SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter ended September 30, 2007

Commission File Number 2-71865

TEXLAND DRILLING PROGRAM-1981, LTD.

(Name of Registrant)

TEXAS	75-1791491
(State of Organization)	(I.R.S. Employer Identification No.)
777 Main Street, Suite 3200
Fort Worth, Texas	76102
(Address of Executive Offices)	Zip Code

Registrant’s Telephone Number (817) 336-2751

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

2425 Units of Limited Partnership Interest	None
(Title of Class)	(Voting Units)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. (See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Act).

Large Accelerated filer  ¨     Accelerated filer  ¨    Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES  ¨    NO  x

Texland Drilling Program-1981, Ltd.

Index To Financial Statements

Reference Page

Balance Sheets at September 30, 2007 and December 31, 2006	3
Statements of Operations for the Three and Nine Months Ended September 30, 2007 and 2006	4
Statement of Partners’ Capital for the Nine Months Ended September 30, 2007	5
Statements of Cash Flows for Nine Months Ended September 30, 2007 and 2006	6
Notes to Financial Statements	7-9

2

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Balance Sheets

September 30, 2007 and December 31, 2006

	09/30/07			12/31/06
	(Unaudited)			(Audited)
ASSETS
Current Assets
Cash	$	121,028		$	50,742
Accounts receivable—trade		268,089			187,144
Accounts receivable—managing general partner		—			5,970
Total Current Assets		389,117			243,856
Property and Equipment, at Cost (Successful Efforts Method)
Intangible development costs		7,721,132			7,642,391
Lease and well equipment		4,720,678			4,701,512
Producing leaseholds		161,495			161,495
		12,603,305			12,505,398
Accumulated depreciation, depletion and amortization		(10,651,429	)		(10,538,014	)
		1,951,876			1,967,384
Total Assets	$	2,340,993		$	2,211,240
LIABILITIES
Current Liabilities
Accounts payable—managing general partner	$	137,187		$	51,089
Total Current Liabilities		137,187			51,089
Asset retirement liability		372,198			365,570
Total Liabilities		509,385			416,659
PARTNERS’ CAPITAL
Limited partners—2,425 units outstanding		1,277,564			1,236,559
General partners		554,044			558,022
		1,831,608			1,794,581
Total Liabilities and Partners’ Capital	$	2,340,993		$	2,211,240

See accompanying notes to financial statements.

3

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Statements of Operations

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Revenue
Oil and gas sales	$	739,228	$	614,715	$	1,803,093	$	1,808,044
Interest income		308		498		1,039		1,561
Gain on sale		—		—		6,346		—
		739,536		615,213		1,810,478		1,809,605
Operating Expenses
Fees to managing general partner		26,175		25,050		78,525		79,650
Production expense		233,984		178,123		585,307		446,226
Severance tax		34,412		27,139		84,720		87,046
Depreciation, depletion and amortization		53,918		49,056		119,384		103,517
Other		3,542		14,675		41,472		38,912
Accretion expense		7,130		7,026		21,390		21,077
		359,161		301,069		930,798		776,428
Net Income	$	380,375	$	314,144	$	879,680	$	1,033,177
Allocation of Net Income
Limited partners	$	187,274	$	147,692	$	419,305	$	497,883
General partners		193,101		166,452		460,375		535,294
	$	380,375	$	314,144	$	879,680	$	1,033,177
Net Income per $5,000 Limited Partner Unit (2,425 Units Outstanding)
Net income per limited partner unit	$	77.23	$	60.90	$	172.91	$	205.31

See accompanying notes to financial statements.

4

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Statement of Partners’ Capital

Nine Months Ended September 30, 2007

(Unaudited)

	Limited Partners			General Partners			Total
Balance at December 31, 2006	$	1,236,559		$	558,022		$	1,794,581
Partners’ distributions		(378,300	)		(496,900	)		(875,200	)
Partners’ contributions					32,547			32,547
Net income		419,305			460,375			879,680
Balance at September 30, 2007	$	1,277,564		$	554,044		$	1,831,608

See accompanying notes to financial statements.

