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SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

TEXLAND DRILLING PROGRAM-1981

(Name of Registrant)

Registrant’s Telephone Number     (817) 336-2751

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 of 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

This report contains a total 1 of 20 pages.

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PART I

Item 1. Business

Texland Drilling Program-1981 (a Limited Partnership) was formed on July 20, 1981 with $12,125,000 in aggregate Limited Partnership subscriptions for the purpose of engaging in the exploration for oil and gas. Such exploration has taken place principally in the geological area known as the Texas Permian Basin. The Partnership’s drilling and exploration phase is complete. Development of the Partnership’s properties is also complete; except for possible occasional developmental drilling which may be undertaken to the extent necessary to insure the maximum commercial recovery of reserves. In 2002, the Partnership drilled 6 such developmental wells.

The Partnership has no plans to borrow funds or reinvest significant amounts of oil and gas revenues. To the extent that in-fill development is deemed advisable, however; such operations will be funded from available cash flow.

See Note 6 of Notes to the Financial Statements on page 17 for information about major purchasers. Sales to such purchasers are on a competitive basis on short-term contracts customarily used in the industry. Should sales to these purchasers become interrupted, management believes alternative purchasers would be immediately available on similar terms.

The price of oil and gas is affected by world wide supply and demand beyond the Partnership’s control. The average posted price during the past five years for West Texas Sour (at an assumed gravity of 40 degrees), the primary type of Partnership oil, is as follows:

From January 1, 2003 to March 21, 2003, oil prices of such oil ranged from a low of $19.00 to a high of $29.75.

Item 2—Properties

The Partnership currently has an interest in 259 active gross oil and gas wells, representing 17.74 net wells. Two of the gross wells and 0.64 of the net wells are gas wells and the remainder are oil wells.

The Partnership currently has 251 oil wells included in 8 different enhanced recovery projects operated by Texland Petroleum, L. P. Such enhanced recovery projects are designed to pressurize the oil bearing reservoirs and increase the producing rates, property life and overall ultimate recovery of oil.

Item 3—Legal Proceedings

None

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

None

PART II

Item 5—Market for Registrant’s Common Equity and Related Stockholder Matters

Omitted. Not applicable.

Item 6—Selected Financial Data

The following table presents selected financial data for each of the past five years ended December 31, 2002. The data has been derived from the audited financial statements:

TEXLAND DRILLING PROGRAM—1981

SELECTED FINANCIAL INFORMATION

FOR THE YEAR ENDED DECEMBER 31,

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

Financial Results

Oil and gas sales decreased by 5% in 2002 as compared to 2001. The average price of Partnership oil decreased by approximately 1% in 2002. The price of gas sold by the Partnership, which represents approximately 16% of total sales, decreased by approximately 30% in 2002. In addition, normal and expected declines were experienced in the production of existing oil and gas wells in 2002 and 2001. These declines were somewhat offset by increased production from oil wells drilled during 2002 and 2001.

Oil and gas sales decreased by approximately 11% in 2001 as compared to 2000. The average price of Partnership oil decreased by approximately 24% in 2001.

Fees to the managing general partner increased 6% due to increased administrative costs for 2002. Fees to the managing general partner remained constant over the period 2000 through 2001.

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 will remain economically viable.

Depreciation and depletion for 2002 is $144,513 as compared to $204,153 for 2001. Changes in depreciation and depletion for the period 2000 through 2002, 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.

Production expenses increased by 8% in 2002 as compared to 2001 due to an increase in workovers. Production expenses increased by 15% in 2001 as compared to 2000 due to an increase in workovers.

Changes in oil prices substantially impact the net income and cash flow of the Partnership. All oil produced by the Partnership is sold under short term contracts that are immediately affected by changes in oil prices. Since 1981, world oil supply and demand conditions have caused prices to rise and decline in an essentially unpredictable manner. No changes in these circumstances are foreseen in the immediate future.

Texland Drilling Program-1981 has substantially completed all the exploration and development on the oil and gas properties in which it has an interest. No long-term debt will be incurred and no new properties will be acquired. Therefore, no future liquidity problems are anticipated by the Partnership.

Item 8—Financial Statements and Supplementary Data:

See Index to Financial Statements on Page 9 of this report.

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Item 9—Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.

None.

PART III

Item 10. Directors and Executive Officers of the Registrant

The Partnership has no officers, employees or directors. The background of the General Partners is as follows:

R. J. Schumacher—Age 74, Vice President and Co-Owner of Texland Petroleum, Inc. since May, 1967, has been an independent oil operator involved in drilling and producing operations and the financing of oil and gas prospects, principally in West Texas, Oklahoma and Arkansas. He has served as an executive officer with Texland since its incorporation. For more than ten years prior to becoming an independent oil operator, Mr. Schumacher was the chief financial officer, contract drilling manager and land supervisor for an independent oil and gas drilling contractor and operator. Mr. Schumacher is a Certified Public Accountant. He received a Bachelor of Science in Commerce degree from Texas Christian University in 1950 and a Master in Professional Accounting degree from the University of Texas in 1951.

