonproductive  exploration costs are
 expensed.  Capitalized  costs relating to proved  properties are depleted using
 the unit-of-production  method on a property-by-property  basis based on proved
 oil  (dominant  mineral)  reserves as determined  by the  engineering  staff of
 Parker & Parsley  Petroleum USA, Inc.  ("PPUSA"),  the sole general  partner of
 Parker & Parsley Development L.P. ("PPDLP"), the Partnership's managing general
 partner,  and  reviewed by  independent  petroleum  consultants.  The  carrying
 amounts of properties sold or otherwise  disposed of and the related allowances
 for depletion are eliminated from the accounts and any gain or loss is included
 in operations.


                                        22

<PAGE>



     Prior to the adoption of SFAS 121 in the fourth quarter,  the Partnership's
 aggregate  oil and gas  properties  were  stated at cost not in excess of total
 estimated  future  net  revenues  and the  estimated  fair value of oil and gas
 assets not being depleted.

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

     Organization  costs - Organization  costs are  capitalized and amortized on
 the straight-line method over 60 months.

     Net income (loss) per limited partnership  interest - The net income (loss)
 per  limited  partnership  interest  is  calculated  by  using  the  number  of
 outstanding limited partnership interests.

     Income taxes - A Federal  income tax provision has not been included in the
 financial  statements  as the  income of the  Partnership  is  included  in the
 individual Federal income tax returns of the respective partners.

     Statements of cash flows - For purposes of reporting  cash flows,  cash and
 cash equivalents include depository accounts held by banks.

     General and administrative  expenses - General and administrative  expenses
 are allocated in part to the Partnership by the managing general partner or its
 affiliates.  Such  allocated  expenses are  determined by the managing  general
 partner  based upon its  judgement of the level of activity of the  Partnership
 relative to the managing  general  partner's  activities  and other entities it
 manages.  The method of  allocation  has varied in certain  years and may do so
 again depending on the activities of the managed entities.

     Reclassifications  - Certain  reclassifications  have been made to the 1994
 financial statements to conform to the 1995 financial statement presentation.

     Environmental - The Partnership 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 Partnership 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 recorded when
 environmental  assessment and/or remediation is probable,  and the costs can be
 reasonably estimated.




                                        23

<PAGE>



 Note 3.   Impairment of long-lived assets

    The  Partnership  adopted SFAS 121 effective for the fourth quarter of 1995.
 SFAS 121 requires that long-lived assets held and used by an entity,  including
 oil and gas  properties  accounted for under the  successful  efforts method of
 accounting,   be  reviewed  for  impairment   whenever  events  or  changes  in
 circumstances  indicate  that  the  carrying  amount  of an  asset  may  not be
 recoverable. Long-lived assets to be disposed of are to be accounted for at the
 lower of carrying  amount or fair value less cost to sell when  management  has
 committed  to a  plan  to  dispose  of the  assets.  All  companies,  including
 successful  efforts oil and gas  companies,  are required to adopt SFAS 121 for
 fiscal years beginning after December 15, 1995.

    In order to determine  whether an impairment had occurred,  the  Partnership
 estimated  the  expected  future cash flows of its oil and gas  properties  and
 compared  such  future  cash  flows to the  carrying  amount of the oil and gas
 properties to determine if the carrying amount was  recoverable.  For those oil
 and gas properties for which the carrying amount exceeded the estimated  future
 cash flows, an impairment was determined to exist;  therefore,  the Partnership
 adjusted  the  carrying  amount of those oil and gas  properties  to their fair
 value as  determined  by  discounting  their  expected  future  cash flows at a
 discount  rate  commensurate  with the risks  involved  in the  industry.  As a
 result,  the Partnership  recognized a non-cash charge of $1,135,838 related to
 its oil and gas properties during the fourth quarter of 1995.

    As  of  December  31,  1995,  management  had  not  committed  to  sell  any
 Partnership assets.