5

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Statements of Cash Flows

Nine Months Ended September 30, 2007 and 2006

(Unaudited)

	2007			2006
Operating Activities
Net income	$	879,680		$	1,033,177
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion expense		21,390			21,077
Depreciation, depletion and amortization		119,384			103,517
Gain on sale of equipment		(6,346	)		—
(Increase) decrease in accounts receivable		(74,975	)		46,524
(Decrease) increase in accounts payable		86,098			81,779
Other		375			375
		145,926			253,272
Net cash provided by operating activities		1,025,606			1,286,449
Investing Activities
Acquisition of property and equipment		(112,667	)		(403,726	)
Net cash used in investing activities		(112,667	)		(403,726	)
Financing Activities
Partners’ contributions		32,547			181,386
Partners’ distributions		(875,200	)		(1,208,075	)
Net cash used in financing activities		(842,654	)		(1,026,689	)
Net Change in Cash		70,286			(143,966	)
Cash—beginning of year		50,742			146,656
Cash—End of Quarter	$	121,028		$	2,690

See accompanying notes to financial statements.

6

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Notes To Financial Statements

(Unaudited)

Note 1—Organization and Summary of Significant Accounting Policies

Texland Drilling Program—1981, Ltd. (the “Partnership”) was organized as a limited partnership on July 20, 1981, for the purpose of engaging in oil and gas exploration and production. Texland Properties—1981, a general partnership, and Texland Petroleum, L.P. are the general partners. The managing general partner is Texland Petroleum, L.P. Partnership operations are conducted predominately in West Texas.

The Partnership shall continue in existence, unless terminated sooner through the occurrence of a final terminating event as defined by the Partnership agreement, until December 31, 2009, as extended through approval by the limited partners owning a majority of aggregate Partnership subscriptions.

In the opinion of management, all adjustments (consisting of normal occurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the entire year.

The Partnership’s accounting policies are summarized below:

Basis of Accounting

The financial statements are presented in accordance with accounting principles generally accepted in the United States of America.

Revenue Recognition

Revenues associated with the production of oil and gas properties in which we have an interest are based on volumes produced during the period.

Property and Equipment

The Partnership uses the successful efforts method of accounting for oil and gas producing activities. Costs incurred for the acquisition of producing and non-producing leaseholds are capitalized. Costs of intangible development and lease and well equipment incurred to drill and equip successful exploratory and development wells are capitalized. Costs to drill and equip unsuccessful exploratory wells are charged to operations while costs of unsuccessful development wells remain capitalized. Costs to carry unproved properties and geophysical costs are expensed. Costs associated with uncompleted wells are capitalized as wells-in-progress.

On the sale or retirement of a complete unit of a proved property, the cost and the related accumulated depreciation, depletion, and amortization are eliminated from the property accounts, and the resultant gain or loss is recognized. On the retirement or sale of a partial unit of proved property, the cost is charged to accumulated depreciation, depletion, and amortization with a resulting gain or loss recognized in income.

7

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Notes To Financial Statements (Continued)

(Unaudited)

Non-producing Leaseholds

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

Amortization and Depletion

Leasehold costs of producing properties are amortized on the units-of-production method based on proved oil and gas reserves as estimated by the Partnership. Intangible development costs of producing properties are amortized on the units-of-production method based on estimated proved developed oil and gas reserves.

Depreciation

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

Income Taxes

Income taxes have not been provided for by the Partnership, because the partners are liable for taxes on their respective share of the Partnership’s taxable income.

Statement of Cash Flows

For purposes of these statements, the Partnership considers cash on deposits and highly liquid money market funds as cash and cash equivalents.

Allocation of Net Income

Revenues and costs of the Partnership are allocated between the general and limited partners in accordance with the Partnership agreement.

Fair Values of Financial Instruments

The Partnership’s financial instruments consist of cash, accounts receivable and accounts payable. The carrying amount of each of these financial instruments reported in the accompanying statements of financial position approximates the instruments fair value.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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 reported revenues and expenses during the reporting period. Actual results could differ from those estimates. The estimation of oil and gas reserves and the asset retirement obligation is inherently imprecise and may change materially in the near term.

8

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Notes To Financial Statements (Continued)

(Unaudited)

2. Contributions By General Partner

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

3. Payments To Managing General Partner

In consideration of its management services rendered, the Managing General Partner is entitled to charge management fees to the Partnership. In addition, for the three and nine months ended September 30, 2007 and September 30, 2006, the Partnership was charged $48,719 and $146,157 and $44,818 and $143,454 respectively for technical services, accounting services, and supervisory services performed by the employees of the Managing General Partner and such charges are included in intangible development costs, production expenses and fees to Managing General Partner. These charges are allocated between the General and Limited Partners based upon applicable revenue and expense sharing rates.