J. N. Namy—Age 64, President and Chief Executive Officer of Texland Petroleum, Inc., was employed by Texland as a geologist in June 1978. From 1967 to 1970 he was employed by Pan American Petroleum Corp. in the Fort Worth Division. From 1970 to 1978 he taught at Baylor University achieving the rank of Associate Professor. During this time, he served as a consultant for several independent petroleum companies working on exploration and development projects in the Eastern Shelf and the Permian Basin of West Texas and New Mexico, as well as the southern Rockies of New Mexico and Colorado. He received his Bachelor and Master degrees from Western Reserve University in Cleveland, Ohio and his Ph. D. degree from the University of Texas at Austin in 1969. Mr. Namy is a member of the American Association of Petroleum Geologists, Geological Society of America and the Society of Economic Paleontologists and Mineralogists.

J. H. Wilkes—Age 47, President and Chief Operating Officer of Texland Petroleum, Inc, was employed by Texland as a reservoir engineer in August 1984. From 1978 to 1984, he was employed by Sun Exploration and Production Company in Midland and Abilene, Texas. The first three years he served as a production engineer and for the remaining three years he served as a reservoir engineer. He received a Bachelor of Science degree in Petroleum Engineering from Texas A&M University in 1978. He is a member of the Society of Petroleum Engineers, A.I.M.E. and is a registered professional engineer in Texas.

Item 11. Executive Compensation

See Note 5 of Notes to Financial Statements on page 17 of this report for information with respect to payments to the Managing General Partner.

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Item 12. Security Ownership of Certain Beneficial Owners and Management

Omitted. Not applicable to Registrant.

Due to the death of W. E. Rector, the W. E. Rector interest was transferred to Rector Family interests during 2000. Pending final organization of the Rector Estate, the interest was held by the Rector Living Trust. In 2002, this interest was transferred to Rector Oil Ltd.

Effective January 1, 2003, Texland Petroleum, Inc., the managing General Partner of Texland Properties-1981, was converted into a Texas Limited Partnership, named Texland Petroleum, L.P. The interests and obligations of Texland Petroleum, Inc. as Managing General Partner, were assumed in their entirety by Texland Petroleum, L.P.

As of December 31, 2002, the ownership of the outstanding closely held common shares of Texland Petroleum, Inc. were R. J. Schumacher (66 2/3%), J. N. Namy (16 2/3%), and J. H. Wilkes (16 2/3%). On January 1, 2003, all the shareholders exchanged their outstanding common shares of Texland Petroleum, Inc. for an effective equivalent percentage ownership of Texland Petroleum, L.P. There was, therefore, effectively no change in management or ownership.

Item 13. Certain Relationships and Related Transactions

See Notes 4 and 5 of Notes to Financial Statement on page 16 and 17 of this report for information with respect to certain relationships and related transactions.

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

(a)1 and (a)2 Financial Statement and Financial Statement Schedules

See Index to Financial Statements on page 9 of this report.

(a)3 Item 601 (Reg. S-K) Exhibits:

None

(a) Exhibits:

(b) Reports on Form 8-K:

None

(c) Item 601 (Reg. S-K) Exhibits:

None

(d) Other Financial Statements and Financial Statement Schedules:

Not applicable.

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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

Registrant

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.

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Texland Drilling Program-1981, Ltd.

Financial Statements

December 31, 2002 and 2001

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Texland Drilling Program-1981, Ltd.

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All financial statement schedules have been omitted since the required information is included in the financial statements or the notes thereto or is not applicable or not required.

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REPORT OF INDEPENDENT AUDITORS

The Partners

Texland Drilling Program-1981, Ltd.

We have audited the statements of financial position of Texland Drilling Program-1981, Ltd. as of December 31, 2002 and 2001, and the related statements of operations, partners’ capital and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements listed in the accompanying index to the financial statements present fairly, in all material respects, the financial position of Texland Drilling Program-1981, Ltd. at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

/s/ Sproles Woodard L.L.P.

Fort Worth, Texas

March 17, 2003

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Texland Drilling Program-1981, Ltd. (A Limited Partnership)

Statements of Financial Position

December 31, 2002 and 2001

See accompanying notes to financial statements.

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Texland Drilling Program-1981, Ltd. (A Limited Partnership)

Statements of Operations

For the Years Ended December 31, 2002, 2001 and 2000