 Note 4.   Income taxes

    The  financial   statement  basis  of  the   Partnership's  net  assets  and
 liabilities was $3,105,548 greater than the tax basis at December 31, 1995.

    The following is a  reconciliation  of net income  (loss) per  statements of
 operations  with the net income per  Federal  income tax  returns for the years
 ended December 31:
                                            1995          1994         1993
                                        -----------   ----------   ----------
 Net income (loss) per statements
  of operations                         $(1,079,723)  $  131,520   $6,195,055
 Intangible development costs capital-
  ized for financial reporting purposes
  and expensed for tax reporting purposes        -            -        (1,702)
 Depletion and depreciation provisions
  for tax reporting purposes under
  purposes under amounts for financial
  reporting purposes                        361,503       31,905      503,742
 Impairment of oil and gas properties
  for financial reporting purposes        1,135,838           -            -
 Other, net                                 137,201      (37,149)      16,238
                                         ----------    ---------    ---------
        Net income per Federal
           income tax returns           $   554,819   $  126,276   $6,713,333
                                         ==========    =========    =========
                                        24

<PAGE>



 Note 5.    Oil and gas producing activities

     The following is a summary of the costs  incurred,  whether  capitalized or
 expensed, related to the Partnership's oil and gas producing activities for the
 years ended December 31:

                                       1995           1994           1993
                                    ----------     ----------     ----------

   Development costs                $   21,459     $   17,060     $    1,411
                                     =========      =========      =========


     Capitalized oil and gas properties consist of the following:

                                        1995          1994          1993
                                    ------------   -----------   -----------

   Proved properties:
     Property acquisition costs     $    660,800   $   719,019   $   723,525
     Completed wells and equipment    14,594,591    15,360,514    15,805,598
                                     -----------    ----------    ----------

                                      15,255,391    16,079,533    16,529,123
   Accumulated depletion             (10,152,372)   (9,050,471)   (8,908,278)
                                     -----------    ----------    ----------

        Net capitalized costs       $  5,103,019   $ 7,029,062   $ 7,620,845
                                     ===========    ==========    ==========

 During  1995,  the  Partnership  recognized  a  non-cash  charge of  $1,135,838
 associated with the adoption of SFAS 121. See Note 3.

 Note 6.    Note payable - bank

     The note payable to a bank was originally executed in 1988 in the principal
 amount of $562,315 and was collateralized by a portion of the Partnership's oil
 and gas properties.  The note was due on April 28, 1993 with monthly  principal
 payments of $9,375 required.  On March 23, 1993, the note was extended to April
 29, 1994, with monthly principal  payments of $9,375 to continue.  Interest was
 payable  monthly at the bank's prime rate plus 3/4 of one  percent.  All unpaid
 principal and interest was paid at maturity.  Interest paid was $324 and $6,024
 in 1994 and 1993, respectively.








                                        25

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 Note 7.    Related party transactions

     Pursuant to the limited  partnership  agreement,  the  Partnership  had the
 following  related party  transactions with the managing general partner or its
 affiliates during the years ended December 31:

                                             1995         1994          1993
                                          ---------     ---------     ---------
   Payment of lease operating and
     supervision charges in accordance
     with standard industry operating
     agreements                           $ 306,266     $ 329,525     $ 345,783

   Reimbursement of general and
     administrative expenses              $  37,973     $  37,201     $  52,122

   Receipt of proceeds for the salvage
     value of retired oil and gas
     equipment                            $  30,506     $      -      $  15,813

   Purchase of oil and gas properties
     and related equipment                $      -      $   5,807     $      -

   Interest charged on legal expenses
     paid on behalf of the Partnership
     by the managing general partner      $      -      $      -      $   9,917

     The Partnership  participates  in oil and gas activities  through an income
 tax  partnership  (the  "Program")  pursuant to the Program  agreement.  PPDLP,
 Parker & Parsley 87-B Conv., Ltd. and the Partnership (the  "Partnerships") are
 parties to the Program agreement.