9

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Item 2. Management’s Discussion And Analysis of Financial Condition and Results of Operations

Risk Factors and Cautionary Statement for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995

Certain information included in this report contain certain statements that may constitute forward-looking statements within the meaning of Securities and Exchange regulations. Such forward-looking statements are based upon the current expectations of Texland Drilling Program-1981, Ltd. and speak only as of the date made.

Where any forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, we caution that while we believe these assumptions or bases to be reasonable and to be made in good faith, assumed facts or bases almost always vary from actual results and the difference between assumed facts or bases and the actual results could be material, depending on the circumstances.

Factors that could cause our results to differ materially from the results discussed in such forward-looking statements include, but are not limited to, the following: production variance from expectations, volatility of oil and gas prices, the need to further develop reserves, the substantial capital expenditures required to fund operations, development risks, environmental risks, uncertainties about estimates of reserves, litigation, government regulation, political risks, costs and results of developmental drilling, and mechanical and other inherent risks associated with oil and gas production. All such forward-looking statements in this document are expressly qualified in their entirety by the cautionary statements in this paragraph, and the Partnership undertakes no obligation to publicly update or revise any forward-looking statements.

Critical Accounting Policies and Estimates

The Partnership’s discussion and analysis of its financial condition and results of operations are based upon financial statements which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires the Partnership to make estimates and judgments that affect the amounts reported in the financial statements and related footnote disclosures. Application of certain of the Partnership’s accounting policies, including those related to oil and gas revenues, oil and gas properties, asset retirement obligations, and litigation require significant estimates. The Partnership bases its estimates on historical experience and various assumptions that are believed reasonable under the circumstances. Actual results may differ from these estimates. The Partnership believes the following critical accounting policies reflect its more significant judgments and estimates used in the preparation of its financial statements.

Property, Plant and Equipment

Proved reserves are defined by the U.S. Securities and Exchange Commission (“SEC”) as those volumes of crude oil, condensate, natural gas liquids and natural gas that geological and engineering data demonstrate with reasonable certainty are recoverable from known reservoirs under existing economic and operating conditions. Proved developed reserves are volumes expected to be recovered through existing wells with existing equipment and operating methods. Although the Managing General Partner’s engineers are knowledgeable of and follow the guidelines for reserves established by the SEC, the estimation of reserves requires a significant number of assumptions based on professional judgment. Reserve estimates are updated at least annually and consider recent production levels and other technical information. Estimated reserves are often subject to future revision, which could be substantial, based on the availability of additional information. Changes in oil and gas prices can lead to substantial revisions to reserve quantities.

10

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

Reserve revisions in turn may cause adjustments in the units-of-production depreciation and depletion rates, the estimates of potential impairment of carrying value, and the supplemental disclosure of standardized measure of discounted future net cash flows relating to oil and gas producing activities. The Partnership cannot predict what reserve revisions may be required in future periods.

Asset Retirement Obligations

The Partnership has material obligations to remove tangible equipment and restore land at the end of oil and gas production operations. The Partnership’s removal and restoration obligations are primarily associated with plugging and abandoning onshore wells. Estimating the future asset removal costs is difficult and requires management to make estimates and judgments because most of the removal obligations are many years in the future and contracts and regulations often have vague descriptions of what constitutes removal. Asset removal costs are constantly changing, as well as related regulatory, political, environmental, and safety considerations.

Asset retirement obligations are not unique to the Partnership or to the oil and gas industry; accordingly, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations,” (“SFAS 143”). The Partnership adopted this statement effective January 1, 2003. SFAS 143 significantly changed the method of accruing for costs an entity is legally obligated to incur related to the retirement of fixed assets (“asset retirement obligations” or “ARO”). Primarily, the new statement requires the Partnership to record a separate liability for the discounted present value of the Partnership’s asset retirement obligations, with an offsetting increase to the related oil and gas properties on the Partnership’s Balance Sheet.

Inherent in the present value calculation are numerous assumptions and judgments including the ultimate retirement costs, inflation factors, credit adjusted discount rates, timing of retirement, and changes in the legal and regulatory, environments. To the extent future revisions to these assumptions impact the present value of the existing ARO liability, a corresponding adjustment is made to the oil and gas property balance. In addition, increases in the discounted ARO liability resulting from the passage of time will be reflected as accretion expense in the Statement of Income.

SFAS 143 required a cumulative adjustment to reflect the impact of implementing the statement had the rule been in effect since inception. The Partnership, therefore, calculated the cumulative accretion expense on the ARO liability and the cumulative depletion expense on the corresponding property balance. The sum of this cumulative expense was compared to the depletion expense originally recorded.

Financial Results

The Partnership’s average price received per barrel of oil for the third quarter of 2007 was $72.10 as compared to $66.91 for the third quarter of 2006. The average price for the nine months ended September 30, 2007 and 2006 was $62.41 and $63.84 respectively. The decrease in the price of oil was offset by a slight increase in production volumes due to new wells drilled in late 2006 coming on production for the nine months of 2007 as compared to 2006. Gas sales which represent approximately 8% of total oil and gas sales, decreased by approximately 31% due primarily to a contractual reduction in the Partnership interest in its two primary gas wells over the same period. The terms under which the Partnership acquired the interest in the gas wells called for a reduction in the interest after the Partnership had recouped its investment. This occurred in late 2006.

11

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

The price of oil and gas is affected by world wide supply and demand and is beyond the Partnership’s control. The monthly average price during the past four years for West Texas Sour (adjusted for gravity and marketing costs), the primary type of Partnership oil, and for the widely available NYMEX benchmark West Texas Intermediate are as follows:

Year	WTS		NYMEX
2003	$	28.33	$	31.08
2004	$	37.23	$	41.38
2005	$	50.33	$	56.56
2006	$	58.68	$	66.22

From January 1, 2007 to September 30, 2007, monthly average oil prices of WTS oil ranged from $46.39 to $77.04 and NYMEX ranged from $54.70 to $79.11.

Fees to the managing general partner decreased by approximately 1% in 2007, and decreased by 15% in 2006 due to discretionary changes in fees charged by the General Partner. Such changes are within the allowable fees specified by the provisions of the Partnership Agreement.

Production expense increased primarily due to a substantial increase of workover costs, an addition of three new wells and an overall increase in normal recurring production costs for the period.

Depreciation, depletion and amortization are calculated on the units-of-production method. Therefore, changes in these amounts are affected by upward or downward revisions in future oil and gas reserve estimates. In addition, such revisions are also caused by changes in current prices of oil and gas, which correspondingly affect the number of future years that oil and gas properties remain economically viable.

Depreciation, depletion and amortization for the three and nine months ended September 30, 2007 and 2006 were $53,918 and $49,056 and $119,384 and $103,517 respectively. Changes in depreciation and depletion for 2007 are due primarily to the effect that changes in oil and gas prices have on the calculation of estimated future economically recoverable oil and gas reserves; and due to normal expected declines in the recoverable reserves due to production.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Partnership’s major market risk exposure is in the pricing applicable to our oil and natural gas production. Market risk refers to the risk of loss from adverse changes in oil and natural gas prices. Realized pricing is primarily driven by the prevailing domestic price for crude oil and spot prices applicable to the region in which we produce natural gas. Historically, prices received for oil and natural gas production have been volatile and unpredictable. We expect pricing volatility to continue. Oil prices ranged from a low of

12

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

$49.05 per barrel to a high of $72.87 during 2006. Natural gas prices we received during 2006 ranged from a low of $1.80 per Mcf to a high of $8.36 per Mcf. During 2007 oil prices ranged from a low of $44.22 to a high of $78.83. Natural gas prices we received during 2007 ranged from a low of $1.60 per Mcf to a high of $8.93 per Mcf. A significant decline in the prices of oil or natural gas could have a material effect on our financial condition and results of operations.

The Partnership employs no derivative instruments in order to minimize our exposure to the aforementioned commodity price volatility. The Partnership has no bank debt and has no plans to incur such indebtedness.

Item 4. Controls and Procedures

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

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

Part II. Other Information

Items 1,2,3,4 and 5 are not applicable and have been omitted.

Item 6

(a) Exhibits:

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

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

13

Texland Drilling Program-1981, Ltd.

(A Limited Partnership)

SIGNATURE

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

TEXLAND DRILLING PROGRAM-1981, LTD.
	Registrant
By	/s/ M. E. Chapman
	M. E. Chapman, Vice President - Finance
	Texland Petroleum, L.P.	Date November 14, 2007

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

By	/s/ R. J. Schumacher
	R. J. Schumacher, Chairman of the Board
	Texland Petroleum, L.P.	Date November 14, 2007
By	/s/ J. N. Namy
	J. N. Namy, President & C.E.O.
	Texland Petroleum, L.P.	Date November 14, 2007
By	/s/ J. H. Wilkes
	J. H. Wilkes, President & C.O.O.
	Texland Petroleum, L.P.	Date November 14, 2007

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