     The  costs and  revenues  of the  Program  are  allocated  to PPDLP and the
Partnerships as follows:
                                               PPDLP (1)      Partnerships (2)
                                               ----------     ----------------
  Revenues:
   Proceeds from disposition of depreciable
     properties                                 9.09091%         90.90909%
   All other revenues                          24.242425%        75.757575%

  Costs and expenses:
   Lease acquisition costs, drilling and
     completion costs and all other costs       9.09091%         90.90909%
   Operating costs, direct costs and 
     general and administrative expenses       24.242425%        75.757575%

    (1) Excludes PPDLP's 1% general partner  ownership which is allocated at the
        Partnership level and 45 limited partner interests owned by PPDLP.

    (2) The allocation between the Partnership and Parker & Parsley  87-B Conv.,
        Ltd. is 80.33029% and 19.66971%, respectively.

                                        26

<PAGE>



 Note 8.    Oil and gas information (unaudited)

     The following  table  presents  information  relating to the  Partnership's
 estimated  proved oil and gas reserves at December 31, 1995,  1994 and 1993 and
 changes  in  such  quantities   during  the  years  then  ended.   All  of  the
 Partnership's  reserves are proved and located  within the United  States.  The
 Partnership's  reserves are based on an evaluation  prepared by the engineering
 staff of PPUSA and  reviewed  by an  independent  petroleum  consultant,  using
 criteria established by the Securities and Exchange  Commission.  Reserve value
 information  is  available  to limited  partners  pursuant  to the  Partnership
 agreement and, therefore, is not presented.

                                                Oil (bbls)       Gas (mcf)
                                                ----------      -----------
    Net proved reserves at January 1, 1993       1,250,505        3,872,419
    Revisions of estimates of January 1, 1993      (90,769)         (46,119)
    Production                                     (92,614)        (271,007)
                                                ----------      -----------

    Net proved reserves at December 31, 1993     1,067,122        3,555,293
    Revisions of estimates of December 31, 1993    (54,404)        (198,209)
    Production                                     (79,101)        (235,557)
                                                ----------      -----------
    Net proved reserves at December 31, 1994       933,617        3,121,527
    Revisions of estimates of December 31, 1994    (12,813)         307,310
    Production                                     (69,753)        (247,984)
                                                ----------      -----------
    Net proved reserves at December 31, 1995       851,051        3,180,853
                                                ==========      ===========

     The  estimated  present  value of future net  revenues of proved  reserves,
 calculated using December 31, 1995 prices of $19.38 per barrel of oil and $1.83
 per mcf of gas, discounted at 10% was approximately $4,952,000 and undiscounted
 was $9,439,000 at December 31, 1995.

     The Partnership  emphasizes that reserve estimates are inherently imprecise
 and,  accordingly,  the estimates are expected to change as future  information
 becomes available.

 Note 9.    Major customers

     The following table reflects the major customers of the  Partnership's  oil
 and gas sales during the years ended December 31:

                                           1995      1994      1993
                                           ----      ----      ----

         Phibro Energy, Inc.                60%       61%       64%
         Western Gas Resources, Inc.        18%        -         -
         GPM Gas Corporation                 -        21%       18%


                                        27

<PAGE>



     PPDLP  is party to a  long-term  agreement  pursuant  to  which  PPDLP  and
affiliates are to sell to Phibro Energy, Inc. ("Phibro") substantially all crude
oil  (including  condensate)  which any of such entities has the right to market
from time to time.  On  December  29,  1995,  PPDLP and  Phibro  entered  into a
Memorandum of Agreement ("Phibro MOA") that cancels the prior crude oil purchase
agreement between the parties and provides for adjusted terms effective December
1, 1995.  The price to be paid for oil  purchased  under the Phibro MOA is to be
competitive  with prices paid by other  substantial  purchasers in the same area
who are  significant  competitors  of  Phibro.  The  price  to be  paid  for oil
purchased  under the Phibro MOA also  includes a market-  related bonus that may
vary from month to month based upon spot oil prices at various  commodity  trade
points. The term of the Phibro MOA is through June 30, 1998, and it may continue
thereafter  subject to termination  rights afforded each party.  Although Phibro
was required to post a $16 million letter of credit in connection with purchases
under the prior agreement, it is anticipated that this security requirement will
be replaced by a $25  million  payment  guarantee  by Phibro's  parent  company,
Salomon Inc.  Accounts  receivable-oil  and gas sales included  $88,843 due from
Phibro at December 31, 1995.

Note 10.   Contingencies

     On May 25, 1993, a final settlement  agreement was negotiated,  drafted and
finally  executed,  ending litigation which had begun on September 5, 1989, when
the Partnership filed suit along with other parties against Dresser  Industries,
Inc.;  Titan  Services,  Inc.;  BJ-Titan  Services  Company;  BJ- Hughes Holding
Company;  Hughes Tool Company;  Baker Hughes Production  Tools,  Inc.; and Baker
Hughes  Incorporated  alleging that the defendants had  intentionally  failed to
provide the materials and services  ordered and paid for by the  Partnership and
other parties in connection with the fracturing and acidizing of 523 wells,  and
then  fraudulently  concealed the shorting practice from PPDLP. The May 25, 1993
settlement  agreement  called  for a  payment  of  $115  million  in cash by the
defendants, and Southmark, the Partnership, and the other plaintiffs indemnified
the defendants against the claims of Jack N. Price. The managing general partner
received  the  funds,  deducted  incurred  legal  expenses,   accrued  interest,
determined  the  general  partner's  portion  of the  funds and  calculated  any
inter-partnership allocations.

     On May 3, 1993, Jack N. Price,  the attorney who represented Gary G. "Zeke"
Lancaster in the Federal  Court  lawsuit,  filed suit in State Court in Beaumont
against all of the plaintiff partnerships, including the Partnership and others,
alleging his  entitlement to 12% of the  settlement  proceeds.  Price's  lawsuit
claim for  approximately  $13.8 million is  predicated  on a purported  contract
entered  into with  Southmark  Corporation  in August 1988 in which he allegedly
binds the Partnership and the other defendants,  as well as Southmark.  Although
PPDLP believes the lawsuit is without merit and intends to vigorously defend it,
PPDLP is holding in reserve  approximately  12.5% of the total  settlement  (the
"Reserve") pending final resolution of the litigation by the court.

     On September 20, 1995, the Beaumont trial judge entered a summary  judgment
against Southmark for the $13,790,000  contingent fee sought by Price,  together
with prejudgment  interest,  and also awarded Price an additional  $5,498,525 in

                                        28

<PAGE>



attorneys'  fees. On January 22, 1996, the trial judge entered an  interlocutory
summary judgment  against Dresser  Industries and Baker Hughes for an amount yet
to be determined.  Pursuant to their  indemnity  obligations,  the  Partnership,
Southmark,  PPDLP and other original  plaintiffs will  vigorously  pursue appeal
when the final judgment is entered.  Southmark is vigorously pursuing its appeal
of the  judgment,  and has  posted a  supersedeas  bond  using  the  Reserve  as
collateral.  Trial against the Partnership is currently  scheduled for April 29,
1996.

     Legal expenses were incurred during 1989,  1990, 1991, 1992 and 1993 by the
Partnership  and other joint property  owners for  participating  in the lawsuit
pursuant  to the  joint  operating  agreement.  Litigation  settlement  proceeds
received by the Partnership,  less legal expenses incurred in 1993, are recorded
as litigation  settlement,  net in the accompanying  statement of operations for
the year ended December 31, 1993.

     A distribution  of  $91,000,000  was made to the working  interest  owners,
including the Partnership, on July 30, 1993. The limited partners received their
distribution  of $5,741,966,  or $285.83 per limited  partnership  interest,  in
September 1993. The allocation of the lawsuit settlement amount was based on the
original  verdict  entered on October 26, 1990.  The  allocation  to the working
interest owners in each well (including the Partnership) was based on a ratio of
the relative  amount of damages due to  overcharges  for services and  materials
("Materials") and damages for loss of past and future production ("Production"),
each as determined in that initial judgment. Within the Partnership, damages for
Materials  were allocated  between the partners based on their original  sharing
percentages for costs of acquiring and/or drilling of wells. Similarly,  damages
related to Production were allocated to the partners in the Partnership based on
their respective share of revenues from the subject wells (see Note 7).

     As a condition  of the  purchase by Parker & Parsley  Petroleum  Company of
Parker & Parsley  Development  Company ("PPDC"),  which was merged into PPDLP on
January  1,  1995  (see Note 11),  from its  former  parent in May 1989,  PPDC's
interest in the lawsuit and  subsequent  settlement  was  retained by the former
parent.  Consequently,  all of PPDC's  share of the  settlement  related  to its
separately  held  interests  in the wells and its  partnership  interests in the
sponsored  partnerships  (except that portion allocable to interests acquired by
PPDC after May 1989) was paid to the former parent.

Note 11.   Organization and operations

     The  Partnership was organized  November 25, 1987 as a limited  partnership
under the Texas Uniform Limited Partnership Act for the purpose of acquiring and
developing oil and gas properties.  The following is a brief summary of the more
significant provisions of the limited partnership agreement:

     Managing  general  partner - On  January 1, 1995,  PPDLP,  a Texas  limited
     partnership, became the sole managing general partner of the Partnership as
     a result of the  merger  into it of PPDC,  a Delaware  corporation,  and an
     affiliate  of PPDLP and the  Company,  and which  previously  served as the
     managing  general  partner  of  the  Partnership.   PPDLP  has,  therefore,
     succeeded to all of the rights and  obligations of PPDC and will manage and

                                        29

<PAGE>




     conduct the property,  business and affairs of the  Partnership,  including
     the development  drilling  program in which the  Partnership  participates.
     PPDLP has the power and  authority to manage,  control and  administer  all
     Program and Partnership affairs.  Under the limited partnership  agreement,
     the  managing  general  partner pays 1% of the  Partnership's  acquisition,
     drilling  and  completion  costs and 1% of its  operating  and  general and
     administrative expenses. In return, it is allocated 1% of the Partnership's
     revenues.

     Limited partner  liability - The maximum amount of liability of any limited
     partner is the total  contributions  of such  partner plus his share of any
     undistributed profits.

     Initial  capital   contributions  -  The  limited   partners  entered  into
     subscription agreements for aggregate capital contributions of $20,089,000.
     PPDLP is required to contribute amounts equal to 1% of initial  Partnership
     capital  less  commission  and offering  expenses  allocated to the limited
     partners  and to  contribute  amounts  necessary  to pay costs and expenses
     allocated to it under the Partnership  agreement to the extent its share of
     revenues does not cover such costs.



















                                        30

<PAGE>


                            PARKER & PARSLEY 87-B, LTD.

                                 INDEX TO EXHIBITS




     The following  documents are  incorporated by reference in response to Item
14(c):

 Exhibit No.                     Description                        Page

     4(a)               Certificate and Agreement of Limited          -
                        Partnership of Parker & Parsley 87-B, Ltd.

     4(b)               Form of Subscription Agreement and            -
                        Power of Attorney

     4(c)               Specimen Certificate of Limited               -
                        Partnership Interest

     10(a)              Operating Agreement                           -

     10(b)              Exploration and Development Program           -
                        Agreement

     99.1               Mutual Release and Indemnity Agreement
                        dated May 25, 1993                            -









                                        31

<PAGE>